S. HRG. 108–629 

Senate Hearings 

Before the Committee on Appropriations 

Agriculture, Rural 

Development, and Related 

Agencies Appropriations 

Fiscal Year 2005 

108th CONGRESS, SECOND SESSION 

H.R. 4766/S. 2803 

DEPARTMENT OF AGRICULTURE 

DEPARTMENT OF HEALTH AND HUMAN SERVICES: 

Food and Drug Administration 

NONDEPARTMENTAL WITNESSES 
Agriculture, Rural Development, and Related Agencies Appropriations, 2005 

(H.R. 4766/S. 2803) 
U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

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92–131 PDF 2004

S. HRG. 108–629 

AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005 

HEARINGS 

BEFORE A

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

ON

H.R. 4766/S. 2803 

AN ACT MAKING APPROPRIATIONS FOR AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND RELATED AGENCIES PROGRAMS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2005, 

AND FOR OTHER PURPOSES 

Department of Agriculture 

Department of Health and Human Services: Food and Drug 

Administration 

Nondepartmental witnesses 

Printed for the use of the Committee on Appropriations 

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate 
(II) 

COMMITTEE ON APPROPRIATIONS 

TED STEVENS, Alaska, Chairman 

THAD COCHRAN, Mississippi 

ARLEN SPECTER, Pennsylvania 

PETE V. DOMENICI, New Mexico 

CHRISTOPHER S. BOND, Missouri 

MITCH MCCONNELL, Kentucky 

CONRAD BURNS, Montana 

RICHARD C. SHELBY, Alabama 

JUDD GREGG, New Hampshire 

ROBERT F. BENNETT, Utah 

BEN NIGHTHORSE CAMPBELL, Colorado 

LARRY CRAIG, Idaho 

KAY BAILEY HUTCHISON, Texas 

MIKE DEWINE, Ohio 

SAM BROWNBACK, Kansas 

ROBERT C. BYRD, West Virginia 

DANIEL K. INOUYE, Hawaii 

ERNEST F. HOLLINGS, South Carolina 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

BARBARA A. MIKULSKI, Maryland 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

PATTY MURRAY, Washington 

BYRON L. DORGAN, North Dakota 

DIANNE FEINSTEIN, California 

RICHARD J. DURBIN, Illinois 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

JAMES W. MORHARD, Staff Director 

LISA SUTHERLAND, Deputy Staff Director 

TERRENCE E. SAUVAIN, Minority Staff Director 

SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES

ROBERT F. BENNETT, Utah, Chairman 

THAD COCHRAN, Mississippi 

ARLEN SPECTER, Pennsylvania 

CHRISTOPHER S. BOND, Missouri 

MITCH MCCONNELL, Kentucky 

CONRAD BURNS, Montana 

LARRY CRAIG, Idaho 

SAM BROWNBACK, Kansas 

TED STEVENS, Alaska 

(ex officio) 

HERB KOHL, Wisconsin 

TOM HARKIN, Iowa 

BYRON L. DORGAN, North Dakota 

DIANNE FEINSTEIN, California 

RICHARD J. DURBIN, Illinois 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

ROBERT C. BYRD, West Virginia 

(ex officio) 

Professional Staff 

PAT RAYMOND

FITZ ELDER

HUNTER MOORHEAD

GALEN FOUNTAIN (Minority) 

JESSICA ARDEN (Minority) 

WILLIAM SIMPSON (Minority) 

Administrative Support 

DIANNE PREECE

MEAGHAN L. MCCARTHY (Minority) 
(III) 

C O N T E N T S 

THURSDAY, MARCH 25, 2004 

Page 

Department of Agriculture: Office of the Secretary .............................................. 1 

THURSDAY, APRIL 1, 2004 

Department of Agriculture ...................................................................................... 107 

Department of Health and Human Services: Food and Drug Administration ... 184 

WEDNESDAY, APRIL 7, 2004 

Department of Agriculture ...................................................................................... 273 

Nondepartmental witnesses .................................................................................... 409 

(1) 

AGRICULTURE, RURAL DEVELOPMENT, AND 

RELATED AGENCIES APPROPRIATIONS FOR 

FISCAL YEAR 2005 

THURSDAY, MARCH 25, 2004 

U.S. SENATE, 

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, 

Washington, DC. 

The subcommittee met at 1:36 p.m., in room SD–192, Dirksen 

Senate Office Building, Hon. Robert F. Bennett (chairman) presiding. 

Present: Senators Bennett, Bond, Craig, Kohl, Harkin, Dorgan, 

and Durbin. 

DEPARTMENT OF AGRICULTURE 

OFFICE OF THE SECRETARY

STATEMENT OF ANN M. VENEMAN, SECRETARY 

ACCOMPANIED BY: 

KEITH COLLINS, CHIEF ECONOMIST 

STEPHEN DEWHURST, BUDGET OFFICER 

Senator BENNETT. The Subcommittee will come to order, and we 

welcome you all here to the first hearing of the Agriculture Subcommittee of the Senate Appropriations Committee. 

Last year was a very challenging year, because our allocation was almost $1 billion less than the previous year in fiscal 2003, but 

with some heavy lifting and a lot of help by Senator Kohl, we managed to write a balanced bill that seemed to solve the problems, 

and we congratulated ourselves and thought that we had set the 

level that we might be asked to hold this year. 

However, the budget request for this year is over a half a billion 

dollars less than last year. So maybe there is no virtue, Senator 

Kohl, in having given at the office. They come back to us again. 

But we do not have our formal allocation, but at least from the 

budget request, it looks as if it is going to be even more challenging 

this year than it was last, and I very much appreciate the cooperation and continuing support that Senator Kohl has given. 

Before we begin, I would like to acknowledge the efforts of Secretary Veneman with respect to recently announced 110 metric 

tons of wheat destined for export to Iraq. This is a significant contribution toward moving Iraq in the direction which we want it to 

move, and we are grateful to the Secretary for her efforts in bringing that to pass. 
2 

We have a host of issues that we are facing and expect to talk 

about many of them this afternoon, and so, with a lot of ground to 

cover, I would ask the witnesses if they would summarize their 

statements. And we will be using the 5 minute timer, both for 

opening statements and for questioning. We can do additional 

rounds if Senators wish to do that, but given the number of things 

we need to talk about, I would like to have the discipline of the 5 

minute timer. 

And to try to set the example, I will now cease here and recognize Senator Kohl. 

Senator KOHL. I thank you, Mr. Chairman, Senator Bennett. I 

want to congratulate you for the superb job you and your staff have 

done in guiding this Subcommittee last year and for crafting the 

fiscal year 2004 bill under trying circumstances. 

Secretary Veneman, we want to welcome you and your colleagues 

to appear before us once again this year. We just passed through 

a most challenging year for USDA and all of us involved in U.S. 

agriculture. The year ahead shows no signs of relief. We will continue to focus on the needs of farmers and ranchers, invasive pests 

and disease, demands for food assistance, threats to public health 

and consumer confidence, notably the December discovery of mad 

cow disease, and many other challenges. 

However, the President has submitted a budget proposal for us 

for the second year in a row with major reductions, reductions 

which are among the very largest of any Federal department. 

Madam Secretary, we hope that you will be able to explain to us 

today why the budget for the Department of Agriculture continues 

on a severe downward slope. You are the primary spokesperson in 

this country for rural America, and your voice needs to be heard 

and heard loudly within the highest levels of the administration. 

As challenging as your tasks continue to be, Madam Secretary, 

our job this coming year will be no less difficult. Downward budget 

pressures on this Subcommittee will continue to make our choices 

difficult and leave our opportunities diminished. 

So, Mr. Chairman, I look forward to continuing our strong working relationship in order to meet the problems ahead of us. 

Thank you very much. 

Senator BENNETT. Thank you, Senator. I appreciate that very 

much. 

Senator Craig. 

Senator CRAIG. Mr. Chairman, thank you. I will be brief. 

We are anxious to hear your testimony. As I have done privately, 

let me publicly again congratulate you, Madam Secretary, for your 

leadership in several areas, but most important to my state and I 

expect to the State of Utah and to Senator Kohl’s state was I think 

the masterful way that USDA and you handled the issue of mad 

cow. 

I say so because it was a volatile issue. You stayed on top of it. 

You were quick to demonstrate to the American consumer the safety of the American meat supply while at the same time moving judiciously and responsibly to get it under control. So my congratulations to you on that. 

I am, as most of us are, extremely frustrated by some things 

going on in farm country today against production agriculture; that 
3 

is, outside their control. While we look at the increase of $4 billion 

in mandatory spending in your budget and about a $720 million decrease in discretionary outlays, that is no small sum and a very 

real frustration as we try to solve a couple of issues or work with 

Agriculture to do so. 

Let me point out a couple of them. In the 2002 Farm Bill, we 

worked hard to improve the energy title. We were not able to do 

that. We will work again to be able to do that this year, to extend 

larger loans, guarantees and grants to farmers and ranchers and 

rural businesses purchasing renewable energy systems, because energy has become a huge factor in production agriculture at this moment, and it will be in the near future. 

Yesterday, Madam Secretary, I was visiting with a banker from 

Idaho who extends a lot of lines of credit to Idaho agricultural producers. He said he had just called all of his managers of the 

branches together on a conference call and asked them to examine 

all of the lines of credit of his farmers this year, and if those lines 

would handle at least a 20 percent increase based on one sole input 

factor: energy and the cost of energy. 

Energy as an input part of production agriculture this year will 

go up between 25 and 30 percent at the farm gate. Nothing will 

offset that. There is not a commodity out there that is going to increase enough this year in any way to offset that. And that is a 

direct response to the inability of this Congress to produce a national energy policy and get us back into the business of production. 

Let me give you one other figure that has just come out. In the 

46 months since 2000 until today, increased natural gas prices 

have taken $130 billion out of this economy: in industrial consumers, $66 billion; residential consumers, $39 billion; commercial 

consumers, $25 billion. Shame on Congress. Shame on those who 

stand in the way of energy production in this country today. 

And what does that do to the farmer? You and I both know. The 

input cost of fertilizer this year, 100 percent up from a year ago; 

100 percent. Now, that will do one of two things. First of all, the 

farmers I talk to are saying we are not buying forward; we are buying it as delivered. We will use much less fertilizer this year than 

we did last. Maybe in some areas, that is okay. But it runs the risk 

of the overall production in agriculture dropping this year as it relates to the ability to produce at certain levels, and those margins 

of production, in some instances, were the margin of profitability, 

and now, you drive that cost of production up, and so, you ultimately drive production down because of its cost factors. 

You have no control of the price of energy, nor does this administration. But the Congress has fumbled and fumbled and fumbled 

once again, and for 10 years, we have debated national energy policy. We have done nothing since 1992 in any positive way as it 

would relate to the increased production of energy. 

How do we, then, for the American farmer, offset those dramatic 

increases in production costs? That is a phenomenal challenge for 

you and for this Congress in difficult budget times. So shame on 

Congress for standing in the way of this country beginning to 

produce once again for its consumer and especially for American 

agriculture. 
4 

Thank you, Mr. Chairman. 

PREPARED STATEMENTS

Senator BENNETT. Thank you very much, Senator Craig. 

The Subcommittee has received statements from Senators Byrd 

and Johnson which will be placed in the record. 

[The statements follow:] 

PREPARED STATEMENT OF SENATOR ROBERT C. BYRD

Secretary Veneman, thank you for coming before this committee today. 

Over the past 3 years, I have made funding for the proper enforcement of the Humane Methods of Slaughter Act one of my top priorities. In the fiscal year 2001 supplemental appropriations bill, I secured $1.25 million for the hiring of 17 District 

Veterinary Medical Specialists at the Food Safety Inspection Service. Report language accompanying that bill instructed these new inspectors to work solely on the 

enforcement of the Humane Methods of Slaughter Act. Prior to my securing this 

funding for DVMS personnel, there were no inspectors employed by the USDA exclusively for this purpose. 

During the consideration of the fiscal year 2003 omnibus appropriations bill, the Senate included, at my request, $5 million for the hiring of at least 50 full-time 

equivalent humane slaughter inspectors also for the sole purpose of humane slaughter enforcement. The fiscal year 2004 omnibus appropriations bill includes continued 

funding for the 50 full-time equivalent humane slaughter inspectors and the 17 District Veterinary Medical Specialists. 

Last year, Secretary Veneman, when you testified before this committee, I ex- pressed my deep concern about the proper use of the $5 million for at least 50 fulltime equivalent humane slaughter inspectors by the U.S. Department of Agriculture. The purpose of this funding is to ensure that the industry works to minimize pain and suffering of defenseless animals. By adding 50 full-time equivalent 

inspectors devoted exclusively to enforcing humane slaughter methods, along with 

17 District Veterinary Medical Specialists, the USDA will finally have the resources 

to enforce a law that was enacted nearly 25 years ago. 

Earlier this year I was pleased to learn that the 50 FTE inspectors are now in 

place at the USDA. The Department is now heading down the right path with regard to humane slaughter enforcement. But there is still more that can and needs 

to be done to eliminate operations that raise and slaughter livestock in unspeakable 

conditions—conditions where the animals do not even have room to lie down and 

where animals are not properly stunned before beginning the process of dismemberment. Such facilities are operating illegally and it is the responsibility of the USDA 

to identify these violations and stop the production line when violations are observed. Today it is my hope that we will hear from you, Madame Secretary, about 

the progress that has been made by the USDA over the last year regarding humane 

slaughter enforcement with the funding this committee provided, and how the 

USDA plans to continue to improve its enforcement of the Humane Methods of 

Slaughter Act with future funding. 

PREPARED STATEMENT OF SENATOR TIM JOHNSON

Mr. Chairman and Members of the Agriculture Appropriations Subcommittee, I 

appreciate the opportunity to submit a statement at today’s hearing, and address 

important issues for our Nation’s farmers and ranchers. As the Senate considers the 

fiscal year 2005 Agriculture Appropriations bill, I find several issues at the forefront 

for the producers in my home state of South Dakota and across the Nation. I would 

like to take this opportunity to address these important issues, and question United 

States Department of Agriculture Secretary Ann Veneman on the Department’s action, or in some unfortunate circumstances, inaction, on these concerns. 

Country of origin labeling (COOL) remains an overwhelmingly popular concept 

with American consumers and producers. Not only would this provision facilitate 

consumer choice and confidence, it would also be greatly beneficial for our Nation’s 

producers and the agricultural economy in general. The General Accounting Office 

(GAO) study that I requested during the summer of 2002, along with my colleague 

Senator Tom Daschle, confirms that COOL would be feasible to implement not only 

from a budget perspective, but also by incorporating existing regional and state programs for record-keeping and tracking purposes. GAO found that ‘‘USDA used higher estimates of the hourly cost of complying with the recordkeeping requirements 
5 

of the COOL law than it used in developing similar estimates for other programs 

and it has no documented evidence to justify these differences.’’ 

The Administration’s handling of the country of origin labeling delay, in addition 

to their position on the country of origin labeling debate, has consistently been problematic and difficult. While opponents of COOL were successful in securing a 2-year 

delay on implementation of labeling for meat and produce, many unanswered questions still exist regarding what type of delay was enacted. While the mandatory date 

of implementation was postponed for 2 years, I believe the rulemaking process has 

remained unhindered by the delay language included in the 2004 Omnibus Appropriations measure. I wrote USDA on December 11, 2003, requesting clarification of 

the department’s interpretation of the language delaying the implementation of 

COOL. I was greatly disappointed by the vague and ambiguous response in the letter I received dated February 10, 2004. 

To deny country of origin labeling to America’s consumers and producers is unacceptable; for USDA to remain evasive and unresponsive in attending to this issue 

is inexcusable. I intend to seek clarification of the rule pertaining to the delay. My 

first meat labeling bill was introduced in the House of Representatives 12 years ago, 

in 1992, and I will persist in working to speed up implementation of this invaluable 

and effective law with my colleagues. A majority of producer groups support implementation of COOL and consumers are expecting swift implementation. Country of 

origin labeling should be implemented for all products in a timely fashion, not only 

for the fish producers whose special interests were represented during closed-door 

consideration of the fiscal year 2004 Omnibus Appropriations bill. 

Furthermore, I am very concerned that an adequate amount of funds be available 

for small and medium-sized producers. Our family farmers and ranchers in South 

Dakota and across the Nation deserve adequate representation in the fiscal year 

2005 Agriculture Appropriations bill. I was pleased to see that Senator Charles 

Grassley’s (R-Iowa) amendment, which would alter payment limitations and cap excessive compensation to large farms, was adopted on this year’s budget resolution. 

I support this amendment. This funding would instead be channeled toward worthwhile and essential conservation and development programs, which are beneficial to 

producers in South Dakota and across the Nation. 

With respect to the President Bush’s budget recommendation, the President has 

cut spending to seven of the fifteen Cabinet level agencies, including an unacceptable 8.1 percent cut to agriculture and an astounding 10 percent cut to rural development programs. Conservation programs have experienced a 12 percent cut, and 

research has been cut by 3 percent. Our rural communities are irreplaceable, and 

regardless of budgetary constraints, we must place a high priority on rural America. 

It is an essential component for a stable and productive Nation. 

Furthermore, we must ensure that a marketplace exists for the quality products 

our Nation’s farmers produce, and we must ensure that consumer confidence in our 

food supply remains high. I sent a letter to President Bush requesting that he make 

funding for meat and livestock testing a priority in his fiscal year 2005 budget request. USDA’s budget includes $60 million in new spending for Bovine Spongiform 

Encephalopathy (BSE) related programs, while allotting $17 million for an additional 40,000 BSE tests a year. While I am pleased to see an increase in funding 

for animal disease measures, there are several problematic aspects of testing which 

must be resolved. Animals can only be tested after slaughter, and it can take up 

to two weeks to receive test results. USDA should be committed to the development 

of a rapid, live test, which is an endeavor that we cannot afford to compromise. Producers in my home state of South Dakota continue to suffer from closed export markets, and USDA must do everything they can to ensure the viability of our agriculture economy. 

Additionally, the President’s budget includes $33 million for the development of 

a national animal identification program. I am concerned that we have no information as to how this money will be spent, nor do we have any knowledge of how this 

system will work. It is my understanding that at the March 4, 2004, Senate Marketing, Inspection, and Product Promotion Subcommittee oversight hearing on a national animal identification plan, USDA’s testimony left a lot to be desired. The 

broad statement that was given provided little substantive information on issues of 

cost and transparency. Cost estimates are all over the board, and are often twice 

the amount allotted by the President’s budget. This lack of consistency is disturbing. 

Implementing a national animal identification program is a substantial endeavor 

with direct impacts on our Nation’s farmers and ranchers, and we must ensure that 

the process by which this system is established is open and transparent. It is imperative that an animal identification system is effective and feasible for all parties involved. Questions regarding confidentiality and cost to the producer are still an-
6 

swered. It is my hope that USDA will work jointly with the affected parties to arrive 

at a sound system. 

In conclusion, I am hopeful that USDA will respond appropriately to the looming 

concerns for our Nations’ farmers and ranchers. I will do everything possible to ensure they get a fair deal and are well-represented as Congress considers such important issues, which will affect their bottom line and productivity. 

Senator BENNETT. Secretary Veneman, when I talked about 

opening statements to 5 minutes, I did not mean you. 

Secretary VENEMAN. Oh, good. I was panicking. 

Senator BENNETT. You were panicking; all right. 

We will give you 61⁄2 minutes. 

No, we appreciate your being here, and we recognize that while 

you will, I am sure, submit your written statement for the record, 

we want to give you ample time for your verbal statement, and we 

now turn to you and very much appreciate your appearing here. 

STATEMENT OF ANN M. VENEMAN

Secretary VENEMAN. Thank you very much, Mr. Chairman and 

members of the Committee. It is a pleasure to be with you today. 

I appreciate the opportunity to appear before you today. 

Senator BENNETT. I do not think your microphone is on. There 

is a button to press. 

Secretary VENEMAN. Okay. 

Senator BENNETT. That helps, yes. 

Secretary VENEMAN. I want to thank the Subcommittee and each 

of you for the support of the Department and for the support of 

American agriculture, and we look forward to continuing to work 

with all of you as we craft the 2005 budget. 

As you indicated, we have a longer statement for the record, and 

we would ask that it be included in the record. But I wanted to 

provide a quick overview of what our budget does provide. First, it 

is consistent with the policy book that we put out at the beginning 

of this Administration, Food and Agriculture Policy: Taking Stock 

for the 21st Century, and it supports USDA’s strategic plan, both 

of which are designed to enhance economic opportunities for agricultural producers, support increased economic opportunities and 

improve the quality of life in rural America, protect America’s food 

supply and our agriculture system, improve nutrition and health; 

and conserve and enhance our natural resources and environment. 

As you know, we are in a time of fiscal constraint. The President 

has proposed a responsible budget across the Federal Government, 

which holds non-defense and non-homeland security discretionary 

spending increases to no less than 1 percent. At the same time, his 

budget funds key priorities such as continuing the war on terror, 

protecting homeland security, strengthening the economy and jobs 

and health care affordability. 

His budget puts our Nation on track to reduce the deficit by onehalf within 5 years. The budget for USDA faces those same fiscal 

realities. Our proposals focus and maintain resources to meet our 

strategic goals. The numbers and data we present today build upon 

the Omnibus Appropriations Bill for 2004, and of course this means 

we do not have the confusion we had last year when we were working on the 2004 budget without a 2003 budget, which made comparison very difficult. 
7 

The 2005 budget focuses on our key priorities, as I indicated, including strengthening food safety and pest and disease prevention 

and eradication, continuing the administration of the 2002 Farm 

Bill, and that includes many increases in conservation funding, 

providing an unprecedented funding for a food and nutrition safety 

net, expanding agricultural trade, investing in our rural sector, 

supporting basic and applied sciences, and improving USDA’s program delivery and customer service. 

The 2005 USDA budget calls for $82 billion in spending. This is 

an increase of $4 billion or about 5 percent above the 2004 level. 

The Department’s request for discretionary appropriations for ongoing programs within the jurisdiction of the Subcommittee is $16.2 

billion. Due to some user fee proposals and other adjustments reflected in the budget, the net amount requested is $14.9 billion. 

And now, I would like to review some of the details: first, looking 

at the safeguarding of America’s homeland and protecting the food 

supply, the President’s 2005 budget funds an interagency initiative 

to improve the Federal Government’s capability to rapidly identify 

and characterize a bioterrorist attack. This initiative will improve 

national surveillance capabilities in human health, food, agriculture and environmental monitoring. 

In keeping with the President’s commitment to homeland security, the USDA budget for 2005 includes $381 million, to support 

the Food and Agriculture Defense Initiative. These funds would enhance monitoring and surveillance of pests and diseases in plants 

and animals, support research on emerging animal diseases, increase the availability of vaccines, establish a system to track select disease agents of plants; expand the Regional Diagnostic Network to all 50 States; and the bulk of the funding goes to completing the National Centers for Animal Health in Ames, Iowa, 

which is the single largest item under this initiative at $178 million. 

The research and diagnostic activities at the Ames complex are 

a critical part of our Bovine Spongiform Encephalopathy (BSE) response as well as our work on other animal diseases. In light of the 

discovery of a BSE-positive cow, first in Canada last May 20 and 

another on December 23 in Washington State, I announced on December 30 a series of actions to strengthen protection of the food 

supply, public health and animal health. 

USDA’s actions are based on our BSE response plan, which has 

been in place since 1990, and it has continuously evolved, based on 

current knowledge of the disease. We are committed to ensuring 

that there is a strong BSE surveillance program in place in this 

country, and in that regard, on March 15, I announced the details 

of an expanded surveillance program which reflects the recommendations of the international scientific panel. 

Our goal is to greatly expand the testing of high-risk cattle as 

well as testing a sampling of the normal, older cattle population. 

The budget also requests increases in funding for other BSE-related activities in the amount of $60 million, which includes increases for advanced animal testing, acceleration of the National 

Animal Identification System and some funds for the Grain Inspection, Packers and Stockyards Administration to enable rapid re-
8 

sponse teams to deal with BSE-related complaints regarding contracts or lack of prompt payment. 

It would also include some funds for our Food Safety and Inspection Service to conduct monitoring and surveillance of compliance 

with regulations for specified risk materials and advanced meat recovery. 

As we have responded to the BSE situation, we have been constantly guided by what has been in the best interests of public 

health. We received a report from an international panel of experts 

about how the BSE incident in Washington was handled which indicated that the Department had done a comprehensive and thorough epidemiological investigation, and the investigation was concluded on February 9. 

Protecting the food supply and public health is one of the primary missions of USDA, and this focus is reflected in the budgets 

of this Administration. The budget for 2005 seeks a record level of 

support for USDA’s Food Safety and Inspection Service, or what we 

call FSIS, meat and poultry food safety programs as well as increases to strengthen food and agriculture protection systems. 

These areas of our budget have been top priorities for the Administration since we came into office. 

This additional funding continues to build upon a solid record of 

achievement to further strengthen our agricultural protection systems to ensure the integrity of our food supply. The FSIS funding 

request would increase to a program level of $952 million, which 

would be an increase of $61 million over the 2004 level. This represents an increase of $170 million or 22 percent in food safety programs since the Administration took office in 2001. The $952 million for FSIS comprises $828 million in appropriated funds and the continuation of existing user fees as well as 

$124 million in new user fees for inspection services that are provided beyond one approved inspection shift. The FSIS funding 

would support 7,690 meat and poultry inspectors, and it would provide specialized training for the inspection work force, increase 

microbiological testing and sampling, strengthen foreign surveillance programs and increase public education efforts. 

USDA is working on the Nation’s fastest growing public health 

problem—obesity. As part of the President’s Healthier US Initiative, USDA is working with the Department of Health and Human 

Services to promote good nutrition and physical activity. The Department’s 2005 budget includes just over $700 million for nutrition research, education and promotion programs, including an increase of $33 million, most of which is focused on obesity-related 

initiatives. 

I also would like to point out that for the first time, the subject 

of a healthier food supply and the topic of obesity were major 

issues at this year’s Agricultural Outlook Forum. As I said in my 

Outlook speech, we need to make people more aware of the dangers 

of being overweight and figure out ways to reverse what is becoming an increasingly dangerous trend in America’s eating habits. 

Next, the President’s budget supports the continued implementation of the 2002 Farm Bill. Our employees at USDA have worked 

very, very hard to implement this Farm Bill, and they have done 

so quickly and efficiently. We appreciate their outstanding efforts, 
9 

both from our staff here in Washington, DC, as well as the staff 

all over the country in our county and state offices. 

Funds are provided in the budget to support continued implementation of the Farm Bill, and we are in the process of implementing the largest and most far-reaching Farm Bill conservation 

title ever. It represents an unprecedented investment in conservation that will have significant and long-lasting environmental benefits. Total program-level funding for Farm Bill conservation programs increases from about $2.2 billion in 2001 when this Administration took office to $3.9 billion in the 2005 budget proposal. This 

is an increase of $385 million or almost 11 percent over the amount 

of 2004. 

The expanded programs include $2 billion for the Conservation Reserve Program, an increase of $76 million over 2004; $1 billion 

for the Environmental Quality Incentives (EQIP) Program, which 

is an increase of $25 million over 2004; $295 million for the Wetlands Reserve Program, to enroll an additional 200,000 acres, 

which is an increase of $15 million; $209 million for the new Conservation Security Program, which is an increase of $168 million; 

and $125 million for the Farm and Ranch Lands Protection Program, an increase of $13 million. 

The 2005 budget also reflects the Bush Administration’s continued commitment to nutrition and fighting hunger by including a 

record $50.1 billion for domestic food assistance programs, which is 

a $2.9 billion increase over 2004. Our continued support for these 

programs follows the course of compassion that has been set by 

President Bush. The Food and Nutrition Service’s budget supports 

an estimated 24.9 million Food Stamp participants, and that compares to 23.7 million in 2004; a record level of 7.86 million low-income nutritionally at-risk Women, Infants and Children Program 

(WIC) participants, which compares to 7.8 million in fiscal year 

2004; and an average of 29.2 million school lunch children each day 

in the school lunch program, and that compares to 28.7 million in 

fiscal year 2004. 

Particularly with the WIC and School Lunch Programs, we are 

reaching more Americans and helping to educate them about 

healthy eating and the importance of balanced diets. These efforts 

help support the President’s Healthier US Initiative, and many of 

these services are delivered in cooperation with our partners under 

the President’s Faith-Based and Community Initiatives. The budget includes a $3 billion contingency reserve for the Food Stamp 

Program and $125 million contingency reserve for the WIC program to be available to cover unanticipated increases in participation in these programs. 

One of the most important ways to expand opportunities for 

American agriculture is through trade, by maintaining and opening 

markets for our products. We have seen this close tie between agriculture and markets with the BSE situation. The 2005 budget continues a strong commitment to export promotion and foreign market development efforts by proposing $6.6 billion for our international programs and activities. 

Since this Administration took office, these programs have experienced significant growth by increasing by more than $1.4 billion 

or 27 percent since 2001. Funding for USDA’s market development 
10 

programs, including the Market Access Program and Cooperator 

Program are maintained at the current year level of $173 million. 

Funding is provided for a new initiative to modernize FAS’s IT systems and applications and improve telecommunications systems in 

order to provide more effective and efficient services to cooperators 

and the public and to help bolster our trade policy and trade expansion efforts. A program level of $4.5 billion is provided for the Commodity 

Credit Corporation export credit guarantees activities. Concerning 

global food aid, the efficiency and productivity of American farmers 

has allowed the United States to lead the world in this important 

area. More than $1.5 billion is requested for U.S. foreign food assistance activities, including $75 million for the McGovern-Dole 

International Food for Education and Child Nutrition Program, a 

50 percent increase over 2004. So clearly, this budget continues to 

provide strong support for development of markets and assistance 

to those most in need around the world. 

We have also worked hard in this budget to provide funding for 

infrastructure and to enhance economic opportunities and the quality of life in rural America. The Administration proposes $11.6 billion for rural development programs, down from the 2004 level, due 

in large part from lower projections of the demand for loans, particularly electric and distance learning loans. Of the total amount, $3.8 billion is for direct and guaranteed Section 502 single-family housing loans. These programs are a crucial 

part of USDA’s effort to support the President’s Minority Homeownership Initiative, which has the goal of homeownership for an 

additional 5.5 million minority families by the end of the decade. 

In addition, $1.4 billion is requested for the Water and Waste Disposal Loan Program, which will provide about 650,000 rural families with new or improved water and waste disposal facilities. The budget proposes $331 million for broadband loans and loan guarantees in 2005, building upon the $2.2 billion in funding that 

has been provided over the last several years. Finally, the budget 

supports the Department’s strategic plan and our continued efforts 

to implement the President’s management agenda, which focuses 

on improving performance and results in government. USDA is one 

of only eight out of a total of 26 Federal agencies to be scored at 

green, or the highest level, for our progress toward all five of the 

major areas in the President’s management agenda, and for the 

second year in a row and only the second time ever, USDA again 

received a clean audit of our financial statements. 

As part of our implementation of the President’s management 

agenda, USDA is working on several initiatives to better integrate 

computer systems and technology support functions. In so doing, 

we are providing employees with the tools necessary to quickly and 

efficiently deliver services and to benefit our customers. The 2005 

budget will allow us to build on our program delivery progress and 

our management priorities by providing resources needed to improve customer service through continued modernization of technology. 

This includes $137 million in 2005, an increase of $18 million, to 

upgrade technology in the county office service centers in order to 

continue to improve administration of farm programs and customer 
11 

service. Electronic government is a major focus for USDA in 2004. 

By increasing our customers’ ability to interact with us over the 

Internet, we can save them and USDA time and money. As part 

of these efforts, we are nearing completion of a new basic computing infrastructure for all of our field agencies so that employees 

and customers will be able to share data electronically. 

The budget also proposes to strengthen the security of the Department’s facilities and information technology. The budget increases funds to focus on strengthening civil rights and equal treatment under our programs. We need to ensure there are adequate 

resources to implement our civil rights initiatives. The budget proposes $22 million for USDA’s Office of Civil Rights, an increase of 

$4 million over 2004. This includes an increase of $2 million to 

process complaints in a more timely manner and an increase of $1 

million to improve our tracking and analyses of civil rights complaints. 

That completes my overview of some of the key points in this 

budget. Again to summarize: the 2005 budget is a responsible 

budget, and it funds key priorities and programs at USDA by focusing on the Food and Agriculture Defense Initiative, BSE-related 

activities, record level support for farm conservation programs, food 

safety and nutrition programs. 

PREPARED STATEMENT

With that, Mr. Chairman and members of the Committee, I want 

to again thank you for the opportunity to be here today. We look 

forward to working with the Committee, and we would be pleased, 

along with our team, to answer the questions posed by the Committee. 

Thank you very much. 

[The statement follows:] 

PREPARED STATEMENT OF ANN M. VENEMAN

Mr. Chairman, Members of the Committee, it is an honor for me to appear before 

you today to discuss the 2005 budget for the Department of Agriculture (USDA). I 

have with me today Chief Economist, Keith Collins; and our Budget Officer, Steve 

Dewhurst. 

I want to thank the Committee again this year for its support of USDA and for 

the long history of effective cooperation between this Committee and the Department in support of American agriculture. I look forward to working with you, Mr. 

Chairman, as well as the other Members to make progress on these issues during 

the 2005 budget process and ensure strong programs for our Nation’s farm sector— 

but as well—the many other USDA mission areas. 

The 2005 budget calls for $82 billion in spending, an increase of $4 billion, or 

about 5 percent, above the level for 2004. Discretionary outlays are estimated at 

$20.8 billion, a decrease of $720 million, over 3 percent below the 2004 level. The 

Department’s request for discretionary appropriations for 2005 before this Committee is $16.2 billion. Due to some user fee proposals and other adjustments reflected in the budget the net amount requested is $14.9 billion. 

The Department’s budget for 2005 is consistent with this Administration’s policy 

book ‘‘Food and Agricultural Policy for the 21st Century’’ and it supports the 

USDA’s Strategic Plan. Both are designed to enhance economic opportunities for agricultural producers; support increased economic opportunities and improved quality 

of life in rural America; protect America’s food supply and agriculture system; improve nutrition and health; and conserve and enhance our natural resources and environment. 

As you know, we are in a time of fiscal constraint. The President has proposed 

a responsible budget across the Federal Government which holds non-defense and 

non-homeland security discretionary spending increases to less than 1 percent. At 
12 

the same time, the budget funds key priorities, such as the continuing War on Terror, protecting Homeland Security, strengthening the economy and jobs as well as 

health care affordability. It puts the Nation on track to reduce the deficit by onehalf within 5 years. 

The budget for USDA faces those same fiscal realities. Because the budget is constrained, the Department’s request is focused on key priorities which include: 

—Ensuring a safe and wholesome food supply and safeguarding America’s homeland. 

—Continuing administration of the 2002 Farm Bill—the major provisions of which 

we have implemented in the past year—and includes providing historic increases for conservation funding. 

—Providing record funding for a food and nutrition safety net. 

—Expanding agricultural trade. 

—Providing housing for rural citizens and investing in America’s rural sector. 

—Providing continued support for basic and applied sciences in agriculture. 

—Improving USDA’s program delivery and customer service. 

With this as an overview, I would now like to focus on the specific budget proposals for 2005. 

FOOD AND AGRICULTURE DEFENSE

The infrastructure developed in response to September 11, 2001, has enabled the 

Department to become a strong partner in the Administration’s biodefense initiative. The Department has worked closely with other Government agencies participating in the Homeland Security Council to prepare for any potential bioterrorist 

acts. The 2005 budget funds an interagency initiative to improve the Federal Government’s capability to rapidly identify and deal with such threats. This initiative 

will improve national surveillance capabilities in human health, food, agriculture, 

and environmental monitoring. It will promote data sharing and joint analysis 

among these sectors at the Federal, State, and local levels and also will establish 

a comprehensive Federal-level multi-agency integration capability led by the Department of Homeland Security (DHS) to rapidly compile these streams of data and 

preliminary analyses and integrate and analyze them. 

The highlights of the $381 million USDA request to support the Food and Agriculture Defense Initiative include: 

Strengthening food defense by requesting increases totaling $38 million to: 

—Establish a Food Emergency Response Network (FERN) with participating laboratories, including implementation of the Electronic Laboratory Exchange Network (eLEXNET) and an electronic methods repository; 

—Develop diagnostic methods to quickly identify pathogens and contaminated 

foods; 

—Improve surveillance and monitoring of pathogens and other hazards in meat, 

poultry and eggs and establishing connectivity with the integration and analysis 

function at DHS; and 

—Upgrades laboratories, improve physical security; and enhance biosecurity 

training and education. 

Strengthening agriculture defense by requesting increases of: 

—$178 million to complete the consolidated state-of-the-art biosafety level-3 

(BSL–3) animal research and diagnostic laboratory at Ames, Iowa; 

—$50 million for the Animal and Plant Health Inspection Service (APHIS) to substantially enhance the monitoring and surveillance of pests and diseases of 

plants and animals, increase the availability of vaccines through the national 

veterinary vaccine bank, increase State Cooperative Agreements to better identify plant and animal health threats, provide biosurveillance connectivity with 

the integration and analysis function at DHS, and establish a system to track 

select disease agents of plants. 

—$27 million for the Cooperative State Research, Education, and Extension Service (CSREES) to expand the Regional Diagnostic Network, and to establish a 

Higher Education Agrosecurity Program that will provide capacity building 

grants to universities for interdisciplinary degree programs to prepare food defense professionals. 

—$9 million for the Agricultural Research Service (ARS) to establish a National 

Plant Disease Recovery System that will quickly coordinate with the seed industry to provide producers with resistant stock before the next planting season, 

and to conduct research on identifying, preventing and controlling exotic plant 

diseases. 
13 

BSE RELATED ACTIVITIES

The Department has taken aggressive actions to deal with the recent detection 

of a cow that tested positive for bovine spongiform encephalopathy (BSE) in the 

State of Washington. The actions taken were based on a BSE response plan which 

has been in place since 1990 and has been continuously updated to reflect the latest 

available knowledge about this disease. As late as August 2003, Harvard University 

reaffirmed the findings of an initial 2001 study that the risk of BSE spreading extensively within the United States is low because of the firewalls already in place. 

In general, we have effectively responded to this incident. 

—Our tracing efforts were remarkably successful. After an international panel of 

experts indicated that the Department had done a comprehensive and thorough 

epidemiological investigation, our investigation was concluded on February 9. 

The panel also indicated that actions the Department announced on December 

30 and subsequent the Food and Drug Administration announcements have further enhanced the protections for human and animal health. 

—We also traced the products from the slaughter of these animals and determined that high-risk products such as brain and spinal cord did not enter the 

food system. Nevertheless, all of the beef that came out of that plant on the day 

in question was recalled. 

—Throughout the investigation, we regularly held briefings to inform the public 

about the incident. In one week’s time we announced a series of actions to further enhance the Department’s already strong safeguards. These included, 

among other actions, an immediate ban on nonambulatory or so-called downer 

animals from the food system and further restrictions on specified risk materials such as brain and spinal cord from entering the food supply. Retailers and 

food service outlets are reporting virtually no adverse effects on consumer demand as a result of the BSE finding. 

—The Department’s Chief Information Officer is overseeing the design of a National Animal Identification Program. Every effort is being taken in the design 

of this system to ensure it is technology neutral, cost effective, and does not 

place an undue cost burden on the producer. 

—We are also in the process of approving the use of BSE rapid test kits to enhance our national surveillance efforts. 

—We have continued to work with trading partners. Regaining export markets is 

a top priority for the Administration, and the international response must reflect what science tells us. Unfortunately, most export markets for U.S. beef, including key buyers—Japan, Mexico, Korea and others—immediately closed their 

markets to U.S. beef, accounting for 10 percent of U.S. beef production that now 

must be absorbed in the domestic market. The loss of exports had an immediate 

impact on the cattle market, resulting in an initial drop of 15 to 20 percent in 

cattle prices on cash and futures markets while remaining above year-ago levels. Despite this decline, USDA’s current fed cattle price forecast of $74 to $79 

per hundredweight remains above the previous 5-year average and would be the 

second highest average price in the past 11 years. 

—We are committed to ensuring that a robust BSE surveillance program continues in this country. On March 15, we announced the details of our expanded 

surveillance program which is based on recommendations of an international 

scientific review panel. The enhanced program has a goal to test as many cattle 

as possible in the high-risk population, as well as to test a sampling of the normal, aged cattle population. USDA has begun to prepare for the increased testing, with the anticipation that the program will be ready to be fully implemented on June 1, 2004. In the meantime, BSE testing will continue at the current rate, which is based on a plan to test 40,000 animals in 2004. Testing will 

be conducted through USDA’s National Veterinary Services Laboratory in 

Ames, Iowa, and a network of laboratories around the country. 

As part of the President’s Budget for 2005, we are requesting $60 million, an increase of $47 million which will permit us to: 

—Further accelerate the implementation of a verifiable National Animal ID System; 

—Increase the current BSE surveillance program; 

—Conduct advanced research and development of BSE testing technologies; 

—Strengthen the monitoring and surveillance of compliance with the regulations 

for specified risk materials and advanced meat recovery; and 

—Dispatch rapid response teams to markets experiencing BSE related complaints 

regarding contracts or lack of prompt payment. 
14 

BETTER NUTRITION FOR A HEALTHY US

USDA is also working on the Nation’s fastest growing public health problem—obesity. The Department has a special responsibility to ensure that participation in nutrition assistance programs such as the School Lunch and Breakfast programs, the 

Special Supplemental Nutrition Program for Women, Infants and Children (WIC) 

and Food Stamps, contributes as much as it can to healthier diets and improved 

health outcomes. USDA research is essential in understanding the role of the diet 

in obesity and healthy weight management. USDA along with its Federal partners 

at the Department of Health and Human Services (DHHS) is responsible for developing the revised Dietary Guidelines for Americans to be issued jointly by USDA 

and DHHS in January 2005. On a parallel track, the Department is undertaking 

a complete reassessment and update of the Food Guide Pyramid. These documents 

are the cornerstone of Federal nutrition promotion efforts directed at all Americans. 

With these efforts, USDA plays a key role in the President’s Healthier US initiative. 

And as part of this, USDA is working closely with DHHS to promote good nutrition 

and adequate physical activity. 

The Department’s 2005 budget includes about $700 million for nutrition research, 

education, and promotion programs, including an increase of $33 million which is 

focused mainly on obesity-related initiatives. Spending for nutrition education and 

promotion programs accounts for the largest share of this spending, over $540 million or almost 80 percent in 2005. These Federal funds are augmented by significant 

spending by State and local partners who conduct a wide range of nutrition education and promotion activities designed by local officials to meet local needs. 

Spending for basic research on nutritional requirements, monitoring food consumption patterns, analyzing social and behavioral factors affecting diets, and conducting demonstration projects accounts for the rest of our spending. We are a partner with the National Center for Health Statistics for the food consumption data 

that supports research on diets conducted by the growing number of Federal and 

non-Federal scientists looking at the causes and possible ways to curb the obesity 

epidemic. 

FARM AND FOREIGN AGRICULTURAL SERVICES

Currently, major sectors of the diverse farm economy are experiencing favorable 

market conditions. Net cash farm income was at a record level in 2003. The President’s budget for 2005 supports continued administration of the Farm Bill which 

has now been largely implemented, although work is proceeding on the substantial 

expansion of the conservation programs provided by the bill. In addition, the budget 

supports a strong crop insurance program and an aggressive international trade 

program that will be critical to the continued improvement on farm economy in the 

next few years. 

Farm Program Delivery 

The Farm Service Agency (FSA) salaries and expenses are funded at $1.3 billion 

in 2005, an increase of $50.9 million over 2004. This would support staffing levels 

of about 6,000 Federal staff years and nearly 10,300 county non-Federal staff years, 

including about 1,000 temporary staff years. Temporary staff will be reduced from 

the high levels required in 2003 and 2004 because the heavy workload associated 

with the initial implementation of the new farm programs has been completed. 

However, we expect the ongoing workload for FSA to remain at significant levels 

in 2005. Therefore, permanent county non-Federal staff levels are maintained at 

current levels. In addition, the budget provides for an additional 100 Federal staff 

years to improve service provided to farm credit borrowers. The budget also requests 

continued funding for FSA’s information technology (IT) efforts related to the Service Center Modernization Initiative. 

International Trade 

Trade is vitally important for American agriculture. The United States is the 

world’s largest agricultural exporter. The value of our agricultural exports equals 

nearly one-fourth of farm cash receipts, making the agricultural sector twice as dependent on trade as the overall U.S. economy. With gains in productive capacity 

continuing to outpace growth in demand here at home, the economic growth and future prosperity of America’s farmers and ranchers depend heavily upon our continued success in reducing trade barriers and expanding overseas markets. Accordingly, the expansion of international market opportunities is one of the key objectives set forth in the Department’s strategic plan. 

The 2005 budget proposals fully support the Administration’s commitment to export expansion and overseas market development by providing a program level of 
15 

over $6.6 billion for the Department’s international programs and activities. These 

programs have increased significantly since this Administration took office and have 

increased by more than $1.4 billion, or 27 percent, since 2001. 

The Foreign Agricultural Service (FAS) is the lead agency for the Department’s 

international activities. Through its network of 80 overseas offices and its headquarters staff here in Washington, FAS carries out a wide variety of activities that 

contribute to expanding and preserving overseas markets. Our budget requests $148 

million for FAS activities in 2005. This is an increase above the 2004 level of nearly 

$12 million and is designed to ensure the agency’s continued ability to conduct its 

activities effectively and provide important services to U.S. agriculture. This funding 

would enable FAS to meet higher overseas operating costs, improve telecommunications systems, and implement a high priority initiative to modernize the agency’s 

IT systems and applications. 

The Department’s export promotion and market development programs, which 

FAS administers, play a key role in our efforts to expand international market opportunities. Commodity Credit Corporation (CCC) export credit guarantees are the 

largest of these programs. As overseas markets for U.S. agricultural products continue to improve, that improvement will be reflected in export sales facilitated 

under the guarantee programs. For 2005, the budget projects a program level of $4.5 

billion for the guarantee programs, an increase of just over $250 million above the 

current estimate for 2004. 

The budget continues funding for the Department’s market development programs, including the Market Access Program and Cooperator Program, at the current level of $173 million. It also includes $53 million for the Dairy Export Incentive 

Program and $28 million for the Export Enhancement Program. 

The efficiency and productivity of our producers allows the United States to be 

a leader in global food aid efforts. For 2005, the budget supports a program level 

of over $1.5 billion for U.S. foreign food assistance activities. This includes $1.3 billion for the Public Law 480 Title I credit and Title II donation programs. For the 

McGovern-Dole International Food for Education and Child Nutrition Program, 

funding is increased to $75 million, a 50 percent increase over 2004. The budget also 

includes an estimated program level of $149 million for the CCC-funded Food for 

Progress program, which is expected to support 400,000 metric tons of assistance 

as required by the authorizing statute. 

Farm Credit 

The budget supports a program level of about $3.8 billion in farm credit programs 

to enhance opportunities for producers to obtain, when necessary, federally-supported operating, ownership, and emergency credit. The program level is about $300 

million higher than last year. Due to lower subsidy costs for the direct loan programs, the amount of subsidy requested is less than for 2004. In addition, funding 

has been realigned to better accommodate the actual demand in these programs. 

The budget also includes a request of $25 million for the emergency loan program. 

Also, any unused funding from prior year appropriations will carry over for use in 

2005. 

Crop Insurance 

The budget provides full funding for the crop insurance program. The budget includes ‘‘such sums as may be necessary’’ for the mandatory costs associated with 

program delivery and the payment of indemnities. The current estimate of the mandatory costs is about $3.7 billion. 

The budget includes a request of $92 million for the discretionary costs of the 

Rural Management Agency (RMA), an increase of $21 million above the level provided in 2004. The increased funding is urgently needed for the modernization of 

the RMA IT infrastructure as well as to provide for 30 additional staff years. The 

additional staffing will be used, in part, to monitor companies and producers participating in the crop insurance program, to detect and prevent fraud, waste, and 

abuse. 

MARKETING AND REGULATORY PROGRAMS

Marketing and Regulatory Program agencies provide basic infrastructure to protect and improve agricultural market competitiveness for the benefit of both consumers and U.S. producers. 

Pests and Diseases 

Helping protect the health of animal and plant resources from inadvertent as well 

as intentional pest and disease threats is a primary responsibility of APHIS. The 

2005 budget requests an appropriation of $828 million for salaries and expenses, an 
16 

increase of about $112 million (16 percent) above the 2004 estimate. The majority 

of this increase is for the Food and Agriculture Defense Initiative and for BSE related activities. 

Increases are also requested for efforts to deal with low-pathogenic avian influenza, emerging plant pests (especially citrus canker and Emerald Ash Borer), Mediterranean fruit fly, tuberculosis, scrapie and a $6.6 million increase is requested to 

enhance the Department’s ability to strengthen its regulatory system for the testing 

of biotechnology based crops. 

Marketing 

For 2005, the Agricultural Marketing Service (AMS) budget proposes a program level of $732 million, of which $87 million or 12 percent, is funded by appropriations 

and the remainder through user fees and Section 32. AMS, in cooperation with the 

Food and Nutrition Service and FSA, purchases commodities to meet the needs of 

domestic feeding programs and to help stabilize market conditions. The 2005 budget 

includes an increase of $10 million in appropriated funds to begin the critically 

needed replacement of our outdated IT systems used by three USDA agencies to 

manage and coordinate commodity orders, purchases, and delivery. 

Another important proposal in the marketing and regulatory programs area involves the Grain Inspection, Packers and Stockyards Administration (GIPSA). For 

2005, the budget proposes a program level for salaries and expenses of about $44 

million. Of this amount, $20 million is devoted to grain inspection activities for 

standardization, compliance, and methods development and $24 million is for Packers and Stockyards Programs. The 2005 budget includes $7.7 million in increases 

to: 

—Conduct market surveillance and ensure that marketing and procurement contracts are honored in the aftermath of the BSE finding. 

—Significantly upgrade the agency’s IT functions, including the ability to securely 

accept, analyze, and disseminate information relevant to the livestock and grain 

trades. 

—Monitor the various technologies that livestock and meatpacking industries use 

to evaluate carcasses to ensure fair and consistent use of those technologies. 

Producer compensation is increasingly dependent not simply on the weight of 

the animals they bring to slaughter, but the characteristics of the carcasses as 

well (e.g., fat content). 

—Enable GIPSA to better address and resolve international grain trade issues, 

thus precluding disruption of U.S. exports. 

The GIPSA budget includes two user fee proposals which have been submitted to 

the authorizing committees. New user fees would be charged to recover the costs 

of developing, reviewing, and maintaining official U.S. grain standards used by the 

grain industry. Those who receive, ship, store, or process grain would be charged 

fees estimated to total about $6 million to cover these costs. Also, the Packers and 

Stockyards Programs would be funded by new license fees of about $23 million that 

would be required of packers, live poultry dealers, poultry processors, stockyard 

owners, market agencies, and dealers as defined under the Packers and Stockyards 

Act. 

FOOD SAFETY

USDA plays a critical role in safeguarding the food supply and plays a pivotal role 

in protecting the Nation’s food supply from bioterrorist attack. This Administration 

believes that continued investment in the food safety infrastructure is necessary to 

achieve USDA’s goal of enhancing the protection and safety of the Nation’s agriculture and food supply. 

For 2005, the budget for the Food Safety and Inspection Service (FSIS) provides 

a program level of $952 million, an increase of $61 million over 2004. The budget 

includes an increase for pay to support 7,690 meat and poultry inspectors, which 

are necessary to provide uninterrupted inspection services to the industry. 

The budget for FSIS requests $5.0 million to continue the work funded in 2003 

and 2004 to fully enforce the Humane Methods of Slaughter Act. With this funding, 

the agency has allocated 63 staff-years to ensuring the humane treatment of livestock in 900 federally inspected establishments. With the increased emphasis on humane handling verification, the agency was able to increase humane handling inspection procedures from 86,810 performed in 2002 to 111,117 performed in 2003, 

a 28 percent increase. Although difficult to estimate, FSIS reports that a resultant 

increase in the number of enforcement actions and violations was the result of training and correlation efforts of FSIS District personnel, Front Line Supervisors and 

veterinarians to better understand the application of the Agency’s rules and enforcement process to inhumane handling situations. As recommended by the General Ac-
17 

counting Office, FSIS will continue to make improvements in the inspection process 

to ensure proper enforcement of the law and accurate tracking of both verification 

activities and enforcement actions. 

The budget includes an increase of approximately $33.6 million to support programmatic improvements aimed at achieving FSIS’ strategic objective to reduce the 

prevalence of foodborne hazards from farm to table. The majority of this increase 

is for the Food and Agriculture Defense Initiative and BSE related activities. 

The budget provides an increase of $7.1 million for a broad-based training initiative for meat and poultry inspection personnel. This is more than a 50 percent increase in the FSIS training budget from 2004. Under this initiative, all entry level 

inspectors will receive formal classroom training for performing basic inspection duties within one year of employment. Currently, only 20 percent of new employees 

receive this type of training. In addition, current inspectors will receive supplemental training to improve the enforcement of the Pathogen Reduction/Hazard 

Analysis and Critical Control Point Systems regulation and food safety sampling. 

The increased level of training will improve the consistency and effectiveness of inspectors in the performance of their duties and ensure a safer food supply. 

The 2004 budget also reproposes legislation submitted to Congress in August 2003 

to collect an additional $124 million in user fees annually by recovering 100 percent 

of the cost of providing inspection services beyond an approved primary shift. Assessing user fees in this manner promotes equity among producers that have 

enough production for a full second shift paid for by the Government and other establishments that may only have enough production for a partial shift which they 

must currently pay for themselves. Recovering a greater portion of these funds 

through user fees would result in savings to the taxpayer. These fees will have a 

minimal impact on prices received by producers or prices paid at retail by consumers. 

FOOD, NUTRITION, AND CONSUMER SERVICES

The budget includes $50.1 billion for USDA’s domestic nutrition assistance programs, an increase of $2.9 billion, and the highest level ever requested. The budget 

will ensure access to nutrition assistance for low-income families and individuals as 

they work toward economic self-sufficiency. USDA is working hard to provide information to help improve nutritional intakes, increase breastfeeding rates, and reduce 

obesity and overweight among Americans. In addition to its work with the President’s Healthier US Initiative, USDA will work with nutrition assistance program 

stakeholders to identify strategies to improve health outcomes for eligibles. 

The WIC program is expected to be reauthorized this year and is budgeted at $4.8 

billion. This is a record high funding request, which will help record numbers of lowincome, at-risk participants. The request continues special increments to fast track 

State information systems development, increase breastfeeding rates through the 

use of peer counselors, and increase support of childhood obesity prevention projects. 

Ensuring a WIC Program that yields healthy birth outcomes and nutritional habits 

with the best possible outcomes is a top Administration priority. 

The Food Stamp Program, the cornerstone of America’s effort to ensure access to 

an adequate diet for low-income people, is funded at $33.6 billion. The budget anticipates modest food cost inflation and participation growth of about 1.2 million participants or a 5 percent increase above 2004 estimates. The budget includes a $3 

billion contingency reserve, $1.4 billion for Nutrition Assistance for Puerto Rico, 

$2.4 billion for the Federal share of State administrative expenses, and about $300 

million to support employment and training. Significant progress has been made in 

reducing payment errors in the program. In 2002, 91.74 percent of payments were 

made accurately, with overpayment error at 6.16 percent of benefits. Changes in financial incentives to States for good management as authorized by the 2002 Farm 

Bill are on track for implementation in 2005. This is the time line anticipated by 

the Farm Bill, and this will help improve program access as well as program integrity. 

Child Nutrition Programs are funded at $11.4 billion with increases provided for 

food cost inflation, growth in the number of meals served and program integrity. 

Also, the budget includes funding for several key provisions that are expiring such 

as the exclusion of military housing allowances for eligibility determination. The Administration will continue work with Congress on a reauthorization bill this Spring 

to ensure that all aspects of the program continue without interruption, including 

those key provisions expiring at the end of March. 

The Administration is committed to ensuring that funds for school meals are well 

targeted to those in need and that any savings achieved in reauthorization will be 

reinvested in the program. 
18 

NATURAL RESOURCES AND ENVIRONMENT

The 2002 Farm Bill represents an unprecedented commitment to conservation and 

its continued implementation is an ongoing challenge as well as a high priority for 

the Department. To do this successfully, the budget proposes not only to increase 

funding for Farm Bill programs but also to continue support for the underlying conservation programs that form the basis for the Department’s ability to address the 

full range of conservation issues at the national, State, local and farm levels. 

The 2005 budget request for the Natural Resources Conservation Service (NRCS) includes $1.9 billion in mandatory CCC financial assistance funding for Farm Bill 

conservation programs in addition to $2.0 billion for the Conservation Reserve Program administered by FSA. This represents an increase of more than $200 million 

over the 2004 level and includes $1 billion for the Environmental Quality Incentives 

Program that will allow nearly 40,000 producers to participate in this vital program. 

It also includes $295 million for the Wetlands Reserve Program to enable the Department to enroll an additional 200,000 acres. Another $209 million will support 

expansion of the new Conservation Security Program that supports ongoing conservation stewardship and rewards those producers who maintain and enhance the 

condition of their natural resources. The remaining $351 million in CCC funding 

will support the other Farm Bill programs including the Grassland Reserve Program, the Wildlife Habitat Incentives Program and the Farm and Ranch Lands Protection Program. On the appropriated side, the 2005 budget proposes a total funding level of $908 million which includes $604 million for conservation technical assistance (CTA) that 

forms the base program that supports the Department’s conservation partnership 

with State and local entities. The budget also proposes a separate account totaling 

$92 million to fund technical assistance activities in support of the Wetlands Reserve and Conservation Reserve Programs. This would limit the amount of funding 

that would have to be redirected from other Farm Bill programs and maximize the 

financial assistance made available to producers. Overall CTA funding will also enable the Department to continue to address natural resource issues such as maintaining agricultural productivity and improving water quality and grazing lands. 

In the watershed programs area, the budget proposes reductions in funding for 

watershed implementation, planning and rehabilitation. This will enable NRCS to 

redirect some resources to address the more pressing Farm Bill implementation 

issues while still funding the most critical watershed work. With emergency spending being so difficult to predict, the budget proposes to not seek appropriated funding for emergency work and instead to address disaster funding as emergencies 

arise. 

Finally, the Department’s 2005 budget will maintain its support for all 375 Resource Conservation and Development areas that are now authorized. This important activity will continue to improve State and local leadership capabilities in planning, developing and carrying out resource conservation programs. 

RURAL DEVELOPMENT

Rural America is home to over 60 million people, most of whom are not farmers. 

It is a place of employment for workers in numerous industries that contribute to 

the Nation’s wealth. It is also very diverse, including areas that are facing declining 

population and employment opportunities as well as areas that are growing at a 

rapid pace and becoming urbanized. Thus, the challenges differ from area to area, 

and require planning and coordination, to ensure that State and local priorities are 

served along with national goals. USDA embraces this reality and is committed to 

supporting increased economic opportunities and improved quality of life in rural 

America. 

The Department’s rural development programs are both traditional and forward 

looking. Many of these programs were created to bring electricity, telephone service 

and other amenities to the Nation’s farms and rural towns. These programs have 

made enormous contributions to economic productivity and quality of life of rural 

America. In addition, USDA has played a significant role in providing homeownership opportunities and rental housing for rural residents, and support for rural business and industry. 

Modern technology has brought new challenges. Perhaps the most striking example is in the area of telecommunications. Basic telephone service is no longer adequate. High speed broadband communications, including data as well as voice transmission, are needed to stay abreast of the ever changing world of information for 

both business and personal use. In addition, new approaches are needed to diversify 

rural economies, for example, through value-added processing of agricultural products. 
19 

The 2005 budget supports $11.6 billion in loans, grants and technical assistance 

for rural development. This is a realistic level of support in light of the need to balance budgetary constraint against the demands for program assistance. While it is 

significantly below the level available for 2004, more than half of the reduction is 

due to lower projections of the demand for selected loans. 

In particular, the 2005 budget reflects a reduction in electric loans from almost $5 billion in 2004 to $2.6 billion in 2005. In recent years, Congress appropriated 

much higher levels for such loans than the Administration requested. The additional 

funding, including the amount available for 2004, has helped meet the needs of 

rural electric cooperatives for upgrading their systems. Although more remains to 

be done, it is anticipated that the high levels of lending in recent years will provide 

a cushion that will result in fewer applications for 2005. Also in the electric area, the 2005 budget does not include a $1 billion add-on by 

Congress to the 2004 Appropriations Act for guaranteeing electric and telephone 

notes of certain private lenders. This program was authorized in the 2002 Farm 

Bill. USDA published a proposed rule for implementing the program on December 

30, 2003, with a 60-day comment period. Until the public comments are reviewed 

and a final rule published, it is difficult to know the extent of demand for the program and for that reason the program was not included in the 2005 budget. 

The 2005 budget also does not include funding for distance learning and telemedi- cine loans, which accounts for a $300 million reduction from 2004, because there has 

been little demand in the past few years for these loans. Further, there is a reduction in discretionary funding for broadband loans from $598 million in 2004 to about 

$331 million in 2005 because there remains a substantial amount of unused mandatory carry-over funding that was provided by the 2002 Farm Bill. Currently, there 

is about $1.6 billion available for such loans and about $1.0 billion in applications, 

many of which will require additional work before they are complete and can be considered for funding. For single family housing loans, the 2005 budget includes $1.1 billion for direct loans and $2.5 billion in guaranteed loans for purchases and $225 million in guaranteed loans for refinancing. While there is a proposed reduction in direct loans, guaranteed loans are maintained at the 2004 levels. Further, legislation is being proposed to allow guaranteed loans to exceed 100 percent of appraised value by the 

amount of the fee on such loans. This proposal will make the program more accessible to families with limited resources for paying closing costs and will contribute 

to the President’s Initiative to Increase Minority Homeownership. The combined 

level of almost $3.8 billion in direct and guaranteed loans is expected to provide up 

to 40,000 homeownership opportunities for rural residents. Continuation of recent 

increases in housing costs will reduce the number of homeownership opportunities 

that can be provided in 2005 compared to prior years. The total water and waste disposal loan and grant program for 2005 is $1.42 billion compared to $1.67 billion for 2004. Within this total, loans are maintained at 

about $1.1 billion. It should be noted that the subsidy rate for these loans has increased such that we are asking you to increase the budget authority for loans from 

$34 million in 2004 to $90 million in 2005 just to reach the $1.1 billion level. This 

increase is due to a rise in the Government’s cost of financing the loans. Grants 

would be reduced from $563 million in 2004 to $346 million in 2005. With interest 

rates remaining low, more projects are viable at a higher loan to grant ratio. 

In addition, the 2005 budget for rural rental housing continues the Administration’s policy to focus on servicing the existing portfolio which includes about 17,000 

projects that provide housing for about 450,000 rural households. Many of these 

projects require repair and rehabilitation, for which the 2005 budget includes $60 

million in direct loans. It also includes $100 million in guaranteed loans for new 

rental projects. In addition, the 2005 budget includes $592 million for rental assistance payments, up from $581 million available in 2004. Most of this funding is for 

the renewal of expiring contracts, consistent with the policy established by Congress 

in the 2004 Appropriations Act to renew contracts on a 4-year cycle. About a quarter 

of a million rural households receive this assistance. We are nearing completion of 

a comprehensive study of the existing portfolio to help identify opportunities for revitalizing the management of these projects. 

The budget includes $300 million in direct loans and $210 million in guaranteed 

loans for essential community facilities that meet a wide range of public safety, 

health and other purposes. This reflects a reduction in direct loans, from $500 million in 2004, but exceeds the 2003 level of $261 million. This pattern mirrors a 

change in subsidy costs which went from 6 percent in 2003 to zero in 2004 and up 

to 4 percent for 2005, due largely to very small differences in interest rates. For 

business and industry programs, the 2005 budget supports $600 million in guaranteed loans, up from $552 million in 2004 and $34 million for the intermediary re- 
20 

lending program, compared to $40 million for 2004. Together, these programs are 

expected to account for most of an estimated 66,000 jobs that will be created or 

saved by a combination of rural development programs that assist business and industry. This estimate reflects direct employment. Many rural development programs 

also impact on employment indirectly by creating a demand for products and services. 

RESEARCH, EDUCATION, AND ECONOMICS

Publicly supported agricultural research has provided the foundation for modern 

agriculture and is an important component of virtually all of our strategic objectives. 

Research will lead to commercially feasible renewable energy and biobased products 

with benefits to the environment, national security, and farm income. Genetic and 

molecular biology hold promise to reduce plant and animal diseases that threaten 

U.S. agriculture as the movement of plants and animals increases and as bioterrorism becomes a matter of increasing concern. There are technology-based opportunities to make our food supply safer and more wholesome. 

The 2005 budget for the four Research, Education and Economics (REE) agencies 

is approximately $2.4 billion. The budget proposes reductions in unrequested earmarks of about $335 million, and program increases in high priority areas, such as 

food and agriculture security, genomics, human nutrition and climate change, where 

national needs and returns are the greatest. 

One increase directly related to the Food and Agriculture Defense Initiative is to 

fund the remaining $178 million required to complete the modernization of the National Centers for Animal Health in Ames, Iowa. These funds will allow the completion of the $460 million project that will provide a world-class research and testing 

facility commensurate with the magnitude and economic importance of the $100 billion U.S. livestock industry. Upon completion in October 2007, there will be nearly 

one million gross square feet of new and renovated laboratory and support space. 

Extensive site and infrastructure upgrades and miscellaneous office, animal care, 

and support facilities will also be integrated into the design. 

The 2005 budget for ARS calls for increases to support participation in genome 

mapping and sequencing projects and enhance the agency’s bioinformatics capacity 

to transfer this information into research programs. There are increases for research 

on invasive species and animal diseases, such as bovine spongiform encephalopathy 

and foot and mouth disease; as well as research which will lead to improved vaccines and therapeutics, rapid diagnostic tests, and genome data on biosecurity 

threat agents. The budget includes an increase of $5 million for research in support 

of the President’s Healthier US Initiative. And, as part of this, USDA will work 

closely with the Department of Health and Human Services to promote good nutrition. In support of the Administration’s Food and Agriculture Defense Initiative, 

food safety research will see an increase of $14 million to support the development 

of rapid diagnostic tests that will accurately detect and identify pathogenic bacteria, 

viruses and chemicals of food safety concern. Finally, the ARS budget will provide 

$5 million to support the President’s Climate Change Research Initiative. These 

funds will be used to conduct interagency research that will build the scientific foundation for forecasting responses of ecosystems to environmental changes and for developing resources that can be used to support decision making. 

The 2005 budget for CSREES includes funds to continue the formula programs 

at current levels. There are proposed increases in funds for the 1994 Tribal Land 

Grant schools and an increase in the CSREES graduate fellowship program that 

will allow more funding for fellowships at the masters degree level which is especially important for the recruitment of minority graduate students. Additional increases are proposed for the Expanded Food and Nutrition Education Program 

which assists low income youth and low-income families with children in acquiring 

the skills, attitudes, and changed behavior necessary to formulate nutritionally 

sound diets. 

The proposal for the National Research Initiative (NRI) in the 2005 budget is consistent with the greater overall constraints of the 2005 budget. The proposal includes $180 million as compared to $164 million in 2004, for the NRI to finance 

work that will have a far reaching impact on such issues as genomics, nutrition, 

and obesity. 

The budget for the Economic Research Service (ERS) includes an increase of $8.7 

million to develop a consumer data information system, to provide information to 

support decision making in the food, health, and consumer arenas. There are three 

components: a food market surveillance system that will provide information to 

identify and explain consumer food consumption patterns; a rapid consumer response module that will provide real-time information on consumer reactions to un-
21 

foreseen events such as the recent discovery of BSE; and a flexible consumer behavior survey module that will assess the relationship between individuals’ knowledge 

and attitudes about dietary guidance and food safety and their food choices, complementing the Centers for Disease Control and Prevention and ARS data on health 

outcomes and food consumption. 

The budget for the National Agricultural Statistics Service (NASS) includes an increase for two initiatives to improve its statistical programs, and a decrease of $2.6 

million for the Census of Agriculture, reflecting the decrease in staffing and activity 

levels to be realized in 2005 due to the cyclical nature of the 5-year census program. 

To improve NASS’ statistical accuracy, an increase of $7.4 million is requested to 

continue the restoration and modernization of its core survey and estimation program for U.S. agricultural commodities and other economic, environmental and 

rural data. These data are used by a variety of customers for business decisions, 

policy making, research, and other issues. They are also necessary for the calculation of national countercyclical payment rates provided under the 2002 Farm Bill. 

The second initiative requires an increase of $2.5 million for NASS’ Locality-Based 

Agricultural County estimates program to continue the improvements begun in 

2003. These local estimates are one of the most requested data sets, and are especially important to RMA for their risk rating process, (affecting premium levels paid 

by producers), and to FSA for calculating national loan deficiency payments. 

CIVIL RIGHTS

This budget will allow the Assistant Secretary for Civil Rights to continue making 

progress in addressing Equal Employment Opportunity (EEO) and Program-related 

civil rights issues. The Assistant Secretary for Civil Rights also has responsibility 

for outreach and conflict prevention and resolution. The challenging task of implementing changes within USDA’s civil rights organization is now underway. A comprehensive action plan has been developed to address structural, operational, procedural accountability and systems challenges. 

This budget is critical in ensuring adequate resources to implement Civil Rights 

initiatives. Specifically, the budget will support a reduction in the time it takes to 

process both EEO and Program-related complaints. The Department continues to 

make progress toward meeting regulatory timeframes for complaint processing. 

Tracking and analysis of complaints will be improved and analytical information 

will be used to identify further improvements and allocate resources. Additional 

funds will be devoted to technical assistance, training, and outreach activities. 

This budget clearly reflects the high priority that the Department places on providing equal opportunity, equal access and fair treatment for all USDA customers 

and employees. . 

DEPARTMENTAL MANAGEMENT

The Departmental staff offices provide leadership, coordination and support for all 

administrative and policy functions of the Department. These offices are vital to 

USDA’s success in providing effective customer service and efficient program delivery. 

Due to the efforts of these offices, the Department has made significant progress 

in improving management. For example, the Department received its first-ever unqualified or ‘‘clean’’ opinion on the 2002 financial statements and received a clean 

opinion again in 2003. To meet the mandate of the Government Paperwork Elimination Act, USDA agencies are deploying new departmentwide electronic signature 

technologies that allow customers to conduct business transactions over the Internet, saving both customers and the Department time and money. 

The 2005 budget builds upon that progress by continuing funding levels for these 

offices and providing key funding increases in order to: 

—Continue efforts to modernize the Service Center agencies (FSA, NRCS, and the 

Rural Development) IT activities to improve efficiency and customer service. As 

part of this initiative, efforts to expand the use of the Geographic Information 

Systems continue and will lead to improved soil and land-use analyses. A scheduled integration of the IT support functions of the Service Center agencies into 

a single organization under the Chief Information Officer will further improve 

these activities. 

—Strengthen the security of the Department’s facilities and IT systems through 

certifying and accrediting USDA systems, improving a Departmentwide Information Survivability program, implementing an automated risk management 

system, and establishing a Cyber-Security Operations Center. 
22 

—Support the creation of remote backup capabilities to protect the National Finance Center accounting, payroll and related services data for USDA and other 

agencies from malicious intrusions and natural catastrophes. 

—Implement an electronic commodity market information system that will consolidate all of the Department’s commodity data, analyses and forecasts into a 

single public website. 

—Support the Administration’s goal to increase procurement of biobased products, 

with the purpose of creating new economic opportunities in rural areas while 

reducing our dependence on fossil energy-based products derived from foreign 

oil and natural gas. The Office of the Chief Economist (OCE) will implement 

and administer a government-wide biobased product procurement program, 

mandated by the 2002 Farm Bill. OCE will work with Departmental Administration to develop a model biobased product procurement plan that can be 

adopted by Federal agencies, and will support interagency biobased product procurement efforts. 

—Continue renovations of the South Building to ensure that employees and customers have a safe and modern working environment. 

That concludes my statement. I look forward to working with the Committee on 

the 2005 budget so that we can better serve those who rely on USDA programs and 

services. 

NATIONAL ANIMAL IDENTIFICATION PROGRAM

Senator BENNETT. Thank you very much, Madam Secretary. We 

appreciate your statement, and we appreciate your being here. 

I understand you are working to design a National Animal Identification Program. Can you tell us how you envision such a program being implemented? Any timing that you might have on this? 

And do you expect it to be mandatory or voluntary? And do you 

have statutory authority to implement this, or when you have got 

the work done, are you going to come back to the Congress and ask 

for additional authority? Could you explore that whole area with 

us? 

Secretary VENEMAN. I will, Mr. Chairman, and thank you for 

that question. 

As you know, on December 30, I announced aggressive actions 

that we were taking in response to the BSE find on December 23. 

One of the things I said we would do is accelerate a national 

verifiable system of animal identification. A tremendous amount of 

work had been done over the past 18 months involving an effort 

by a number of agriculture producing groups, and government employees to look at the kinds of standards that should be applied in 

an animal identification system. 

So we were fortunate that the work had already been done. I 

then asked our Chief Information Officer to begin to look at how 

do we put together the architecture for such a system. As we continued into this process, we expanded our CIO’s group to include 

Keith Collins, our Chief Economist; and Nancy Bryson, our General 

Counsel, because of the legal issues involved, and they are now in 

the process of putting together an overall plan with recommendations. I will have Keith comment on that. 

With regard to the authorities, we have also been looking at that 

issue, and as I have testified at other hearings, the one issue that 

is of concern to many of the producers is making sure that they can 

maintain confidentiality of the information that will be put into 

this system. We have been working with a number of the Committees to determine the kind of statutory language we may need to 

ensure that information provided into this system can be maintained as confidential information. 
23 

I would like Keith Collins to comment briefly on what the USDA 

committee has been doing on this system. 

Mr. COLLINS. I would be happy to do that, Madam Secretary. 

A lot of work has been done, as the Secretary said, particularly 

by a group called the USAIP, United States Animal Identification 

Plan team, which represents some 100 people and 70 organizations. 

They have developed a tremendous amount of infrastructure recommendations such as data standards for identifying premises, for 

identifying animals, and for tracking movements. 

What we have envisioned is to be able to implement a national 

plan, first on a voluntary basis because we have such a complicated 

animal agricultural sector in the United States with very little experience with individual animal identification. A survey taken in 

1997 indicated that about half of all operations had no experience 

whatsoever with individual animal identification. 

When you consider that we have over 1 million cattle operations 

alone, and we have some 3,000 meat packing and feed lot operations in excess of that, we felt it was important to start this program on a voluntary basis. We believe that for it to work over time, 

all animals will have to be in the system, so at some point, this 

could very well become a mandatory program. 

The first thing we want to do is to look at the USDA-funded programs that have operated over the last couple of years and select 

one of those systems to serve as the national animal allocator for 

premise numbers and a national animal allocator for individual 

animal numbers. Once we scale up one of the existing systems to 

be able to operate in that capacity, then, we plan to work with 

states, with tribes, and eventually with third parties to, through cooperative agreements, and some funding by USDA, enable them to 

interface with the national premise allocator and with the animal 

number allocator. 

Our first priority would be to issue premise numbers, identify 

places where animals are located, develop a uniform definition of 

a premise, sign up states, tribes and third parties and issue 

premise numbers. As you know, in this budget, there is a request 

for $33 million for 2005 to continue the development of that process 

that I just described. That initiative would grow in 2005. 

Senator BENNETT. Fine, thank you very much. 

Senator Kohl. 

HUNGER TASK FORCE PILOT PROGRAM

Senator KOHL. Madam Secretary, in March 2003, I was able to 

assist a nonprofit in Milwaukee, the Hunger Task Force, in receiving approval from the USDA to carry out an innovative pilot program. They received nonfat dry milk from USDA and worked with 

a local Wisconsin dairy to turn this into about 20,000 pounds of 

mozzarella cheese. 

The cheese was distributed to needy families at food pantries 

throughout the region, and it was very popular. Ninety-three percent of the recipients surveyed said that they would much rather 

receive cheese than nonfat dry milk. Because it was such a popular 

program, the Hunger Task Force has asked USDA to let them continue their program. They would propose to use 516,000 pounds of 
24 

nonfat dry milk every year, less than one-half of 1 percent of the 

960 million pounds USDA has in storage. 

As you know, we have been working on this together for a year 

now, and we have talked about it, you and I and your Department 

a great deal. It would be nice if we could reach a conclusion. Is it 

possible that you have anything to say to us on this issue? 

Secretary VENEMAN. Well, Senator, as you and I discussed, I indicated to you that after a review of this pilot program, there are 

significant concerns that have been raised regarding the operation 

of the program from the perspective of how it interrelates with the 

dairy price support program, particularly if the pilot goes beyond 

the limited application it now has. 

Given the conversations that you and I had yesterday, we will be 

agreeing to extend the pilot program for a year, under the limited 

basis, to further evaluate the pilot. But again, there are some significant concerns over the long term that are being looked at both 

in terms of the price support program and the overall impact on 

the dairy program. 

Senator KOHL. Well, I consider that to be a very positive development, and I want to thank you for your willingness to be so cooperative and supportive. I know that the Hunger Task Force, and 

more importantly, the people they serve, will be very gratified by 

your response and will feel indebted to you for this. Thank you so 

much. 

WIC CONTINGENCY FUNDS

Madam Secretary, it is my understanding that states are already 

starting to take action to conserve WIC dollars because they are 

afraid they do not have enough money to finish out this year. As 

you know, we have a $125 million contingency fund to prevent 

things like this from happening, and states need to be given as 

much advance notice as possible if additional money will be made 

available. Do you anticipate using any of the contingency fund this 

year, and if so, will an announcement be made with regard to this? 

Secretary VENEMAN. We are reviewing the possibility, for the 

very reasons that you state, of tapping into that contingency fund 

primarily because of increased prices for formula. That has been 

the primary driver in the increased cost of the WIC program. So 

we are looking very carefully at the possibility of tapping into that 

contingency reserve. Of course, that would have implications for 

the budget you are now considering, because it is anticipated in the 

2005 budget proposal that the reserve would not have been tapped 

into and would roll forward. 

So all of that has to be considered, but given the difficulty that 

many of the states are having, I think we will be looking very carefully at tapping into some of that reserve for 2004. 

ANIMAL WELFARE ACT VIOLATIONS

Senator KOHL. All right. As you know, included in the fiscal year 

2004 bill is $800,000 to help address violations of the Animal Welfare Act, including illegal animal fighting. Along with other problems, bird fighting played a key role in spreading Exotic Newcastle 

Disease in 2002 and 2003, which ultimately cost taxpayers about 

$200 million to contain. I know your department has tried to de-
25 

velop some cases against people who have participated in this activity but has had a tough time because the Federal law provides 

only misdemeanor penalties, and the U.S. attorneys are reluctant 

to prosecute misdemeanor cases. 

Does the administration support legislation, S. 736, to upgrade 

the penalties for Federal animal fighting violations from a misdemeanor to a felony, and if not, do you have suggestions on how 

to deal with this problem? 

Secretary VENEMAN. Senator Kohl, I absolutely agree with you 

that this is a serious issue. We encountered the outbreak of Exotic 

Newcastle Disease, that was focused in the area of Southern California. Not only did we begin to better understand the problem of 

birds that were being transported for bird fighting purposes but 

also I think all of our regulatory agencies and the state agencies, 

including the state regulatory agencies, were surprised to find out 

just how many—what we call backyard birds—were in homes 

around Southern California, in the L.A. area, which made the task 

of controlling Exotic Newcastle Disease and looking for the problems much more difficult. 

We worked with our Inspector General and with our Animal and 

Plant Health Inspection Service and with local law enforcement to 

see how we could better control some of the movement of these animals and birds. Of course, another problem with the birds is the 

live bird markets. There has been a lot of concern expressed about 

that, particularly with the outbreaks of avian influenza here on the 

East Coast. 

I am not familiar with the penalties legislation that you have indicated. We would be happy to review it to determine whether or 

not, with our authorities, it would provide the kinds of assistance 

that would help us better control some of this movement of birds 

that can cause these animal diseases. As you know, these outbreaks have a tremendous impact on our international trade when 

we get these diseases of poultry and other animals. We have had 

several disruptions over the past 2 or 3 years, and we have been 

doing everything we can to address these issues as completely and 

effectively as we can. 

CENTRAL FILING SYSTEM PROGRAMS

Senator KOHL. All right. Mr. Chairman, I had just one other 

question regarding current central filing system programs and the 

need to eliminate any potential for identity theft, which was 

brought to my attention by the Wisconsin Department of Financial 

Institutions. 

However, in the interest of preserving time, I will submit that for 

the record and look for a response. Thank you, Mr. Chairman. 

Senator BENNETT. Thank you. We can get to it in the next round 

if you are so inclined. 

Senator Craig. 

Senator CRAIG. Thank you, Mr. Chairman. 

NATIONAL ANIMAL IDENTIFICATION SYSTEM

Madam Secretary, the Chairman asked the first question that I 

had planned to, and I appreciate your response to a national ID 

system. Senator Hagel, myself, and a good number of others are 
26 

looking at different approaches. But we do appreciate your sensitivity to it, the Department’s. A lot of work—you are right—has already been done. The vet sciences and all of that type of thing; I 

am glad you are approaching it with caution in the sense of timing 

and testing things. 

We here in the Congress sometimes think we are pretty smart, 

but we are not as smart as the cattlemen when it comes to knowing how something will work on the ground that can effectively develop a chain of identification, and I appreciate, and I have had the 

concern of confidentiality expressed to me by a variety of our cattlemen. At the same time, they know, and they are ready to respond 

to a national ID system as long as it is the right system and it 

works, and it is something that is manageable and cost-effective. 

We dare not, in a marginal industry at times, drive up the costs 

simply because we are going to command and control a system. It 

has to function. 

NATIONAL RURAL DEVELOPMENT PARTNERSHIP

Through the decade of the nineties, Idaho was not unlike other 

States. Many of our urban areas prospered, and many of our rural 

areas floundered. And as a result of that executive order by President Bush in 2002 to look at rural economic development was the 

right thing to do. And we here on the Hill responded; I responded 

with legislation to develop a National Rural Development Partnership. It happened. And we have it implemented, now, across America and beginning to work. 

Unfortunately, although I have tried hard to secure stable funding for this what I believe is a common sense vision of bringing together varieties of resources and focusing them effectively in a 

teaming approach as the kind that the executive order and our 

President proposed, we are still struggling to be able to effectively 

do that with natural resources or with resources. I have discussed 

the issue with former Rural Development Secretary Tom Dorr, and 

frankly, we have not seen much change. 

With resources as scarce as they are, what are your thoughts in 

regard to the NRDP with its role in helping rural communities and 

states better coordinate and understand the resources that are 

available to them? 

Secretary VENEMAN. As you indicate, our Rural Development 

programs are an important part of the USDA portfolio, one that 

many people often forget, and I think that one of the things that 

former Under Secretary Dorr was able to do was to help people to 

understand that we need to look at these programs as the venture 

capital for rural America. And I think that concept is very appropriate as we look at these kinds of programs. 

One of the things that our Rural Development team has done is 

they have begun to put together a new partnership of all of the 

Rural Development agencies and programs, so that they are working in much more of a coordinated effort with rural communities. 

I think this partnership will be very positive as we implement it 

and go forward with it because rural communities are often going 

to one of our housing programs, for one thing, and somewhere else 

for an economic development grant. 
27 

If we can begin to integrate our efforts more with specific communities, I think it will help to bring together a number of the 

kinds of issues that you are talking about with the Rural Development Partnerships where we are also trying to work with the 

States and the local communities. 

We have tried to be very forward looking in terms of our Rural 

Development programs. Our housing initiatives, especially, have 

been ones where we have really tried to target towards homeownership. We have our business development loans and our business loans and grants for rural businesses that can help stimulate 

economic activity. We also have a range of utility loans and water 

and sewer loans, which are very popular, and all of these programs 

help rural America have the kind of infrastructure they need to attract capital and attract jobs that they need to thrive for the future. 

So we certainly will continue to work with you on the issues of 

rural development as we move forward. 

Senator CRAIG. Well, thank you, Mr. Chairman. 

Teaming in this issue is phenomenally important. The coordination of bringing them all together, instead of communities rushing 

one place and another to try to find resources is clearly the right 

approach, and I do believe the partnership is moving in that direction to do a comprehensive, coordinated effort, and so, I encourage 

you to pursue that. We will try to find the bucks to help you pursue 

it a little more aggressively than your budget reflects, because 

many of our rural communities are really struggling to come alive 

in a new context that agriculture will just not provide them anymore. 

Thank you. 

Senator BENNETT. Thank you. 

Senator Durbin. 

Senator DURBIN. Thanks, Mr. Chairman. 

Secretary Veneman, welcome, and I welcome all those who are 

with you, especially your chief economist, Dr. Keith Collins, and 

your budget officer, Stephen Dewhurst. They are gifted, patient, 

long-suffering stalwarts of the U.S. Department of Agriculture who 

have in their careers seen more of Congressmen and Senators than 

any living American—— 

With the possible exception of the attending physician in the 

Capitol. 

And I am glad that they are with you today. 

SINGLE FOOD SAFETY AGENCY

We spend a lot of time talking about food safety, and we certainly have since we found that one sick cow. And I have been 

pushing for a single food safety agency to combine the 12 different 

agencies of the Federal Government that have some mandate when 

it comes to food safety and the 35 different laws and the scores of 

committees. I have really been able to convince every aspiring Secretary of Agriculture and every retiring Secretary of Agriculture. I 

just had my problem with current Secretaries of Agriculture who 

do not want to support it. 

So this is your chance to step out and to say it is time for us to 

get together on a single, science-driven food safety agency; that it 
28 

is mindless to have the Food and Drug Administration responsible 

for the feed given to cattle and the USDA responsible for the cattle 

once fed, and it is time to put it all under one roof. I give you that 

chance at this moment. 

Secretary VENEMAN. Well, Senator, you and I have talked about 

this issue on other occasions, and as you know, I think it is very 

important for us to coordinate very carefully on food safety issues. 

We have made a concerted effort in this Administration to do just 

that, and in fact, we have been working very, very closely with the 

Food and Drug Administration throughout the issue of the BSE 

find. 

The FDA has been involved in our briefings with the press and 

they have been involved in our meetings in determining where we 

go from here. Again, we have worked very, very closely with them. 

There has been a lot of discussion about forming a separate agency, 

taking, for example, the Food Safety and Inspection Service out of 

USDA, and along with FDA, putting it into a brand new agency. 

There are pros and cons to that strategy, but I would say to you 

that I think that the BSE situation has illustrated one reason why 

it has been so important to have the Food Safety and Inspection 

Service in the U.S. Department of Agriculture, and that is the 

intersection with BSE between animal health and human health 

and the safety of the food supply given an animal health issue. As 

you know, these two agencies were under the same Undersecretary 

or Assistant Secretary for a number of years in USDA. They were 

split apart about 10 years ago but are still under the same department in USDA. 

We have found that these agencies have had to work seamlessly 

throughout this BSE incident. I think that as hard as we are working with FDA, it would not have been as easy to begin the 

traceback, which we were doing through the Animal and Plant 

Health Inspection Service, when we found the BSE cow and then 

the trace forward to the product, which we were doing through the 

Food Safety and Inspection Service. 

All of these things have been very, very well coordinated as a result of the fact that we have had the agencies together in USDA. 

Senator DURBIN. Well, I will not dwell on the question, because 

as I said, no current Secretary of Agriculture every supports it. 

Once you have retired, you will be in my corner. 

But that will be many years from now. 

BSE TESTING

Let me say, though, that the logic behind the creation of the Department of Homeland Security is the same logic behind bringing 

together food safety. I want to ask you specifically about the announcement of the USDA about testing for BSE: 200,000 cattle 

from high risk, 20,000 from normally old cattle. I have written to 

you three different letters, three different subjects, I should say, on 

BSE, soybean rust and childhood obesity, and I am hoping that 

your Department can get me a response soon to all of those letters. 

In the meantime, though, as I understand it, we do not know the 

ambulatory status of the Washington State holstein cow that tested 

positive. I understand an investigation by the OIG has been 

opened. If it turns out that the only animal that has been tested 
29 

for BSE in the United States was clinically normal and was found 

only through chance, then we must question the USDA’s BSE surveillance program that focuses only on suspect, nonambulatory and 

dead cattle. 

So I would like to ask you, how do you happen to believe that 

it makes sense for us, since we have millions of cattle, mostly aged 

dairy cows in the United States, that are older than the FDA ruminant feed restrictions of August 1997 not to be universally testing 

those older animals; instead, taking a very small sample which 

may not even tell the story of what happened in Washington State? 

Secretary VENEMAN. Senator, as you know, we recently announced our expanded surveillance plan on March 15. One of the 

reasons that we wanted to wait to make an announcement and to 

decide on our surveillance plan is that we wanted to wait for the 

international review committee to return with their analysis of how 

we conducted the BSE investigation and what steps we should undertake in addition to what we have already done to move forward. 

We had already said we were going to increase our surveillance, 

but we asked them for specific recommendations on surveillance. 

What they recommended was an expanded surveillance plan for a 

period of about a year to get a baseline of what the extent of the 

BSE problem is in the United States. As a result of that, we 

worked with our Animal and Plant Health Inspection Service as 

well as our Chief Economist’s Office to get a statistically valid sampling process established. Now, that is still targeting, as the international organizations recommend, the highest-risk animals: those 

with central nervous system disorder signs, those that are dead, 

dying, or downers. 

We know from the countries that have had a much greater incidence of BSE than we obviously have had in North America, that 

these are the cows that are most likely to have BSE. But as you 

indicate, we included in our surveillance plan a random sampling 

of older, healthy animals, and the importance of that is to target 

the animals you are talking about, that is, those animals that are 

older than the feed ban primarily. Not just to say that if animals 

are over 30 months, we are going to randomly sample them but to 

really target those animals that are over the age of the feed ban. 

We think it is important to get a random sampling of that group 

of animals. 

I think you have probably seen a lot of the debate about this particular instance in Moses Lake in Washington State. There has 

been a great amount of debate about whether or not this cow was 

indeed a downer. I have to say that as our OIG is investigating it, 

the Government Reform Committee has been very involved in looking into this. 

Our veterinarian from FSIS clearly deemed this cow to be nonambulatory, a downer, thereby putting it in the higher risk category. But apparently, according to this process, this company was 

bringing in animals that they called, ‘‘back door animals’’ and 

many of those animals were tested under the BSE testing protocol, 

but the company was not calling them downers because they were 

saying that we do not kill any downers in our plant, because they 

had customers who did not want downer cows. 
30 

Senator DURBIN. It has been 4 months, and we still cannot answer that basic question: what was the ambulatory status of this 

diseased cow? 

Secretary VENEMAN. Our veterinarian deemed it to be a downer. 

Senator DURBIN. Nonambulatory. 

Secretary VENEMAN. Right. 

Senator DURBIN. Mr. Chairman, I know my time has expired. I 

have a series of questions on BSE, soybean rust, which was not 

mentioned in the Secretary’s remarks, but I have spoken to her 

personally, and on the whole question of school lunch programs 

dealing with childhood obesity, which I would like to submit to her 

for response. 

Thank you, Mr. Chairman. 

Senator BENNETT. Be happy to do that, and we do intend to have 

another round if you—— 

Senator DURBIN. Thank you. 

Senator BENNETT. If you have got an opportunity. 

Senator Dorgan. 

Senator DORGAN. Mr. Chairman, thank you very much. 

Madam Secretary, thank you for being here and thanks to your 

staff. 

BSE AND CATTLE FROM CANADA

I want to just make a couple of comments and then follow with 

a question, and the comments will not surprise you. One is the 

issue of BSE or mad cow disease. You know I have written to you, 

and I hope very much that we will not move quickly to open the 

border to live cattle with Canada. We know there is discussion 

going on, there is a process, but I feel very strongly about that 

issue. I regret very much that a case of mad cow disease was found 

in Canada; a case of BSE was found in the United States, apparently with a cow that was imported from Canada. 

But first and foremost, our objective must be to protect our beef 

industry, and I really hope you will move cautiously. I do not think 

this is the time to open the market to the import of live cattle from 

Canada. Second, I want to again say, many of us, as you know, feel 

very strongly about country of origin labeling. And we have had a 

long, tortured debate about this legislation, and, you know, this has 

kicked around a long while. We need to move on that and get that 

done. 

AGRICULTURAL TRADE AND CAFTA

And third, I want to discuss something that you are not directly 

involved in in terms of responsibility, but I know you have an acquaintance of, and that is the agricultural trade issue. I would just 

say for the interest of the administration, the negotiation of 

CAFTA, the negotiation of US-Australia falls far short, from my 

standpoint. I regrettably would oppose CAFTA if it is brought to 

the floor, and with respect to Australia, the promise by the trade 

ambassador to deal with the elimination of state trading enterprises was not done with Australia, and I regret that. 
31 

STANDARD REINSURANCE AGREEMENT

So those are just a couple of things, and I know that it is not 

your primary responsibility to deal with ag trade. That is a message, really, for the Trade Ambassador. 

I would like to mention to you, the Risk Management Agency of 

USDA is engaged in negotiations with the crop insurance providers 

for a new product called SRA or Standard Reinsurance Agreement, 

and I have been visited by farm organizations and others about it. 

One major farm organization that came in to talk to me about the 

first draft of the SRA, were very concerned about it. 

They said that draft was so onerous that a number of private 

companies and reinsurers could abandon their participation in the 

program, leaving farmers and ranchers with less competitiveness 

than they have today. I do not admit to being an expert in this 

area, but I will just ask you to take a look at what is happening 

there, because having crop insurance that works, that is good for 

producers, is very important to us, and we do not want to leave 

farmers and ranchers without the choices that they need and deserve. 

IMPORTATION OF LIVE CATTLE FROM CANADA

We, I believe, are going to be meeting on another subject dealing 

with the issue of broadband loans, which is a program, I know, 

that you are beginning to initiate, and I am anxious to get that 

done. We will talk about that at a later time. But I did want to 

just mention those issues, and if you would give me just an answer 

on the issue of the importation of live cattle from Canada, given 

the BSE situation. Would you respond to that? 

Secretary VENEMAN. I would be happy to, Senator. 

As you know, when Canada announced that it had a single find 

of BSE on May 20, our standard protocol was to close the border, 

which we did. We then looked from a risk-based perspective, a scientific perspective, at reopening the border for the lowest-risk product, which was deemed to be boneless boxed beef from animals 

under 30 months, and we did that. The effective time of that was 

about the end of August, the beginning of September. 

We then also published a proposed rule that would allow live cattle to reenter the U.S. market that were under 30 months of age 

and that were going directly to slaughter. I know that you said in 

your remarks that we need to protect our beef industry. This would 

have not put these cattle into the general population, but they 

would have had to be destined directly for slaughter. 

The comment period on that rule was to close on January 5. 

This, as you know, was just after we discovered BSE in this country. So on January 2, I announced that we would allow the comment period to close, but that we would not take action on the proposed rule until we had time to finish our investigation, which we 

did in February. In March, we reproposed the same, or a very similar rule, I should say, and opened the comment period again for 30 

days. The comment period will close, I think, on April 7, and we 

will then evaluate the comments that we have received. 

But again, this border opening would be limited, and as I have 

been around the country lately, I realize there is a lot of confusion 
32 

about what this importation rule would do. This rule, as it is proposed, would limit importation to those animals under 30 months 

destined for slaughter. My Canadian counterpart indicates that we 

should move quickly to allow all cattle to come into the United 

States, but the way we set this up is in a two-stage process based 

upon the risk. 

So I think that it is very important that we take actions with regard to trade on sound science. We have also been working with 

other countries. Obviously, we have lost most of our beef trade because of the BSE find here. We have had some success in partially 

reopening the Mexican market. We are working hard with our markets in Asia and other places. But it is very important that we set 

a good example in terms of basing our decisions that pertain to border opening and other issues on sound science, and that is what 

we have attempted to do throughout this BSE situation. 

Senator DORGAN. If I might just make a final comment, Mr. 

Chairman, I understand that. I also believe that in Japan, they 

have discovered animals with BSE, mad cow disease, under 30 

months of age. I wish no ill for the Canadian producers. Our heart 

breaks for them as well. But our first and foremost job is to protect 

our country’s industry. And with the release a week or so ago of 

information about two Canadian feed plants, you know, the question is what were British cows, cows that were banned for importation into the United States since 1988, doing in Canadian cattle 

feed in 1997, 9 years later? 

All of those things just raise a lot of questions, and I would just 

ask that we not rush to open that border to the import of live cattle 

from Canada. I think it is very important. 

Madam Secretary, thanks for all of the work that you do. We 

from time to time agree on things and disagree on things, but your 

office is always responsive, and I appreciate that. 

Secretary VENEMAN. Thank you. 

Senator BENNETT. Senator Bond. 

Senator BOND. Thank you very much, Mr. Chairman. 

EXPORTS TRANSPORTATION INFRASTRUCTURE

Madam Secretary, I do not know if you remember or if you saw 

the December 1 last year Wall Street Journal. The headline on the 

front page said railroad log jams threaten boom in the farm belt, 

delays in grain shipments reduce potential profits, may affect overall economy. Log jams worst since 1997. Corn and soybean on the 

ground; rail prices doubled over the past 6 months, close quotes. 

In general, in your view, how critical is it that we have efficient 

shipment transportation options for our exporters, and is an efficient waterways system essential if we are going to export in an 

increasingly competitive international marketplace? 

Secretary VENEMAN. Well, Senator, I believe it is. As you know, 

we are very dependent in our agriculture sector on the export market. We produce much more than we consume, and so, the global 

market is very important. We are projecting that our agricultural 

exports for this year, 2004, will be at $59 billion. This is even with 

the difficulties we have had because of our beef exports and our 

poultry exports with BSE and avian influenza. That exports projec-
33 

tion is nearing our record high level of exports of $60 billion in 

1996. 

But one of the reasons we are able to be such an abundant producer and be such an important exporter in the world market is 

because we do have an infrastructure that allows us to move that 

product. Whether it is on the railroads, and I would like to point 

out that I did send a letter to all of the railroad executives asking 

them to make sure that they were addressing the issue of agricultural commodities when the transportation infrastructure issue 

was going on, but we also depend, to a great extent, on the waterways as well for the movement of agricultural commodities. 

Senator BOND. Thank you. And I think the best way to assure— 

we need all forms of transportation, and the more competition we 

have the more efficient and more economical every one of them is 

going to be. You are probably aware the Mississippi River has locks 

and dams built 70 years ago that were designed to last 50 years. 

I have seen them leak and the water flow through. They are a 

source of congestion. It is a straitjacket on our shipping growth in 

a region where two-thirds of our corn and almost half our beans 

for export must travel. 

I am working with Senators Harkin, Durbin, Grassley and others, because it takes 870 trucks to carry the same amount of corn 

as one single medium-size tow on the Mississippi. The Corps of Engineers is now in the 12th year of their 6 year, $70 million study 

and in great need of some adult supervision and guidance from 

USDA. AMS and Deputy Hawks have been working on this to ensure that farmers are not left to the mercy of a dilapidated water 

transport system and a railroad monopoly. I appreciate your keeping an eye on this to ensure that we maintain an efficient means 

of getting our farm products to market. 

TRANSPORTATION EFFICIENCY

Let me turn to Dr. Collins. How do you see the relationship between transportation efficiency and the ability of farmers to win 

markets at higher prices? 

Mr. COLLINS. I think they are fundamentally related, Senator 

Bond. A great example of that is simply what has happened in the 

world soybean market over the last 10 years or so. Everyone knows 

that Brazil has a very low cost of production of soybeans. However, 

we have an advantage in transportation infrastructure. And that 

has enabled us, despite the large growth in soybean production in 

Latin America, to continue to increase our exports and be competitive around the world. So I think they are closely related. 

CORN SHIPMENTS

Senator BOND. I just hope we maintain that edge. 

Over the next 10 years, Dr. Collins, what would you estimate the 

increase in corn shipped through the Gulf to be? 

Mr. COLLINS. Senator, we have recently completed a 10-year 

analysis that forecasts through the 2013 crop year. We do not 

project specific exports through the Gulf. I know you have asked 

me this question. Our exports of corn in total over the next 10 

years are projected to rise about 45 percent, and about 70 percent 

of all corn export increases would be expected to go out through the 
34 

Gulf. So we would say something in the range of about 435 to 550 

million bushels of corn, over and above where we are now, would 

be going out through Gulf ports by the year 2013. 

Senator BOND. I was interested that you do your baseline projections for 10 years. The Corps has tried to figure out what is going 

to happen 50 years from now. Why do you do it for 10, not 20, 30 

or 50? 

Mr. COLLINS. Doing it for 10 is heroic enough. 

Senator BOND. You are joined in that by the National Academy 

of Sciences, which said nobody can predict anything 50 years from 

now, and I very much appreciate your projections and your interest. 

Mr. COLLINS. I think that is right. There are just too many risk 

factors for us to go much beyond a decade. 

Senator BOND. Thank you. 

Senator BENNETT. Senator Harkin. 

CONSERVATION SECURITY PROGRAM

Senator HARKIN. Thank you very much, Mr. Chairman. 

I apologize for being late, but I thank you for this opportunity. 

I welcome you again, Madam Secretary, and I want to cover a 

couple of programs with you, the Conservation Security Program 

and the bio-based proram which includes, the Federal requirement 

to purchase bio-based products, both of which were in the Farm 

Bill. 

Secretary Veneman, as you know, the Conservation Security Program is an important new program included in the 2002 Farm Bill. 

It embodies all the important features included in your own Food 

and Agricultural Policy report. The payments fall under the WTO 

green box for trade purposes. It encourages not only maintenance 

of conservation practices, but additional new conservation, and it 

is a voluntary national program to diminish the need for environmental regulations for farmers and ranchers. 

Despite the promise of CSP, despite the clear wording in the law 

that we passed and the President signed, USDA has drug its feet 

and has issued a proposed rule that provides such limited payments and very difficult eligibility requirements with multiple obstacles that almost no producers can get in, and the few that can 

may find it financially impossible to participate. 

The program in your proposed rule bears little resemblance to 

what was passed in the Farm Bill. Quite frankly, Madam Secretary, you have made up the rules out of thin air. Now, not only 

have members of Congress told you that; I have here a recent letter 

that 56 members of the Senate signed. Last summer, we sent you 

another bipartisan letter. This later one was bipartisan, too with 

56 members. I could have gotten more, but I ran out of time. 

But every Senator I have talked to has heard from their farm 

groups, the major groups, the Farm Bureau, the Farmers Union 

and also the other crops: the corn growers, soybean producers, cotton, rice, everybody. And as I understand it, you have gotten over 

12,000 comments, sent to you expressing similar sentiments and 

disappointment. 

Now, after you published the proposed CSP rule, Congress 

passed and the President signed into law the fiscal 2004 Consoli-
35 

dated Appropriation Act that restored the CSP funding to what it 

was in the Farm Bill. Now, in your proposed rule, you have said 

here, that Congress is currently considering legislation that 

amends funding for the CSP. Pending the enactment of the legislation, NRCS intends to publish a supplement to this proposed rule. 

Well, we changed the law, but there is no supplement to the proposed rule. 

So now, USDA’s rulemaking, simply, it seems to me, is going on 

in some kind of a black box. We do not know what is going on. For 

example, I was shocked to find out that despite the fact that the 

comment period closed on March 2, the public and the press still 

does not have access to the comments. My staff that I deputized 

to do this have repeatedly requested and asked for access to the 

comments, and we have been denied. The press has been denied. 

Madam Secretary, with all due respect, I have never in all my 

20 some years here encountered an agency denying access to public 

comments in this way, never. And so, you know my frustration. I 

am saying it this way because the farmers I have talked to are extremely frustrated by this, so I am asking you for the record 

whether you will commit to America’s farmers and ranchers, to our 

Nation’s citizens, to your own words in your farm policy report that 

you will revise the CSP rules and carry out the program as written 

in the Farm Bill and which the President signed. 

Will you commit yourself to that? 

Secretary VENEMAN. Senator, let me just say that this CSP is 

part of the larger Farm Bill, as we have talked about. We have had 

a tremendous amount of work to do with regard to this Farm Bill, 

and as we have discussed on many occasions, the CSP was not described in detail in the Farm Bill, and there were many decisions 

left to be made. We have gone out and had a number of public 

hearings, a number of processes to get public input, and as you say, 

our proposed rule was then published. 

The comment period has now closed, and as you have rightfully 

indicated, there were over 12,000 comments. We are now in the 

process of evaluating those comments to determine what the final 

rule should look like. I certainly can commit to you that we are 

going to review all of the comments that we received. I frankly had 

been unaware of the fact that you had not had access to the comments, and I commit to you that I will look at that issue to determine whether or not we can get you the comments that you are requesting. I was not aware that the comments were not available. 

Senator HARKIN. I would also hope that you would let the press 

have access—these are public comments. 

Secretary VENEMAN. I understand. 

Senator HARKIN. There should be no secrecy. There are no state 

secrets. 

Secretary VENEMAN. I understand, Senator. I just was unaware 

that there was a problem. 

Senator HARKIN. Well, it is a big problem. 

Secretary VENEMAN. I will go back and try to determine what is 

the issue there. 

Senator HARKIN. All right; I appreciate it. 

Secretary VENEMAN. But I think as you indicate, this has been 

a long process primarily because it is a new program, and we want 
36 

to do it right. I have not seen the comments. I do not know what 

the various issues are, but I can tell you that because the funding 

has been limited, we have had to make some decisions about how 

we structure this CSP program. Are they the right ones? I do not 

know. But this is what you have: a notice of proposed rulemaking 

and we have comments for the proposal and so, as we go forward, 

I cannot tell you what the final rule is going to look like, but certainly, we will review the comments and take into account as much 

as we possibly can in developing a final rule. 

Now, Dr. Collins has been part of our overall group that has been 

responsible for implementing the Farm Bill, and he may want to 

make a couple of other comments about how we have tried to work 

to get to where we are on the CSP rule. 

Senator BENNETT. Let me warn you, Dr. Collins, the vote is on, 

so that we need to be as brief as we can. We will not have another 

round, after I have been promising it all afternoon, because we 

have to go vote. 

Mr. COLLINS. I did not know that. 

Senator BENNETT. But go ahead. 

Mr. COLLINS. Mr. Chairman, I would only say very quickly that 

there has been a different balance that the agency has had to cast 

here. We have a statute with a legislative history of it being 

capped. It is capped for fiscal year 2004. It also has a limitation 

on technical assistance funds. 

Senator HARKIN. Is it capped beyond fiscal year 2004? 

Mr. COLLINS. It is not capped beyond 2004. 

Senator HARKIN. Thank you. I want that for the record to be 

clear. Fiscal year 2005 and beyond is not capped. 

Mr. COLLINS. It is not. But we have had a legislative history of 

caps in the out years, and the Administration has proposed a cap 

in the out years, although statutorily, it is not capped in the out 

years. 

Senator HARKIN. Thank you, the law we are following in the law 

in effect now. 

Mr. COLLINS. Correct. There is also a 15 percent limitation on 

technical assistance, which also does serve as a constraint in the 

Natural Resources Conservation Service’s ability to deal with the 

potential 1.8 million farms that would be eligible for a wide-open 

environmental stewardship program. So I think there were those 

kinds of constraints that the agency felt they needed to deal with 

in developing this regulation. 

Senator HARKIN. Well, I know we have to go, Mr. Chairman, but 

when were the rules supposed to come out under law? What date? 

February of 2003. We are now more than a year past that. I think 

we, all of us here and on the authorizing committee, have been 

more than understanding of saying, okay, fine, things take time. 

But we are getting to the point now where farmers are just saying you are scoffing at the law. The Department of Agriculture is 

just scoffing at the law that we wrote and not doing anything to 

implement this. The proposed rules bear no resemblance to what 

is in the law. That is why you have got over 12,000 comments. I 

have not read them. I take you at your word you are going to try 

to let us have access to those. As I have said, I have never had an 

agency ever say that we could not look at public comments. 
37 

But all I know is that the agricultural producers and groups 

have contacted me who have sent in comments. To a person, I am 

sure that close to 100 percent were opposed to the rules that you 

proposed, so I just am hoping that you do have a revision of these 

rules. I would forego the supplement at this point to the proposed 

rule. You do not need a supplement. That will just delay the final 

rule some more. But if you get these rules out and carefully follow 

the comments, then, perhaps we can start signing people up soon. 

And I am glad, Mr. Collins, you have pointed out that it was 

capped this year; the law got changed. We got it put back the way 

it was in the Farm Bill, and it will not, I can assure you, change 

again until this Farm Bill is up again. And so you should prepare 

for a program that reflects the law beyond this year. 

Thank you, Mr. Chairman. 

Senator BENNETT. Thank you. 

Senator HARKIN. I did not get to the bio-based products program. 

Senator BENNETT. Well, you can submit those for the record. 

Senator HARKIN. I appreciate it. Thank you. 

Senator BENNETT. And she will be happy to respond in writing. 

SECTION 521 RENTAL ASSISTANCE

Madam Secretary, I have two quick items; also, you can respond 

in writing for the record. GAO recently reviewed the Rural Housing 

Service’s Section 521 Rental Assistance Program, and the information that I am seeking is very specific, so I will provide a written 

request and would ask that you respond in writing both to myself 

and to Senator Kohl by the 6th of April if you possibly can. 

CYBER SECURITY

And then, the second quick item, this is a hobby horse of mine, 

but I cannot resist it: cyber security, IT weakness. GAO did a study 

on the cyber security of the department and found, quote, significant and pervasive, close quote, information security weaknesses. 

And we will give you again some information in writing, and the 

only comment I want to make about this based on my experience 

with Y2K, when we had that challenge governmentwide, the 

mantra I repeated over and over again, to which the Clinton administration responded, was this is not a CIO problem; this is a 

CEO problem. 

When the Secretary or the administrator or whoever the CEO of 

the agency was made it clear that this was her priority or his priority, then it got done. If it got turned over to the CIO and say, 

well, this is a technical thing, you fix it, then, it did not get done, 

because nobody recognized how important it was, and the GAO report indicates the many problems they found are fixable, and I am 

sure that it can be fixable. 

I simply wanted to call it to your attention as the CEO, to ask 

you to give it the kind of leadership of which you are more than 

capable and which I think the problem demands. 

Secretary VENEMAN. Mr. Chairman, if I might make one comment on that. I do take cyber security very seriously, as does our 

CIO. We had money in the 2004 budget for cyber security, and it 

was denied by the Congress. We have money again in the 2005 

budget request for cyber security, and we hope that, given your 
38 

strong interest in this, that we will be able to maintain that money 

in the budget so that we can do the things that we know we need 

to do. 

Senator BENNETT. Properly noted, and I will be a bulldog on it 

this year. 

Senator HARKIN. Just 60 seconds, please. 

ADDITIONAL COMMITTEE QUESTIONS

Senator BENNETT. All right. I will time you. 

Senator HARKIN. Secretary Veneman, the learing I did not want 

to leave on that note. I told you I was going to be hard on you on 

the CSP, and I am going to continue to be hard on you. But I wanted to end it on a positive note. I want to thank you, Madam Secretary, for what you have done for the Ames Lab and for coming 

out for the dedication of it. You have been great. You have put 

money into this critical project. 

It is needed, Mr. Chairman, to make sure that we have the best 

laboratory facilities in the world in answering animal disease problems and especially with the issues about BSE. We are moving 

ahead at Ames, and I just wanted to thank you, Mr. Chairman, 

Senator Kohl and your staff, along with Secretary Veneman, very 

much for all of your support and help with the Ames lab. 

Secretary VENEMAN. Thank you for being there with us. 

[The following questions were not asked at the hearing, but were 

submitted to the Department for response subsequent to the hearing:] 

QUESTIONS SUBMITTED BY SENATOR ROBERT F. BENNETT

RD STATE OFFICES

Question. We understand that RD state offices have been told that there will not 

be sufficient money to fund all rental assistance needs this year—in particular, that 

some rehabilitation and repair loans may be funded without rental assistance. We 

also understand that the state offices have been told to reexamine their unused 

rental assistance and to consider using unused rental assistance funds for rehabilitation and repair loans. Your calculations for rental assistance needs seem inconsistent. 

Please explain your fiscal year 2004 calculations and provide us with documented 

information that explains the discrepancy between your original and current calculations. Also, please document what new information, if any, has resulted in the 

change regarding your ability to fund rehabilitation and repair loans. 

Answer. The fiscal year 2004 calculation of $740,000,000 was reduced by Congress 

to $730,000,000. Then 20 percent was taken off to account for 4-year contracts instead of 5 years. There was a rescission to bring the number to $580,550,000. Of 

the total, $10,000,000 was allocated to new construction, farm labor and preservation, which left $570,550,000 for renewals. At $14,000 per unit for 4 years, we estimated 40,754 contracts could be renewed. This resulted in no rental assistance for 

rehabilitation. We expect to use $55.8 million of the $116 million available for the 

Sec. 515 loan program for repair rehabilitation process. 

RHS/GAO REPORT ON RENTAL ASSISTANCE

Question. The Rural Housing Service (RHS) has reported that in implementing its 

new automated budget estimation process, 3 to 4 staff will work together on generating the budget estimates and allocating the resulting funds to rental assistance 

contracts. 

In light of the concerns reported in the GAO report, ‘‘Standardization for Budget 

Estimation Processes Needed for Rental Assistance Program’’ (GAO–04–424), over 

the lack of segregation of duties at RHS, how will you document that these key duties have been divided among 3 to 4 different people to reduce the risk of error or 

fraud? Furthermore, will these 3 or 4 staff come from different offices within Rural 
39 

Development, e.g., budget, finance, and program offices, or will they all be from the 

program office? If from the same office, please comment on how you plan to maintain the segregation of duties. 

Answer. The agency has not made a decision on how to address this issue. Several 

options are being considered. One of the options would include a national office staff 

person responsible for the day-to-day administration of rental assistance and a supervisory-level person to handle the policy issues. The allocation process would be 

developed in the national office and then presented to a ‘‘Rental Assistance Advisory 

Committee’’ made up of the national office staff who administer the rental assistance program and a person from RD Budget Staff, a person from the Finance Office, 

and the Deputy Administrator for Multi-Family Housing. This committee would concur with the proposed allocation method presented by the national office staff. The 

concurred allocation method would be presented to the Administrator for approval. 

Question. To what extent is the RHS national office monitoring the activity of 

rental assistance transfers at the state and local levels? For example, how many 

units and how much rental assistance funding was transferred in fiscal year 2003? 

How does RHS ensure that units are transferred according to the regulations, and 

that transferred units are used in a timely manner? 

Answer. The national office provides procedures and advice to the field staff for 

the proper administration of rental assistance. We also perform Management Control Reviews (MCR) of the program, which consist of visits to four representative 

states to see if the program is being correctly administered. The MCR results and 

recommendations are provided to all states for educational and consistency purposes. 

In fiscal year 2003 5,166 rental assistance units and $48,436,455 were transferred. 

To address the issue of unused rental assistance, we are reviewing and providing 

monthly reports to the field staff and the management team to ensure this valuable 

resource is properly and promptly used. 

Question. Last year this subcommittee was told that USDA had acquired a team 

of professionals from inside and outside of government to create a new rental assistance forecasting tool. Who were the outside professionals that helped create the tool 

and what did they do? 

Answer. The Agency developed a working group consisting of staff from the Department’s IT Systems Services Division, the Financial Management Division, national office and field staff, and private contractors from Unisys, IBM and Rose 

International. This team developed a model based on relevant informational elements using several software applications. The Rental Assistance Forecasting Tool 

was completed in November 2003, was reviewed by GAO in December 2003, and has 

undergone several months of testing to ensure accuracy and debugging. The Department expects to use the Forecasting Tool to develop the fiscal year 2006 Rental Assistance Renewal budget estimate. 

RURAL PROGRAMS

Question. There are currently different definitions of rural among various rural 

development programs throughout USDA and the Federal Government. A town 

needs to have a population under 2,500 to be eligible for some USDA rural development programs and rural towns with populations of 20,000 or 50,000 are eligible 

for other USDA rural programs. Rural health programs in HHS use non-metropolitan criteria. Also, some programs use county data, others use census tract information, and still others use commuting area designations. 

Should there be a more consistent definition with common criteria for rural programs throughout USDA and the Federal Government? 

Answer. Due to the diversity of rural communities across the country and the 

wide variety of programs funded by the Federal Government for rural residents, 

businesses, and communities, it is difficult to develop one definition for ‘‘rural’’ that 

is appropriate for all purposes. Past efforts have been found to be harmful to some 

segment of the population or overly generous to another segment. Nevertheless, we 

support simplification of the myriad of definitions and criteria used to define and 

allocate resources to rural areas. 

Question. I understand that RHS has started a capital needs assessment and, as 

outlined in the GAO report (GAO–02–397), is developing a protocol for evaluating 

the physical, financial, and market needs of the section 515 multifamily portfolio. 

I also understand that a private contractor is evaluating a 3 percent sample of the 

portfolio to develop the protocol. Who selected the 3 percent sample, and what methodology was used for the selection? In particular, (1) did all properties have an equal 
40 

chance of being selected, or (2) were other factors, such as the age of or the percentage of rental assistance in each property considered in the sampling process? 

Answer. The Agency consulted with Department economists who, after reviewing 

the data, provided us with the sample size that would result in a 90 percent confidence level. The 333 Section 515 properties selected were a mix of family and elderly complexes in operation for more than 5 years, and categorized by property size 

(less than 12 units, 12–24 units, 25–50, 51–100 and 101 units or more). All of these 

factors were used to sort the total database to develop a representative sample. The 

percentage of rental assistance was not a factor in selecting the sample. 

RD INFORMATION TECHNOLOGY

Question. In July 1993 testimony, GAO stated ‘‘USDA has substantially increased 

its use of information technology. But most of the information system expenditures 

to date have been for automating the systems associated with providing program 

benefits. However, these systems are not providing managers with the data they 

need to manage and make decisions, nor is the information produced in a form that 

can easily be shared with other agencies.’’ 

How much have we progressed in the past 11 years? For example, how many different information systems are used to manage the various housing and community 

development programs in USDA’s Rural Development Mission Area? 

Answer. Over the past 11 years, Rural Development has progressed significantly 

beyond the automation capabilities supporting the mission area at that time. Several new, modern state-of-the-art systems have been constructed and deployed in 

support of Agency business needs. Some key major accomplishments in this area include: 

—The Agency purchased and deployed a new commercial-off-the-shelf mortgage 

servicing system in support of the Single Family Housing Direct Loan Program 

and in support of the Centralized Servicing Center in St. Louis. Deployed in 

support of this commercial system were several new technologies including document management technologies including scanning and imaging, workflow 

management, and content management; automated mail handling; and automated call center technologies including voice response and predictive dialing. 

These capabilities have not only been extended to other business processes 

within Rural Development but to other USDA agencies and the Department. 

—A new guaranteed loan system supporting all Rural Development loan programs 

(and Farm Services Agency guaranteed loans) has been fully deployed and 

major new enhancements have already been completed. This system now includes a funds reservation application, an electronic data interchange capability 

with participating lenders, and a web-enabled user interface. Application and 

project tracking capabilities for Business & Industry and Community Facility 

loans and grants have been added to this system. 

—A new system is in the process of being designed, developed, and deployed to 

replace obsolete legacy systems dating back to the Rural Electrification Agency. 

The initial capabilities of this new system have been deployed and key financial 

and program management capabilities are in development. 

—In a joint effort with the Farm Services Agency, Rural Development has purchased and deployed a new program funds control system that is compliant with 

the Joint Financial Manager’s Integrity Act. 

—A new Multi-Family Housing project management system has been deployed 

and new enhancements are being added to meet emerging needs identified to 

improve the overall management and oversight of this program. This new webenabled system permitted the retirement of three, stove-pipe legacy systems. 

While much progress has been made in RD’s information technology (IT) capabilities, the 2005 Budget requests an additional $14.1 million to upgrade IT systems. 

Upgrades are needed to improve RD program accountability and customer service, 

and to correct a material deficiency in RD direct loan systems. 

Question. How compatible are the systems? 

Answer. Each system is designed to meet the unique needs of the loan and grant 

programs they support. However, all new systems and applications are built using 

‘‘re-useable components’’ and technologies that are relatively easy to extend to other 

systems and applications. Integration of data is achieved through the construction 

of a data warehouse that will eventually become the single source of all Rural Development management data. Although much Agency data has been extracted and 

moved into the data warehouse and made available to Agency managers and staff, 

there is much more to accomplish. Also included in the data warehouse is census 

data which allows program managers to better monitor the effectiveness of their 

programs. Tabular data has been geo-coded to permit the graphical display of data 
41 

by creating maps; maps showing eligibility areas for specific programs have already 

been developed. Rural Development systems are being built through a vision of a 

fully-open technology architecture and data integration is being achieved by moving 

all data required to support Agency loan and grant programs into a single data 

warehouse. 

COORDINATION OF USDA RURAL PROGRAMS

Question. What efforts have you implemented to facilitate the coordination of programs across USDA for the benefit of rural communities? 

Answer. Within USDA, we have developed guidelines regarding the delivery of all 

Rural Development programs and required the state offices to reorganize themselves 

to meet those guidelines in order to bring consistency to how programs are delivered 

nationwide. 

Question. What is the Department’s rural policy? 

Answer. The Department’s rural policy recognizes the diversity of rural America 

and that there is no single recipe for prosperity that will be applicable nationwide. 

It further recognizes that agriculture is no longer the anchor for most rural communities and the availability of non-farm jobs and income are the drivers of rural economic activity. The creation of an economic environment to save or create jobs in 

rural areas is the challenge and doing so will require attracting private investment; 

creating a rural population with the education and skills needed by businesses; and 

the development of the technology, infrastructure and community facilities needed 

to make rural communities attractive to new businesses is critical if the communities are to prosper. Finally, there is the recognition that we need to enhance the 

market base for agricultural producers to find new markets for their products, including the development of alternative fuels. A more thorough discussion of the Department’s rural policy is outlined in the USDA publication ‘‘Food and Agricultural 

Policy—Taking Stock for the New Century’’ which was published in September 

2001. 

Question. USDA Rural Development is mandated under the Farm Bill to create 

the National Rural Development Coordinating Committee. What is the status of 

that effort? 

Answer. Rural Development is developing a course of action regarding creating 

the National Rural Development Coordinating Committee. The Farm Bill mandates 

certain representation on the Coordinating Committee, but implementation of that 

mandate could be pursued in a variety of ways. Rural Development may publish a 

notice in the Federal Register requesting public comment and input on how to accomplish that mandate. 

Question. The Farm Bill also mandates that USDA present a report to Congress 

on the National Rural Development Partnership. What is the status of that report? 

Answer. Section 6021(b)(3)(B) of the Farm Security and Rural Investment Act 

states that the Governing Panel in conjunction with the National Rural Development Coordinating Committee and state rural development councils shall prepare 

and submit to Congress an annual report on the activities of the Partnership. This 

annual report cannot be submitted this year because neither the Governing Panel 

nor the National Rural Development Coordinating Committee yet exists. 

PILOT PROGRAM

Question. In September 2000, GAO noted that in some rural areas, new agribusiness jobs are available in off-farm processing plants, such as aquaculture and 

poultry processing operations. In response to the GAO report, USDA noted that it 

had undertaken a pilot program in California and was considering a potential demonstration program in the future. What resulted from the pilot program and has 

USDA undertaken any similar pilots? 

Answer. In the fiscal year 2001 Agriculture Appropriations Bill, Congress authorized the Rural Housing Service (RHS) to provide almost $5 million in housing assistance (grants) for agriculture, aquaculture, and seafood processing workers in the 

states of Mississippi and Alaska. On February 12, 2001, RHS published a Request 

for Proposals in the Federal Register and on September 14, 2001, six proposals were 

selected for funding. The six selected proposals are in different stages of development. Some have completed construction and are now providing housing to processing workers. Other proposals have not completed construction. 

In the fiscal year 2004 Agriculture Appropriations Bill, Congress authorized RHS 

to provide almost $5 million in housing assistance (grants) for processing and/or 

fishery workers in the states of Alaska, Mississippi, Utah and Wisconsin. On April 

6, 2004, RHS published a Request for Proposals in the Federal Register. The deadline to submit a proposal is July 6, 2004. 
42 

NATIONAL BOARD ON RURAL AMERICA

Question. What is the status of the National Board on Rural America created 

under the Farm Security and Rural Investment Act of 2002? Is such a board needed 

to promote business and community development in rural America? 

Answer. The Board was to implement the Rural Strategic Investment Program. 

Funding for the program was rescinded by Congress. Without funding to cover their 

administrative expenses, the Board cannot function and has, therefore, not been 

named. 

The promotion of business and community development in rural areas occurs in 

a variety of ways through outreach from government, non-profit and profit organizations. The establishment of the National Board on Rural America is not critical to 

this function. 

MULTI FAMILY HOUSING

Question. How effective has the agency been in encouraging more lenders to get 

involved with the Section 538 guaranteed multifamily housing program? Is anything 

being contemplated through regulation, or through a statutory change to allow the 

program to provide more multifamily affordable housing for moderate-income families? 

Answer. Lender participation in the program has been increasing because the industry has created a secondary market for the program. The Section 538 lender pool 

currently consists of 15 Approved Lenders, which are lenders with closed Section 

538 loans, and 16 Eligible Lenders, which are lenders that are processing a Section 

538 loan. The eligible lenders will become approved once they close the 538 loan. 

In addition, the publication of the program’s final rule this summer will allow 

Ginnie Mae lenders to participate in the program. 

The purpose of the Section 538 Proposed Rule, which was published for comment 

on June 10, 2003, was to make the program more industry friendly to the secondary 

market. We expect the final rule to be published this summer. 

In addition to moderate-income families, the program also serves very-low-income 

(with section 8 vouchers) and low-income families. Eighty-five percent of the Section 

538 housing portfolio has been financed with Low-Income Housing Tax Credits 

(LIHTC) equities and, therefore, must follow the LIHTC low-income occupancy restrictions. 

RURAL BUSINESS AND COOPERATIVE SERVICE

Question. The Inspector General has reported that the Rural Business Cooperative Service’s business and industry loan program continues to have problems in applying its own policies and procedures for underwriting and managing the loans and 

performing adequate lender oversight. What can be done to ensure that the loan approval process and monitoring of the loans will reduce the number of defaults and 

better protect the government’s financial interests? 

Answer. The Agency revamped its internal control review of the State Offices. The 

review is called a Business Program Assessment Review. We contracted with another Agency (experienced in completing Safety and Soundness reviews) to improve 

upon the National Office review. National Office reviewers have been trained and 

we are working with the contractor agency in conducting these reviews. 

As a result of these reviews, we are evaluating: 

—the need for reducing/removing loan approval authorities delegated to individual State Offices, 

—the need for implementing changes to protect the portfolio, 

—the need for training/closer monitoring of loan approval(s), 

—changes to the regulations to improve portfolio development, and 

—the need for lender training. 

BUSINESS AND INDUSTRY PROGRAM

Question. Considering the problems with the business and industry program and 

the complex nature of the deals, does your field staff have the training and capacity 

to effectively negotiate with lenders and the borrowers? 

Answer. The level of expertise varies between states. Several initiatives are underway to provide staff with tools and training that will ensure more timely and 

consistent analysis in the processing of applications/servicing actions. 

The Agency has purchased and distributed Moody’s financial analysis software to 

field staff to improve and provide consistent credit analysis of loans that are considered for funding. 
43 

We have had national meetings with the National Office and selected State Office 

Program Directors/Loan Specialists and we have contracted with other institutions, 

i.e. Farm Credit Association, to provide specific training. With budget constraint, we 

have explored ways to provide telephonic training, regional teleconferences, web 

cast, Intranet and etc., to provide guidance to our field personnel. 

The Agency has identified the need for a core curriculum of training that will provide staff the training necessary for them to perform their assigned duties. An accreditation plan that will identify this core curriculum is under development. Current field staffs are being surveyed to determine the basic core training needs. 

Each delegation of authority to State Offices for loan processing and servicing actions is based on experience as well as the performance record of the personnel in 

the state. We will continue to make every effort to ensure authorities are issued to 

employees with the necessary skill set to protect the taxpayer’s investment. 

FARM CREDIT ADMINISTRATION REVIEW

Question. How effective has the Farm Credit Administration been in identifying 

problems with nontraditional lenders using the B&I program? What is the annual 

cost of this contract? Has the cost of the contract been justified based on Farm Credit Administration reviews? 

Answer. The Farm Credit Administration (FCA) has been quite effective in its review of nontraditional lenders. The particular arm of FCA with which the agency 

has contracted conducts safety and soundness examinations not only of the banks 

within FCA but has also contracted with the Small Business Administration (SBA) 

to perform the same function for specific SBA lenders. FCA is a recognized expert 

in lender examinations, internal controls, and program oversight. These examinations provide the agency and the nontraditional lenders with recommendations. We 

monitor the lenders to assure that recommendations are implemented. 

The cost for lender examinations by FCA in fiscal year 2004 is $104,501. 

We believe the involvement of FCA in the examination of lenders participating 

in the B&I Guaranteed Loan Program has been cost effective. Improvements in 

lender loan underwriting, risk identification, and servicing as well as a better understanding of the Agency’s regulations are examples of the benefit of FCA’s lender 

reviews. FCA reviews have supported the Agency’s actions to debar an individual 

from participation in Government programs. The results of FCA reviews have been 

instrumental in identifying weaknesses in lender practices and have assisted the 

Agency in determining lender fraud, misrepresentation or negligent servicing. This 

assistance helps save millions of dollars for taxpayers. 

CENTRALIZED SERVICING CENTER

Question. The Centralized Servicing Center in St. Louis reported a 32.5 percent 

reduction in the number of loans serviced from the year the center opened in 1997 

to 2003. Have any staff reductions occurred as a result? Has the Centralized Servicing Center in St. Louis attracted any additional work from other Federal agencies? 

If not, what efforts are underway to attract any new business? Without new business, at what point will the loan volume become too small to keep the operation viable? 

Answer. Thank you for recognizing the success of our Single Family Housing program and Centralized Servicing Center. As you are aware, customers are required 

to ‘‘graduate’’ to other credit when they no longer require Federal assistance. We 

are pleased that over 30 percent of our direct homeownership customers were able 

to graduate to the private sector. In response to your specific questions, we offer the 

following explanation: 

In 1997, the Centralized Servicing Center (CSC) supplemented its permanent 

workforce with 100 private-sector temporary staff and the equivalent of 50 staff 

with overtime. The CSC no longer uses private-sector temporaries and has reduced 

overtime usage by 50 percent. This is equivalent to a reduction of 125 staff years 

or 20 percent, without negatively impacting service to our customers. 

The CSC has acquired additional work. It recently began the centralization process for approving loss mitigation plans and processing loss claims for National Lenders participating in our guaranteed homeownership program. The guaranteed homeownership program has the second largest dollar portfolio within Rural Development. By providing a single point of contact at CSC, loan servicers are provided 

greater consistency and efficiency in obtaining approval for loss mitigation plans 

and processing of claims. The Agency also benefits through better internal controls 

and improved monitoring of losses. More than 40 percent of all loss mitigation activity for guaranteed lenders will be handled at CSC by the end of May and more than 

60 percent by year-end. This is an ongoing and growing initiative. 
44 

In addition, the graduation process for direct loan customers has been centralized 

at CSC. This is the process used to identify, notify and support customers who are 

eligible for private financing. An average of 10 percent of our customers graduate 

annually. Naturally this supports self-sufficiency, while reducing ongoing costs for 

the government. 

CSC is also working with Rural Development’s Business and Industry (B&I) program to service a portion of its receivables. CSC’s Real Estate Owned (REO) website 

has also been expanded to include B&I, as well as Multi-Family Housing and guaranteed program properties. CSC is also working with the Veterans Administration 

and the Department of Housing and Urban Development to establish a common government website for all government-owned housing. 

CSC is currently using its imaging technology to archive historical executive correspondence files on behalf of the USDA Office of the Executive Secretariat. CSC 

is also participating in the project to establish a web-based correspondence tracking 

system for Department-wide use. 

CSC is devoting approximately 75 staff years to these and other new initiatives. 

Since CSC’s inception, the rate of delinquent loans has declined to a new record 

of 12.93 percent as of March 30, 2004. This is a 37.5 percent reduction in delinquency since 1998. The delinquency rate net of foreclosures is 9.24 percent which 

compares favorably to the latest reported Federal Housing Administration (FHA) delinquency rate net of foreclosures of 12.23 percent. 

In summary, CSC staff years have declined by 20 percent, important new work 

has been and continues to be assumed, while dramatic improvements in program 

results are being attained. The combination of reduction in FTE and new work acquired is equivalent to savings of 200 staff years or 32 percent. 

With the existing portfolio, new loans being added every day, and new business, 

CSC will continue to be an efficient and effective operation and asset to USDA. CSC 

continues to look for other services that can be provided to other USDA Agencies 

and throughout the government. 

MERGING OF URBAN AND RURAL HOUSING AND COMMUNITY DEVELOPMENT PROGRAMS

Question. When the Congress decided to separate rural development from urban 

development programs in the 1930s, the world was different. Today we have superhighways, information highways, and the boundaries of rural and urban areas are 

often unclear. Access to credit, a major factor behind the creation of rural specific 

programs, is no longer a major issue in rural areas. Today, affordability is the key 

problem in rural as in urban areas. 

Given the changes in rural demographics, the current budget constraints, and 

your need to focus on food security and safety issues, is it time to merge both urban 

and rural housing and community development programs into one housing and community development agency? 

Answer. Rural areas, like urban areas, are constantly changing, but for many 

parts of the country, the rural areas continue to be far different places than urban 

communities. We do not believe one housing and community development agency for 

both rural and urban areas would be helpful to rural families and communities. 

Most rural communities, especially the smallest and the poorest, do not have the 

staff to develop the loan and grant requests needed to effectively compete for limited 

funding against larger, more urban communities. These requests are often developed by the elected officials of small communities who are totally inexperienced in 

such an effort. Providing this type of assistance is a key function of USDA Rural 

Development field staff. Access to credit, especially private credit, continues to be 

very limited in the poorest communities. We have found there are pockets throughout the country where private lenders are not interested in making single family 

housing loans in rural areas. In some areas, private lenders are not even available. 

Rural Development has several pilots underway in rural areas that have no local 

banking facilities to involve the state housing authorities. Rural Development staff 

works with the family to prepare their application and then submits it to the state 

housing authority for consideration as a guaranteed loan. 

RENTAL ASSISTANCE PRESERVATION

Question. We understand you are committed to preserving rural rental housing. 

We also understand that you cut half of the $5.9 million that this subcommittee set 

aside for rental assistance preservation funding. How do you plan to address the 

waiting list for rental assistance preservation? 

Answer. We have successfully reduced this waiting list over the last 12 months 

to the point where few borrowers are currently on the list. 
45 

Question. We understand that as a result of legal action, 2 properties in Oregon 

have prepaid their Section 515 loans resulting in 44 households at risk of being displaced. I understand that RHS has the authority to issue vouchers under section 

542 of the Housing Act of 1949 to tenants in such a situation. Why has no funding 

ever been requested for this voucher authority that could be used in this type of 

emergency situation? 

Answer. Until recently, the need for RHS rental assistance vouchers was not recognized for the preservation program. Currently, the Agency is conducting a comprehensive property assessment of its multi-family housing portfolio. Upon completion of that study, the Agency expects to consider many policy options, which may 

include the use of vouchers for the situation you have described above. 

USDA KEY INFORMATION SECURITY WEAKNESSES

Question. GAO reported that a key reason for USDA’s weaknesses in information 

security system controls was that it had not yet fully developed and implemented 

a comprehensive security management program. 

What steps are you taking to ensure that an effective information security management program is implemented? 

Answer. Beginning in 2000, using initial funds provided by the Congress as well 

as existing resources, USDA embarked on a new approach to securing its critical 

information assets. Since its formation, the Department’s Cyber Security Program 

has engaged in a number of activities and projects designed to address USDA’s most 

serious cyber security deficiencies. I will provide some additional details for the 

record. 

[The information follows:] 

Examples of progress made during the past year include: 

—Initiation of a USDA Certification and Accreditation Program that will position 

USDA mission critical systems to comply with Federal system certification requirements. In fiscal year 2004, USDA compiled a Departmental inventory of 

over 500 systems that we are now using to track the certification and accreditation (C&A) of these systems. OCIO has challenged USDA agencies to schedule 

accreditation of each of these systems by the end of the fiscal year 2004. To assist agencies with the certification and accreditation process, OCIO has established a contract vehicle through which agencies can acquire contract support. 

—Development and establishment of a Risk Management Program that incorporates the widespread use of security self-assessment tools that address both 

overall security management and specific technical platforms. OCIO has developed a comprehensive USDA Risk Assessment Methodology that addresses the 

full spectrum of risk management, including sensitivity, assessment, remediation, and business case. 

—With a contract vehicle established for conducting independent risk assessments 

according to OCIO methodology, dozens of risk assessments have been conducted on the Department’s more important systems. This activity has positioned agencies to move forward with full certification and accreditation, a 

major priority for fiscal year 2004. 

—Release of guidance and tools to USDA agencies that provide the ability to analyze existing information security controls and technical environments. 

—Establishment and management of an enterprise-wide Intrusion Detection System and procedures for detecting and reporting intrusion incidents. OCIO is requesting funds in fiscal year 2005 to further strengthen this system by establishing a Departmental security operation center to continuously evaluate and 

manage gathered security information. 

—Development and issuance of new or revised policies and interim guidance on 

specific security areas and provide precise requirements. These include policies 

addressing: (1) mainframe security, (2) incident reporting, (3) security plan 

guidance, (4) security requirements for the use of private Internet access providers, (5) user ID and password requirements, (6) server and firewall security, 

use of network protocol analyzers, and (7) physical security standards and use 

of configuration management. 

Guidance issued during fiscal year 2003 and 2004 includes policies addressing: (1) Privacy Impact Assessments, (2) Encryption of Sensitive But Unclassified (SBU) Information, (3) Revised Capital Planning and Investment Control 

Requirements, (4) Security Awareness and Training, (5) Contingency Planning, 

( 6) Telework and Remote Access Security, (7) Trusted Facilities Manual Requirements, (8) Security Features Users Guide Requirements, (9) Portable Electronic Devices (PED) and Wireless Technology Security, and (10) Life Cycle Approach to Security Controls. 
46 

—For the broader USDA security community, and to meet the Federal requirement for on-going training for security specialists, OCIO is providing instruction 

in the areas of security controls, forensics, intrusion detection, risk management, vulnerability assessments, contingency planning and other security-related issues. 

More recent security training has been provided in the areas of systems security scanning, patch management, Certification and Accreditation, and Federal 

Information Security Management Act (FISMA) requirements. 

—Development of an enhanced security awareness program that includes partnership with the Government-wide eLearning initiative. This program provides Department-wide web-based training on security issues to all USDA staff. As of 

September 30, 2003, over 39,000 employees (of 60,000 total), including the Secretary, have logged on and completed this course. Other objectives of the Department’s Security Awareness and Training Program include: defining a security and awareness scope, identifying executive briefing package materials, surveying and assessing security and awareness products, and identifying security 

and awareness assessment methodologies. 

In 2003, the Secretary declared September as USDA Cyber Security Awareness Month. The Secretary recorded a video focusing on the need for every employee to be aware of and comply with Departmental security requirements. 

—Oversight has been increased for both Capital Investment Planning and technology deployment to ensure that security is considered throughout the entire 

life-cycle of system development. Annual reporting instructions are issued and 

requests for approval to invest in technology are carefully scrutinized to ensure 

security is adequately addressed. 

—A rigorous reporting and monitoring process has been established to oversee 

USDA’s activities related to the Federal Information Security Management Act 

(FISMA). In particular, OCIO manages the Department’s annual self-assessment process and oversight of the action plans and schedules designed to address weakness discovered. 

—OCIO has negotiated and executed USDA-wide contracts for security services 

and products. These contracts, managed by OCIO, provide USDA agencies with 

access to quality security controls and expertise in the areas of scanning devices, virus detection and protection, software security patch management, vulnerability assessments, and security planning. 

—The Department has initiated an Information Survivability Program through 

which Disaster Recovery and Business Resumption Plans will be developed and 

tested. Software that supports the development of these plans has been purchased for use by all USDA agencies and offices. Contract support has been engaged to support agency personnel in this endeavor. 

While much remains to be done to improve USDA’s information security program, these steps and strategies provide evidence that the Department is committed to eliminating its long-standing security deficiencies. 

HOLDING SENIOR MANAGEMENT ACCOUNTABLE FOR INFORMATION SECURITY

Question. How does USDA hold senior management of the department and its 

component agencies accountable for ensuring adequate information security? For example, does it affect their performance evaluations? 

Answer. We have taken a number of steps, both directly and through delegated 

authority to the CIO, to ensure program and IT executives and managers understand and perform their information security responsibilities. These include: 

—Establishing an information security performance measure within the performance plan of each under and assistant secretary, agency head, and staff office 

director. Performance in this measure is rated and considered in each executive’s annual performance review. 

—Focusing senior management attention on certifying and accrediting all USDA 

IT systems. The USDA CIO briefed the Subcabinet on this critical effort, and 

agency management have been advised that funding will not be approved for 

any new systems development efforts until agencies identify the resources and 

milestones to certify and accredit their systems. 

—Evaluating and approving each investment in the USDA IT Portfolio to ensure 

cyber security is addressed, staffed, budgeted, and assessed for compliance with 

USDA Cyber Security Policies. After approval by the Department’s Executive 

Information Technology Investment Review Board, the Deputy Secretary recommends approval of the Major IT Investment Portfolio to the Secretary. 

—Ensuring decisions on all USDA IT acquisitions, above a $25,000 threshold, are 

approved by the Department CIO. OCIO reviews each acquisition to ensure 
47 

cyber security is addressed, staffed, budgeted, and assessed for compliance with 

USDA Cyber Security Policies. 

—Establishing security responsibilities and authorities for Program Officials, 

CIO’s, security officers, IT technical specialists and IT users through departmental guidance and policy. 

ENSURING EFFECTIVENESS OF SECURITY MANAGEMENT

Question. How will the Department ensure that security management positions 

have the authority and cooperation of agency management to effective implement 

and manage security programs? 

Answer. The Department has established controls and performance measures to 

ensure the cooperation of agency management. 

In addition, USDA’s Office of the Chief Information Officer makes great effort to 

ensure security managers are engaged in IT investment decisions throughout the 

system life cycle. The Department’s Capital Planning and Investment Control process is designed to ensure security issues are considered at every phase of investment. OCIO reviews each acquisition to ensure cyber security is addressed, staffed, 

budgeted, and assessed for compliance with USDA Cyber Security Policies. 

OCIO reaches beyond USDA’s security community to the Department’s most senior mangers to keep them abreast of topical and important security issues. Our current effort to certify and accredit (C&A) all USDA IT systems is a good example 

of this process. Discussions regarding C&A are held regularly with the Department’s 

most senior management. Executive training and materials for the C&A process 

have been developed and presented to agency heads and program administrators. 

Weekly status reports that score progress toward attaining accreditation are prepared and shared with senior management to ensure objectives are attained. In addition, OCIO’s senior management counsels individual agency managers on specific 

C&A strategy, procedures and progress. 

FILLING ACIO FOR CYBERSECURITY

Question. What actions are planned to fill the role of Associate CIO for Cyber Security, given that the person that held this position is recently retired? 

Answer. The advertisement to recruit a new USDA Associate CIO for Cyber Security will close in early May 2004. The Department will carefully review all applications in its search to fill this critical position. 

BUDGET IMPACT OF INFORMATION SECURITY REQUIREMENTS

Question. Is there a budget impact to ensure that information security requirement are met? 

Answer. The Department’s Capital Planning and Investment Control process is 

designed to ensure security issues are considered at every phase of investment. 

OCIO reviews each acquisition to ensure cyber security is addressed, staffed, budgeted, and assessed for compliance with USDA Cyber Security Policies. 

USDA is currently operating under a moratorium that requires a waiver for all 

IT acquisitions above $25,000. OCIO reviews each acquisition waiver request to ensure cyber security is addressed, staffed, budgeted, and assessed for compliance with 

USDA Cyber Security Policies. Failure to adequately address security throughout 

the system life cycle will result in delay or denial of funding approval. 

Additionally, OCIO has advised agency management that funding for any new 

system development efforts will not be approved until agency management identifies 

the resources and milestones to certify and accredit their systems. 

COMPLETING RISK ASSESSMENTS

Question. Addressing risk is necessary to implementing appropriate security controls. According to the USDA OIG, 8 of 10 agencies that it reviewed during fiscal 

year 2003 had not completed risk assessments for mission essential information 

technology resources. What actions is the Department taking to ensure that risk assessments are completed? 

Answer. USDA is addressing the issue of risk management on a number of separate fronts. First, with agency and contractor assistance, USDA has developed a 

comprehensive Risk Assessment Methodology to assist USDA agencies in determining information sensitivity, identifying threats and vulnerabilities, designing 

mitigation strategies, and developing business cases for necessary security costs. Additionally, risk assessment training and counseling has been provided to agency security managers by both Cyber Security Program Staff and contracted risk management specialists. 
48 

Second, to meet the requirements of the Federal Information Security Management Act, agencies are charged with performing self-assessments of their respective 

IT systems and security programs. To address these requirements, USDA uses the 

National Institute of Standards and Technology (NIST) Self-Assessment Guide. 

Weaknesses discovered during these assessments form the basis for mitigation plans 

that guide agency security activities throughout the year. 

Third, an initiative that addresses risk management is OCIO’s aggressive strategy 

to certify and accredit all of its IT systems in fiscal year 2004. A fundamental component of system certification is a thorough risk assessment. Agencies will be using 

USDA and Federal risk assessment guidance to ensure security controls are adequate prior to submitting systems for accreditation. 

Fourth, OCIO has established vehicles through which USDA agencies and offices 

can obtain contract expertise to perform risk assessments. Over the past 2 years, 

dozens of USDA IT systems have been independently assessed for risks and 

vulnerabilities by highly qualified and experienced security contractors, a reflection 

of the high priority USDA management places on thorough security analysis. 

PLANS TO FINALIZE SECURITY POLICIES AND PROCEDURES

Question. Although the department’s Office of Cyber Security has developed numerous policies and procedures that address information security over the last couple of years, many remain in draft, or interim guidance, some for over a year. What 

plans does the department have for finalizing these policies and procedures? 

Answer. Individual information security policies, particularly those that prescribe 

technical controls must be vetted thoroughly to resolve issues of incompatibility and 

unnecessary expense. Often this vetting process requires additional analysis and 

compromise to achieve maximum effectiveness and economy. Nevertheless, OCIO 

has been successful in issuing a wide array of security guidance. New guidance 

issued during fiscal year 2003 and 2004 include policies addressing: (1) Privacy Impact Assessments, (2) Encryption of Sensitive But Unclassified (SBU) Information, 

(3) Capital Planning and Investment Control Requirements, (4) Security Awareness 

and Training, (5) Contingency Planning, (6) Telework and Remote Access Security, 

(7) Trusted Facilities Manual Requirements, (8) Security Features Users Guide Requirements, (9) Portable Electronic Devices (PED) and Wireless Technology Security, and (10) Life Cycle Approach to Security Controls. 

It should be noted that even guidance issued as ‘‘Interim’’ provides the standard 

by which USDA agencies must operate. Interim guidance is used as criteria for IT 

investment reviews, risk assessments, FISMA self-assessments, and other compliance exercises. 

EMPLOYEE SECURITY AWARENESS TRAINING

Question. How does the Department plan to ensure that all employees receive security awareness training? 

Answer. During the past year, OCIO has developed a more rigorous security 

awareness program that includes partnership with the Government-wide eLearning 

initiative. During fiscal year 2004, OCIO purchased on on-line security awareness 

course through which all Department end-users could meet their awareness training 

requirements. By using this course, USDA was able to report over 60,000 USDA employees had been trained. While this was only 53 percent of all employees, we anticipate the percentage will increase for this year. Performance related to this issue will 

be a consideration in each executive’s annual performance review. 

Other objectives of the Department’s Security Awareness and Training Program 

include: defining a security and awareness scope, identifying executive briefing 

package materials, surveying and assessing security and awareness products, and 

identifying security and awareness assessment methodologies—all designed to assist 

agencies in their attempt to meet Federal security awareness requirements. For the 

technical security community, on-going training is provided in the areas of security 

controls, forensics, intrusion detection, risk management, vulnerability assessments, 

contingency planning and other security-related issues. 

SYSTEMS TESTING AND EVALUATION

Question. The department has reported that just over a third of its systems have 

undergone test and evaluation within the past year, and only 16 percent of its systems had been certified and accredited. What action has the department taken to 

ensure that testing and evaluating controls becomes an ongoing element of agencies’ 

overall information security management programs? 

Answer. The testing and evaluation of the security controls is a critical component 

of the Department’s current certification and accreditation (C&A) initiative. The 
49 

C&A process requires testing and evaluation of all system controls to ensure they 

function as planned. To ensure the independence of system testing, agencies must 

enlist the services of a third party to undertake the testing who was not involved 

in the design or development of the security controls. 

In addition, in order to reduce or eliminate these risks, OCIO has established 

guidance for conducting Security Vulnerability Scans (SVS) of all USDA networks, 

systems and servers. These SVS scans are a vital component of the overall security 

protection plan being deployed within the department. OCIO guidance requires 

USDA organizations to accomplish these SVSs on a monthly basis. In addition, to 

the vulnerability scans, each agency/staff office is required to conduct and maintain 

information technology (IT) inventories of networks, systems, servers, software and 

Internet Protocol Addresses for all areas within their responsibility. 

To assist agencies with their scanning responsibilities, OCIO provides scanning 

tools, training, and on-going support. OCIO also conducts oversight reviews of agencies and staff offices to review vulnerability reports and corrective actions taken to 

ensure that networks, systems, and servers are protected in accordance with this 

policy. 

ENSURING SYSTEMS ARE CERTIFIED AND ACCREDITED

Question. What action has the department taken to ensure that systems are certified and accredited? 

Answer. OCIO has initiated an aggressive program to certify and accredit (C&A) 

all of USDA’s IT systems and position the Department to comply with Federal system certification requirements. To prepare agencies for C&A, OCIO developed a 

USDA Certification and Accreditation Guide, document templates, and procedures 

for managing the broad set of activities involved. Training sessions have been conducted to educate all levels of managers and technicians involved in the C&A process. 

In fiscal year 2004, USDA compiled a Departmental inventory of over 500 systems 

that we are now using to track the certification and accreditation of these systems. 

In fiscal year 2004, USDA will spend in excess of $25 million on systems certification and accreditation. 

A fundamental step in accreditation is a thorough risk assessment, conducted 

through self-assessments for low impact systems and through independent assessments for all others. To achieve this independent review, OCIO has developed contract vehicles by which agencies can engage external expertise to assist them. USDA 

management and agency technical staffs have become fully involved in the Certification and Accreditation Program, scheduling activities and executing contracts that 

will lead to accreditation of the systems for which they are responsible. 

OCIO’s fiscal year 2005 budget request of $687,000 relative to certification and 

accreditation does not reflect the cost of individual agency C&A activities. Funding 

for these activities is expected to be borne by agencies from funds provided for IT 

investments, and from unobligated balances allocated for this purpose. OCIO’s funding request is directed toward corporate-level activities such as common toolsets, 

oversight and counsel, and Independent Verifications and Validation exercises. 

OCIO recognizes this aggressive schedule places an enormous burden on the Department’s technical staffs, both from a personnel and budget perspective. Nevertheless, OCIO is committed to moving the Department to a more secure baseline from 

which new technologies and methodologies can be employed safely and effectively, 

while at the same time meeting Federal security mandates. 

HOW USDA BUDGET CORRECTS SECURITY WEAKNESSES

Question. Given the pervasive extent of the Department’s information security 

weaknesses, how will the Department’s request for budgetary resources address the 

issues involved in correcting the problems? 

Answer. OCIO is working with the agencies to ensure funding for security requirements are included in all budget requests for system development and operation. In addition, OCIO’s budget request for fiscal year 2005 includes increases for 

the following security initiatives: 

—An increase of $687,000 is needed to manage the USDA Information System Certification and Accreditation Program.—OCIO’s highest priority is to certify and 

accredit all USDA systems to ensure they are properly secured from theft and 

destruction, in compliance with Federal security laws and guidelines. Funding 

provided to-date from the Department’s fiscal year 2003 unobligated balances, 

as well as from the OCIO base is being used to pay for the certification and 

accreditation (C&A) of specific high-priority systems that are owned and operated by USDA agencies and staff offices. These additional requested funds will 
50 

enable OCIO to manage this program in fiscal year 2005 at the needed level 

of detail and help ensure that USDA IT systems are properly secured and in 

compliance with Federal security guidelines. 

The result of the OCIO C&A Program will be a large collection of security 

documentation and artifacts (security plans, risk assessments, contingency 

plans, etc), most of which will be essential to future C&A activities. In addition 

to compliance activities, training, evaluation, and Independent Verification and 

Validation, OCIO will investigate the value of acquiring enterprise C&A management tools that will allow USDA to re-use C&A artifacts, thereby reducing 

future C&A costs. Because Federal guidance requires certification of systems at 

least every 3 years, savings obtained through re-use could be substantial. 

—An increase of $2,373,000 is needed to maintain an Information Survivability 

program to minimize disruptions caused by attempted intrusions and catastrophic interruptions.—OCIO’s Information Survivability Program addresses 

both prevention of attack on USDA IT systems and recovery in the event of disruption. 

OCIO currently manages USDA’s corporate Intrusion Detection System (IDS). 

This system monitors traffic over the Department’s backbone network to detect 

incidents of possible unauthorized access and policy/legal violations. The system 

is instrumental in detecting viruses, worms, and other mechanisms intended to 

disrupt IT systems. OCIO’s IDS operates 24 hours per day, 365 days per year. 

OCIO’s request for increased funding for Information Survivability includes 

$1,000,000 for the expansion of the IDS to lower level networks operating within the Department that support mission-critical applications and communications. In addition, the increased funding will allow USDA to improve and expand its detection tools to expand the range of monitoring and reduce detection 

time. 

Recognizing that no prevention measures are perfect, OCIO’s Information 

Survivability Program also addressed the disciplines of disaster recovery and 

business resumption. Procedures and policies have been established to ensure 

that USDA’s business processes will continue to function and serve its customers, regardless of the degree of damage sustained from an attack. Features 

of the Information Survivability program include: tools, policies and procedures 

designed to understand the extent and source of an intrusion; protection, and 

if needed, restoration, of sensitive data contained on systems; protection of the 

systems, the networks, and their ability to continue operating as intended; recover systems; information collection to better understand what happened; and, 

if necessary, legal investigations support. 

OCIO has entered into a Department-wide contract that provides software 

tools and training for agencies as they begin developing contingency plans. 

However, the funding for this effort was provided through the Department’s 

Homeland Security budget, which provides for no long-term support. As agencies begin development of their recovery plans, counseling, support, testing and 

training will become an on-going effort. In addition, contractor support to perform Independent Verification and Validation of contingency plans will be needed. 

OCIO currently devotes one FTE to manage its contingency planning effort. 

Over the past year, two contract FTE’s have also provided support with funding 

provided through the Department’s Homeland Security budget. However, since 

Homeland Security funds are no longer available for this contract support, 

OCIO is requesting $1.373 Million to continue this critically important effort. 

—An increase of $937,000 is needed to obtain, implement, and manage an automated Risk Management toolset.—Risk determination and risk management are 

the foundation for all successful security programs. The Department currently 

relies heavily on manual tools and forms to conduct risk assessments that identify security deficiencies in our system controls. This increase is requested to 

fund the acquisition of automated software tools, training, oversight, maintenance and support that provide continuous updates to existing threats and provide users with methods to determine information value, vulnerability predictions, and mitigation strategies. USDA agency employees will be the predominant users of the tools. 

—An increase of $1,561,000 is needed to establish a Security Operational Center.— 

While USDA’s Intrusion Detection System captures and handles an ever-growing stream of information on cyber security related events, no single USDA organization is trained and equipped to fully utilize the information captured to 

determine the true nature and extent of risk to critical USDA information systems. By providing the requested funding in fiscal year 2005, Congress will en-
51 

able OCIO to reduce the time delay in detecting and responding to security 

events, improving the efficiency and effectiveness of USDA’s security controls. 

ENSURING ADEQUATE FUNDING FOR FISMA REMEDIATION

Question. In preparing remediation plans as required by the Federal Information 

Security Management Act—FISMA, what is your process to ensure that adequate 

funds are identified to correct the Department’s information security weaknesses? 

Answer. By ensuring responsible agency officials identify the funds to certify and 

accredit USDA’s systems, we are focusing agency management on addressing a majority of the remediation actions identified in their FISMA plan of actions and milestones or POA&Ms. In a review of USDA Agency POA&Ms, approximately seventy 

percent of the identified security vulnerabilities are being addressed by agency system certification and accreditation efforts, which is being funded through a combination of agency IT funding, the Department’s fiscal year 2003 unobligated balances, 

and from the OCIO base. 

Additionally, OCIO is working with USDA agencies on all non C&A related activities, such as providing security awareness training to all employees and improving 

intrusion detection and response, on a project-by-project basis. In the case of security awareness training, OCIO has acquired an online training course, which will 

be available to all agencies to use in security awareness training requirements. 

BOVINE SPONGIFORM ENCEPHALOPATHY (BSE)

Question. On March 15, 2004, the Department of Agriculture announced details 

for an expanded surveillance effort for BSE. The release also stated that $70 million 

is being transferred from the Commodity Credit Corporation (CCC) to test cattle in 

the high risk population. 

Can you take a moment to provide Committee Members with a detailed explanation of how the Department intends to conduct this increased surveillance program? 

Answer. For more than a decade, USDA has taken aggressive measures to prevent the introduction and potential spread of BSE. On March 15, USDA announced 

a plan to significantly augment those efforts by strengthening BSE surveillance in 

the high-risk cattle population and establishing a small proportion of random surveillance in the aged cattle population. We are taking these proactive steps to further assure consumers, trading partners, and industry that the risk of BSE in the 

United States is low. By expanding surveillance, we will have even greater confidence in the health of the U.S. cattle population. 

USDA’s primary focus and the goal for this new program is to obtain samples 

from as many of the targeted high-risk adult cattle population as possible, plus obtain a small random sample of apparently normal, aged animals. Under this surveillance plan, USDA will test as many of the targeted high-risk cattle as possible for 

a 12- to 18-month period. This effort will help better define whether BSE is present 

in the United States and, if so, at what level. After that time period, USDA will 

evaluate the results of the program and determine what future actions may be appropriate. 

We have already begun ramping up our surveillance system and expect to be at 

full capacity by June 1. Whereas all BSE testing in the United States has historically been performed at USDA’s National Veterinary Services Laboratories (NVSL), 

the new program incorporates a network of State and university laboratories into 

the testing program. Their geographic distribution will help ensure adequate turnaround time for sample testing and reporting of results. 

USDA will continue to build on previous cooperative efforts with renderers and 

others to obtain samples from the targeted high-risk populations. Samples will be 

collected by authorized State or Federal animal or public health personnel, accredited veterinarians, or trained State or USDA contractors. The random sampling of 

apparently normal, aged animals will come from the 40 U.S. slaughter plants that 

currently handle more than 86 percent of the aged cattle processed for human consumption each year in the United States. The carcasses of these animals will be 

held and not allowed to enter the human food chain until negative results are received. 

USDA anticipates using rapid test technology during the enhanced surveillance 

program. However, any rapid test that identifies a non-negative result will be subject to additional confirmatory testing by NVSL. A BSE implementation team has 

been established and is working to ensure the program meets its goals. The team 

is currently drafting more specific guidelines that will be used during the course of 

the enhanced surveillance program. These guidelines will address questions regarding cost recovery and participation in the program. 
52 

USDA anticipates pursuing a variety of approaches with regard to cost recovery, 

including contracts, cooperative agreements, direct payments, and fee-basis agreements. 

A more detailed version of the plan is available through the APHIS Web site at 

http://www.aphis.usda.gov/lpa/issues/bse/BSElSurveil-Plan03-15-04.pdf. 

TESTING OF ANIMALS PRIOR TO EXPORT

Question. The livestock industry and Department of Agriculture are working toward reopening export markets in Japan, Mexico, and other exporting countries. Establishing animal testing guidelines for export markets continues to be a point of 

controversy that is preventing any agreement to open markets. The controversy 

arises over testing each animal and whether or not animals under the age of 30 

months should be tested. 

Do you believe each animal, including those under 30 months of age should be 

tested prior to export? Also, if an agreement requires testing each animal, what is 

the expected cost of such a program? 

Answer. We do not believe each animal, including those under 30 months of age, 

should be tested prior to export. Science does not support the testing of every animal, regardless of age, for BSE. Further testing apparently healthy animals is the 

most inefficient method of finding disease if it were present. The cost for each rapid test kit is about $25 per test. If we were to test every 

animal that goes to slaughter each year (in excess of 35 million), the approximate 

cost for the test kits alone would be $875 million. However, there are other costs 

involved in testing the animals. These costs include sample collection, shipping, 

handling, processing, lab support, equipment, disposal, etc. Because of these other 

costs, we have estimated that the total cost of testing would be $175–$200 for each 

animal. Thus our total cost of testing every animal would be between $6 billion and 

$7 billion. 

LOW PATHOGENIC AVIAN INFLUENZA

Question. The Administration’s fiscal year 2005 Budget request includes an in- crease in funding of nearly $12 million to address Low Pathogenic Avian Influenza 

(LPAI). 

Can you update the Committee in regard to ongoing action related to avian influenza and explain how the Department would utilize the additional funding? 

Answer. APHIS has been working to establish a national LPAI program by incorporating this program into the National Poultry Improvement Plan (NPIP); scheduled to be discussed and adopted at the NPIP meeting in July 2004. The Uniform 

Methods and Rules (UM&R) for the live bird marketing portion of the program has 

been drafted and is currently being reviewed by a subcommittee of the U.S. Animal 

Health Association in order to obtain their recommendations for program improvement. 

APHIS would utilize the additional funding for cooperative agreements with 

states that will support the LPAI prevention and control program; indemnities; for 

additional field personnel, equipment, and other resources necessary to assist states 

with long-term prevention and control; educational materials and training for recognition of avian influenza and for biosecurity practices to protect against the disease; development and administration of vaccine to support industry when infected 

with LPAI; and provide reagents and other laboratory support to incorporate the 

commercial program through the National Poultry Improvement Program (NPIP). 

This program is currently testing poultry breeder flocks and will continue to expand 

its activities until all segments of the commercial industry are monitored and certified as avian influenza clean. 

AVIAN INFLUENZA

Question. With the discovery of avian influenza (AI), a number of countries have 

banned poultry imports from the United States. 

Can you provide the Committee with an update on poultry export markets and 

exactly what actions USDA is taking to reopen these markets? 

Answer. USDA responded quickly and effectively to control the spread of AI in 

the AI-affected states. Throughout this process, USDA officials were in constant contact with their foreign counterparts to provide timely information about the outbreaks and quarantine control measures. As a result of these efforts, USDA was 

able to free pipeline shipments in Japan and Hong Kong valued at over $40 million, 

and head off the actions of many trading partners to impose nationwide bans on 

U.S. poultry meat. The good news is that countries representing 47 percent, or $941 

million of our export markets, have banned products only from affected areas and 
53 

another 18 percent, or $337 million, did not impose any ban. Therefore, taken together 65 percent of U.S. poultry exports to the world have been unaffected by the 

AI situation. 

On April 2, the USDA Chief Veterinary Officer (CVO) announced the completion 

of the required surveillance and testing protocols per the World Animal Health Organization (OIE) guidelines. An official request from the CVO has been sent to 

major U.S. poultry export markets requesting the removal of all import bans on U.S. 

poultry and poultry product imports. The Department at all levels is diligently pursuing with its trading partners the lifting of all AI trade restrictions on products 

from the United States. By the summer of 2004 or earlier, the remaining countries 

imposing nationwide bans on U.S. poultry meat are expected to at least regionalize 

their import bans to those states affected by Low Pathogenic Avian Influenza (LPAI) 

now that the United States is free of High Pathogenic Avian Influenza (HPAI). 

BEEF EXPORT MARKETS

Question. Livestock producers continue to be concerned with the loss of export 

markets following the outbreak of BSE. 

Will you take a moment to update the Committee in regard to the efforts being 

made by the Department of Agriculture to open export markets? 

Answer. USDA continues to work closely with its foreign trading partners to reestablish U.S. ruminant and ruminant product exports as quickly as possible. We 

work with foreign officials at all levels to reassure them of the safety of U.S. beef 

and beef products. USDA officials encourage foreign governments to follow World 

Animal Health Organization guidelines regarding BSE. The Animal and Plant 

Health Inspection Service (APHIS) has been in constant contact with its counterparts providing them with updates on the BSE investigation, as well as new USDA 

regulatory policies imposed on BSE testing and specified risk material (SRM) removal. 

As a result of USDA’s efforts, a number of countries have opened their markets 

to selected U.S. beef, beef products, and ruminant by-products exports. Mexico and 

Canada have agreed to accept U.S. boneless beef from cattle less than 30 months 

of age. Although export certification issues continue to impede U.S. beef exports to 

Canada, USDA and Canadian officials are expected to resolve the problem very 

soon. We expect Mexico to lift its ban on selected U.S. beef variety meats and veal. 

Mexico had already lifted its ban on U.S. boneless beef imports earlier and exempted low-risk ruminant product imports based on OIE guidelines. Mexico and Canada 

are the second and fourth largest U.S. beef export markets, respectively, valued at 

over $1.2 billion in 2003. 

Japan and South Korea, the first and third largest U.S. beef export markets, continue to ban U.S. beef imports. Senior USDA officials communicate with their respective government officials and have traveled there to discuss their concerns with 

USDA BSE controls and testing procedures. USDA has extended an invitation to 

Korean officials to visit Washington for further discussions. USDA is also planning 

another high-level visit to Japan in late April to continue discussions and resolve 

issues regarding BSE testing and SRM removal. 

In addition, USDA continues to work with governments in secondary markets to 

lift their bans to U.S. bovine products as a result of the finding of a BSE case in 

Washington State. USDA has sent a letter to selected secondary countries requesting they open their markets to no risk and low-risk products. These export markets, 

while smaller in total export value, provide significant opportunities to resume U.S. 

exports in rendered products, animal genetics, dairy products and other ruminant 

by-products. 

Question. According to the livestock industry, economic losses to export markets 

following the discovery of BSE are estimated to be over $10 billion. 

Has the Department conducted a thorough investigation of the economic impact 

of the lost export markets? 

Answer. The Office of the Chief Economist and the Foreign Agricultural Service 

independently evaluated the situation and concluded that there will be minimal effects on U.S. meat production and domestic consumption. U.S. consumers continue 

strong demand for beef and beef products, and coupled with tight U.S. beef supplies, 

beef and cattle prices remain relatively high. The trade impact will be significant. 

In 2003, the United States exported approximately $7.5 billion worth of ruminant 

and ruminant by-products. U.S. export value of these products for January-February 

2004 alone was down 53 percent, or over $582 million compared to the 3-year average January-February period for 2001–2003. The severity of the overall trade impact will depend upon the number of countries that continue to impose import bans, 

their importance to U.S. trade, and the length of time the bans remain in place. 
54 

BOVINE SPONGIFORM ENCEPHALOPATHY (BSE)

Question. The Administration’s Budget request for the Department of Agriculture 

includes a total of $60 million for BSE related activities. 

Can you provide the Committee with the most up to date information in regard 

to ongoing activities related to BSE and then take a moment to explain the increase 

that has been requested for fiscal year 2005? 

Answer. On December 25, 2003, USDA received verification from the Veterinary 

Laboratories Agency in Weybridge, England, of the finding of BSE in an adult Holstein cow slaughtered in the State of Washington. The epidemiological investigation 

and DNA test results confirm that the infected cow was not indigenous to the 

United States, but rather born and became infected in Alberta, Canada. Above and 

beyond OIE standards, animals with known or potential risk for having been infected with the BSE agent in Canada have been depopulated, as have all progeny 

from the index cow in the United States. All carcasses were properly disposed of 

in accordance with Federal, State, and local regulations. Between January 1, 2004 

and March 31, 2004, USDA tested approximately 5,500 cattle for BSE, and all results were negative. 

The United States concluded active investigation and culling activities on February 9, 2004, and has redirected resources toward planning, implementing, and enforcing national policy measures to promote BSE surveillance and protect human 

and animal health. 

An international panel of scientific experts appointed by the Secretary was complimentary of the scope, thoroughness, and appropriateness of the epidemiological 

investigation and concluded that the investigation conformed to international standards. The review team members concurred that the investigation should be terminated and made several key policy recommendations. USDA and the Department of 

Health and Human Services have already taken significant actions to address these 

recommendations, many of which build on mitigation measures that were previously 

in place. 

The response actions have focused on (1) preventing inclusion of specified risk materials in human food and ruminant feed, (2) enhancing targeted and passive BSE 

surveillance systems, (3) improving traceability through a comprehensive national 

animal identification system, and (4) reinforcing educational and outreach efforts. 

On March 26, 2004, USDA’s Animal and Plant Health Inspection Service provided 

the results of its BSE investigation to foreign chief veterinary officers. The information included in the letter demonstrates that any remaining trade restrictions 

against U.S. beef and beef products can be lifted without compromising safety. 

On March 15, 2004, USDA announced an enhanced surveillance plan with a goal 

of testing as many cattle in the targeted, high-risk population as possible during a 

12- to 18-month period. We plan to evaluate future actions based on the result of 

this effort. USDA will continue to focus on the cattle populations considered to be 

at highest risk for the disease—adult cattle that exhibit some type of clinical sign 

that could be considered consistent with BSE. This includes non-ambulatory cattle, 

those exhibiting signs of central nervous system disorders, and those that die on 

farms. We also plan on testing at least 20,000 BSE slaughter samples from apparently healthy aged animals. 

More intensive surveillance will allow USDA to refine estimates of the level of disease present in the U.S. cattle population and provide consumers, trading partners, 

and industry better assurances about our BSE status. 

As an example, if a total of at least 268,444 samples is collected from the targeted 

population, we believe this level of sampling would allow USDA to detect BSE at 

a rate of 1 positive in 10 million adult cattle (or 5 positives in the entire country) 

with a 99 percent confidence level. 

Historically, all BSE testing in the United States has been performed exclusively 

at USDA’s National Veterinary Services Laboratories (NVSL) in Ames, Iowa. The 

new program incorporates a network of State and Federal veterinary diagnostic laboratories into the testing program. Their geographic distribution will help ensure 

adequate turn-around time for sample testing and reporting of results. 

Appropriate rapid screening tests will be used to test time-critical samples. USDA 

recognizes the possibility of false positives; any non-negative results on the rapid 

screening tests will be forwarded to NVSL for additional confirmatory testing. 

A BSE implementation team has been established and is working to ensure the 

program meets its goals. The team is currently drafting more specific guidelines 

that will be used during the course of the enhanced surveillance program. These 

guidelines will address questions regarding cost recovery and participation in the 

program. 
55 

The President’s fiscal year 2005 Budget request includes $60 million for BSE related activities, an increase of $47 million over fiscal year 2004. The increase will 

allow USDA to further its research efforts, improve animal traceability, enhance 

surveillance, ensure compliance with food safety regulations, and answer BSE-related complaints at markets regarding contracts or prompt payment. The total requested includes: 

—$33 million to further accelerate the development of a national animal identification system; 

—$17 million for the Animal and Plant Health Inspection Service (APHIS) to enhance BSE surveillance at rendering plants and on farms; 

—$5 million for the Agricultural Research Service (ARS) to conduct advanced research and development of BSE testing technologies; 

—$4 million for the Food Safety and Inspection Service (FSIS) to conduct monitoring and surveillance of compliance with the regulations for specified risk materials and advance meat recovery; and 

—$1 million for the Grain Inspection, Packers and Stockyards Administration 

(GIPSA) to dispatch rapid response teams to markets experiencing BSE related 

complaints regarding contracts or lack of prompt payment. 

Question. What actions have you taken to better coordinate the Department of Agriculture’s response to BSE? 

Also, if this $60 million is provided, will one person coordinate the various components? 

Answer. USDA’s response to the BSE detection has been overarching and has included contributions from all affected agencies, particularly the Animal and Plant 

Health Inspection Service (APHIS), the Food Safety and Inspection Service (FSIS), 

and the Foreign Agricultural Service (FAS). APHIS, FAS, and FSIS communicate 

regularly, and an FSIS liaison has been assigned to APHIS. USDA also communicates and coordinates with the Food and Drug Administration (FDA), and we requested FDA’s input when developing the enhanced BSE surveillance plan. 

APHIS’ Transmissible Spongiform Encephalopathy (TSE) Working Group monitors and assesses all ongoing events and research findings regarding TSEs, including BSE. Members are in regular contact with the Agricultural Research Service, 

the research arm of USDA, to ensure regulatory actions are in line with the most 

current science. 

To ensure a consistent trade message between the United States and our North 

American trading partners, USDA has been working with Mexico and Canada to enhance ongoing efforts to increase harmonization and equivalence of BSE regulations. 

In January 2004, each government agreed to establish a sub-cabinet group to coordinate ongoing interagency efforts toward resumption of exports based on a harmonized framework. Currently, Dr. J.B. Penn, Under Secretary for Farm and Foreign Agricultural Services, is leading USDA’s efforts in this area. He is in regular 

contact with other members of USDA’s leadership council, including the Under Secretary for Food Safety, the Under Secretary for Marketing and Regulatory Programs, and the Under Secretary for Research, Education, and Economics. 

The sub-cabinet group is serving as a coordinating body for the three countries, 

giving guidance to existing work groups, many of which are already working on harmonization and other activities. A meeting among the sub-cabinet members was 

held in mid-February, and a meeting among the chief veterinary officers from all 

three countries took place in mid-March 2004. The three parties are committed to 

working towards the normalization of trade and the harmonization of regulations 

on a North American basis. We plan to use the harmonized regulations to present 

a unified front to the international community. 

STANDARD REINSURANCE AGREEMENT

Question. The Risk Management Agency (RMA) is currently working to renegotiate the Standard Reinsurance Agreement (SRA). This agreement establishes the 

terms and conditions under which the Federal government will provide subsidies 

and reinsurance on eligible crop insurance contracts. 

Can you provide the Committee with an update on the negotiation process and 

have you set a deadline for completion? 

Answer. The Department announced on December 31, 2003 that the current 

standard reinsurance agreement would be renegotiated effective for the 2005 crop 

year. The first proposed reinsurance agreement was made publicly available at that 

time. Based on the advice of the Department of Justice, RMA established a process 

by which we meet with each company individually and renegotiate the agreement 

in detailed negotiating sessions. Interested parties had until February 11, 2004 to 

provide written comments about the proposed agreement. RMA reviewed comments 
56 

from insurance companies and interested parties to revise the first draft. On Tuesday, March 30, RMA announced the release of the second SRA proposal. RMA believes that the second draft demonstrates responsiveness to concerns raised by companies and interested parties. The proposed SRA will enhance the Federal crop insurance program by: encouraging greater availability and access to crop insurance 

for our nation’s farmers; providing a safe and reliable delivery system; and reducing 

fraud, waste, and abuse, while achieving a better balance of risk sharing and cost 

efficiencies for taxpayers. 

As part of the process, RMA will meet with the insurance providers in individual 

negotiating sessions the last 2 weeks of April and will receive public comments until 

April 29. At that point RMA will evaluate the comments and negotiating session 

materials and develop another draft for discussion with the companies. There are 

several remaining issues of substance to resolve before a final draft may be completed. While it is the agency’s desire to resolve them and complete the process before July 2004, given that this is a negotiation, RMA is not able to determine how 

long it will take to resolve issues to all parties’ satisfaction. Prior SRA negotiations 

have taken well past July to conclude, but have not affected the continuing delivery 

of the program. 

FRAUD AND ABUSE

Question. The Administration’s Budget request for the Risk Management Agency 

includes an increase of over $20 million to improve information technology. Within 

the increase, the Budget requests funding to monitor companies and improve current procedures to detect fraud and abuse. 

Can you explain how the department will monitor companies and improve detection of fraud and abuse? 

Answer. The current systems are based on technology that is more than 20 years 

old. The information that is collected from the Insurance Companies is distributed 

to a collection of 100∂ databases. Any subsequent updates or changes to this information received from the Insurance Companies overlays the original information. 

This architecture does not allow RMA to track changes in the submissions from the 

external entities. 

As the data requirements of the current data structures change from year to year, 

new databases are created for each crop year. The prior years’ databases are problematic due to the intense effort needed to convert the historical information to formats that are consistent with the more recent years. This creates problems in data 

analyses when trying to use data from multiple crop years. 

The requested increase in funds is directed at the establishment of a consistent 

enterprise architecture and enterprise data model. This would replace the 100∂ 

databases with a single enterprise data model that would be consistent across the 

organization. This enterprise data model would allow data mining operations to be 

conducted without first converting the data to a consistent useable format. 

By moving the data to a modern relational database system, RMA will be able 

to track detailed changes that are made to the data that is received from the Insurance Companies. This will allow RMA to monitor the timing of the changes as they 

occur and identify those changes that could potentially be related to fraud and 

abuse. 

ASSISTANCE ON PUBLIC LANDS

Question. Currently, the Natural Resources Conservation Service is prohibited 

from performing conservation work on public lands. This limits participation to 

farms and ranches with private lands and puts Utah, other public land states, and 

ranchers who graze on the public lands at a disadvantage. 

As a matter of policy, does the Department believe that the Natural Resources 

Conservation Service should be able to provide technical and financial assistance to 

ranchers to make improvements to their BLM and Forest Service grazing allotments? 

Answer. The Department believes that legislative intent limits the conservation 

programs that the Natural Resources Conservation Service (NRCS) administers to 

primarily providing financial and technical assistance on private lands. However, 

NRCS does work with other agencies, individuals, and groups using the Coordinated 

Resource Management (CRM) approach to provide technical assistance on Bureau 

of Land Management (BLM) and Forest Service lands. CRM is a voluntary, locallyled planning process to address the natural resource issues which involves all the 

stakeholders. The Federal and State agencies work through a Memorandum of Understanding to support the use of the CRM approach. 
57 

Financial assistance, for applicable NRCS programs, is available for use on BLM 

and Forest Service grazing allotments when the land is under private control for 

the contract period, included in the participant’s operating unit, and when the conservation practices will benefit nearby or adjacent agricultural land owned by the 

participant. 

Question. Public lands dominate many of Utah’s counties and many states in the 

West. In addition to their impact on agriculture, public lands severely reduce the 

tax base in many communities, restrict and in some cases discourage development, 

and affect the way-of-life in rural public land counties. 

Do you think farm programs, rural development programs, and conservation programs offered by USDA, take into account regional differences generally, and the 

impact of public lands specifically? 

Answer. The Natural Resources Conservation Service (NRCS) administers conservation programs. The agency allocates conservation program funds to states 

based on National program priorities and the scope of natural resource needs in the 

individual states. The process used to allocate conservation program funds to states 

includes factors that account for the fact that natural resource conditions are often 

similar within the same physiographic region, but may have natural resource differences with other regions. The Department believes that legislative intent limits 

the conservation programs that NRCS administers to primarily providing financial 

and technical assistance on private lands. Resource concerns on Federal acreage 

would not typically contribute to the scope of resource factors used to allocate funds 

to states for a particular conservation program. 

FSA Conservation Programs are adapted to local and regional conditions. Seeding 

and planting requirements are tailored to the local climatic and ecosystem for that 

region. FSA utilizes State Technical Committees and County Committees in the development and implementation of conservation policies. 

Conservation programs, such as the Conservation Reserve Program (CRP), help 

address the most critical resources on private land. Sound resource planning on private land assists producers to better manage their other resources including range 

resources on public land. In addition, programs such CRP can have a significant 

positive impact on hydrology and water resources in the West. Water yields off of 

CRP can be of greater quantity and longer duration than water yields on cropland. 

USDA Rural Development allocation formulas generally take into account: (1) 

rural population in comparison to national rural population; and (2) rural population in poverty in comparison to national rural population in poverty. While that 

does not make an adjustment for a regional area that is impacted by a large amount 

of public lands, it also does not punish an area. The lack of population concentration 

could give a state like Utah and other western states an advantage because of the 

rural nature of the areas. Grant programs like the Distance Learning and Telemedicine, Community Connect and the Water and Waste Disposal loan and grant program give those areas additional points in the scoring process. 

NATIONAL FINANCE CENTER/TSP COMPETITIVE BIDDING

Question. Madam Secretary, the National Finance Center did an admirable job in 

late 1986 to get ready to assume responsibility for the record keeping functions associated with the new Thrift Savings Plan which started receiving participants investment selections in April 1987. Many people didn’t think it could be done but the 

NFC did it. 

It has recently been brought to my attention that the Federal Retirement Thrift 

Investment Board has begun to explore the competitive outsourcing of the services 

related to the TSP. Earlier this year, the Board decided to solicit a Request for Proposals for both software maintenance and mainframe installation and housing. I am 

told that these actions were taken because the NFC was ‘‘slow to assume control 

for software maintenance and to install the TSP’s new mainframe computer.’’ The 

Board has also stated that while they intend to leave the remaining TSP record 

keeping functions at the NFC, they will periodically conduct a cost/benefit analysis 

to make sure that TSP participants get the best value for their money. 

What percentage of the NFC operations has been associated with management 

and operations of the Thrift Savings Plan? 

Answer. Approximately 425 employees, 35 percent of the National Finance Center’s (NFC) total staff, supported the Thrift Savings Plan (TSP) in fiscal year 2003. 

Question. What is the impact of the decisions to outsource software maintenance 

and the location of the mainframe? 

Answer. Outsourcing software maintenance resulted in a reduction of 31 programmers and analysts. Moving the mainframe will reduce the data center mainframe 

support staff by 7. 
58 

Other cutbacks in service recently directed by the Federal Retirement Thrift Investment Board (FRTIB) will eliminate 20 additional positions in NFC’s Thrift Savings Plan Division in fiscal year 2004 and 120 additional call center employees by 

2006. The administrative and other general support staff for these employees will 

also be reduced. NFC anticipates 65 administrative and general support staff positions to also be reduced by 2006. Another 15 contract positions will also be lost. In 

total, between 2004 and 2006, decisions by FRTIB to outsource work historically 

performed at NFC will result in a loss of 243 Federal and 15 contract positions in 

New Orleans. 

Question. Will the NFC compete to retain these functions? 

Answer. NFC was not given an opportunity to compete for the software maintenance and mainframe operations work. 

Question. What steps is the NFC taking now to make sure that they are the best 

facility to continue the remaining vital record keeping functions for this program? 

Answer. NFC is attempting to redefine the FRTIB/NFC relationship and develop 

principles of operation for TSP that help clarify roles, responsibilities, and service 

level expectations for the future. 

NFC has multiple initiatives underway to ensure that its facilities are secure and 

that they meet or exceed customer expectations. The United States Department of 

Agriculture (USDA) performed an extensive security assessment in 2002 on the current facility. As a result of that assessment, NFC has undertaken 31 multi-year facility improvement initiatives, most of which are now completed. The facility improvements include such things as increasing the number of guards; adding x-ray 

machines, fencing, and bollards; and building guard stations. 

NFC also received an appropriation to develop data mirroring capability at NFC, 

which will address known network vulnerabilities, high availability and immediate 

recovery time objectives, and the enterprise-wide vulnerabilities to weather and 

other threats that jeopardize NFC’s service to its customers. 

USDA’S CENTER FOR VETERINARY BIOLOGICS

Question. Madam Secretary, on February 10 of this year, UPI published a story 

which stated that many Federal meat inspectors had lost confidence in the testing 

conducted by the National Veterinary Services Laboratories in Ames, Iowa. There 

were allegations of secrecy and collusion with the beef industry, as well as inaccurate test results. We are aware that the USDA Inspector General has been looking into these allegations as part of their larger investigation into issues surrounding the December discovery of a BSE-contaminated cow in Washington State. 

The fiscal year 2005 budget requests $178 million to expand this facility. Obviously, with resources as tight as they are, it would be imprudent for us to provide 

this level of funding to upgrade and expand a facility if it provides unreliable testing. 

What is the USDA reaction to this article? 

Answer. USDA’s Center for Veterinary Biologics, National Animal Disease Center, 

and National Veterinary Services Laboratories (NVSL) are all located in Ames, 

Iowa. The laboratories included in the Ames complex, now identified as the National 

Centers for Animal Health, are recognized nationally and internationally for their 

scientific expertise and professional ability. They continue to receive recognition 

from various science-based organizations, including the United States Animal 

Health Association (USAHA) and the American Association of Veterinary Laboratory Diagnosticians (AAVLD). 

The President’s fiscal year 2005 Budget request includes $178 million to modernize the Ames complex, a request that has received the full support of organizations such as USAHA and AAVLD, as well as the Animal Agriculture Coalition and 

the American Farm Bureau Federation. 

With regard to the February 10, 2004, UPI article, USDA believes the allegations 

made are inaccurate and that the article itself does not represent a balanced profile 

of the work carried out by scientists at NVSL. USDA is confident in the quality and 

competence of all laboratory staffs in Ames, and we regret that the reporter did not 

include the viewpoints of any staff members currently employed at NVSL, which 

has been responsible for BSE testing at the national level. 

NVSL has quality assurance standards in place, as well as standard operating 

procedures to track samples that are sent in for testing. The facility is recognized 

as the United States’ national and international reference diagnostic laboratory for 

animal diseases, as designated by the World Organization for Animal Health (OIE) 

and the Food and Agriculture Organization of the United Nations. NVSL staff members have participated with full transparency in a review by the USDA Office of the 
59 

Inspector General, just as they operate with full transparency in carrying out program operations. 

USDA continues to stand behind the work of its laboratory staffs in Ames, and 

we plan to move forward with an enhanced BSE surveillance program that incorporates a network of approved State and Federal veterinary diagnostic laboratories 

throughout the United States. NVSL will provide leadership, confirmation testing, 

proficiency testing, quality assurance inspections, and training throughout this program. 

Question. When do you expect the IG to complete the investigation? 

Answer. The Office of Inspector General’s (OIG) investigators and auditors are 

working collaboratively to determine the facts involving BSE-related allegations 

that have been circulating in the public domain, including those in the article you 

mention. OIG’s investigative work involves the condition of the BSE-infected cow before slaughter. OIG auditors are separately conducting a broader review involving 

USDA BSE Surveillance Programs. The audit is looking at the surveillance program 

in use when the BSE-infected cow in the State of Washington was identified. It is 

also looking into changes made to the surveillance plan (New Surveillance Plan) 

after the BSE-infected cow was discovered. This also includes looking at the role 

and responsibilities of the National Veterinary Services Laboratory in Ames, Iowa. 

Within the next few weeks, OIG will be in a better position to estimate a completion 

date for reporting its findings from those reviews. 

QUESTIONS SUBMITTED BY SENATOR CHRISTOPHER S. BOND

RISK FACTORS

Question. Dr. Collins, in our questions regarding forecasting, you mentioned that, 

‘‘There are just too many risk factors going on for us to go much beyond a decade.’’ 

Can you please identify some of the risk factors or uncertainties? 

Answer. Long-term forecasting models are generally based on long-term relationships among explanatory variables, such as income and population, and variables 

to be projected or forecast, such as corn demand and trade. These relationships are 

also based on a number of other factors, ranging from infrastructure to government 

policy, which are not usually explicit in models. Therefore, long-run projections can 

go wrong when projections of explanatory variables are wrong or there are changes 

in the underlying structures that invalidate the relationships between explanatory 

variables and variables to be projected. As examples, the longer the projection period, the larger the error is likely to be in projecting income, population, exchange 

rates, yield per acre and other such explanatory variables. These are all risk factors. 

Similarly, changes in governments, government policies, infrastructure such as 

available transportation routes and modes, weather and climate, war and peace, 

availability and prices of substitute or competing products, and availability and 

prices of production inputs are all risk factors as well. The longer the forecast period, the more likely these underlying factors will change and reduce the accuracy 

of the projections. Statistical projection models estimate the range (confidence interval) within which the projection is expected to be. The further the projection is into 

the future, the larger is the confidence interval. 

Question. Dr. Collins, given all the risk factors that you identify and changes that 

have transpired in the world in recent years, is it necessarily so that to embrace 

a forecasting model looking ahead, that same model would need to accurately predict recent experience when applied to the same time period looking backward? 

Answer. A long-term projection model is normally validated against historical 

data. If the model cannot explain past trends, then there is little reason to embrace 

it. However, a model may be useful for projecting trends, or central tendencies, and 

still miss some year-to-year variation due to transitory factors. If the model errors 

are for the most recent years, the challenge is to know whether these misses are 

due to transitory factors that will correct over time or whether the underlying assumptions on which the model is based have changed. 

QUESTIONS SUBMITTED BY SENATOR TED STEVENS

BUDGET CUTS

Question. Thank you Secretary Veneman for appearing before this committee 

today. I understand that your department is operating under challenging funding 

constraints, and you had to make some difficult decisions in preparing your budget. 
60 

However, I am extremely concerned with the level of funding you chose to allocate 

to certain programs, and how those choices will affect constituents in my state. 

The Rural Utilities Program was established to provide rural communities with 

assistance to support basic needs of its residents. This includes many of the things 

that we take for granted such as running water, electricity, and waste disposal. 

These basic amenities are vital to the health of these rural communities and yet 

the USDA has slashed the funding of this program. 

In Alaska alone, funding was reduced for water and waste disposal systems from $28 million in fiscal year 2004 to $11.8 million in fiscal year 2005, a reduction of 

$16.2 million. 

Funding was also eliminated to develop a regional system for centralized billing, 

operation and management of water and sewer utilities, which will streamline operations, reduce overhead, and ensure efficient management. And funding was eliminated for high cost energy grants—a reduction of $28 million. Alaska’s rural communities experience some of the highest energy costs in the 

nation—paying up to 9 times higher than the national average. Rural areas rely on 

expensive diesel fuel which must either be barged or flown in. 

These cuts will have devastating consequences on rural communities, particularly 

in my state. Why are these cuts proposed? 

Answer. The Department is aware that high energy costs in Alaska and other 

states can be a barrier to the economies and quality of life in rural communities. 

It also recognizes that there are a host of other barriers that can have similar consequences. In a tight budget situation, it is very difficult to make the necessary 

choices that will provide effective results for the most people. Grants for rural development purposes are particularly difficult to budget because they have a dollar for 

dollar impact on the limited amount of budget authority that we have available. 

Loans, on the other hand, require budget authority for only the amount of subsidy 

costs. In most cases, these costs are relatively low. A small amount of budget authority used for loans can leverage a substantial amount of financing for the types 

of projects that will be the most help for rural communities. This was a significant 

factor in the decisions that were made in developing the 2005 budget. 

DISTANCE LEARNING, TELEMEDICINE AND BROADBAND

Question. Additionally, USDA reduced funding for the Distance Learning, Telemedicine and Broadband program by $14 million. 

With respect to the telemedicine program, most of Alaska’s rural communities are 

not on a road system and so do not have access to healthcare facilities. These communities rely on the telemedicine program, which provides them access to doctors 

and healthcare professionals. 

The distance learning program is also important to Alaska’s rural communities 

because it provides residents with tools necessary for education. These residents 

don’t have access to the more populated urban centers and rely on distance learning 

programs to meet their educational needs. 

Similarly, the broadband program connects schools, libraries, homes, and health 

clinics to the information highway. Without funding for this program, the residents 

have limited access to the outside world. Why was funding cut for these programs? 

Answer. The $14 million reduction was not a cut. Congress, in fiscal year 2004 

appropriations, added $14 million in funding under the DLT program specifically for 

the purpose of providing grants to Public Broadcast Stations serving rural areas 

with funding to meet the Federal Communications Commission mandate to convert 

their analog broadcast signals to digital. None of that funding was for DLT or 

broadband grants. The $25 million request for DLT grant funding is within historical funding level requests. With regard to broadband grants, the deployment of 

broadband facilities in rural areas is very capital intensive. Typically, limited grant 

authority provides a very small number of communities nation-wide with the ability 

to deploy broadband service on a limited scale within the community. There isn’t 

enough grant funding available to make a significant dent in achieving universal 

broadband service deployment in rural areas. The best model is one built on a company that has a strong business plan and that seeks to take advantage of economies 

of scale in its business model. The Broadband Loan program is designed to specifically meet this challenge. With reasonably low subsidy rates and low loan interest 

rates, the loan program will be the vehicle by which broadband infrastructure is deployed on a wide scale basis in all of rural America. 

TRANSSHIPMENT OF BEEF FROM THE LOWER 48 TO ALASKA

Question. I am pleased that USDA has increased funding for APHIS for animal 

diseases. I understand that you are currently negotiating with the Canadian govern-
61 

ment regarding the reopening of our borders. This is particularly important to my 

state, which relies on the Alaska-Canada highway, or ALCAN to transport live cattle and beef products to Alaska. 

In the February BSE hearing which Senator Specter held, I raised the issue of 

transshipment. The inability of transporting cattle and beef products from the 

Lower 48 to Alaska is having a devastating impact on ranchers, dairy farmers and 

truckers in Alaska. 

At that time, I requested that the USDA take steps to address this issue and to 

negotiate an agreement to permit the safe passage of cattle and beef products 

through Canada. 

Has the USDA taken any steps to address this situation? If so, what is the status 

of your negotiations and how soon can we expect a resolution on this issue? 

Answer. We appreciate the position of Alaskan ranchers, dairy farmers, and others who wish to transport U.S. cattle, beef, and beef products through Canada to 

Alaska. USDA continues to work with Canadian colleagues to reach an agreement 

on a regulatory protocol that would allow the safe transiting of U.S. cattle and beef 

products through Canada to and from Alaska. United States and Canadian officials 

have had a series of discussions regarding this issue—the latest in early March 

2004—and we hope to resolve the matter in a timely fashion. 

In a broader context, USDA continues to push for a more reasoned international 

dialogue on the need for countries to devise more flexible, commercially viable solutions to allow safe trade in low risk products. We are working with the World Animal Health Organization to both clarify the international guidelines for trade and 

ensure a consistent application of these guidelines. In addition, USDA continues to 

work with both of our tripartite partners, Canada and Mexico, to harmonize North 

America’s approach to handling trade in certain commodities that present minimal 

BSE risk. 

QUESTIONS SUBMITTED BY SENATOR HERB KOHL

HEALTH CARE COOPERATIVE PILOT

Question. Recent studies by the University of Wisconsin-Madison and others demonstrate that farmers pay an average of three times as much for their health care 

coverage as salaried employees and pay twice as much as other self-employed individuals. These plans carry high premiums and high deductibles and do not contain 

preventive health care. Furthermore, 41 percent of our farm families cannot afford 

to insure every member of their family and nearly half of those families have no 

insurance at all. 

One or more family members must often work off of the farm to obtain less expensive group health insurance. This acts as a significant labor barrier when the farm 

operation is determining whether or not to modernize. The net result is a loss of 

farm operations. We know this because farmers say that the lack of affordable quality health care is a primary reason why they will no longer farm. 

Because of the lack of affordable health insurance, farm supply cooperatives and 

other small businesses in rural areas are working to help their farmer-members 

stay on the farm by creating a cooperative healthcare purchasing alliance. This purchasing alliance is designed to provide a group coverage alternative to individual 

coverage. The healthcare co-op could serve as a model for other rural and urban cooperatives to provide access to group coverage for individuals that otherwise would 

not be able to access affordable health care. 

Secretary Veneman, are you supportive of the creation of a pilot health care cooperative purchasing alliance for farmers and small businesses in rural communities? 

Answer. We would certainly support every appropriate and realistic effort to fill 

the serious gaps in health insurance coverage available to farmers and other rural 

residents. Purchasing alliances, cooperatives, and mutuals have a demonstrated 

track record of lowering costs and responding to the special needs of their members. 

A properly structured pilot healthcare cooperative purchasing alliance could be a 

very useful tool for shaping effective and efficient solutions. 

Question. A ‘‘stop-loss’’ fund will be needed to attract potential insurers and 

healthcare providers and ‘‘buy down’’ the risk for farmers and other individuals who 

are currently considered to be ‘‘high risk’’ because they have not been insured during the last 12 months or longer or have only carried a catastrophe healthcare plan. 

Cooperative councils in Wisconsin and Minnesota are working to create these 

healthcare cooperatives. They report to me that insurers and reinsurance carriers 

do not want to offer healthcare insurance to the cooperative if they include ‘‘high 

risk’’ members without the assurance of a stop-loss fund. 
62 

Overall, this demonstration project would potentially help thousands of agricultural producers. This demonstration project would provide affordable, quality group 

healthcare coverage as an alternative to individual coverage for farmer members of 

rural, agriculturally-based cooperatives. By doing so, this removes a primary barrier 

for growing agriculture across the nation. 

Will you support appropriations to help create a stop-loss fund to move these 

healthcare cooperatives forward? 

Answer. Our support would depend upon certain conditions. First, our support 

would be limited to funding that is used in the start-up process. We do not believe 

this should become a perpetual support program that takes on the nature of an entitlement. Second, extensive input and oversight in the use of the funds would be appropriate. This is a new and untested effort whose success or failure may well be 

determined by the quality of the decisions made by its management. If we provide 

funding, we have an obligation to do what we can to make sure the overall effort 

is well conceived, well organized, and well managed. Third, we need the authority 

and resources to properly analyze the effectiveness of the program. We need to 

make sure, for example, that Government funding does not distort the real economic 

costs of the system or give false impressions about the likely success of future, self 

supporting systems. Any such appropriation should include funding for adequate 

USDA staffing to assist and monitor this initiative. 

COOPERATIVE SERVICES TECHNICAL ASSISTANCE

Question. The Committee is concerned that over the last several years State Directors have not been held accountable to meet the Department’s Cooperative Services technical assistance goals as outlined in the Rural Development Strategic Plan. 

This plan states that in order to achieve rural development’s goals, the Department 

emphasizes the use of cooperatives to develop the institutional framework to leverage rural America’s assets. 

Madam Secretary, will you hold your State Directors accountable to meet the Department’s goals as stated in the strategic plan to provide technical assistance for 

cooperatives? 

Answer. We will make ourselves accountable for the directions we are laying out 

for ourselves in our strategic planning process. Building accountability into the 

Rural Development system, at all levels, is critical if our planning process is to be 

of any value. We have developed and distributed an administrative notice directing 

our State Rural Development Directors to provide regular and prescribed reports on 

the cooperative development assistance activities being undertaken by their staffs. 

This regular reporting system will provide the basis for holding our State Directors 

accountable for cooperative development work. 

Question. Will you commit to requiring State Directors to dedicate at least one 

full time employee per State for cooperative services technical assistance? 

Answer. We are taking steps to determine the appropriate resources and staffing 

mix in providing Cooperative Services technical assistance within each State. We 

are engaged in a set of reviews and analyses of our Cooperative Services program 

that will enable us to develop sound guidance and directions on how we can best 

deploy cooperative technical assistance assets, particularly in light of our strategic 

goals and objectives. A high level external program review team is initiating a formal review of the Cooperative Services technical assistance programs, resource mix 

and requirements, priority area of focus, and fit within the Rural Development program portfolio. We have also established a cooperative advisory committee composed 

of Rural Development field and National Office staff to provide an internal review 

and suggestions for strengthening the effectiveness of Rural Development’s field 

level delivery systems for Cooperative Services programs and activities. We will use 

the products of these review activities in conjunction with the Rural Development 

strategic plan to better position ourselves to make specific commitments to alternative resource deployment for providing Cooperative Services technical assistance. 

Question. Beyond ensuring a minimum of one FTE per state, staffing resources 

should be reflective of the number of cooperatives in the state and the number of 

small farm producers. 

Are you supportive of working to ensure that state offices are held accountable 

to have staffing that reflects the level of need for cooperative services technical assistance in each State, based on the number of coops in each state? 

Answer. There are several factors we believe are necessary to consider in deciding 

how to deploy resources to cooperative services technical assistance programs. While 

the existing number of cooperatives in a given State or region is certainly one criterion, we would also want to take a broader needs and opportunities based approach to designing program delivery. We want to make sure small and underserved 
63 

farmers have appropriate access to technical assistance; and we want to make sure 

that new markets and industries growing out of value added and energy products 

receive due attention. 

QUESTIONS SUBMITTED BY SENATOR TOM HARKIN

CONSERVATION PROGRAMS

Question. Madame Secretary, I noticed that you state in your testimony that the 

Administration is increasing funding for conservation for fiscal 2005. However, if 

you compare the President’s budget proposal to what Congressional Budget Office 

estimates should be spent on 2002 farm bill conservation programs, the President’s 

budget represents a cut of over $400 million for fiscal 2005. This includes the $92 

million for technical assistance for the Conservation Reserve Program and the Wetlands Reserve Program because the President’s budget does not propose new funding to fix the technical assistance problem created by this Administration. 

Would the President support providing new funding for conservation technical assistance without an offset so the other conservation programs, like the Environmental Quality Incentives Program, will no longer need to lose funding to support 

other programs? 

Answer. The President’s fiscal year 2005 Budget proposes a brand new Farm Bill 

Technical Assistance account to provide separate and distinct technical assistance 

funding to support the Conservation Reserve Program and the Wetlands Reserve 

Program. The President’s fiscal year 2005 Budget reflects the change in law that 

was initiated by the Subcommittee to ensure programs that historically could fund 

their own technical assistance, could continue to do so. We feel that the Administration’s approach is the best way to ensure that adequate funding resources are available to implement all conservation programs. 

Question. What are the underlying assumptions for the $249 million estimate for 

the Conservation Security Program (CSP)? Does this $249 million estimate reflect 

the law as it is in effect following the enactment of the 2004 Consolidated Appropriations Act? 

Answer. We have been able to design the Conservation Security Program (CSP) 

in a way that provides funding obligations similar to the way that the Conservation 

Reserve Program obligations are structured. We estimate that there is a potential 

applicant pool of 700,000 producers nationwide to sign-up for CSP. Given the $41 

million available for this fiscal year and undetermined amounts for fiscal year 2005 

and beyond, USDA has had to design a program that is flexible enough to be able 

to function at any funding level. To accomplish this we have proposed making the 

program available in selected watersheds and emphasizing enrollment categories. 

The NRCS approach also deals with the constraint placed in statute on technical 

assistance at 15 percent of expended CSP funding. If USDA was to conduct a nationwide sign-up for CSP, technical assistance costs would far exceed the $41 million 

made available in fiscal year 2004 for the program just for the signup. The Administration’s budget assumes that all watersheds would be offered a CSP sign-up within 

an 8 year rotation; about one-eighth of the total watersheds would be offered signups annually. 

The 10 year spending cap is no longer in effect. 

BOVINE SPONGIFORM ENCEPHALOPATHY (BSE)

Question. You suggested that the revised BSE surveillance plan will require $70 

million (that will be obtained from CCC) to test at least 201,000 cattle. The President’s fiscal year 2005 budget proposed to test 40,000 cattle at a cost of $17 million. 

APHIS now plans to increase the number of animals tested by more than five-fold 

and that the new surveillance plan will include incentives paid to farmers and veterinarians to collect and submit samples to APHIS. 

Is a four-fold increase in funding adequate to cover the costs of this increased surveillance, testing and incentives? 

Answer. In fiscal year 2003, APHIS tested approximately 20,000 samples for BSE, 

the majority of which were collected from animals at slaughter facilities. When the 

fiscal year 2005 budget request was submitted, the Secretary had announced that 

certain new regulations were going into effect—such as the banning of non-ambulatory cattle from slaughter facilities—but USDA had not yet received the international review panel’s recommendations with regard to an enhanced surveillance 

program. 

The fiscal year 2005 President’s Budget request, therefore, included enough funding for APHIS to double the number of samples collected from 20,000 to 40,000 sam-
64 

ples and to provide for certain cost-recovery options. However, since the fiscal year 

2005 budget was submitted, USDA has revised its BSE surveillance program for fiscal year 2004 and fiscal year 2005 to allow for more than 200,000 samples to be 

collected and tested over a 12 to 18 month period. We will now be utilizing a network of approved laboratories and will achieve certain economies of scale with regard to other costs, such as shipping and test kit costs. We anticipate that funding 

will be adequate to cover the costs of the enhanced surveillance and testing program. 

Question. The downed cattle population represents a large portion of USDA’s BSE 

proposed test population. 

Since downed cattle have been removed from the human food supply, and it will 

be more difficult to obtain access to these cattle for testing, will the $70 million be 

adequate to pay for the additional expected costs of incentives for downed animals 

that do not come to slaughter plants? 

Answer. A BSE implementation team has been established and is working to ensure the enhanced surveillance program meets its goals. The team is currently 

drafting more specific guidelines that will be used during the course of the program. 

These guidelines will address questions regarding cost recovery and participation in 

the program. 

USDA anticipates pursuing a variety of approaches with regard to cost recovery, 

including contracts, cooperative agreements, direct payments, and fee-basis agreements. For example, costs for transporting an animal or carcass to the collection site 

from a farm or slaughter establishment may be reimbursed, or disposal expenses 

for ‘‘suspect’’ cattle that test non-negative or that cannot be rendered may also be 

covered. Other expenses may also be addressed in the program. 

We anticipate that the $70 million provided to APHIS through an emergency 

transfer will be adequate to cover the cost of the enhanced surveillance program 

during the course of the 12–18 month effort. 

MEAT AND POULTRY SAFETY

Question. As you know, USDA still does not have a nationally representative, statistically robust, baseline surveillance program for pathogens on meat and poultry 

products. We still do not know the prevalence of common foodborne pathogens, such 

as E. coli O157:H7 and others that kill thousands of people in the United States 

each year. While it is critical to implement a national surveillance program for BSE, 

it is equally critical to know the prevalence of pathogens on meat and poultry products. 

Can you provide me with your plans for developing a national baseline surveillance program for pathogens on meat and poultry products? 

Answer. FSIS is committed to developing baseline studies that will help the agency and the industry to better understand what interventions are working or how 

they could be improved. Currently, FSIS is developing protocols to enable us to conduct continuous baseline studies to determine the nationwide prevalence and levels 

of various pathogenic microorganisms in raw meat and poultry. 

To achieve the agency’s goal of applying science to all policy decisions, the fiscal 

year 2004 appropriations bill provided $1.65 million for an initiative to establish a 

continuous baseline program. After the fiscal year 2004 appropriations bill was enacted, the agency quickly developed a Request for Proposals. On February 12, 2004, 

the agency posted the pre-solicitation notice, and then on February 29, and March 

2, 2004, the solicitation and accompanying materials were posted on the web site, 

FedBizOpps.gov, which is the point-of-entry for Federal government procurement 

over $25,000. The official solicitation issue date was March 1, 2004, and all offers 

were due on April 1, 2004. FSIS is currently evaluating offers and expects to award 

a contract in June 2004. 

Baseline studies will provide information on national trends and are a tool to assess performance of initiatives designed to reduce the prevalence of pathogens in 

meat and poultry products. These baseline studies will also yield important information for conducting risk assessments that can outline steps we can take to reduce 

foodborne illness. These surveys will also be important in establishing the link between foodborne disease and ecological niches, as well as levels and incidence of 

pathogens in meat and poultry. The net result will be more targeted interventions 

and the effective elimination of sources of foodborne microorganisms. 

Question. What would be the estimate of the cost of such a program? 

Answer. FSIS estimates that each year, it can complete one baseline and begin 

a second one using the $1.65 million appropriated in fiscal year 2004. Since there 

are at least 15 different products for which baselines could be considered (e.g. beef 

trimmings, beef carcasses, ground beef, chicken carcasses, and ground chicken), 
65 

FSIS could complete a full cycle of baselines in about 10 years at a cost of approximately $16.5 million. If baselines were repeated every 3 to 5 years, the yearly costs 

would be higher. 

NATIONAL ANIMAL IDENTIFICATION SYSTEM

Question. The USDA budget proposes $33 million for the development of a National Animal Identification system, even though most estimates for implementation 

of the system are well above $100 million. I have repeatedly stressed the need for 

this system to ensure animal health, consumer confidence, export markets and public health. The proposed budget amount falls far short of the full implementation 

costs and will impede USDA’s ability to implement a system that will meet these 

goals. 

Given the limited funding, which parts of the system do you plan to fund, and 

which parts of the system will you leave to states and the private sector? Answer. The President’s Budget for fiscal year 2005 requests $33 million for animal identification. This funding would support the national repositories for identification of premises, animals and non-producer participants; cooperative agreements 

with states, tribes, and third parties; communication and outreach efforts, and some 

staff to support the effort. The cooperative agreements would be one-time allocations 

for initial implementation and integration with the national repositories. USDA 

would look to state or state consortiums for additional contributions, depending on 

the integration needs. It is also expected that producers and other market participants would share in the system’s cost. 

There is an important role for private industry in the National Animal Identification System. One of the key elements of the National Animal ID program is to be 

technology neutral in the requirements of a national system. This objective was to 

provide flexibility to producers and to prevent the stagnation of innovation in technology. Private industry will be critical in providing technology and service to producers and markets. Grass-roots interface with producers, states and other parties 

will be needed to support the successful implementation of a national animal identification system. 

Question. How did you arrive at this decision? 

Answer. The recommendations reflect the complex structure of the livestock industry and previous efforts to design and implement a NAIS. The decision process 

was chaired by the Chief Information Officer with assistance from USDA’s BSE response coordinator, the Deputy Under Secretary for Farm and Foreign Agricultural 

Services; USDA General Counsel; and USDA Chief Economist. The group relied 

heavily on the excellent information developed as part of the U.S. Animal Identification Plan (USAIP) and on the expertise of the USAIP Steering Committee; the 

Under Secretary for Marketing and Regulatory Programs; and the Administrator 

and the staff of the Animal and Plant Health Inspection Service. The group also met 

with a broad spectrum of organizations and companies representing the meat supply 

system, from production through retailing. 

MCGOVERN-DOLE INTERNATIONAL FOOD FOR EDUCATION PROGRAM

Question. I want to ask you about the McGovern-Dole International Food for Education Program that we permanently established in the 2002 Farm Bill. We provided $100 million for fiscal 2003 for the program in mandatory funds, but we were 

only able to provide $49.7 million for fiscal 2004. 

Please describe to me how the program has to be scaled back to fit within the 

lower funding level for fiscal 2004, and how many fewer children will be served compared to fiscal 2003? 

Answer. The fiscal year 2003 program, which totaled $100 million, supported a 

total of 130,000 tons of commodity donations for 21 programs with the total beneficiaries estimated at 2.2 million. It is estimated that the fiscal year 2004 funding 

level of $49.7 million will provide approximately 60,000 tons of commodities for 10– 

15 programs with approximately 1.1 million beneficiaries. 

Question. Also, please describe to what extent USDA has been able to recruit participation in the program by other donor countries. 

Answer. Under the pilot Global Food for Education Initiative and the McGovernDole International Food for Education and Child Nutrition program over $1 billion 

has been donated to school feeding programs from other donors. These contributions 

have been primarily via the World Food Program but also in coordination with private voluntary organizations. In addition, the in-kind contributions in recipient 

countries have been significant. 

Question. In the last few months, we have seen significant increases in key commodity prices in the United States. On a season-average basis, 2003/04 prices for 
66 

corn, wheat, rice, and soybeans have increased between 2 and 10 percent just since 

December 2003, with cash soybean prices now spiking near $10/bushel. While that 

is certainly a beneficial development for American farmers who still have crops from 

last fall in their storage bins, it will also increase the cost of acquiring commodities 

for USDA and USAID food aid programs. 

Given that the President’s budget does not include an increase to compensate for 

these higher prices, will it be necessary to curtail the scope of these food aid programs? And, if so, to what extent? 

Answer. Yes, it will be necessary to curtail the scope of these food aid programs. 

USDA calculated the potential impact of price increases of both commodities and 

freight on USDA food aid programs for fiscal year 2004. I will provide a table which 

shows the expected decrease in tonnages and people fed under the programs, based 

on four different price scenarios. 

[The information follows:] 
67 

POTENTIAL IMPACT OF PRICE INCREASES ON USDA FOOD AID PROGRAMS FOR FISCAL YEAR 2004 

Program Commodity Value ($ Million) Freight Cap ($ Mil- lion) 

Tonnage with prices 

from President’s 

Budget Estimates 

(000 MT) 

Tonnage with Dec/ 

Feb prices 1 (000 MT) 

Tonnage Assuming a 

10 percent price increase from 12/2003/ 

02/2004 prices (000 

MT) 

Tonnage Assuming a 

20 percent price increase from 12/2003/ 

02/2004 prices (000 

MT) 

Title I 2 ........................................................................................................................... $117.70 .............................. 740.0 616.4 560.6 512.8 Food for Education 3 ...................................................................................................... 21.47 .............................. 66.1 60.6 55.1 50.5 Food for Progress 4 ........................................................................................................ .............................. $40.00 257.6 225.1 204.6 187.5 

Total ................................................................................................................. 139.17 40.00 1,063.7 902.1 820.3 750.8 

Millions of People Fed ................................................................................................... .............................. .............................. 5.9 5.0 4.6 4.2 

1 Title I uses price estimates based on Feb. 2004 crop report. Food for Education uses average of actual purchase prices for Dec. 2003—Feb. 2004. 2 Includes Title I funded Food for Progress. Tonnages and values do not include the $21.9 million reserve. 3McGovern Dole Food for Education and Child Nutrition Program. 4 CCC funded Food for Progress. 
68 

DESIGNATE BIOBASED PRODUCTS

Question. What are your plans to designate biobased products for Federal agencies 

to purchase? 

Answer. Under the Federal Biobased Products Preferred Procurement Program, 

we currently are gathering test data on individual biobased products in a number 

of separate items (generic groupings of products). This data will be used to support 

the designation of one or more items for preferred procurement in a draft rule we 

expect to begin preparing soon. We will first publish a draft rule with a thirty day 

public comment period, to be followed by a final rule. Once a final rule is published 

designating this first group of items, we will begin a draft designation rule for a 

second grouping of items. The process of designating items by rule for preferred procurement will then continue as quickly as manufacturers can be identified and test 

data developed. We expect that the bulk of the items thus far identified by the CTC 

study will be designated by rule over the next 3 or 4 years. We also recognize that 

new items or generic groupings of biobased products will emerge in the market place 

from time to time, as the industry grows. As that occurs, we will gather the necessary information to designate those new items as well. 

Question. Can you provide me with a schedule of what products you are planning 

to designate and when? 

Answer. We expect to include one or more items-generic groupings of productsin the first regulation to designate items. Among the items on which we are currently gathering product and test data for individual products are: 

—hydraulic fluids for stationery equipment 

—hydraulic fluids for mobile equipment 

—formulated industrial cleaners 

—all other formulated cleaners 

—formulated solvents 

We expect to be able to include one or more of these items in our first draft rule 

to designate items for preferred procurement. We expect to publish a draft rule, 

with a 30 day public comment period this summer. We hope to have a final rule 

in place this fall. 

Question. Also, can you update me briefly on the labeling program? My understanding is that you have created a draft label. What else are you doing to move 

this component of Section 9002 of the farm bill forward? 

Answer. We do have a draft label in review in USDA’s Office of the General Counsel. We currently are working through Federal contracting procedures to obtain a 

contractor to provide support in writing draft and final rules for the labeling program. We hope to have that draft rule cleared for publishing in the Federal Register 

by the end of the current calendar year. We expect to have a 30 or 60 day public 

comment period on the draft rule, and will follow as quickly as possible with a final 

rule before the middle of 2005. 

RENEWABLE ENERGY SYSTEMS

Question. What does the Department plan to do to vigorously promote and implement Section 9006 of the farm bill this spring and summer? The Department used 

a Notice of Funds Availability to implement section 9006 of the farm bill in fiscal 

year 2003 and fiscal year 2004. I understand that the Department intends to issue 

a rule for the fiscal year 2005 program. Can the Department commit to issuing the 

final rule by January 2005, in order to give potential applicants sufficient time to 

review and apply for the program? 

Answer. The Under Secretary for Rural Development designated Rural Energy 

Coordinators from each USDA Rural Development State Office to coordinate outreach, implementation and delivery of the program. An Interagency Agreement between DOE’s Office of Energy Efficiency and National Renewable Energy Laboratory (NREL) and USDA Rural Development has been executed. This agreement provides a vehicle for funding NREL activities to assist USDA in writing the technical 

requirements of the program, to develop tools to assist applicants and Rural Development State offices in addressing the technical requirements, and to assist in public outreach activities. Through this interagency agreement, a strong partnership 

has been established with the National Renewable Energy Laboratory (NREL) to establish a technical team of internationally recognized experts in the fields of solar, 

wind, biomass, geothermal, hydrogen, and energy efficiency technologies to provide 

training, technical review of applications and comments on the program. These experts are from the following Department of Energy (DOE) Laboratories: National 

Renewable Energy Laboratory, Sandia National Laboratory, and Oak Ridge National Laboratories. We have also developed a close partnership with EPA’s AgStar 

Program. 
69 

With the help of NREL, the State and Local Initiative Staff, we have developed 

the following resources: Outreach materials for Rural Development State Offices 

and technology interest groups to conduct outreach workshops, informational meetings and agricultural conferences were developed and a comprehensive one-stop 

web-site addressing the opportunities for renewable energy development provided by 

Section 9006. The website consists of a series of web pages designed to increase program awareness and aid prospective applicants in determining basic eligibility requirements. This website will be continually updated as new information and opportunities and case studies come available. The website also provides useful guidance 

to farmers and ranchers on how to go about developing these projects by technology 

and scale. 

Most recently, a national training web-cast for our USDA Rural Development 

Rural Energy Coordinators for the fiscal year 2004 Program delivery was held. The 

training conference was broadcasts from the NREL headquarters in Golden, Colorado, on April 7, 2004. Training included presentations from DOE, EPA, NREL, the 

Sandia National Laboratories, Rural Utilities Service, and Rural Business-Cooperative Service. 

USDA Rural Development has drafted a proposed rule that is in clearance within 

the Department. We anticipate publishing the proposed rule in the Federal Register 

within the next few months. A 60-day public comment period is included in the proposed rule. 

We hope to publish this final rule early in calendar year 2005. 

RENEWABLE ENERGY

Question. Will the Department lower the minimum grant or loan size to allow 

more farmers and rural small businesses to participate in the section 9006 program, 

especially for energy efficiency projects? This is something that I, and others, would 

support. What else is the Department considering to encourage more applications 

for energy efficiency projects? 

Answer. In the fiscal year 2004 notice of funding availability, we have lowered the 

minimum grant request threshold from $10,000 to $2,500. We will consider similar 

changes to the minimum threshold in the rule. 

We are considering ways to streamline and reduce application requirements for 

energy efficiency improvements for smaller project requests. We are developing 

guidance to assist smaller project applicants in preparation of applications. 

Question. Will the Department streamline the application requirements, especially 

for small farmers? Section 9006 funds should go only to deserving applicants, but 

I strongly encourage you to open up the program to a broader audience. One way 

of doing this would be to ensure that the detail necessary for the feasibility study 

commensurate with the size of the project. In other words, a smaller project ought 

not to have to provide the same level of information and analysis as a larger one. 

Answer. The Department is proposing ways to streamline application requirements in the proposed rule. 

Question. Will the Department allow in-kind contributions to count towards the 

funds leveraging requirement? If not, why not? This seems like a potential change 

that could help spur additional participation in the program and put it within the 

reach of many smaller producers, who are clearly among the intended beneficiaries 

of the program. 

Answer. The Department will address this issue in the proposed rule. 

Question. What is the Department planning to do to coordinate the section 9006 

program with state energy offices and the U.S. Department of Energy? 

Answer. USDA has entered into an Interagency Agreement with DOE and the 

National Renewable Energy Laboratory (NREL). This agreement provides a vehicle 

for funding NREL activities to assist USDA in writing the technical requirements 

of the program, to develop tools to assist applicants and Rural Development State 

offices in addressing the technical requirements, and to assist in public outreach activities. Through this interagency agreement, a strong partnership has been established with the National Renewable Energy Laboratory (NREL) to establish a technical team of internationally recognized experts in the fields of solar, wind, biomass, 

geothermal, hydrogen, and energy efficiency technologies to provide training, technical review of applications and comments on the program. These experts are from 

the following Department of Energy (DOE) Laboratories: National Renewable Energy Laboratory, Sandia National Laboratory, and Oak Ridge National Laboratories. 

We have also developed a close partnership with EPA’s AgStar Program. 

With the help of NREL, the State and Local Initiative Staff, we have developed 

the following resources: Outreach materials for Rural Development State Offices 

and technology interest groups to conduct outreach workshops, informational meet-
70 

ings and agricultural conferences were developed and a comprehensive one-stop 

web-site addressing the opportunities for renewable energy development provided by 

Section 9006. The website consists of a series of web pages designed to increase program awareness and aid prospective applicants in determining basic eligibility requirements. This website will be continually updated as new information and opportunities and case studies come available. The website also provides useful guidance 

to farmers and ranchers on how to go about developing these projects by technology 

and scale. 

Most recently, a national training web-cast was held for our USDA Rural Development Rural Energy Coordinators for the fiscal year 2004 Program delivery. The 

training conference was broadcast from the NREL headquarters in Golden, Colorado, on April 7, 2004. Training included presentations from DOE, EPA, NREL, the 

Sandia National Laboratories, Rural Utilities Service, and Rural Business-Cooperative Service. 

Our Rural Development State Offices are working with the State Energy Offices 

and others in conducting outreach activities, workshops, using materials we have 

discussed previously. The DOE, through NREL, has assisted in developing the regulation and conducting technical reviews of applications and in preparing outreach 

materials. Also, these materials have been used by DOE to conduct workshops such 

as those conducted by the wind working groups. 

NATIONAL CENTER FOR ANIMAL HEALTH

Question. I am concerned about possible shrinkage in the capabilities of the National Center for Animal Health that might be necessary to avoid exceeding OMB’s 

present budget limit of $459 million on which the $178 million in the Administration request is premised. What reductions in the capabilities of the facility have either been decided on or are likely, and what are the costs of restoring those capabilities over the past year and the past 2 years? 

Answer. There is no shrinkage in the capabilities of the Centers for Animal 

Health. The primary difference between the initial plan and the current plan is how 

animal and laboratory support space will be acquired—either by renovating existing 

space or constructing new space. By consolidating ARS and APHIS functions into 

a single complex the USDA will achieve efficiencies in both staffing and space needs 

over the existing campus. New animal and laboratory space is configured to accommodate both agencies and be shared by a number of programs to improve usage efficiencies. The $461 million program provides for the needs of the 280 NADC program 

staff and the 286 APHIS program staff located in Ames. 

The Department will meet the animal health program needs within the $461 million estimated for this project. Because construction costs for the Ag large animal 

facility and the initial laboratory segment were higher than originally estimated in 

1999 during the preliminary program efforts, the size of the new low containment 

large animal facility has been reduced; however, these programs will be accommodated within existing low containment facilities. A number of the existing field 

barns and miscellaneous support structures (feed storage, hay storage, vehicle maintenance) will also remain in operation. 

SOUND SCIENTIFIC INFORMATION FOR REGULATORY DECISIONMAKING

Question. There has recently been much discussion about ‘‘sound science.’’ I am 

concerned that proposed changes to the review process of scientific information used 

by agencies, including the USDA, would create the perception that the acceptance 

of scientific findings are subject to review by political and special interests. I am 

also concerned that the proposed review process would also unnecessarily slow down 

the implementation of regulations to protect human health. 

Of particular concern are changes that would (1) move the coordination of scientific review out of the agencies and into the Office of Management and Budget, 

where the administration would have greater political influence, and (2) specifically 

restrict the participation of scientists receiving funding from agencies such as the 

USDA in the review of scientific findings, but not similarly restrict participation of 

scientists receiving funding from regulated industries. 

Can you please explain what steps you have taken to make certain politics and 

special interests will not affect the quality of scientific information used to make important regulatory decisions? 

Answer. Following recommendations from a Report by the National Research 

Council entitled ‘‘Improving Research Through Peer Review,’’ and language in The 

Agricultural Research Extension, and Education Reform Act of 1998, USDA/ARS 

overhauled its prospective peer review process. The Office of Scientific Quality Review (OSQR), which was established in 1999, coordinates independent external peer 
71 

panel reviews of each of the research projects that make up the Agency’s 22 National Programs at the beginning of their 5-year cycle. This prospective review of 

the proposed project plans has contributed to a strengthening of the ARS research 

program. 

We are currently developing new procedures for a retrospective evaluation of each 

of ARS’ 22 National Programs at the end their 5-year program cycle. While we are 

piloting several different approaches to achieve this objective, all of our pilots involve an independent external peer panel made up of scientists, customers, stakeholders, and partners who will determine if the research is relevant, of high quality, 

and that it produced research products that benefited American agriculture. Additionally, results of ARS’ research are peer reviewed when they are submitted to scientific journals for publication. 

The information provided to regulatory agencies to serve as the basis for regulation is also submitted to scientific journals in the form of scientific manuscripts. The 

editorial boards of the journals subject these manuscripts to peer review, which usually occurs anonymously. Researchers do not get their papers published unless the 

papers pass the scientific scrutiny of the peer review process. 

The Cooperative State Research, Education, and Extension Service (CSREES) 

funds research relevant to the mission of USDA at universities, Federal laboratories, private research institutions, and other organizations. All research projects, 

including those funded by base programs, undergo scientific peer review prior to initiation, as required by law. Proposals are reviewed by peer panels that are composed of expert scientists from universities, industry, government and stakeholders 

as appropriate. Conflict of interest criteria are applied to ensure that proposals from 

an institution are not reviewed by a panel member from that institution and that 

there are no real or perceived financial conflicts. The review criteria include scientific merit and relevance to U.S. agriculture. Research results are peer reviewed 

again when published in the scientific literature, as described above. This peer review process ensures that the highest quality scientific information is continually 

supplied to those who would make regulatory decisions. However, CSREES does not 

control or limit in any way publications or other communication of research results 

from projects it funds. Finally, the relevance, quality, and performance of research 

portfolios will be subjected to rigorous assessment by experts on a 5-year basis. 

Every regulation published by USDA must comply with applicable Executive Orders, the Administrative Procedures Act, and other applicable statutes. The procedures in place establish an open and transparent process that requires regulatory 

agencies to clearly and concisely outline the basis for regulatory decisions, including 

the scientific information used to make those decisions. USDA follows procedures 

common to all Federal regulatory agencies to ensure all interested parties as well 

as the general public have an opportunity to participate in the rulemaking process 

and comment on regulatory decisions made by the agency. 

QUESTIONS SUBMITTED BY SENATOR BYRON L. DORGAN

EMPOWERMENT ZONES

Question. For the third year in a row, the Administration proposes no funding to 

follow through on the commitment that USDA made to rural empowerment zones 

even though this Subcommittee has thankfully rejected this recommendation for 2 

years in a row. I have one of those zones in my state, the Griggs-Steele Empowerment Zone, focused on out migration—a very serious problem in North Dakota. 

Why has the Administration continued to oppose this funding even after Congress 

restored it in the fiscal year 2003 and fiscal year 2004 bills? 

Answer. The Administration has provided substantial earmarks and technical assistance in support of the EZ/EC communities in the past. A larger amount of resources can be made available by utilizing the Budget Authority for loans rather 

than funding specialized grants. 

Question. Can you please give me a substantive reason why this funding has been 

eliminated again this year? 

Answer. The President’s fiscal year 2005 budget proposes $103.8 million of earmarked loan and grant funds for the EZ/EC communities. Considering the tight nature of the fiscal year 2005 overall budget, this amount of funding, plus technical 

assistance, is a substantial investment on the part of the Federal Government in 

rural communities. 
72 

OBESITY PREVENTION INITIATIVE GRAND FORKS ARS

Question. I see that this year, you have announced Food-Based Obesity Prevention 

as a top departmental priority. It is my understanding that you also included an 

additional $5 million in ARS to implement this priority. 

Can you tell me where that ARS research will be conducted? 

Answer. The new funds will be used to support research on obesity prevention at 

the following proposed locations: Baton Rouge, LA; Beltsville, MD; Boston, MA; 

Davis, CA; and Houston, TX. 

Question. I would have expected that some of that research would happen at the 

Grand Forks Human Nutrition Center, which is one of our nation’s most outstanding human nutrition research facilities. But when I look at the budget for the 

Grand Forks ARS, I only see a reduction of $515,317 which is the funding I’ve been 

able to add for the last several years through this Subcommittee for the Center’s 

Healthy Food Initiative. 

Why isn’t ARS better utilizing this facility, particularly given your emphasis on 

human nutrition and obesity? 

Answer. The Grand Forks Human Nutrition Research Center has developed a 

much deserved reputation as an outstanding Center for the study of trace elements, 

which is the mission of the Center. That work will continue to be supported. ARS 

is developing its strategic plan to attack the problem of obesity using a focus on 

foods. The Grand Forks Human Nutrition Research Center has been part of that 

process, and ARS will develop a role for its research capacity to address obesity 

issues. 

Question. I am concerned about reports that the Grand Forks ARS has lost 40 

percent of its staff since 1985 and flat budgets will probably force 8–10 layoffs a 

year. 

Why hasn’t ARS been supporting this top notch facility? 

Answer. Funding at the Grand Forks Human Nutrition Research Center has increased since 1985. The impact on the center is similar to the impacts on all of the 

other human nutrition research centers, as well as on all ARS units. The funding 

for the center, or any unit in ARS, can be used as best determined by the Center 

Director, who can use discretion in deciding to expand a program, purchase new 

equipment, develop new facilities, or change the number of personnel. At each of 

the human nutrition research centers, there has been significant leveraging of resources with funding from industry and other Federal agencies, and this has resulted in much stronger research programs. 

In recent years there have been a number of outstanding scientists hired at the 

center and, with the existing budget, ARS has been able to maintain the high visibility and impact of the research that is conducted at the center. There has not been 

a reduction in force in ARS since 1985, and any reductions in the number of personnel that have occurred throughout the agency are based on decisions to not fill 

positions in favor of using the money for new programs, new equipment, etc. 

BSE SURVEILLANCE PROGRAM

Question. Madam Secretary, I noted in your testimony that USDA is requesting 

$60 million, an increase of $47 million, which will permit it to further accelerate 

the implementation of a verifiable National Animal ID system, increase BSE surveillance, conduct technology of BSE testing technologies and strengthen the monitoring and surveillance of advanced meat recovery. I wanted to bring to your attention some technology that has been developed at North Dakota State University 

that I understand APHIS may be interested in pursuing. 

NDSU and its private sector partners have the unique capability to participate 

in this, and I’m curious what to know about the technology that USDA plans on 

using? 

Answer. USDA is interested in technologies that may meet the needs of the BSE 

surveillance program and the implementation of a national animal identification 

system. 

On January 9, 2004, USDA announced that the Center for Veterinary Biologics 

would begin accepting license applications for BSE tests. The decision to formally 

accept license applications for BSE test kits and rapid tests has better positioned 

USDA to quickly implement modifications to our current BSE surveillance program. 

Several test kits have been issued licenses or permits by APHIS, and more may 

be approved in the future. Distribution and use of BSE test kits in the United 

States shall be under the supervision or control of the USDA’s Animal and Plant 

Health Inspection Service. Distribution in each state shall be limited to authorized 

recipients designated by proper state officials, under such additional conditions as 

the APHIS administrator may require. Regarding the national animal identification 
73 

system, USDA’s goal is to create an effective, uniform, consistent, and efficient system by: 

—Allowing producers, to the extent possible, the flexibility to use current systems 

or adopt new ones, but not burden them with multiple identification numbers, 

systems, or requirements; 

—Building on the data standards developed in the United States Animal Identification Plan; and 

—Remaining technology neutral in order to utilize all existing forms of effective 

technologies and new forms of technology that may be developed. 

The specific technologies used to link a unique animal number to an animal, 

record the movement in commerce, and report the movement to a national database 

will be determined by industry. We welcome North Dakota State University’s participation in this developing program. 

BROADBAND FUNDING

Question. It has been almost 2 years since the new broadband title to the Rural Electrification Act (REA) was enacted. More than $2 billion in loan authority has 

been provided under this new program and the Senate reinforced its bipartisan support for this initiative in a series of amendments to the Agriculture Appropriations 

bill. Unfortunately, less than $200 million in loans have been allocated so far while 

more than a $1 billion in demand has been made known to the agency. 

Specifically, I would like to know: how many broadband loan applications are 

pending; how many loans have been approved; how many loan applications have 

been rejected; what states have projects pending, rejected or approved; how long 

loan processing takes; how many staff are allocated to the broadband program and 

how many staff are allocated to the Telecommunications and Distance Learning and 

Telemedicine programs; and how many rural broadband connections you expect to 

make under the new program? 

Answer. There are 40 loan applications pending totaling $438.8 million; 14 loans 

have been approved totaling $201.8 million; 20 loan applications totaling $300.3 million have been returned as ineligible and 17 loan applications totaling $195.3 million have been returned as incomplete. It takes RUS approximately 60 days to process a loan application provided the application is reasonably complete when it is 

submitted. Initially, a team of 14 headquarters individuals have been assigned to 

the broadband program. Under a recently approved reorganization plan, approximately 25 individuals will be assigned to it, pending filling vacancies which currently exist. The number of headquarters employees assigned to the Telecommunications and DLT program is approximately 40. Over 1 million potential connections 

to broadband service have been made possible with the approval of the first 14 

loans. Future connections will vary depending on loan size, service territory, and 

project costs. Our goal is the full utilization of the funding available to hook up as 

many rural customers as possible. 

RURAL TELECOMMUNICATIONS

Question. I am also profoundly concerned about reports that suggest that the 

agency avoid rather than manage risk. The risk I hope you avoid is the risk of leaving rural Americans behind in the digital economy. In creating and funding a new 

broadband title to the REA, Congress sought to re-ignite the ‘‘can-do’’ spirit of the 

early days of rural electrification and the rural telephone program. Historically, the 

agency worked with applicants in a cooperative, not adversarial way to find solutions. 

Can I get assurances from you that you see our mission as using the tools of this 

new loan program to spur rapid and meaningful deployment of broadband services? 

Answer. Yes. In concert with the President’s recently announced goal of universal 

broadband by 2007, USDA’s Rural Development is ready to meet this goal in rural 

America. The ‘‘meaningful deployment of broadband services’’ can only be met by 

making quality loans. As stated before, universal broadband deployment has been 

recognized as a national policy goal. In light of this, we still face challenging domestic spending decisions. In order to balance fiduciary responsibility with mission delivery, USDA is focusing on ‘‘quality loans’’ that produce exponential benefits 

through reduced subsidy rates and greater lending levels and that strengthen not 

only rural economies, but our national economy and its role in the global economic 

system. A failed business plan translates not only into loss of taxpayer investment, 

but deprives millions of citizens living in rural communities of the technology needed to attract new businesses, create jobs, and deliver quality education and health 

care services. I can assure you that every effort is being made to expedite the deployment of broadband service to rural America in a ‘‘meaningful’’ way. 
74 

NORTHERN GREAT PLAINS REGIONAL AUTHORITY

Question. Can you tell me how the Department is proceeding with the establishment of the Northern Great Plains Regional Authority and which agency within 

USDA will be charged with administering the Authority? Also, when can we expect 

the fiscal year 2004 funding to be released? The legislation also calls for the appointment of a Federal and a tribal co-chair. Can you tell me what the process will 

be to make these appointments and what the status of this process is? 

Answer. Rural Development has been tasked with providing the report requested 

in the fiscal year 2004 Appropriations Act and working with the Governors of the 

five states to establish the Northern Great Plains Regional Authority. A taskforce 

of State Directors has been established to develop the report and coordinate the numerous activities required to establish the Authority. 

Funds will be available once the Authority is fully established. The Authority cannot be established until the Federal and Tribal co-chairs have been named and confirmed. 

The statute requires those appointments to be made by the President and confirmed by the Senate. It is our understanding that the White House will follow the 

normal procedure for filling such positions. 

STANDARD REINSURANCE AGREEMENT

Question. When can we expect a new SRA? 

Answer. RMA anticipates establishing an agreement for the 2005 reinsurance 

year by the July 1, 2004 deadline. 

Question. Why did RMA eliminate the developmental fund within the crop insurance program? 

Answer. The first draft of the SRA was designed to raise many ideas and concepts 

to address long-standing program delivery issues. RMA has listened carefully to all 

the responses from insurance providers, interested parties via submitted written 

comments, and discussions with trade associations. RMA believes the second draft 

addresses most of the concerns raised in the first round of negotiations. There were 

strong concerns about the suggested elimination of the developmental fund. Therefore, in the second draft RMA restored the developmental fund and reverted back 

to seven reinsurance funds. 

UNDERWRITING GAINS TAX

Question. Why did RMA propose a 25 percent tax of underwriting gains for the 

reinsurance companies involved in crop insurance? 

Answer. The proposed SRA encourages companies to provide broader service to 

farmers by RMA assuming a larger share of the non-profitable business in high-risk 

areas. It also allows greater flexibility for companies to share risk with FCIC in the 

pilot phase of new products, encouraging companies to make new products available 

to producers. 

The 25 percent global quota share arrangement permitted RMA to take a greater 

share of the losses as well as gains to stabilize the program and secure a better balance of risk sharing between the government and the companies. This provision was 

intended to add capital support and stability to the program to supplement private 

sector reinsurance that often is less available for drought stricken, and therefore 

less profitable areas of the country. The second draft retains this provision but at 

a much reduced, 5 percent level. 

MULTI-PERIL CROP INSURANCE

Question. RMA is proposing to penalize companies who deliver Multi-Peril Crop 

Insurance above the cost of Federal reimbursement of Administration and Operations. This proposal would have a disproportionate affect on smaller companies and 

may force them out of the program. Why would RMA want fewer companies in the 

crop insurance program? What evidence do you have that the current rate of A&O 

reimbursement is adequate? 

Answer. RMA does not want to have fewer companies in the program, but is also 

concerned about companies over spending and harming the livelihood of the customers, agents and loss adjusters. In the second draft, we have removed the penalty 

for companies that exceed their A&O reimbursement allowance, but will continue 

to exert careful and active oversight over company financial condition and operational effectiveness. RMA will take appropriate regulatory action to safeguard 

farmers and the delivery system against another company failure due to financial 

excesses. The failure of American Growers cost taxpayers approximately $40 million 

to date above and beyond indemnities paid for farmer losses. The proposed SRA es-
75 

tablishes additional reporting to RMA of critical business information needed to anticipate company financial weaknesses such as those that caused the failure of 

American Growers. 

Expense reimbursement payments have grown over time in total and on a per policy basis. For example, the number of policies serviced by companies in 1998 and 

2003 remained at 1.2 million, but RMA paid the companies a total of $444 million 

in expense reimbursement in 1998 and $734 million in 2003. On a per policy basis, 

expense reimbursements increased from $358 per policy in 1998 to $592 per policy 

in 2003. This is a 65 percent increase over 5 years—an average compound increase 

of over 10 percent per year. For 2004, it is estimated that premium income will be 

substantially higher reflecting generally higher commodity prices and that the related total and per policy expense reimbursement will rise dramatically without a 

significant increase in the cost of selling or servicing the policies. 

STANDARD REINSURANCE AGREEMENT

Question. Does RMA intend on providing the industry with a complete proposal, 

including all necessary supporting manuals to review when the second draft is released? 

Answer. On Tuesday, March 30, RMA announced the release of the second SRA 

proposal along with subsequent appendices (Appendix I: Program Integrity Statement, Appendix II: Plan of Operations, and Appendix IV: Quality Standards and 

Control). This additional information will allow the companies to evaluate the agreement in a more comprehensive way. A document detailing the required data processing formats and instruction, Appendix 3 (formerly Manual 13), will be published 

at the end of the process to reflect the new agreement. 

Question. Will the SRA contain terms to make it financially viable for companies 

to operate in every state? 

Answer. RMA has proposed changes allowing for future growth of the delivery 

system, such as permitting greater flexibility for companies to shift more risks to 

RMA on policies that are in high-risk areas as well as the risk of new products in 

their pilot phase. Traditionally, the Federal Government takes on the bulk of nonprofitable business in all areas and allows insurance companies to retain more of 

the profitable business. In addition, the SRA proposes raising state session limits 

in many states allowing for the viability of more service in those areas. 

Question. What happens if RMA doesn’t have the SRA wrapped up by May 1? 

Answer. RMA fully anticipates having a signed agreement by the July 1, 2004 

deadline. As with prior negotiations, if the new agreement is not signed by that 

time, RMA will continue to provide the necessary reinsurance support until the new 

agreement is signed. Once the new agreement is signed, all policies issued for the 

2005 reinsurance year will be covered by the new agreement. 

Question. Do you believe RMA will pursue the establishment of a guarantee fund 

in the second draft of the SRA? 

Answer. Yes, in the second draft, the purpose of the guarantee fund was clarified 

and the fund was also renamed the Contingency Fund. During the company discussions and with others, it became clear that many misunderstood the purpose of the 

fund and even questioned the authority to have such a fund. 

The purpose of the fund is simply to use existing penalty and fee provisions, due 

to company performance issues, to help pay for any future company failures, such 

as the American Grower situation. The estimated funds that would be put in this 

fund on an annual basis is between $1–2 million. The Office of General Counsel 

firmly believes RMA has the authority to make what is essentially a bookkeeping 

change for this purpose. It should also be noted that this fund cannot be used by 

the RMA as a resource to fund agency expenses. 

Question. It is my understanding there were numerous provisions in the first SRA 

proposal in which RMA was exerting more regulatory authority. I believe RMA currently has very extensive regulatory authority and I would urge the agency to use 

such authority in a responsible manner. Additionally, I am concerned the crop insurance program is currently a very complex highly regulated program. Has the 

agency done any analysis regarding the costs these regulations place on the delivery 

system and the savings, which could be generated by removing some of these burdensome procedures? 

Answer. Although RMA has not performed a formal analysis regarding regulatory 

costs, RMA is striving to put into place regulatory provisions that do not put an 

undue burden on the agency or the companies. In addition, RMA has revised its Appendix IV (Quality Control and Standards) to incorporate more efficient processes 

for oversight activities, and to better utilize the existing resources of the companies 

in such efforts. However, it is imperative that RMA apply its learning gained from 
76 

the demise of American Growers. RMA will continue to work closely with the companies to responsibly fulfill its vital role as a steward of the program. 

In the proposed SRA, RMA is fairly and equitably exercising its given authority 

and responsibility to oversee the financial and operational safety, soundness and effectiveness of the Federal crop insurance program to ensure program integrity and 

a reliable, effective delivery system. This is good for farmers, companies, agents and 

all others concerned and will not impose ‘‘massive’’ new burdens or costs. 

The proposed SRA establishes additional reporting to RMA of critical business information needed to anticipate company financial weaknesses such as those that 

caused the failure of American Growers. The companies are already preparing much 

of the requested information for other purposes. This information includes financial 

statements, statement of earnings and cash flow, commission and other expense details, reinsurance agreements and management evaluations of major financial and 

operating risks facing a company. Any well-run, fiscally responsible company will 

already be developing and using this kind of information and should be willing to 

provide it to its regulator. 

In farmer listening sessions throughout the country, RMA has received an overwhelming number of requests to ensure that agents and loss adjusters are knowledgeable and well trained. The proposed SRA requires insurance companies to verify 

that agents and loss adjusters are trained in accordance with RMA standards and 

are delivering the best and most complete and accurate information possible to 

farmers. The proposed SRA also strengthens the companies’ focus on training agents 

and loss adjusters to better serve limited resource, minority and women farmers. 

Any concern over the cost associated with agent and loss adjuster oversight and 

training fails to recognize the benefits and efficiencies of well-trained agents and 

loss adjusters. Farmers benefit from making informed sound risk management decisions, while agents, loss adjusters and insurance companies benefit from increased 

customer satisfaction and customer retention, and reduced exposure to fraud, waste 

and abuse, and litigation risks and costs. 

The proposed SRA provides for disclosure of information to allow RMA to assess 

the financial strength and performance of insurers and their service providers. RMA 

is asking that companies disclose more leading indicators of their insurer and service provider operational and financial soundness and risks. Many of these disclosures were requested informally last year in the wake of the failure of American 

Growers. Current insurance companies serving farmers should have this information and be willing to share it with their regulators. Companies conducting good 

business practices and assessing their risks should incur no additional cost. Companies that are not already using this information should begin to develop it to ensure 

their soundness and safety. 

AGRICULTURAL TRADE

Question. The United States Trade Representative (USTR) has recently completed 

free trade agreements with Central America (CAFTA) and Australia, with the benefits to American agriculture being miniscule. 

Can you identify any specific benefits to American agriculture that these and future free trade agreements provide? 

Answer. On March 22, 39 leading agriculture-related associations, federations, 

councils, and institutes representing a broad spectrum of American agriculture, sent 

a letter to President Bush expressing their support for the CAFTA and Dominican 

Republic agreements. The signators of the letter expressed the view that the agreements would lead to ‘‘significant’’ increases in exports of a wide range of agricultural 

products. 

American agriculture will benefit from the Australia FTA because Australia will 

immediately eliminate all agricultural tariffs. In particular this will benefit U.S. exports of: processed foods; oilseeds and oilseed products; fresh and processed fruits 

and fruit juices; vegetables and nuts; and distilled spirits. Also the FTA establishes 

an SPS Committee that will enhance our efforts to resolve SPS barriers to agricultural trade, in particular for pork, citrus, apples and stone fruit. 

Under the Caribbean Basin Initiative and the Andean Trade Preferences Act, agricultural imports from nearly all of our FTA partners already receive duty free 

treatment from the United States. By negotiating Free Trade Agreements with 

these countries we will level the playing field, affording our exporters similar duty 

free access to those markets for their products. 

Question. The USTR has recently announced intentions to negotiate free trade 

agreements with Colombia and Thailand. 

Will sugar be included in the negotiations and do you support the inclusion of 

sugar in regional and bilateral free trade agreements? 
77 

Answer. To maximize the benefits for U.S. agriculture from these negotiations, we 

seek increased market access for all of our export commodities, including those that 

our negotiating partners want to protect. We can only pursue this strategy effectively if we are willing to negotiate increased foreign access to our own sensitive 

markets. We will continue to take steps to ensure that the interests of U.S. sugar 

producers are taken into account. For example, in the CAFTA, we insisted that the 

out-of-quota duty for sugar not be eliminated or even reduced. This provision for 

sugar was unique, but it was deemed necessary to defend our domestic sugar program. 

ASIAN SOYBEAN RUST

Question. I am very concerned about the risk of importing Asian soybean rust into 

the United States. The movement into the United States could devastate our soybean crop and impose a heavy economic burden on American farmers and consumers. We cannot afford to take unreasonable risks given the adverse impact soybean rust would have on soybean production and growers in the United States. If 

a temporary ban on the importation of beans from infected nations is the only answer that government can come up with in the short term, I believe that it is better 

than jeopardizing our entire soybean industry. 

Will you halt soy imports until the Department can find a sway to ensure that 

this devastating fungus doesn’t infiltrate our domestic soybean crops as a result of 

lax import standards? 

Answer. We do not plan to halt soy imports. APHIS officials are looking closely 

at our country’s importation of soybean seed, meal, and grain. Our analysis to date 

has shown that clean soybean seed and soybean meal—which is a heat-treated, 

processed product—pose a minimal, if any, risk of introducing this disease. Historically, there has never been a documented instance of soybean rust spread through 

trade. Rather, it is spread naturally through airborne spore dispersal. We are currently conducting a risk assessment to study the viability of the pathogen and verify 

that it does not survive in commercial grade soybean products. The preliminary results of the assessment indicate a very low risk, if any, of introducing this disease 

through imports. 

INTEREST ASSISTANCE LOANS

Question. Money for interest assistance loans to farmers has been used up for 

2004. Many producers depend on interest assistance to obtain the financing necessary to plant their crops. It is my understanding that interest assistance was cut 

by 35 percent from 2003 to 2004. 

What steps are being taken by USDA to meet the demands of the program? Will 

USDA provide alternative funding for the program in 2004? 

Answer. The fiscal year 2004 allocation of guaranteed operating with interest as- sistance loan funds was $271.2 million. As of March 31, 2004 guaranteed operating 

with interest assistance loan obligations totaled $244 million. In accordance with 

statutory requirements, remaining funds are targeted for exclusive use by socially 

disadvantaged farmers. 

The direct operating loan program is one alternative that could provide aid to 

family farmers unable to obtain guaranteed OL with interest assistance loan funds. 

This program, with its availability of a lower interest rate for terms of up to 7 years, 

provides family farmers a means of financing their business operations at rates and 

terms comparable to the guaranteed OL with interest assistance loan program. As 

one would expect, demand for this program is also high. However, with historically 

low interest rates available through commercial lenders, many family farmers are 

able to utilize the guaranteed operating unsubsidized loan program. Use of funds 

in this program has increased by eleven percent compared to a year ago at this 

time, but there are still sufficient funds available to meet additional demand. 

Because the subsidy rate for the interest assistance program is significantly higher than for other farm loan programs, it is not cost beneficial to transfer funds for 

interest assistance loans. 

COUNTRY OF ORIGIN LABELING

Question. Madam Secretary, when the Omnibus Appropriation bill became law, it 

delayed the implementation date of Country of Origin Labeling from September of 

this year until September of 2006, except for certain fish. The Omnibus bill did not, 

however, change the date at which the actual regulations governing COOL need to 

be concluded, which is also September of 2004. The Department has nearly 2 years 

to work on the COOL regulation, so I am hopeful that USDA will, in fact, have 

those regulations completed. As you know there are many of us in Congress, in fact 
78 

a bipartisan majority in the Senate, who want the COOL regulations completed and 

the date changed back. In fact, the date may be changed back to September of 2004, 

and I want to ensure that the Department is ready in that event, as the law currently requires. I read with interest some comments that the President made in 

Ohio recently. The President said, and I quote: ‘‘I want the world to ‘buy America.’ 

The best products on any shelf anywhere in the world say, ‘Made in the USA.’ ’’ His 

comments were followed by applause. I think the President is right. 

If he says that, why does the Bush Administration oppose the COOL law that 

would ensure that consumers have the opportunity to buy American? 

Answer. In general, the Administration believes that providing more information 

for consumers on which to base their purchasing decisions is better than less information. However, if the costs of providing the additional information exceed the benefits, then there is no economic rationale for providing it. We are reviewing the comments received on the proposed regulations and will finalize the regulations to implement COOL as mandated by the 2002 Farm Bill and the Omnibus Bill. 

BOVINE SPONGIFORM ENCEPHALOPATHY (BSE)

Question. Do you still intend to open the U.S. border to live Canadian cattle, especially in light of the discovery that two Canadian feed mills were the cause of the 

outbreak of mad cow disease? 

Answer. Today, the Animal and Plant Health Inspection Service (APHIS) closed 

the comment period on a proposed rule that would amend the regulations regarding 

the importation of animals and animal products to recognize, and add Canada to, 

a category of regions that present a minimal risk of introducing BSE into the United 

States via live ruminants and ruminant by-products. USDA will take into account 

the comments received on the proposed rule as we review this matter. 

RESIGNATION OF ADMINISTRATOR BOBBY ACORD

Question. On March 23, Bobby Acord, head of USDA’s Animal and Plan Health 

Inspection Service (APHIS), resigned effectively immediately. 

Was his resignation the result of a disagreement over policy? 

Answer. Bobby Acord resigned after almost 38 years of Federal service due to a 

number of factors, including illness in his family and his desire to spend more time 

in the places and with the people that he cares about most. In a letter to all APHIS 

employees dated March 24, 2004, Mr. Acord stated, ‘‘Those of you who know me well 

know that if nothing else, I am a decisive person. And this weekend, I decided it 

is simply time for me to pass the torch.’’ 

During Mr. Acord’s tenure as APHIS Administrator, he led the Agency through 

the aftermath of the September 11, 2001, terrorist attacks, an outbreak of exotic 

Newcastle disease and its eradication, and the country’s first detection of bovine 

spongiform encephalopathy. While Mr. Acord was administrator, the employees of 

APHIS were also named ‘‘2003 People of the Year’’ by Progressive Farmer magazine. 

Mr. Acord is succeeded by Dr. Ron DeHaven, who joined APHIS in 1979 and most 

recently served as the deputy administrator of APHIS for Veterinary Services. 

BSE POLICY

Question. We understand that there are a wide range of policy proposals to address various BSE issues. 

What are you doing to ensure that our decisions are science based and don’t rest 

upon short-term political or public relations benefits? 

Answer. In addition to employing scientific and technical experts with working 

knowledge of transmissible spongiform encephalopathies, USDA has consulted with 

international experts through the Secretary’s Foreign Animal and Poultry Disease 

Advisory Committee and with scientists at the Harvard Center for Risk Analysis to 

review the BSE surveillance plan and response. USDA bases its policy decisions on 

sound science and the advice we receive from such experts. 

Question. Japanese officials say that despite USDA officials’ statements to the 

contrary, ‘‘Ag Department officials from the United States have not been in recent 

contact with their Japanese counterparts. We’re confused as to why some USDA officials have been saying otherwise.’’ 

Is the Japanese claim true and what is the status of the negotiations regarding 

the reopening of the Japanese market to U.S. beef imports? 

Answer. The Department has been and remains in close contact with Japanese 

government officials. Immediately following USDA’s announcement of the BSE case, 

senior USDA officials and Japanese officials held talks in Tokyo, Japan, on December 29 and January 23. A Japanese technical team visited USDA in Washington, 

D.C., and the BSE-incident command center in Yakima, Washington, during Janu-
79 

ary 9–15. On March 23, the Agricultural Affairs Office, American Embassy in 

Tokyo, reported meetings with the Japanese Ministry of Health and Welfare 

(MHLW), Ministry of Agriculture, Fish and Food (MAFF), and the Food Safety Commission (FSC). 

There is still a significant difference in our official positions regarding BSE testing and specified risk material removal. On March 29, I sent a letter to Japanese 

Agriculture Minister Kamei proposing to have a technical panel made up of experts 

from the World Animal Health organization meet before April 26 to discuss a definition of BSE and related testing methodologies as well as a common definition of 

specified risk materials. On April 2, Japan rejected the proposal reasoning that the 

United States first needed to reach a bilateral scientific understanding on BSE. 

USDA is planning another high-level visit to Japan to continue talks in late April. 

The United States exported over $1.3 billion in beef to Japan in 2003, representing 

over 50 percent of Japan’s total beef imports. The import ban has severely impacted 

Japan’s market supplies and beef prices. Given Japan’s need for beef imports and 

the importance of beef exports to Japan for the U.S. beef and cattle industry, we 

are hopeful that a solution can be found. 

DURUM AND SPRING WHEAT YIELDS

Question. Recently, the Risk Management Agency mandated that durum yields be 

split out from spring wheat yields. The method which RMA is proposing to do this 

is causing durum growers to have disproportionate yield reductions in their actual 

production histories. It is also causing farmers to take an inordinate amount of time 

to retrace these yields. One solution to this problem is to allow producers to replicate yields. 

What are USDA’s plans to resolve this problem and will USDA allow farmers to 

replicate yields? 

Answer. The U.S. Durum Wheat Growers Association (USDGA) requested Risk 

Management Agency (RMA) recognize spring and durum wheat as separate crop 

types due to quality and price differences, thus allowing each to be insured as a separate unit beginning with the 2004 crop year. This was done via publication in the 

Federal Register at 7CFR § 457.101 June 9, 2003. 

Insured areas most affected are all North Dakota counties, 18 counties in Northern South Dakota, and 18 counties in Northeastern Montana. Some insured’s will 

have increased spring wheat yields and some insured’s will have increased durum 

wheat yields. The impact will vary depending upon individual yield history. 

On average 25–30 percent of all wheat in North Dakota is durum wheat. RMA’s 

experience for 1999–2003 shows durum loss ratios in North Dakota under the APH 

yield based coverage are higher than that of spring wheat, 2.69 verses 1.09 for 

spring wheat. 

RMA explored viable options to alleviate some producers concerns while still 

maintaining program integrity. 

While producers have requested to be allowed to use replicated yields in their history database, this will generally overstate guarantees for durum wheat and will 

most likely generate significant complaints from insured’s negatively impacted by 

replication, and from agents and insurance providers who have undergone considerable work to implement the procedures for splitting out the yields by type, and increase the risk of loss to companies and re-insurers providing protection in these 

areas. 

RMA is implementing a 10 percent yield limitation to provide relief to those that 

may experience declining yields. Implementing yield limitations is consistent with 

existing procedures for other situations that protect insured’s from declining yields, 

and provides immediate protection while avoiding replicated yields that are too high 

that will adversely affect actuarial soundness for several years to come. 

WOOL FOR BERETS IN IRAQ

Question. Madam Secretary, it has come to my attention that the Coalition Provisional Authority (CPA) in Iraq has let a contract for berets for Iraqi security forces. 

While the CPA has indicated that the contract is open to all bidders, the contract’s 

parameters have put American wool producers at a distinct disadvantage by specifying that the berets be made of 100 percent Australian wool! Such preferential 

treatment is not only unfair but is a serious concern that deserves immediate attention. There are 64,170 U.S. wool producers, including over a thousand in North Dakota, that produce some of the finest wool in the world. Given a fair field on which 

to compete, I am certain they will win such a contract. 
80 

Given the time-sensitive nature of this issue, I want to know if you will work with 

others in the Administration to ensure that the CPA is directed to re-let that contract to ensure that no country receives preferential treatment? 

Answer. Thank you for this question which has brought this issue to our attention. We have been in contact with USDA personnel in Iraq and were able to learn 

a great deal about this contract and procurement. Unfortunately, the contract has 

been awarded and the tender specifications did, in fact, specify Australian wool. 

This tendering was not done by the CPA directly and did not involve U.S. government funds. 

As part of our reconstruction efforts in Iraq, we are trying to bring greater transparency and predictability to the public tendering process. This is of vital importance if we are to regain market share for American agricultural products in this 

potentially significant export market. Bringing about a market based, open and 

transparent public tendering process is an uphill battle and this is a perfect example. We will be working closely with CPA and Iraqi authorities to ensure that oversights like this do not happen again. 

QUESTIONS SUBMITTED BY SENATOR DIANNE FEINSTEIN

SPECIALTY CROPS

Question. The crop insurance program has expanded significantly over the past 

10 years providing farmers and ranchers with increased financial security. Even in 

California it is now commonplace for bankers to require crop insurance prior to approval of operating loans. However, there are still many specialty crops that have 

no crop insurance program available. Many of these crops are grown on relatively 

few acres nationwide compared to the more traditional commodity crops. 

How does the USDA plan to expand the insurance programs to the remaining specialty crops not currently covered? 

Answer. Through the use of feasibility studies and pilot programs, RMA plans to 

expand the insurance programs to cover additional specialty crops. Risk Management Agency has made significant progress in providing new crop insurance programs available to specialty crop growers. For example, during 1998–2002: The 

number of insurable specialty crops increased 29 percent The number of active policies increased 28 percent The amount of coverage (liability) increased 98 percent 

Since 2001, RMA has entered into over 90 contracts and partnerships with the 

majority focusing on providing crop insurance or other non-insurance risk management tools for producers of specialty crops. Feasibility studies to determine whether 

crop insurance programs can be developed have been completed for direct marketing 

of perishable crops, fresh vegetables, Hawaii tropical fruits and trees, lawn seed, 

and quarantine insurance. The fresh vegetables project is in the development stage 

with crop year 2007 as the target year for implementing a pilot program. Insurance 

programs for Hawaii tropical fruits and trees and quarantine insurance are in the 

development stage with crop year 2006 as the target year for implementing pilot 

programs. The feasibility study for lawn seed is projected for completion in the 

fourth quarter of fiscal year 2004. The feasibility study for direct marketing of perishable crops is projected for completion in the first quarter of fiscal year 2005. 

Most specialty crops of significant size or value have either a program already developed or are a future project on RMA’s Prioritized Research and Development 

Plan. The ten highest valued specialty crops not insured are listed below with the 

current plan for addressing each: 

[In dollar amount] 

Crop Crop Insurance Status Value 

Bedding/Garden Plants .............................................. Target 2007 crop year ............................................... $2,392,495 

Lettuce ........................................................................ Target 2007 crop year ............................................... 2,261,185 

Mushrooms ................................................................. Industry not interested .............................................. 911,509 

Sod .............................................................................. Industry not interested .............................................. 800,694 

Cut Flowers & Cut Greens ......................................... No action based on Feasibility Study ........................ 717,612 

Carrots ........................................................................ No action based on Feasibility Study ........................ 551,433 

Broccoli ....................................................................... Target 2007 crop year ............................................... 536,226 

Cut Christmas Trees .................................................. Target 2005 crop year ............................................... 441,604 

Cantaloupes ................................................................ Target 2007 crop year ............................................... 404,685 

Melons ........................................................................ Target 2007 crop year ............................................... 328,550 

Note: Pilot program is scheduled for implementation in the target year. 
81 

In addition, RMA recently issued a statement of objectives request for proposals 

for innovative and cost effective approaches to providing crop insurance for crops 

with small value. The purpose is to develop a program that responds to small value 

crop producers, provides a minimal requirement transaction between a producer and 

insurance provider, and identifies the vulnerabilities for waste, fraud and abuse. A 

contract was awarded in March 2004 to begin research for possible development of 

a new approach that provides crop insurance coverage for crops with small value. 

One possible approach that may be proposed is some form of whole farm program, 

perhaps similar to the existing Adjusted Gross Revenue program, which is being piloted in a limited number of counties in California. 

REVENUE BASED PROGRAMS

Question. The crop insurance program has been piloting a number of new programs which address not only production losses, but revenue losses as well. However, most of these programs have been made available to only the major commodities: corn, wheat, cotton, rice etc. I understand that in certain states in the midwest a corn grower has up to 6 different options in insuring their crop. 

When will these new revenue based programs be made available to specialty crop 

growers? 

Answer. RMA conducted a feasibility study for developing a revenue model of insurance for certain specialty crops, which is currently in the process of development 

for revenue based programs tailored to those specialty crops. The new revenue based 

programs should be made available to specialty crop producers for the following 

crops in the proposed pilot program states for the crop year 2007, pending approval 

by the FCIC Board of Directors. The list of crops and states include: Apples, NY, 

PA, OR, VT, and WA; avocados, grapefruit, and oranges, FL; dry beans (Baby Lima, 

Blackeye Peas, and Large Lima), CA: dry peas and lentils, ID; maple syrup, ME, 

NH, NY, and VT; and revenue product modification (corn), IA, IL, and IN. 

ADJUSTED GROSS REVENUE PROGRAM

Question. There is currently a pilot crop insurance program available in a very 

limited number of counties Nation wide called the ‘‘Adjusted Gross Revenue’’ (AGR) 

program. The program is available in 8 counties in California. However, I understand the Agency has put a hold on further expansion of the program pending an 

evaluation. 

When is the evaluation expected to take place and when is the earliest that expansion of this program can be expected? 

Answer. The Adjusted Gross Revenue (AGR) pilot program began in 1999 in five 

States (36 counties). In 2000, six more States and 52 new counties were added. In 

2001, RMA made a number of significant changes to the program in order to increase the number of eligible producers, coverage available, and producer acceptance. At the same time, AGR was expanded into six additional States and 126 new 

counties to provide a broader base upon which to test the pilot program. 

The Agricultural Risk Protection Act (ARPA) required the expansion of AGR into 

at least eight counties in California and into at least eight additional counties in 

Pennsylvania. RMA worked with the respective State Departments of Agriculture 

to select the expansion counties, gathered the data necessary for expansion and the 

FCIC Board of Directors approved expansion into eight counties in both states for 

2003. Effective for 2003, AGR was available in 17 states and 214 counties. 

RMA is currently in the process of contracting for an evaluation to be conducted 

of the AGR pilot program. The evaluation will commence during 2004 using 2001– 

2003 AGR experience data reflecting the program changes and broad expansion 

made in 2001. Once the evaluation is completed, the results will be made available 

to the Board of Directors, who will determine any future direction and expansion 

of this pilot program. 

TECHNICAL ASSISTANCE FOR SPECIALTY CROPS PROGRAM

Question. The Technical Assistance for Specialty Crops (TASC) program, authorized in the 2002 Farm Bill, was developed exclusively to provide the specialty crop 

industry with financial assistance to help overcome trade barriers such as sanitary, 

phytosanitary, and technical barriers that prohibit or threaten exports. Funds are 

applied for by industry and distributed upon approval by USDA. The need for the 

program is great as noted by the overwhelming requests by industry for assistance. 

During the past 2 years, since the program’s inception, USDA has received 111 proposals totaling $20 million in funding requests—compared to actual funding of only 

$4 million. The $2 million annually, while beneficial, is clearly insufficient. 
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What is USDA doing to expand this program and encourage growth of specialty 

crop exports? 

Answer. The Technical Assistance for Specialty Crops (TASC) program was established in the Farm Security and Rural Investment Act of 2002. As program managers, the Foreign Agricultural Service (FAS) is responsible for ensuring all funds 

are used in the most effective way to maximize benefits to U.S. specialty crops. To 

accomplish that objective, FAS has taken several steps to maximize the use and effectiveness of this program that include: 

—outreach to the U.S. specialty product industries to maximize awareness of the 

program; 

—established regulations to ensure fair and equitable allocation of the funds to 

worthy projects; 

—program flexibility to address unexpected trade barriers, enabling the availability of funds throughout the year; and 

—selected projects that had the highest expected return in value to expanding exports. 

In addition, FAS continues to support the specialty crops through ongoing activities such as market intelligence, trade policy, and export market development. The 

Market Access Program (MAP) includes over 30 nonprofit associations that represent specialty crops and received $40 million of MAP funds in fiscal year 2003. 

FRUIT AND VEGETABLE PILOT PROGRAM

Question. The 2002 Farm Bill authorized a $6 million Fruit and Vegetable Pilot 

program in fiscal year 2003 to provide free fruit and vegetable snacks to students 

in 25 schools each in Michigan, Ohio, Indiana, Iowa, and seven schools in the Zuni 

Nation in New Mexico. Results of the program have been positive. According to a 

report by the USDA Economic Research Service, the pilot has shown consumption 

increases in school children by at least one serving a day. 

Various nutrition groups, the United Fresh Fruit and Vegetable Association, and 

other anti-obesity advocates have been pushing for expansion of this successful fresh 

fruit and vegetable pilot program under the Child Nutrition Reauthorization Bill. 

However, due to funding technicalities, the expansion of the pilot has been removed from the House bill. The Child Nutrition Reauthorization Bill is being written so it contains very little opportunity for participants to access fresh fruit and 

vegetables, at a time when childhood obesity is becoming an enormous issue. 

What is the USDA doing to increase the consumption of fresh fruits and vegetables in the school lunch, school breakfast, WIC and related programs? 

Answer. The Department shares your interest in the fruit and vegetable initiative, 

and would support its expansion provided Congress is able to fund it through savings or offsets that do not compromise access to school meal benefits. USDA, as part 

of the Department’s Strategic Goal 4: ‘‘Improve the Nation’s Nutrition and Health,’’ 

established a specific performance measure to improve the diets of children and lowincome people by at least five points as measured by their Healthy Eating Index 

(HEI) scores; and to increase the score for the broader U.S. population by at least 

two points. USDA is working harder than ever with stakeholders to devise program 

initiatives to achieve these changes. Since fruit consumption and vegetable consumption are two of the ten elements of the HEI on which the most progress can 

and should be made, I am particularly keen to see innovations addressing these 

areas. 

The Department believes that the Federal nutrition assistance programs are an 

effective way to support and promote the consumption of fruits and vegetables. For 

example, I know that children who participate in the National School Lunch Program eat nearly twice as many servings of vegetables at lunch as non-participants 

and School Breakfast Program participants eat twice as many servings of fruit at 

breakfast as non-participants. USDA nutrition assistance programs provide over $8 

billion in support for fruit and vegetable consumption annually by supporting consumer purchases in the marketplace through the Food Stamp Program; purchasing 

and distributing these foods directly to schools, food banks, and other institutions; 

and through nutrition education and promotion. I will provide some additional information for the record. 

[The information follows:] 

To maximize the results of this investment in increasing consumption for children 

and others, the Department is taking action to motivate all consumers to eat more 

of these healthful foods. We are expanding the Department of Defense fresh produce 

program to distribute fresh fruits and vegetables to schools, enhancing the variety 

and availability of fruits and vegetables in the school meals, as well as expanding 

the Food Distribution Program on Indian Reservations fresh produce initiative. 
83 

The Department has recently published Fruit and Vegetables Galore, a guide developed as part of Team Nutrition that helps schools offer and encourage consumption of a variety of fruits and vegetables. In addition, the Department is expanding 

dissemination of the EAT SMART. PLAY HARD.TM (ESPH) materials that promote 

vegetable and fruit consumption. One theme of ESPH—Grab Quick and Easy 

Snacks—promotes fruits and vegetables as snacks. 

More broadly, we continue to pursue our partnership with the National Cancer 

Institute (NCI) and the Centers for Disease Control and Prevention (CDC) in the 

expanded national 5-A-Day for Better Health program. The 5-A-Day campaign’s goal 

is to increase consumption of fruits and vegetables to 5 to 9 servings every day, and 

inform consumers of the health benefits gained from eating fruits and vegetables. 

Regarding the WIC Program, the WIC food package currently plays a key role in 

contributing to fruit and vegetable consumption by providing 100 percent fruit and 

vegetable juices to program participants. In addition, WIC nutrition education emphasizes the relationship between nutrition and health, and fruits and vegetables 

are promoted as part of a complete diet. Both the Dietary Guidelines and the Food 

Guide Pyramid are foundation nutrition education materials used by WIC to emphasize the importance of fruit and vegetable consumption. Also, many WIC State agencies have adopted the National Cancer Institute Campaign, Five A Day, to promote 

the intake of fruits and vegetables. WIC’s nutrition education approach is designed 

to teach participants and caregivers about the important role nutrition plays in 

health promotion and disease prevention as well as overcoming specific risk conditions. 

Finally, a contract was awarded in September 2003, to the Institute of Medicine 

(IOM), through the Food and Nutrition Board to review the WIC food packages in 

a 22-month study. This study will use current scientific information to review the 

nutritional requirements and assess the supplemental nutrition needs of the population served by WIC. IOM is currently scheduled to provide the Department with 

a final report in February 2005. Assuming the report is received on schedule, USDA 

expects to publish a Notice of Proposed Rulemaking for public comment in December 2005, and a final rule in December 2006. 

The WIC Farmers’ Market Nutrition Program (FMNP) provides WIC participants 

with coupons that can be exchanged at authorized farmers’ markets for fresh fruits 

and vegetables. The FMNP is currently in operation at 44 sites—36 States, the District of Columbia, Guam, Puerto Rico and 5 Indian Tribal Organizations. During fiscal year 2002, just over 2.1 million participants were served. The FMNP educates 

WIC participants on selecting, storing, and preparing fresh fruits and vegetables 

and how to make fruits and vegetables part of healthy meals. 

TRAINING OF DHS EMPLOYEES

Question. As the Department of Homeland Security (DHS) was being organized, 

a significant part of USDA’s funding for import inspections was placed within DHS. 

There remains significant concern that DHS will not place a high enough priority 

on invasive pest and disease detection at the border and that inspectors that are 

cross trained in other types of import inspections will not be sufficiently vigilant to 

prevent importation of pest on imported produce. 

The agriculture industry, and in particular fresh fruit and vegetable growers, 

have been very vocal that it is not acceptable for Customs agents to be cross-trained 

to detect pests and diseases in imported products. That capability is a specialized 

skill. Given the enormous increases in fresh fruit and vegetable imports over the 

last 5 years, it is very unwise to reduce the Federal Government’s capability to detect invasive species. 

Costs of eradication and elimination are higher than taking preventive measures, 

if pests enter the United States the Federal Government will need to pay for increased pest and disease eradication, due to failures to interdict these threats at the 

border. 

What is the U.S.D.A. doing to ensure that inspectors will have sufficient training 

and experience to detect and prevent entry of new pests on imported produce? 

Answer. To facilitate the transfer of the agricultural inspection force, USDA and 

the Department of Homeland Security (DHS) signed a Memorandum of Agreement 

that specifies the functions and funding transferred to DHS and establishes mechanisms between the two agencies regarding the training of employees, use of employees, and other areas described in the Homeland Security Act of 2002. The Agreement is meant to emphasize the importance of continuing and enhancing the agricultural import and entry inspection functions. 

As specified in the Agreement, USDA continues to train DHS inspectors who conduct agricultural inspections. DHS is maintaining an inspection force of agricultural 
84 

specialists, who must meet certain educational requirements and go through a 2- 

month training course in our import requirements and pest and disease identification, among other things, at APHIS’ Professional Development Center in Frederick, 

Maryland. APHIS and DHS’ Bureau of Customs and Border Protection (CBP) are 

also implementing a joint quality assurance program to ensure that the inspection 

process continues to function effectively. As part of this effort, APHIS will provide 

on-the-job training for both agricultural specialists and primary inspectors. APHIS 

also provides basic training in the agricultural inspection process for general CBP 

inspectors at CBP’s training center in Atlanta. 

SUDDEN OAK DEATH

Question. Sudden Oak Death (SOD) is a serious, often fatal disease of California 

native oaks, and has been found in two nurseries (Monrovia, Azusa and Specialty 

Plants, San Marcos) in Southern California. The discovery of this disease in the 

nursery trade, in warm, dry Southern California and many miles from the epicenter 

of the disease in the Bay Area has caused five states to quarantine California nursery products. Monrovia nursery is one of the largest nursery producers in the 

United States and ships plants throughout the United States and Canada as well 

as other foreign destinations. Current economic losses to Monrovia at this juncture 

are estimated at $4.3 million. A general embargo on California nursery stock will 

cause the state incalculable economic damage. 

What is the USDA doing to assess the extent of the disease both within California 

and within the United States and take action to contain the spread and prevent new 

areas from being affected by the disease? 

Answer. To assess the extent of SOD, we are conducting ‘‘tracebacks’’ to determine 

the nursery or nurseries from which infected plant material originated, and ‘‘trace 

forwards’’ to determine where a particular nursery has sent infected plant material. 

Also, we are conducting a national survey of nurseries and forests. These activities 

will help us determine the extent of SOD migration within California and to other 

States. In addition, we plan to impose a Federal quarantine on the interstate movement of known and ‘‘associated’’ SOD hosts from all California nurseries. This quarantine will be based on sound science and a measured risk response. Associated 

hosts are plants which are not technically hosts, but are nevertheless susceptible 

to SOD. This action would preclude States from imposing their own quarantines, 

and would provide for the resumption of safe trade in California nursery plants— 

albeit under strict conditions. As a result, we would be able to prevent further SOD 

spread via shipments from California nurseries, while still allowing the interstate 

movement of healthy plants. 

GLASSY-WINGED SHARPSHOOTER

Question. Other pests like the Vine Mealy bug and Glassy winged sharpshooter 

are impacting crops in California and elsewhere. What is U.S.D.A. doing to contain 

the spread of and eliminate these pests? 

Answer. Since fiscal year 2000, we have led an extremely successful cooperative 

Glassy winged sharpshooter (GWSS) research and control program in California. 

This program includes nursery stock inspections, a Statewide survey, and site-specific urban treatments. These activities help us quickly detect, control, and mitigate 

the GWSS. Also, we develop strategies to reduce the pest problem in agricultural 

production areas. This approach supports Statewide activities to promote trade, and 

remove the pest from State commerce routes. In areas where 100 or more GWSS 

had been found in traps each week, the program now finds approximately five. This 

success demonstrates the benefits not only of rapid response to a pest introduction, 

but also of cooperating with stakeholders, universities, extension services, agricultural researchers, and growers. 

In addition, we are continuing a successful pilot program throughout Kern County 

and conducting a similar program in infested areas of Riverside, Tulare, and Ventura Counties. In addition, we have expanded area-wide control activities into crucial production areas in Tulare County, Ventura County, and Coachella Valley in 

Riverside County. Our prompt implementation of these area-wide strategies has significantly reduced the incidence of GWSS in the new areas. This year, we continue 

to (1) develop management strategies and conduct area-wide treatments; (2) monitor 

the impact of GWSS control strategies on the environment; (3) mitigate Pierce’s Disease spread in vineyards; (4) transfer control strategies to County Agriculture Departments; and (5) conduct regulatory activities through increased nursery stock inspections. 
85 

At this time, APHIS does not have a program to control the Vine Mealybug. Since 

this non-native pest has no natural predators, eradication is not likely. Currently, 

producers are working to contain its spread using sanitation and chemical control. 

However, APHIS and the CDFA are continuing the highly successful California 

Mediterranean Fruit Fly (Medfly) Preventative Release Program. Since fiscal year 

1996, only four Medflies have been detected in California. The most recent of these 

was a single adult found in late fiscal year 2002. This detection demonstrated the 

program’s continued reduction of captured wild Medflies, while mitigating pesticide 

concerns. In fiscal year 2003, the program detected Mexican Fruit Flies (MFF) in 

San Diego County. This detection necessitated an emergency funds transfer, but we 

eradicated this infestation last September—less than a year after the pest was first 

detected in the area. 

ENVIRONMENTAL IMPACT OF ON-FARM BURIAL OF DOWNER/DEAD CATTLE

Question. The new regulations issued by USDA to address BSE will help improve 

the safety of human food and animal feed and will help to keep export markets 

open. Two of the recently announced changes in regulations though may result in 

environmental issues for states with large dairy and cow-calf industries. 

Cattle carcasses buried on farm land can have adverse impact on watersheds and 

pose other issues to the environment and ecosystems should wildlife or other animals access the buried cattle. 

Because of the potential for creation of an environmental hazard, in Europe many 

countries have instituted regulations prohibiting the on-farm burial of dead and 

downer cattle. The collection and disposal of these animals is often subsidized by 

the government. 

This issue has potential to have substantial environmental impact for states with 

large dairy and cow-calf industries. There is potential for substantial economic impact on farmers and others needing to dispose of these animals. 

Has there been an evaluation of these impacts? If so what are the solutions and 

at what level of government do these solutions need to be addressed? Is there a research need to identify effective disposal options? 

Answer. USDA has had an aggressive BSE surveillance plan in place since the 

1990’s, and scientific experts—including those at Harvard who conducted the risk 

assessment for BSE—agree that, even given the find in Washington State, the disease would be circulating at extremely low levels in the U.S. cattle population if at 

all. With such a low prevalence rate, we do not anticipate large numbers of affected 

animal carcasses needing disposal during the next 12 to 18 months. Our recently 

announced enhanced surveillance plan should instead allow us to further assure 

consumers, trading partners, and industry that the risk of BSE in the United States 

is very low. 

With regard to concerns about cattle carcass disposal options, burying animals on 

the farm is not the only option for producers whose animals are non-ambulatory disabled. Other alternatives for disposal continue to be available to producers. These 

include rendering facilities, salvage slaughter facilities (i.e., not slaughtered for 

human consumption), and other animal disposal industries. 

USDA welcomes additional research into carcass disposal options and will continue to make decisions based on the most current science available. 

Question. Finally, is there a need to subsidize the collection and proper disposal 

of dead and downer animals, first to ensure inclusion in surveillance programs for 

disease, second to offset increases in costs associated with disposal of these animals 

and finally to ensure they do not create a hazard for other transmissible diseases? 

What is U.S.D.A. doing to assess and control this situation from becoming a potential hazard? 

Answer. Scientific experts from Harvard conducted risk assessment for BSE and 

concluded that, even given the find in Washington State, the disease would be circulating at extremely low levels in the U.S. cattle population if at all. With such a 

low prevalence rate, we do not anticipate large numbers of affected animal carcasses 

needing disposal during the next 12 to 18 months. Our recently announced enhanced surveillance plan allows us to further assure consumers, trading partners, 

and industry that the risk of BSE in the United States is very low. 

There are a number of options available to producers to dispose of animals that 

are non-ambulatory disabled. Options for disposal include burying animals on the 

farm, use of rendering facilities, salvage slaughter facilities (i.e., not slaughtered for 

human consumption), and other animal disposal industries. 

USDA has included cost recovery options in the budget for its enhanced BSE surveillance program. Payment for certain services will help cover additional expenses 

incurred by producers and the industries participating in the surveillance program 
86 

and encourage participation. For example, costs for transporting an animal or carcass to the collection site from a farm or slaughter establishment may be reimbursed, or disposal expenses for ‘‘suspect’’ cattle that test non-negative or that cannot be rendered may also be covered. Other expenses may also be addressed in the 

program. 

Question. The collection of these animals is important for tracking and surveillance for Mad Cow. Collection and inclusion of these animals in tracking and surveillance sampling is important. 

Has consideration been given as to how to achieve inclusion of dead on the farm 

and downer cattle in the monitoring program? 

Answer. Throughout the history of our surveillance program, USDA has worked 

to obtain samples from the targeted animal population, wherever these samples may 

be located. In order to obtain the samples, USDA–APHIS has worked with facilities 

other than federally inspected slaughter establishments as part of BSE surveillance 

efforts. These facilities included renderers, salvage slaughter facilities (i.e., not 

slaughtered for human consumption), and other animal disposal industries. 

Under our new surveillance program, we will build on these efforts to ensure that 

we maintain access to our targeted surveillance population. We will also be reinforcing our educational and outreach efforts to producers, so they will know who to 

contact about testing dead or downer animals on the farm. 

USDA–APHIS-Veterinary Services’ officials across the country will work closely 

with their State counterparts to build on existing relationships at these locations 

so that we can obtain the necessary samples. 

Payment for services will help cover additional costs incurred by producers and 

the industries participating in our surveillance program. For example, costs for 

transporting an animal or carcass to the collection site from a farm or slaughter establishment may be reimbursed, or disposal expenses for ‘‘suspect’’ cattle that test 

non-negative or that cannot be rendered may also be covered. 

NATIONAL ANIMAL IDENTIFICATION DATABASE

Question. The USDA announced the immediate implementation of a National Animal Identification program. The pilot for this system has been underway with 

USDA for more than a year and a half to ensure uniformity, consistency and efficiency across this national system. 

Will this be a mandatory or voluntary system? If it is not mandatory could it satisfy requirements for international trade in beef and cattle? 

Answer. At the present time, participation with a national animal identification 

program would be on a voluntary basis while the USDA moves forward with the 

beginning stages of implementation. As the USDA learns more during the implementation of the system, USDA would likely move into rule-making. 

Implementing a national identification system that records animal movements 

will enable APHIS officials to complete the tracing of animals potentially exposed 

to a disease as timely as possible. Demonstrating our ability to contain and control 

the disease will provide the scientific data to document appropriate trade status 

issues. The animal tracking system will play a critical role in maintaining and/or 

restoring our export markets for U.S. livestock and animal products during and 

after an animal disease outbreak. 

Question. What considerations for maintaining the privacy of this information in 

a national animal identification database are being made? 

Answer. The USDA recognizes that producers are concerned about the confidentiality of the national system. USDA is not seeking marketing or production information, but only information that would help us track animals for disease purposes. 

We are examining all applicable laws and regulations, as well as the potential need 

for additional legislative authority, in our efforts to address this issue. 

Question. In 2002 many states, including California, suffered outbreaks of lowpathogenic avian influenza. USDA indemnified poultry producers in each of the affected states, except for California. In Virginia, West Virginia and North Carolina, 

USDA provided over $50 million for indemnification. Despite inclusion of Report 

language directing USDA to indemnify California, Nicolas Turkey Breeders in 

Sonoma, California remains the only poultry operator omitted from this program. 

I would like to know what steps are you taking to rectify this situation? 

Answer. In 2002, when positive cases of Low Pathogen Avian Influenza had been 

found in New York; New Jersey, Texas, Maine, Michigan, and California; State authorities had taken the responsibility of controlling and eliminating the disease with 

no assistance provided from Federal authorities. In the case of Virginia, West Virginia, and North Carolina, LPAI was spreading at a rate that State officials could 

not control. At the request of the State of Virginia the USDA stepped in to provide 
87 

assistance with depopulation, indemnities, cleaning and disinfection of premises; 

disposal of carcasses; epidemiology support; data management; and information dissemination. The California outbreak was relatively isolated and the State officials 

were able to control further spread. As a result, USDA does not intend to indemnify 

Nicolas Turkey Breeders for their turkey breeder flock. 

QUESTIONS SUBMITTED BY SENATOR RICHARD J. DURBIN

SINGLE FOOD SAFETY AGENCY

Question. Currently, Federal oversight for food safety is fragmented with at least 

12 different Federal agencies and 35 different laws governing food safety. There are 

also dozens of House and Senate subcommittees with food safety oversight. With 

overlapping jurisdictions and scattered responsibilities, Federal agencies often lack 

accountability on food safety-related issues and resources are not properly allocated 

to ensure the public health is protected. Our Federal food safety statutes also need 

to be modernized to more effectively ensure that food safety hazards are minimized. 

President Bush and Secretary Ridge have both publicly discussed the concept of 

combining Federal food safety responsibilities into a single agency. In the past, 

USDA has stated its opposition for such a move. 

Assuming USDA’s position has not changed, what do you see as the disadvantages 

of combining the Federal food safety agencies into a single agency? Are there any 

advantages? 

Answer. Over the years, there has been much discussion about consolidating all 

food safety, inspection, and labeling functions into one agency in an effort to increase the effectiveness of the food safety system. In 2002, the White House established a Policy Coordinating Committee (PCC), led by the Domestic Policy Council 

and the National Economic Council, to look into the single food agency issue. The 

PCC concluded that the goals of the Administration are better advanced through enhanced interagency coordination rather than through an effort to create a single 

food agency. 

USDA routinely communicates and coordinates with other government entities to 

ensure a safe and secure food supply. With authority over meat, poultry, and egg 

products, USDA’s FSIS plays an integral role in ensuring the safety of America’s 

food supply. As a partner in the U.S. food safety effort, FSIS strives to maintain 

a strong working relationship with its sister public health agencies. Cooperation, 

communication, and coordination are absolutely essential to effectively address public health issues. 

The present statutory framework recognizes distinctions associated with the relative risks and hazards of foods and the food safety and food security issues that 

bear on public health. USDA’s mission is to provide leadership on food, agriculture, 

and natural resources based on sound public policy, the best available science, and 

efficient management. Within USDA, the nearly 10,000 employees of the FSIS dedicate their careers and lives to protecting public health. USDA inspectors are in 

plants every day enforcing our nation’s food safety laws. The statutes that are administered are clear and demand unwavering attention to ensuring that consumers 

continue to enjoy the safest and most abundant food supply in the world. It is this 

focused attention to food safety, food security, and public health that is best supported by the current organizational placement of the USDA food safety mission. 

FSIS bases its policy decision on science, so the single food agency discussion boils 

down to one 

Question. will there be a measurable benefit to public health? In other words, 

would such an effort save lives and reduce foodborne illness rates? As with any new 

food safety and security effort, we must make sure that we maintain and continue 

improving on any progress that has been made to improve public health. It is important to make sure that any disruption to the current food safety system effectively 

improves food safety and public health. USDA looks forward to working with Congress to examine these issues and to continue to keep the nation’s food supply safe 

and secure and strengthen public health. 

Question. We have recently witnessed the consolidation and creation of the Department of Homeland Security. Do you believe the creation of DHS could serve as 

a model for the creation of a single food safety agency? 

Answer. The outcome of the policy discussion concerning a single food safety agency may be addressed in answering one key 

Question. Will there be a measurable benefit to public health? We must assure 

that any disruption to the current food safety system effectively improves food safety and public health. Additionally, the costs associated with any major overhaul to 
88 

the U.S. food safety system must be considered. It is important to determine what 

the financial and human costs associated with a single food safety agency might be 

and to determine if this cost will best leverage funding for food safety. 

Question. Secretary Veneman, I believe you have been noted as saying that the 

statutes governing meat inspection ‘‘pre-date the Model T’’ and have implied that 

these statutes need to be modernized. I agree with you. Please identify what efforts 

you have made in the past year to accomplish this goal. 

Answer. During the past year, we have taken a hard look at our statutory authorities, and have held meetings with consumer and industry groups to ensure that 

we received the input of a variety of sources. Our efforts culminated in the development of ‘‘Enhancing Public Health: Strategies for the Future,’’ the Food Safety and 

Inspection Service’s (FSIS’) 2003 Vision Paper, which was published in July 2003. 

In outlining the Department’s food safety vision, steps have been identified that 

must be taken before consideration of changes to our statutory authorities. 

SOYBEAN RUST

Question. I am very concerned about the risk of importing Asian soybean rust into 

the continental United States. This could be a potentially devastating situation to 

our soybean crop and impose heavy economic burden on American farmers and consumers. I noticed this particular disease was not mentioned in your statement regarding APHIS’ plan to deal with intentional and unintentional disease. 

I understand various pathways of entry for rust spores have been suggested which 

range from natural wind current to human or maritime transport. I am particularly 

concerned about the movement of soybeans and soybean meal through import channels. Soybean and soybean material produced in soybean rust-infected areas have 

the potential to carry viable spores when they are transported. I understand the potential viability of soybean rust spores can be eliminated if the soybean material is 

processed, heat-treated and handled properly. 

I, along with a number of my colleagues, wrote your office (a month ago) stating 

our concern on allowing imports from diseased areas until APHIS completes its risk 

assessment and has a plan in place to ensure we do no inadvertently import this 

devastating fungus. I would appreciate a response to these concerns. In addition, I 

would like to hear what the agency is doing to prevent the importation of soybean 

rust. 

Answer. Our response to your concerns about this disease was sent on March 25, 

2004. As we indicated in the letter, APHIS officials are looking closely at our country’s importation of soybean seed, meal, and grain. Our analysis to date has shown 

that clean soybean seed and soybean meal—which is a heat-treated, processed product—pose only minimal, if any, risk of introducing this disease. 

APHIS officials conducted site visits to soybean grain elevators in New Orleans 

on January 7, 2004, and to grain elevators and processing facilities in Brazil from 

February 10–12, 2004, to examine how the storage, loading, and shipping of exportquality soybeans are handled in the two countries. APHIS officials have determined 

that soybean leaf debris associated with the ‘‘foreign material’’ found in soybean 

grain shipments could present a potential pathway for the introduction of soybean 

rust. However, foreign material in soybean grain shipments typically amounts to 

less than 2 percent of the shipment. Moreover, as it is normal commercial practice 

to harvest soybeans after the plants have been defoliated, leaf debris should compose only a very minute part, if any, of the foreign material. Therefore, the foreign 

material found in soybean grain is an unlikely pathway for the introduction of soybean rust. 

APHIS has developed a strategic plan to minimize the impact of the introduction 

and establishment of soybean rust in the United States. The strategic plan describes 

our four-pronged approach to the disease, focusing on protection, detection, response, and recovery. We developed the plan in cooperation with our State cooperators, other USDA agencies, and industry representatives. 

Our protection efforts focus on preventing the human-assisted entry of soybean 

rust through the collection of off-shore pest information, a pathway pest risk assessment currently underway, and commodity entry standards. In this regard, Customs 

and Border Protection officials are inspecting imported shipments of soybeans to 

make sure that they meet our entry standards and notifying APHIS of these incoming shipments. 

We are currently conducting the risk assessment to evaluate the levels of risk involved with soybean imports and to develop mitigation measures to reduce any such 

risks. We have completed the first step in this process, a review of available scientific evidence on the risk of soybean rust’s entry, and posted the document on 

APHIS’ Web site. The collection of off-shore information from trading partners and 
89 

APHIS personnel overseas is helping us to understand possible reservoirs and 

routes for infection and will enhance our detection, response, and recovery efforts. 

Our goal for the detection, response, and recovery aspects of the strategic plan is 

to ensure that a wide variety of stakeholders, including growers, crop consultants, 

State officials, extension agents, and many others can recognize the disease and 

know how to report possible introductions. We are monitoring sentinel soybean 

fields in eastern seaboard and southeastern States, the areas where we believe the 

disease would most likely enter the country, for the presence of soybean rust and 

have also begun training stakeholders in detection, identification, and disease management. We are also supporting the development of forecasting methods that would 

help predict where the disease would spread once it arrived in the United States. 

APHIS has established a Soybean Rust Detection Assessment Team, a rapid response team composed of scientific experts and State and regulatory officials. Team 

members met in January 2004 to plan specific emergency actions that would be immediately activated in response to a detection of soybean rust. Most recently, USDA 

officials participated in a soybean rust conference that was cooperatively organized 

by USDA, five pesticide companies, and the American Soybean Association. The primary goal of the conference was to disseminate to soybean farmers the knowledge, 

information, and techniques they will need to manage this pathogen when it reaches 

in the continental United States. 

CHILDHOOD OBESITY

Question. To address this issue, many schools have explored creative approaches 

to promote healthy eating, and some of those approaches have been successful. 

These include efforts to: integrate nutrition education into the school curriculum; 

experiment with food packaging; and expose students to different fruits and vegetables. 

Efforts in some states are promising, and a number of schools have reported increased vegetable consumption and student acceptance of other healthier food 

choices. 

Unfortunately, such efforts remain limited and are often compromised by budget 

pressures. Recognizing this, on February 5, 2004, I sent a letter to your office, expressing my desire to work with you and your department to establish demonstration projects in several Illinois school districts to identify effective strategies to increase student acceptance of healthy foods. 

My staff has been in contact with your office in efforts to obtain a response to 

this letter. I would like to know if it is going to be possible to establish these demonstration projects. What new programs does the USDA plan to initiate to combat 

this growing threat of childhood obesity? 

Answer. I asked Undersecretary Bost to respond to your letter, which I understand he did on March 15. USDA’s Team Nutrition administers a competitive grant 

program that assist States on initiatives that promote the nutritional health of the 

Nation’s children. Team Nutrition has worked with the State of Illinois in the administration of the seven grants awarded to the State over the past 9 years totaling 

$1.2 million. The Department is preparing to review new proposals for the fiscal 

year 2004 Team Nutrition grant program. These proposals could include mini-grants 

for funding school districts interested in developing innovative programs to promote 

healthy eating choices. 

In addition, the Food and Nutrition Service has joined the working group you 

have launched to deal with childhood obesity; I understand they will begin to meet 

in the very near future to discuss the group’s goals and potential opportunities to 

address this important issue. 

USDA did receive funds in fiscal year 2004 to pursue a number of initiatives, and 

has proposed additional ones for fiscal year 2005 to address obesity and promote 

healthy weight. With this additional funding, the Department is developing new 

interventions in WIC to promote healthy eating for infants and children—efforts 

that will help our youngest participants develop healthy habits for the long term. 

USDA received $14.9 million in its fiscal year 2004 appropriation to enhance WIC 

breastfeeding promotion through peer counseling. The use of peer counselors has 

proven effective in increasing initiation and duration of breastfeeding—the feeding 

practice best suited to giving most babies a healthy start. USDA also received $4 

million in fiscal year 2004 to initiate WIC Childhood Obesity Prevention Projects, 

which build on the success of the Fit WIC to work in partnership with States on 

innovative strategies to use WIC to prevent and reduce childhood obesity. Ongoing 

funding for these initiatives is critical to ensuring continuous improvement; and a 

$5 million increase has been requested for each initiative in fiscal year 2005. In fis-
90 

cal year 2004, $2 million in WIC Special Project grant funding is being used to promote consumption of fruits and vegetables. 

In addition, $2.5 million was requested in fiscal year 2005 to expand the Eat 

Smart. Play Hard.? campaign and establish a cross-program nutrition framework to 

help ensure a comprehensive, integrated approach to nutrition education in all nutrition assistance programs. 

The Department has efforts underway in other programs as well. USDA, as part 

of the Department’s Strategic Goal 4: ‘‘Improve the Nation’s Nutrition and Health,’’ 

established a specific performance measure to reduce overweight and obesity among 

Americans. As a partner with the U.S. Department of Health and Human Services 

and other public and private sector stakeholders, USDA will take actions to encourage a reduction in overweight and obesity such that adult obesity will be not greater 

than 20 percent by 2010 (it is currently 30 percent), and child and adolescent overweight will be no greater than 8 percent (when last measured 15 percent of the Nation’s children ages 6 to 19 years of age were overweight). The efforts underway in 

all the Federal nutrition assistance programs promote proper nutrition and healthy 

weight. However, to help ensure progress on this performance measure, the Department is reshaping nutrition education in the Food Stamp Program to target activities that promote healthy weight; exploring new ways to support healthy weight 

through the WIC Program; and promoting increased fruit and vegetable intake 

through partnership with other Federal agencies and the National 5-A-Day Program. 

BOVINE SPONGIFORM ENCEPHALOPATHY (BSE)

Question. We still don’t have a firm grasp of the prevalence of BSE in the nation’s 

cattle herd. The USDA announcement on March 15th proposed an expansion of BSE 

testing to include over 200,000 cattle from the ‘‘high risk’’ group and 20,000 from 

clinically normal older cattle. 

Sampling approximately half of the high-risk group of cattle provides meaningful 

statistics on the prevalence of BSE in the sub-population of cattle. However, 20,000 

samples from an estimated population of 1 million older, clinically normal cows is 

not enough to validate disease prevalence for a population of that size. 

There are millions of cattle, mostly aged dairy cows, that are older than the FDA 

ruminant feed restrictions of August 1997. Many of these cows received potentially 

contaminated meat and bone meal, much of it imported from the EU, well into 1998. 

It is this sub-population of cattle that must be tested for BSE as they are processed 

into the human food supply. 

However, questions remain as to how the USDA can gain access to enough samples to meet the proposed number of cattle tested for BSE. 

I have sent you two letters which have yet to be addressed. I would appreciate 

a response to these letters and specifically these questions: 

You stated you did not know the ambulatory status of the Washington state Holstein cow that tested positive for BSE. I understand an investigation by the OIG 

has been opened. If it turns out the only animal that has tested positive for BSE 

in the United States was clinically normal and was found only through chance, then 

we must question the USDA’s BSE surveillance program that focuses only on suspects, non-ambulatory and dead cattle. 

Answer. Prior to the passage of FDA ruminant feed restrictions in 1997; USDA 

prohibited the import of ruminant-origin meat and bone meal from countries known 

to be affected by BSE beginning in 1989, and in 1997 we prohibited the importation 

of ruminant-origin meat and bone meal from all of Europe. This was done to minimize the likelihood of aged dairy cattle in the United States being exposed to potentially contaminated meat and bone meal. Even more importantly, the United States 

has traditionally been a net exporter of rendered protein products. Our records simply do not show that there were significant imports of meat and bone meal from 

Europe for incorporation into livestock feed even when our regulations permitted 

such products to be imported. 

In addition, USDA has maintained an aggressive surveillance program since 1990. 

This surveillance has been targeted at the population where we are most likely to 

find the disease if it is present—adult animals that have some type of clinical signs 

that could be consistent with BSE. The index cow in Washington State fit in our 

targeted population, as she was not clinically normal. According to Agency records, 

when the index cow arrived at the plant, a Food Safety Inspection Service veterinarian conducted a clinical assessment and classified her as non-ambulatory disabled. The Department stands behind that assessment. 

USDA continues to target its BSE surveillance efforts on cattle populations at the 

highest risk of having BSE. Specifically, surveillance has been targeted at cattle ex-
91 

hibiting signs of neurologic disease; condemned at slaughter for neurologic reasons; 

testing negative for rabies and submitted to public health laboratories and teaching 

hospitals; and appearing non-ambulatory (including those exhibiting general weakness severe enough to make it difficult but not impossible to stand), also known as 

‘‘downer cattle.’’ We also target cattle that die on the farm for unexplained reasons. 

USDA’s testing regime for BSE will follow our prescribed plan regardless of 

whether the afflicted animal in Washington State was a downer cow. There is a very 

important distinction to be made between ‘‘ambulatory’’ cattle and ‘‘apparently 

healthy’’ cattle. An animal may be ambulatory but have other signs of disease that 

make it an appropriate animal to test. In addition, non-ambulatory cattle may be 

completely and entirely unable to walk, or intermittently so. It is not uncommon for 

a downer cow to be ‘‘down’’ then ‘‘up’’ several times over the course of the journey 

from farm to slaughter. Weak animals—either with a specific weakness, such as in 

their hind legs, or a general weakness—may be considered non-ambulatory for surveillance purposes because they cannot stand or walk completely normally. All evidence to date indicates that the animal in Washington State was selected appropriately for our targeted surveillance. 

As we recently announced, we plan to test as many cattle in the targeted highrisk population as possible in a 12-month to 18-month period and then evaluate future actions based on the results of this effort. The plan also incorporates a small 

random sampling of apparently normal aged animals at slaughter. 

The international standard setting organization—the World Organization for Animal Health—recognizes that focusing all BSE surveillance efforts on testing apparently healthy animals is the most inefficient and ineffective method of actually finding disease. 

In addition, no matter what the prevalence of the disease in the United States, 

there is a series of firewalls in place that dramatically reduce any possible risk to 

consumers. These safeguards include the ban on all parts of animals from high-risk 

populations from the food supply, along with potentially infective tissues—specified 

risk materials—from all cattle over 30 months of age. 

Question. If states are not allowed to do their own testing, then how does the 

USDA plan a ‘‘robust’’ expansion of its BSE testing from 20,000 in 2003 to over 

200,000 during the next 12–18 months? 

Answer. Throughout the history of our surveillance program, USDA has worked 

to obtain samples from the targeted animal population, wherever these samples may 

be located. In order to obtain the samples, USDA–APHIS has worked with facilities 

other than federally inspected slaughter establishments as part of BSE surveillance 

efforts. These facilities included renderers, salvage slaughter facilities (i.e., not 

slaughtered for human consumption), and other animal disposal industries. 

Under our new surveillance program, we will build on these efforts to ensure that 

we maintain access to our targeted surveillance population. We will also be reinforcing our educational and outreach efforts to producers, so they will know who to 

contact about testing dead or downer animals on the farm. 

USDA–APHIS-Veterinary Services’ officials across the country will work closely 

with their State counterparts to build on existing relationships at these locations 

so that we can obtain the necessary samples. Payment for services will help cover 

additional costs incurred by producers and the industries participating in our surveillance program. Historically, all BSE testing in the United States has been performed exclusively at the National Veterinary Services Laboratories (NVSL) in 

Ames, Iowa. Under the new surveillance program, USDA plans to use a network 

of State and Federal veterinary diagnostic laboratories to conduct BSE surveillance 

tests. Confirmatory BSE testing will still be conducted at NVSL. 

Question. If state veterinary diagnostic laboratories or private companies meet or 

exceed the USDA standards for BSE test quality control and sample chain of custody, then why should states and private companies not be allowed to test animals 

for BSE within their states? 

Answer. USDA’s targeted surveillance program is designed to identify the presence of BSE in the U.S. cattle population if it exists. Under our current surveillance 

plan, using APHIS’ National Veterinary Services Laboratories and participating 

Animal Health Network laboratories, we can assure trading partners of the program’s scientific legitimacy. We may not be able to make the same case to the international community if industry dictates the parameters of the testing program. Further, the use of a rapid test would imply a consumer safety aspect that is not scientifically warranted. Also, because USDA will be restricting BSE testing to public 

laboratories, we can ensure that our testing remains transparent but does not cause 

undue public concern if a rapid test produces a false positive reaction. 

Question. Given the limited access to suspect and non-ambulatory cattle, how 

many cows have been tested for BSE since January 1st of 2004? 
92 

Answer. Between January 1, 2004 and March 31, 2004, approximately 5,500 cattle were tested for BSE. USDA anticipates the number of cattle tested per month 

to increase substantially once the enhanced surveillance plan is fully implemented 

on June 1, 2004. 

Question. Since there are no incentives for producers to submit non-ambulatory 

or sick animals for BSE testing, how can the USDA expect to test over 200,000 of 

these ‘‘high risk’’ animals during the next 12 to 18 months? 

Answer. Throughout the history of our surveillance program, USDA has worked 

to obtain samples from the targeted animal population, wherever these samples may 

be located. In order to obtain the samples, USDA–APHIS has worked with facilities 

other than federally inspected slaughter establishments as part of BSE surveillance 

efforts. These facilities included renderers, salvage slaughter facilities (i.e., not 

slaughtered for human consumption), and other animal disposal industries. 

Under our new surveillance program, we will build on these efforts to ensure that 

we maintain access to our targeted surveillance population. We will also be reinforcing our educational and outreach efforts to producers, so they will know who to 

contact about testing dead or downer animals on the farm. 

USDA–APHIS-Veterinary Services’ officials across the country will work closely 

with their State counterparts to build on existing relationships at these locations 

so that we can obtain the necessary samples. 

Payment for services will help cover additional costs incurred by producers and 

the industries participating in our surveillance program. For example, costs for 

transporting an animal or carcass to the collection site from a farm or slaughter establishment may be reimbursed, or disposal expenses for ‘‘suspect’’ cattle that test 

non-negative or that cannot be rendered may also be covered. Other expenses may 

also be addressed in the program. 

Question. How will the $70 million earmarked for expanded BSE surveillance be 

distributed among costs for tests, laboratory expansion, certification and manpower 

needs, sample collection and shipping, education, communications and incentives for 

collection of samples? 

Answer. We estimate that the full cost of the enhanced surveillance program will 

be approximately $76.4 million. However, USDA was able to offset some of these 

costs by directing funds from previous Commodity Credit Corporation transfers towards this 12- to 18-month effort. 

Of the total need identified, USDA anticipates spending the funds as follows: 

[In thousands of dollars] 

Program Component Cost 

Personnel and Benefits (Includes investigators, laboratory inspectors and manager, pathologists, program 

analysts, sample collectors in the field, staff veterinarians, etc.) ................................................................ 9,078 

Travel (includes trips for meetings, training sessions, outreach) ...................................................................... 1,445 

Transportation (Includes shipment of samples for testing and the transportation of animals, animal parts, 

carcasses, etc. for sampling and/or disposal) ............................................................................................... 19,013 

Rent, Communication, Utilities (Includes offsite collection/storage facilities) .................................................. 400 

Other Services (Includes agreements with contract labs, laboratory training set-up, costs associated with 

carcass/offal storage until test results confirmed, disposal of non-negative and certain other carcasses, 

database costs, printing, and indirect costs, etc.) ........................................................................................ 36,994 

Supplies and Materials (Includes shipping supplies—cooler box, centrifuge tubes, etc.; test kits) ............... 4,400 

Equipment (Includes robotics and other equipment for cooperating labs, additional equipment for NVSL 

and Center for Vet Biologics) .......................................................................................................................... 5,059 

Total ........................................................................................................................................................ 76,389 

QUESTIONS SUBMITTED BY SENATOR TIM JOHNSON

COUNTRY OF ORIGIN LABELING

Question. I have the February 10th response from Bill Hawks, Under Secretary 

for Marketing and Regulatory Programs, to my December 2003 letter. I ask you, 

Secretary Veneman, for a more substantial response to my initial question. How are 

you interpreting the 2-year delay on COOL, and will the delay apply to the rulemaking process? 

Answer. The Omnibus Bill delayed the implementation of mandatory COOL for 

all covered commodities except wild and farm-raised fish and shellfish until September 30, 2006. Accordingly, USDA is precluded by law from immediately implementing a mandatory COOL program for all commodities. Currently, we are review-
93 

ing the comments received on the proposed regulations and will continue to implement COOL as mandated by the 2002 Farm Bill and the Omnibus Bill. 

Question. Secretary Veneman, with respect to the feasibility of country of origin 

labeling, have you and your department reviewed the GAO report that Senator 

Daschle and I requested? 

Answer. Yes, my staff and I have reviewed the report. 

Question. Has the United States Department of Agriculture reviewed the multiple 

assertions on the part of GAO that deem country of origin labeling to be entirely 

feasible and much more cost effective than your department originally contended? 

Answer. Yes, we have reviewed the GAO assertions. The GAO report recognizes 

that the existing Federal, State, and foreign country programs that were suggested 

for use as models in implementing mandatory COOL will not be particularly useful 

for meat, fish, and shellfish due to the law’s unique definitions of a U.S. product. 

The preliminary recordkeeping burden estimate that AMS published in conjunction 

with the voluntary country of origin program, which served as the basis for GAO’s 

report, was $1.9 billion. While the report questions the assumptions used by AMS 

in formulating this estimate, it also recognizes that this estimate did not include 

the costs of segregating and storing foods and for labeling products. 

DEVELOPING THE ANIMAL IDENTIFICATION PROGRAM

Question. How do you intend to develop the animal identification program, and 

what parties will you include in the process? Will producers and scientists be adequately represented and consulted? 

Answer. Implementation of a national animal identification system will begin 

through cooperative agreements to assist state and other entities to develop the capacity to interface with the national repositories. Federal funds would not be earmarked for hardware such as identification tags or electronic readers. Cooperators 

would decide to develop the interface and solicit producer and non-producer participation into the system. USDA expects that the funding level would start at the 

highest levels in Phases I and II as cooperators and species are added but then decline into a steady state maintenance level over time. USDA does not envision the 

Federal funding being used for hardware purchases in the long term, except for 

maintenance and additional development of the national allocators and repositories. 

USDA also expects that competition among vendors for adoption of their technologies by producers would result in private technology vendors also making investments in the system infrastructure to position their technologies. 

A major factor contributing to the success of this program will be state participation and communication with and educating producers and other stakeholders as to 

the operation of the program and their responsibilities. Some states have started activities that mirror, to various degrees, the identification of premises and animals. 

Many of these activities are supported by USDA funds. Cooperative agreements 

would support the interface of these systems with the National Animal Identification System. Some agreements with early cooperators would be established early in 

Phase I. USDA recommends that additional agreements with a broad range of cooperators be established later in Phase I and into Phase II. 

The decision process for these recommendations included a group effort of USDA’s 

BSE response coordinator, the Deputy Under Secretary for Farm and Foreign Agricultural Services; USDA General Counsel; and USDA Chief Economist assisting the 

Chief Information Officer in developing a plan and strategy to implement a National 

Animal Identification System. The group relied heavily on the excellent information 

developed as part of the U.S. Animal Identification Plan (USAIP), and on the expertise of the USAIP Steering Committee; the Under Secretary for Marketing and Regulatory Programs; and the Administrator and staff of the Animal and Plant Health 

Inspection Service. The group also met with a broad spectrum of organizations and 

companies representing the meat supply system, from production through retailing. 

The recommendations of the group reflect the complex structure of the livestock industry and previous efforts to design and implement NAIS. 

BSE TESTING

Question. Secretary Veneman, a rapid, live test will be instrumental in reestablishing our trading opportunities in key markets. How much money would the department need to develop this test, and have you in fact initiated the process? 

Answer. The Agricultural Research Service is conducting research to develop live 

animal tests for transmissible spongiform encephalopathies. ARS has successfully 

developed such a test for scrapie in sheep and has contributed to such a test for 

CWD in farmed deer using non-brain tissues accessible in live animals. Unlike the 

sheep third eyelid and the deer tonsil tests, cow material does not contain prions 
94 

at concentrations that can be detected with current technologies. Using current 

funding, ARS is enhancing the sensitivity of current tests to look for prions in blood 

where they may be present at very low levels. ARS is also developing novel 

proteomic approaches to prion detection. This research will be enhanced by an additional $1 million included in the President’s fiscal year 2005 budget which will support the studies to determine the genetic susceptibility of cattle to BSE. Such information will be helpful in identifying what peripheral tissues might be used to detect 

prions and/or what alternative genetic markers might be indicative of a cow being 

infected with BSE-causing prions. 

ENERGY BALANCE OF ETHANOL

Question. Dr. Collins, the United States Department of Agriculture has conducted 

extensive analysis on estimating the net energy balance of corn ethanol. Technological advances in ethanol conversion and increased efficiency in farm production 

have produced demonstrated improvements and a positive net energy balance. 

At a time of increasing prices for some inputs and the continued expansion of ethanol plants and capacity throughout the country, could you please summarize the 

USDA’s latest conclusions as to the positive net energy balance of ethanol? 

Answer. Although it takes energy to produce ethanol, repeated USDA research 

shows a positive net energy balance of corn ethanol. the energy in ethanol exceeds 

the amount of energy used to produce it, and this energy balance has improved over 

time. 

Technological innovations in corn production and ethanol conversion are important factors in this improvement. Corn yields have improved, and ethanol plants are 

rapidly adopting innovations which substantially reduce the energy required to convert corn into ethanol. Our most recent estimate of the energy ratio is 1.67, up from 

1.22 in 1995. This indicates that the energy content of ethanol is 67 percent greater 

than the energy used to grow, harvest, and transport corn, and to produce and distribute the ethanol. USDA will be presenting our most recent study at the Corn Utilization Conference, June 7–9, 2004 in Indianapolis, Indiana. 

Question. Dr. Collins, the Reformulated Gasoline Program (RFG) is a key contributor toward mitigating ozone problems in some of America’s largest metropolitan 

areas. The principal oxygenate used in the RFG Program, MTBE, is linked to underground water contamination and several states have taken action to phase-out and 

then ban the use of MTBE as an oxygenate. 

Dr. Collins, as the Congress works to pass a renewable fuel standard, can you 

please summarize for the Committee the latest benefits of using ethanol as an oxygenate under the existing RFG Program? 

Answer. Ethanol contains 35 percent oxygen, and adding oxygen to fuel results 

in more complete fuel combustion, thus reducing harmful tailpipe emissions. Ethanol also displaces the use of toxic gasoline components such as benzene, a carcinogen. Ethanol is non-toxic, water soluble, and quickly biodegradable. 

According to the National Research Council, blending ethanol in gasoline reduces 

carbon monoxide tailpipe emissions. Additionally, RFG, including ethanol-blended 

fuels, reduce tailpipe emissions of volatile organic compounds, which readily form 

ozone in the atmosphere. Thus, the use of ethanol can play an important role in 

smog reduction. 

Importantly, where smog is of most concern, gasoline blended with ethanol must 

meet the same evaporative emission standard as gasoline without ethanol. This ensures that these ethanol blends provide further emissions reductions that limit 

ozone formation. 

Ethanol is produced from grains and other biomass in much the same way as beverage alcohol. MTBE, on the other hand, is a toxic additive produced from natural 

gas and methanol. Exposure to ethanol vapors coming from ethanol-blended gasoline 

is very unlikely to have any adverse health consequences. Because ethanol is naturally present in blood and the body rapidly eliminates ethanol, exposure to ethanol 

vapors is unlikely to be a health hazard. 

STANDARD REINSURANCE AGREEMENT

Question. With respect to the Standard Reinsurance Agreement, my office has 

heard substantial complaints regarding the Risk Management Agency’s proposed 

draft. 

Where are you in the process of reviewing these complaints, and how do you propose to change the SRA to ensure it is friendlier to producers and agents alike? 

Answer. RMA reviewed comments from insurance companies and interested parties to revise the first draft. On Tuesday, March 30, RMA announced the release 

of the second SRA proposal. RMA believes that the second draft demonstrates re-
95 

sponsiveness to concerns raised by companies and interested parties in the first 

round of negotiations. 

QUESTIONS SUBMITTED BY SENATOR MARY L. LANDRIEU

NATIONAL FINANCE CENTER—E-PAYROLL INITIATIVE

Question. What, if any, action do you plan to take with respect to this proposal? 

Answer. USDA has worked with the Office of Personnel Management (OPM) to 

review and respond to the State of Louisiana’s ‘‘e-Government/e-Payroll Project Initiative.’’ OPM’s e-Government Initiatives Office took the lead in working with the 

Payroll Advisory Council, the Office of Management and Budget (OMB), the various 

Federal councils, and others involved in the e-Payroll initiative to respond to the 

proposal. On April 19, 2004, OPM wrote the Honorable Don J. Hutchinson, Secretary of Louisiana’s Department of Economic Development, to share with him the 

results of this review. A copy of this memorandum is attached. 

[The information follows:] 

OFFICE OF PERSONNEL MANAGEMENT, 

Washington, DC, April 19, 2004. 

Hon. DON I. HUTCHINSON, 

Secretary, Department of Economic Development, Baton Rouge, LA. 

DEAR SECRETARY HUTCHINSON: Thank you again for the opportunity to review 

your ‘‘e-Government/e-Payroll Project Initiative’’ proposal. As a part of the evaluation process, you permitted our Payroll Advisory Council (PAC) the opportunity to 

review the proposal and provide comments. In February 2004, members of the PAC 

(that includes representatives from the Office Personnel Management, the Office of 

Management and Budget, 6-Payroll Providers, and Federal Councils) reviewed the 

proposal, and I would like to share the results with you. 

In general, the PAC determined that the proposal was very well thought out and 

contains valuable ideas. However, it does not appear to meet the needs of the Federal Government at this time and is not in alignment with the strategic goals of 

the e-Payroll initiative. For example, while it discusses including the Department 

of Agriculture’s National Finance Center (NFC) in some loosely defined development 

activities, it merely mentions NFC’s partnership with the Department of Interior, 

National Business Center (NBC). Additionally, the proposal is unclear in regard to 

considerations for the employees at the NBC and NFC who will be affected by the 

proposal. The proposal also indicates that the State of Louisiana and private concerns will provide $200 million for the advancement of the facility. Not stated in 

the proposal is what, if any, obligations the Federal Government would have to reimburse that amount. It is also not evident how the proposed corporation will interact with OPM, other authority agencies; or customers. An established process for 

collaboration with Federal authority agencies and customers is extremely critical 

since competing needs could place significant demands on the provider. The PAC 

was also extremely concerned with how the proposed corporation would address key 

national security concerns, especially those of the Intelligence community. Additionally, the PAC was also unclear as to how the proposal complied with the principles 

of fair and open competition, considering that thee-Payroll Providers operate out of 

several different States. 

The proposal indicates that software development is one of the first priorities of 

the corporation. The PAC construed this to mean that the State does not have a 

viable product readily available to the Federal Government. Today, the e-Payroll 

Providers have independent systems; replacement of these four systems is targeted 

for fiscal year 2007. To achieve replacement in fiscal year 2007, e-Payroll and the 

Providers are exploring options today by conducting a feasibility study to assess 

commercial off-the-shelf (COTS) and Government off-the-shelf (GOTs) products. 

Upon completion of this study, it is planned to test these applications under a structured demonstration lab. Should the State of Louisiana have a product available in 

the next several months, it could be considered for inclusion in the demonstration 

lab. 

Again, thank you for the opportunity to review the proposal. I would welcome any 

information that you might provide regarding the availability of software the State 

of Louisiana might have for inclusion in the upcoming demonstration lab. 

Sincerely, 

NORMAN ENGER, 

Director, e-Government Initiatives Office. 
96 

Question. Since the activities of the NFC are outside the normal scope of business 

of the U.S. Department of Agriculture, in the event the Department cannot support 

this cost-effective approach to meeting the PMA, are you considering the possibility 

of the transition of the NFC to a structure or ‘‘ownership’’ that will facilitate this 

proposal? 

Answer. As part of the e-Payroll initiative, USDA/NFC in conjunction with the 

Department of the Interior’s National Business Center (NBC), its e-Payroll business 

partner, submitted to OPM in August 2004, a proposal to combine the Governmentwide, cross-servicing business lines of NFC and NBC into an organization characterized as: 

—Commercial-like, Federal corporate entity 

—Providing a wide range of services targeted at supporting the President’s e-Government Agenda 

—Operational flexibilities defined; i.e., human resource and finance 

This proposal is under review by OPM and OMB. 

Question. What specific actions can you take from here to make sure the Louisiana proposal receives the full attention of the Department of Agriculture? 

Answer. OPM’s e-Government Initiatives Office has taken the lead in working 

with the Payroll Advisory Council, the Office of Management and Budget (OMB), 

the various Federal councils, and others involved in the e-Payroll initiative to respond to the proposal. 

Question. If Congress were to direct you, or suggest that you, your Department 

and the Department of Interior have authority to move out on a proposal like Louisiana’s, would you support such legislative authority? 

Answer. We would work with OPM and OMB in support of any direction provided 

and work with them to implement this direction in line with the goals and objectives of the President’s Management Agenda to further delivery of cost-effective 

services to Federal employees and agencies. 

Question. Is specific legislation necessary before you, your Department and the 

Department of the Interior proceed with some type of public/private partnership initiative like that proposed by the State of Louisiana? 

Answer. We believe that specific legislation would be necessary to charter and authorize the new entity as well as provide the necessary structure, human resource, 

and financial flexibilities necessary for the organization to be successful. OPM has 

identified the need for legislation as a primary critical path item if the merged proposal proceeds. 

NATIONAL FINANCE CENTER—THRIFT SAVINGS PLAN

Question. Ms. Secretary, as you are aware, the Federal Retirement Thrift Investment Board (FRTIB) Chairman, Andrew Saul, in his February 20, 2004 letter to 

you, said the Board is ‘‘giving notice of termination of software maintenance services 

and mainframe operations by NFC’’ for the Thrift Savings Plan. It is estimated that 

this action could result in the loss of as many as 35 to 40, if not more, of the highest 

paying jobs at NFC, and may lead to a subsequent decision by the ‘‘Thrift’’ Board 

to terminate the NFC’s ‘‘case management’ of the TSP which involves another 400 

jobs at the NFC. It is my understanding that according to some preliminary information received thus far from the ‘‘Thrift’’ Board and the NFC, the actions by the 

‘‘Thrift’’ Board may not be warranted or justified at this point. 

Has your office considered what, if anything, can be done to reverse this action 

by the Federal Retirement Thrift Investment Board? 

Answer. The decision to purchase service from NFC is under FRTIB’s control. 

USDA believes strongly that continued use of NFC is still a cost-effective, sound 

business decision. We have taken steps to improve communication between USDA/ 

NFC and FRTIB in an effort to rebuild the strategic partnership and retain the 

business. However, we do not know all of the factors influencing the Board’s decision, and therefore do not know if our actions will influence the outcome. 

Question. What have your offices, specifically in DC, done in reply to the February 

20th letter? 

Answer. Tom Dorr, Senior Advisor to the Secretary, was appointed to represent 

USDA and to meet personally with senior FRTIB officials and to help clarify and 

resolve the issues. Mr. Dorr, as well as other executives of OCFO, has been in continuing contact with FRTIB and NFC since his assignment. 

Question. I am concerned that changing the operations of critical elements of the 

Thrift Savings Plan operations and functions from the National Finance Center to 

‘‘possible entities’’ in Washington, D.C. may cause even more customer problems and 

be less cost effective. 
97 

Please provide for the record any and all cost comparison studies or analyses the 

Department of Agriculture, the Thrift Board, or any other entities have done regarding ‘‘outsourcing,’’ moving,’’ or ‘‘changing’’ any and all TSP activities versus maintaining them at the National Finance Center. 

Answer. FRTIB has had several studies conducted over the years. 

Hewitt Associates prepared an analysis, Defined Contribution Outsourcing Feasibility Study, for FRTIB in November 1992. Continued service from NFC was the top 

ranked alternative under consideration. The Hewitt Associates experts concluded 

that keeping the TSP recordkeeping function at NFC with the existing software and 

management structure best met FRTIB’s and TSP participant needs at that time. 

Logicon 4GT prepared a system review and recommendation report for FRTIB in 

1995. NFC’s services were again rated favorably. According to the consultants in 

1995, the benefits that TSP participants received relative to the costs paid at NFC 

were excellent. TSP participants were paying less than one-half of the private sector 

cost. The industry standard for comparing mutual/retirement fund administrative 

expense ratios between competitors is percent of assets—typically referred to as 

basis points. (One percent equals 100 basis points.) At the time of the Logicon review, NFC’s basis points were 7.7 of the 12 total TSP basis points. 

NFC’s TSP costs are still low when compared to comparable efforts in industry. 

In his opening statement at the March 1, 2004, Senate Committee on Governmental 

Affairs, Senator Fitzgerald referenced the recent expense ratio of TSP and comparable private sector funds. In 2003, the expense ratio of the average TSP fund 

was 11 basis points. Per Lipper Services, comparable index funds in the private sector have an average expense ratio of 63 basis points. Between 1994 and 2003 when 

TSP’s basis points dropped from 12 to 11, NFC’s share of the basis points decreased 

from 7.7 to only 4.4, a decrease of 43 percent. Without the increased cost efficiencies 

of NFC, total TSP administrative costs would have been significantly higher than 

11 points in 2003. 

On March 4, 2004, FRTIB issued a multi-year contract to a private vendor for a 

parallel call center. This will result in the eventual movement of 50 percent of the 

call center workload from NFC in New Orleans to the vendor located in the Washington, D.C., metropolitan area. NFC paired with its e-Payroll partner, Department 

of the Interior’s National Business Center in Denver, to compete but lost the bid. 

Question. Also, please provide for the record, or to the Subcommittee staff and our 

offices all relevant correspondences, notices, and memos between the Federal Retirement Thrift Investment Board and any offices in USDA (in Washington or at the 

National Finance Center) from January 1999 to today, relating to TSP management 

and operations with respect to this issue. 

Answer. The information has been provided to the Subcommittee staff. 

NATIONAL FINANCE CENTER—DATA MIRRORING

Question. The fiscal year 2005 USDA budget request provides $12,850,000 in additional funding for the ‘‘acquisition of disaster recovery and continuity of operations 

technology of the National Finance Center’s data.’’ This additional funding may be 

necessary to complete the effort begun in fiscal year 2003 to fund a back-up, or data 

mirroring, center for the NFC. In fiscal year 2003, $12 million was appropriated for 

this center, subject to reporting requirements by Congress. 

As it appears that the Budget justification for fiscal year 2005 submitted to the 

Subcommittee by the Department only provides a four-sentence explanation with no 

budget table breakout, please provide for the record details and a specific breakout 

of what the $12.85 million request in fiscal year 2005 includes. 

Please provide for the record what has been obligated and or spent to date from 

the funds appropriated in fiscal year 2003 and for what purposes. In addition, 

please provide any relevant details. 

Answer. NFC delivers critical service to the entire Federal community. Its highest 

impact business lines are Thrift Savings Plan recordkeeping for 3.1 million participants and payroll/personnel support to 122 Federal agencies. Disruption in either 

of these services due to a disaster would have wide, significant repercussions across 

the nation. NFC has undertaken a multi-year initiative with appropriated funds to 

address short-term vulnerabilities and as well as to begin longer-term actions required to implement a more secure remote alternate data center at another location. 

The initial $12 million was to be used on immediate improvements to NFC’s security and recovery infrastructure and to begin the actions required to establish the 

remote computing facilities. The immediate improvements were estimated at $3.6 

million—$0.8 million for implementation of enhancements to network security and 

technical solutions to known network vulnerabilities and $2.8 million for interim implementation of high availability mirroring through expansion of the current com-
98 

mercial recovery center contract. The remaining $8.4 million was to begin implementation of the alternate computing facility. Details on the projects follow. 

—Implementation of enhancements to network security and technical solutions to known network vulnerabilities: Estimated $800,000 

—Access control—no expenditure of appropriation required; will be achieved 

through the upgrade of the operating system on May 29, 2004 —Logging and monitoring—$26,977 expended for Blue Lance logging and moni- toring software; installed and fully operational; $52,000 anticipated for intrusion detection enhancements and installation/configuration of Tripwire (in the 

procurement process) —Vulnerability management—$284,000 anticipated for vulnerability scanning 

and management software (in the procurement process) —Remote access—$157,689 expended, $157,787 obligated for Citrix hardware 

and software 

—Encryption—$26,468 expended for Cisco encryption equipment; installation in 

progress —Authentication—$95,000 anticipated; smart cards, technical support, and server to support two-factor authentication (estimated $75,000; in the procurement process); Sygate Security Portal for remote connection policy enforcement (estimated $20,000; in the procurement process) 

—Implementation of mirroring to provide high availability and recovery of payroll/ 

personnel data in NFC’s reporting center within 24 hours of a declared disaster: 

Estimated $2.8 million 

—Mirroring solution for payroll/personnel data in NFC’s reporting center—NFC 

has received the proposals from vendors and is now in the process of evaluating them. 

—Network equipment upgrade at the recovery backup site to support mirroring 

solution—$60,000 anticipated; in the procurement process 

NFC initially estimated a one-time investment of approximately $34.1 million to 

establish a Federally controlled alternate site within 350 miles of New Orleans that 

included collocation of business resumption capability. Final plans depended upon 

on the availability of facilities for lease or sublease in the targeted area that have 

already been outfitted for data center operations and the availability of funding. If 

NFC were able to secure space on an existing Federal facility that already meets 

Department of Homeland Security physical security standards, it could reduce costs 

below those shown in the original estimates. NFC is currently pursuing site location 

and business continuity options that would enable establishment of an alternate 

computing facilities environment that manages the risks associated with discontinued service. Final cost estimates are pending receipt of the responses from the 

Federal community. However, the remaining $8.4 million of the fiscal year 2003 appropriation and the $12.85 million proposed for fiscal year 2005 are expected to fund 

much of this critical investment. 

This one-time capital investment will address the following critical objectives: 

—Undertake actions to reduce enterprise risk and support data mirroring capability. NFC is currently awaiting responses from prospective Federal sources to 

its statement of requirements seeking excess computing facility space. 

—Buy and install hardware and software needed to support the effort, set up a 

new tape library system, and design and implement point-in-time remote 

backup capability. 

—Evaluate emerging backup and recovery options and their associated costs. 

The details of the initial $34.1 million capital investment estimates are below. 

These were included in our September 2003 report to Congress. We will update this 

budget once we receive feedback from the prospective Federal site sources. 

ONE-TIME CAPITAL INVESTMENT REQUIREMENT/SERVICEBASE COST 

Requirement/Service Base Cost 

Alternate Data Center: 

Mainframe hardware/software .................................................................................................................... $2,650,000 

Distributed servers hardware/software ....................................................................................................... 2,775,000 

Storage ........................................................................................................................................................ 10,550,000 

Tape ............................................................................................................................................................. 3,450,000 

Firewalls/Virtual Private Network ................................................................................................................ 675,000 

Telecommunications/LAN equipment .......................................................................................................... 2,000,000 

Build-out cost/furniture for 16,000 sq. ft. data center space (including 11 employee workstations) .... 6,444,000 

Design/engineering/project management contractual services .................................................................. 2,854,000 
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ONE-TIME CAPITAL INVESTMENT REQUIREMENT/SERVICEBASE COST—Continued 

Requirement/Service Base Cost 

Subtotal .................................................................................................................................................. 31,398,000 

Collocation of Business Resumption Capability: 

Build-out cost for 52,000 sq. ft. office space ........................................................................................... 1,352,000 

Furniture/workstations for 300 employees .................................................................................................. 1,200,000 

Design/engineering/project management contractual services .................................................................. 135,000 

Subtotal .................................................................................................................................................. 2,687,000 

Total ........................................................................................................................................................ 34,085,000 

Question. As of today, what specific sites are under consideration for this data 

mirroring center? 

Answer. We are preparing for solicitation from Federal sources. No specific sites 

are under consideration at this time. 

Question. The fiscal year 2003 Continuing Appropriations Conference Report section of the Agriculture Appropriations Bill, 108–10, Pages 551–552, included report 

language directing the Secretary of Agriculture ‘‘to submit a feasibility study to the 

Committee on Appropriations on the need for remote mirroring backup technology 

of the National Finance Center’s data. This study should include a breakdown of 

the costs and time frame associated with acquiring such technology, and should designate an appropriate physical location for the site. . . .’’ 

This ‘‘feasibility study’’ did not make any specific recommendations but it did provide a timeline for specific site determination that included a ‘‘competitive site selection for a secondary backup data center’’ starting in fiscal year 2004. Has this process begun? 

Answer. Site specifications are complete. The next step is solicitation from Federal 

agencies, which will occur shortly. 

Question. What is the current timeline and plan for this site selection process? 

Answer. We anticipate sending the solicitation package to three Federal agencies 

and getting responses by the end of June 2004. 

Question. The ‘‘feasibility’’ report essentially claims as the key reason for site selection and criteria for that selection the elimination of the ‘‘NFC’s extreme vulnerability to the hurricanes common to the Gulf Coast.’’ In fact, the report continually 

sites this reason as a critical factor. 

Please provide for the record the number of times the NFC has been completely 

shut down because of hurricane events over the last 20 years. Also, provide for the 

record the number of times, over the same time period that the Department of the 

Interior’s National Business Center, General Service Administrations comparable 

data center and the Department of Defense pay and personnel functions have been 

shut down for weather related reasons as well as any other factors. This should also 

include the Office of Personnel Management operations in Washington, D.C. 

Answer. Over the past 20 years, NFC was shut down on two occasions due to 

weather for a total down time of approximately 15 hours. On a third occasion, operations were limited due to weather conditions associated with a hurricane. Each of 

these occurrences took place since 1998. Regarding other agencies and Departments 

of interest to the Committee, we learned that the Department of the Interior’s National Business Center reports no complete building shutdowns. We have been unable to obtain up-to-date information from the other agencies identified. 

QUESTIONS SUBMITTED BY SENATOR ROBERT C. BYRD

HUMANE SLAUGHTER OPERATIONS

Question. In fiscal year 2003, $5 million was provided to the Food Safety and Inspection Service to increase, by 50 full time equivalents, resources dedicated to enforcement of the Humane Methods of Slaughter Act (HMSA). The President’s request for fiscal year 2005 includes $5 million to continue this purpose. 

Please describe how the $5 million appropriated in fiscal year 2003 was allocated, 

and how the $5 million proposed for fiscal year 2005 will be allocated. 

Answer. The fiscal year 2003 Appropriations conference agreement provided $5 

million over 2 years for at least 50 FTE’s to enforce the HMSA. In 2003, FSIS directed the District Veterinary Medical Specialists (DVMSs) to evaluate the time 
100 

spent conducting humane handling verifications. The DVMSs determined that FSIS 

inspectors and veterinarians would spend an estimated 130,000 hours conducting 

ante-mortem and humane handling inspections, which translates to more than 50 

FTEs. Based on the survey data, USDA believes that the requirements are being 

met as evidenced by the increased hours of humane slaughter activities. At the time 

the funding was provided, FSIS was developing Humane Activities Tracking (HAT) 

system to allow the agency to more accurately capture the time spent on humane 

handling and slaughter enforcement activities by FSIS inspection personnel. In fiscal year 2005, the Administration has requested $5 million for FSIS to continue the work funded only for fiscal years 2003 and 2004. This includes staffing 

and benefit costs directly associated with humane handling and slaughter enforcement activities. 

Question. Please explain why you believe the manner you have taken to meet the 

additional 50 full time equivalent requirement will provide more effective HMSA enforcement than by using the appropriation to hire 50 individual inspectors dedicated 

solely to HMSA enforcement. 

Answer. USDA considers humane handling and slaughter a top priority, and FSIS 

veterinarians and inspectors are required to enforce humane handling and slaughter 

regulations at all of the more than 900 federally inspected establishments. FSIS 

continues to improve training and education efforts to ensure that all field personnel 

understand their authority, obligation and accountability to rigorously enforce the 

Humane Methods of Slaughter Act (HMSA). The fiscal year 2003 Appropriations 

conference agreement provided $5 million over 2 years for at least 50 full time 

equivalents (FTEs) to enforce the HMSA. FSIS secured at least 50 FTEs dedicated 

to HMSA enforcement during Calendar Year 2003. Based on the DVMS survey data, 

USDA believes that the HMSA requirements are being met as evidenced by the increased hours of humane slaughter activities across all federally inspected establishments. Because of the importance of this top priority to the entire field workforce, 

in fiscal year 2005, the Administration has requested $5 million for FSIS to continue the work funded in fiscal year 2003 and 2004. 

Question. Critics of current HMSA enforcement suggest that unless FSIS personnel are always present at animal handling and slaughter sites, there is no way 

to know if HMSA violations occur. Further, it has been suggested that plant employees use communication methods to warn handling and slaughter employees when 

FSIS personnel are approaching their work stations and, only then, is stricter compliance with HSMA requirements pursued by plant employees. 

Would you please respond to these criticisms? 

Answer. Humane handling activities and food safety systems are both under ongoing regulatory activities as part of FSIS inspection personnel’s everyday responsibilities. FSIS employees use a variety of methods to determine compliance with 

the HMSA and do not rely upon a single mode of evaluation. Some of these methods 

include standing in establishments where they cannot be observed, listening to unusual livestock vocalizations, viewing any changes in carcasses (e.g., bruising), communicating with plant employees to ask how they handle certain situations, and 

conducting off hours inspections (e.g., observing humane handling during off-loading 

at a plant that receives animals during the evening hours. The Veterinary Medical 

Officer (VMO) is authorized administrative overtime to come back for unscheduled 

observation during the evening). 

The DVMSs routinely work with the VMOs on the importance of utilizing different approaches to verifying humane handling requirements. DVMSs work with 

FSIS inspection personnel to emphasize the importance of, and methods of, observing humane handling in locations where inspection personnel are not readily identified. If there is not a location to verify animal handling without being observed, the 

VMO is instructed to stand in a location to listen for vocalization by the livestock, 

or excessive yelling by plant employees. Both are indicators that plant employees 

may be using excessive force to move the animals. 

Question. How many plants under the jurisdiction of HMSA have the capability 

to allow FSIS personnel to observe undetected plant animal handling slaughter operations? 

Answer. Most of the approximately 300 largest livestock operations have safe 

areas with minimal visibility where FSIS personnel can and do observe plant animal handling and slaughter operations without being observed by plant employees. 

In addition, DVMSs and VMOs are authorized to conduct off hours inspections to 

observe humane handling during off-loading at a plant that receives animals during 

the evening hours. However, continuous visibility is the most effective method to observe HMSA compliance in small and very small operations. VMOs are trained to 

listen for changes in an animal’s behavior and to look for indicators while observing 

carcasses. The need to be able to make this type of an assessment is part of the 
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information provided by the DVMSs and is included in the new employee training 

for newly hired veterinarians. 

Question. What is USDA doing to increase this capability? 

Answer. FSIS inspection personnel have a continuous, on-going, daily presence in 

all livestock slaughter operations. The fact that FSIS personnel are constantly 

present and observing animal handling and slaughter procedures for compliance 

with the HMSA keeps the industry aware of the regulatory presence. DVMSs work 

with FSIS inspection personnel to emphasize the importance of, and methods of, observing humane handling in locations where inspection personnel are not readily 

identified. It is also addressed in the new training developed for newly hired veterinarians, and is addressed by the mentors provided to assist newly hired FSIS veterinarians. In addition, DVMSs and VMOs are authorized to conduct off hours inspections to observe humane handling during off-loading at a plant that receives 

animals during the evening hours. 

Question. Would USDA support a requirement to require such a capability? 

Answer. USDA has a continuous regulatory presence through its FSIS inspection 

personnel in all livestock slaughter operations under official inspection. FSIS conducts humane handling and slaughter verification using a complete array of inspection procedures and professional judgment to verify compliance with the HMSA. Requiring FSIS personnel to observe undetected plant animal handling slaughter operations would likely be a burden on small and very small plants. 

Question. Would USDA support a requirement for, as an option, the installation 

of a closed-circuit television monitor to allow FSIS personnel to make these observations from a remote location? If not, why? 

Answer. As the law requires, FSIS inspection personnel, including veterinarians, 

are in all federally inspected slaughter plants every day and every minute that they 

are in operation. An establishment may not slaughter without the presence of inspection personnel. Inspection personnel conduct humane slaughter verification procedures at these establishments on a daily basis. These procedures include observation of the establishment’s stunning methods. 

Cost must also be considered as the installation of a closed-circuit television monitor could place a burden on small and very small plants. If USDA were to bear the 

cost for such a system, substantial funding would be needed. In addition, maintenance costs would likely be problematic due to the potential difficulty in maintaining such a system in a high humidity environment. 

USDA does not believe that the addition of cameras would improve the observation capability of trained inspectors. FSIS veterinarians are technically trained to 

observe subtle signs indicative of humane handling and slaughter methods, which 

may not be identifiable under video surveillance. For example, ensuring animals are 

either dead or at the level of surgical anesthesia is critical when evaluating stunning effectiveness. This requires hands-on evaluation of the animal. If these very 

subtle signs are missed, animals can return to consciousness within a few seconds. 

The presence of FSIS inspectors in a plant is much more integral to enforcing the 

HMSA. All in-plant FSIS personnel are expected to enforce this Act and are held 

accountable for taking corrective and/or enforcement actions if it is violated. 

Question. Please provide information regarding the fiscal year 2005 cost of integrating the Humane Animal Tracking System within the FAIM architecture. 

Answer. FSIS upgraded its electronic Animal Disposition Reporting System 

(eADRS) with the incorporation of HAT in February 2004. HAT will allow the agency to more accurately capture the time spent on humane handling and slaughter 

enforcement activities by FSIS inspection personnel. Fiscal year 2005 costs will be 

covered within base funding. 

Question. Please provide information regarding the number of FSIS personnel, in 

fiscal year 2003, who may have received agency reprimands, or similar actions, for 

taking any HMSA regulatory action against a plant operation which was later found 

to be inappropriate or unnecessary. 

Answer. All in-plant FSIS personnel are expected to enforce the HMSA and are 

held accountable for taking corrective and/or enforcement actions if it is violated. 

In fiscal year 2003, FSIS employees did not take any HMSA regulatory actions that 

were later found to be inappropriate or unnecessary. In fact, certificates of recognition have been provided to FSIS personnel for acting responsibly in certain HMSA 

enforcement situations. 

Question. Conversely, please provide information regarding recommendations by 

FSIS personnel to take an HMSA regulatory action against a plant operation which 

was subsequently rejected by an FSIS supervisor. 

Answer. USDA is not aware of any recommendations by FSIS personnel to take 

an HMSA regulatory action against a plant operation which was subsequently rejected by an FSIS supervisor. Because FSIS trains all in-plant Veterinary Medical 
102 

Officers (VMOs) and slaughter line inspectors about humane handling responsibilities, the agency is confident in their ability to properly enforce the HMSA. 

Question. On pages 29 and 30 of GAO report 04–247, dated January 30, 2004, on 

the subject of the Humane Methods of Slaughter Act, six specific recommendations 

are listed for you to further strengthen HMSA regulatory actions. 

Please describe steps you have taken to carry out each of these recommendations. 

Answer. USDA places a very high priority on ensuring that animals produced for 

food are treated in a humane manner and has taken swift action in instances where 

establishments have been found in violation of the Humane Methods of Slaughter 

Act (HMSA). FSIS has already incorporated many of the recommendations made by 

GAO that will improve the quality and consistency of our enforcement efforts. Below 

is FSIS’ action plan in regards to the recommendations. 

GAO Recommendation 

To provide more quantifiable and informative data on violations of the HMSA, 

GAO recommends that the Secretary of Agriculture direct FSIS to supplement the 

narrative found in noncompliance reports with more specific codes that classify the 

types and causes of humane handling and slaughter violations. 

USDA Response 

Noncompliance reports are stored electronically in the Performance Based Inspection System (PBIS). FSIS will determine whether it is feasible and appropriate to 

modify the PBIS to incorporate additional humane handling violation codes. The 

current database format contains detailed narratives from FSIS Noncompliance 

Records (NRs). These narratives contain a wealth of information beyond what is 

provided in a simple classification code and provide the basis for a thorough analysis. 

In addition, DVMSs are now using procedures and tracking tools to continually 

monitor regional trends and anomalies in establishment compliance. These procedures and tracking tools are currently separate from PBIS. All noncompliance reports are now being sent to the District Office where they are reviewed and analyzed by the DVMS. 

GAO Recommendation 

To ensure that district officials use uniform and consistent criteria when taking 

enforcement actions, GAO recommends that the Secretary of Agriculture direct FSIS 

to establish additional clear, specific, and consistent criteria for District Offices to 

use when considering whether to take enforcement actions because of repetitive violations. 

USDA Response 

FSIS is developing guidance for inspection personnel which will (1) provide clear, 

specific, and consistent criteria for the District Offices when taking enforcement actions because of repetitive violations, (2) require the clear documentation of the 

basis for the decision regarding enforcement actions of repetitive HMSA violations 

and (3) provide criteria for determining when inspection personnel would issue an 

NR and when immediate suspension is warranted. FSIS expects to issue a Notice 

to inspection personnel this summer. 

In addition, FSIS Directive 5000.1, ‘‘Enforcement of Regulatory Requirements in 

Establishments Subject to HACCP Systems Regulations’’ issued on May 21, 2003, 

and the Food Safety Regulatory Essentials courses provide guidance and direction 

to inspection personnel to ensure consistent use of enforcement actions. These materials emphasize a thought process rather than fixed criteria for initiating enforcement action. They pose a series of questions for inspection personnel to consider 

when determining whether a second violation is an isolated incident or a trend of 

noncompliance is developing. 

GAO Recommendation 

To ensure that district officials use uniform and consistent criteria when taking 

enforcement actions, GAO recommends that the Secretary of Agriculture direct FSIS 

to require that District Offices and inspectors clearly document the basis for their 

decisions regarding enforcement actions that are based on repetitive violations. 

USDA Response 

FSIS is developing guidance for inspection personnel which will (1) provide clear, 

specific, and consistent criteria for the District Offices when taking enforcement actions because of repetitive HMSA violations, (2) require the clear documentation of 

the basis for the decision regarding enforcement actions of repetitive violations and 

(3) criteria for determining when inspection personnel would issue an NR and when 
103 

immediate suspension is warranted. FSIS expects to issue a Notice to inspection 

personnel this summer. 

FSIS is using the Administrative Enforcement Report (AER) process to ensure 

that the proper case support files and documents are in place when an enforcement 

action is taken. A key component of this case file is documentation generated by the 

FSIS in-plant employees. Properly documented NRs and memos of pertinent plant 

meetings, conversations, and other documentation are vital, and are important parts 

of the AER reporting process. 

GAO Recommendation 

To ensure that FSIS can make well-informed estimates about the resources it 

needs to enforce the HMSA, GAO recommends that the Secretary of Agriculture direct FSIS to develop a mechanism for identifying the level of effort that inspectors 

currently devote to monitoring humane handling and slaughter activities. 

USDA Response 

FSIS has developed a new computer database, Humane Activities Tracking, to 

provide detailed and current data related to time spent on specific humane handling 

and slaughter verification activities by inspectors. HAT is one component of the 

Agency’s updated electronic Animal Disposition Reporting System (eADRS) and egov initiative. eADRS will replace the current use of FSIS paper forms to report information about animals presented for slaughter. FSIS will utilize information and 

data from the new tool to determine the adequacy of its resources for enforcing humane handling and slaughter requirements at the individual plants. 

GAO Recommendation 

To ensure that FSIS can make well-informed estimates about the resources it 

needs to enforce the HMSA, GAO recommends that the Secretary of Agriculture direct FSIS to develop criteria for determining the level of inspection resources that 

are appropriate on the basis of plant size, configuration, or history of compliance. 

USDA Response 

FSIS will use HAT and eADRS to document the number of animals slaughtered 

each day and the amount of time spent monitoring various aspects of humane handling and slaughter requirements. Information maintained in the eADRS will be 

regularly examined by FSIS managers to assist in inspection resource planning. 

GAO Recommendation 

To ensure that FSIS can make well-informed estimates about the resources it 

needs to enforce the HMSA, GAO recommends that the Secretary of Agriculture direct FSIS to periodically assess whether that level is sufficient to effectively enforce 

the Act. 

USDA Response 

FSIS will use eADRS and HAT to document the number of animals slaughtered 

each day and the amount of time spent monitoring various aspects of humane handling and slaughter requirements. Information maintained in the eADRS and HAT 

will be regularly examined by FSIS managers to assist in inspection resource planning, and to determine if staffing levels are adequate. Additionally, FSIS will periodically assess whether the staffing level is sufficient to effectively enforce the Act. 

Question. With funds provided by this Committee in fiscal year 2001, USDA established 17 District Veterinary Medical Specialist (DVMS) positions dedicated solely to HMSA activities. 

Please describe the activities of these DVMS personnel in fiscal year 2003, how 

they intend to carry out their responsibilities in fiscal year 2004, and how they will 

carry out their responsibilities in fiscal year 2005, and in particular, describe, if any, 

activities that are not related to HMSA enforcement including the percentage of 

time spent on non-HMSA enforcement. Specifically, what percentage of their time 

is spent in plants subject to HMSA jurisdiction? 

Answer. USDA considers humane handling and slaughter a high priority and is 

committed to ensuring compliance with the HMSA. In fiscal year 2003, each DVMS 

attended training and then conducted assessments of each livestock facility within 

their district. The DVMSs provided leadership for humane handling and slaughter 

activities by conducting on-site training for field personnel during their visits. They 

disseminated new information to field personnel and coordinated humane handling 

and slaughter non-compliance actions for their District. 

The DVMSs also participated in monthly conference calls and in working groups 

to assist the agency in humane handling strategies. The DVMSs have developed the 

Humane Interactive Knowledge Exchange (HIKE) tool, which provides humane han-
104 

dling and slaughter scenarios to help improve the uniform understanding of humane 

enforcement throughout the field. The DVMSs participated in the development of 

the Humane Activities Tracking system and have developed tools to analyze humane handling data within their District to ensure that Frontline Supervisors are 

informed of any data trends. The DVMSs developed and utilized established protocols for following up on humane handling violations. The efforts and recommendations made by the DVMSs have improved the consistency of humane handling enforcement among all Districts. 

In fiscal year 2004, DVMSs continue strengthening the humane handling and 

slaughter enforcement and education of FSIS inspection personnel. Thus far, in fiscal year 2004, each DVMS continues to conduct on-site training with field personnel 

and coordinate humane handling and slaughter non-compliance actions for their 

District. The DVMSs are utilizing HAT to document and capture the time spent by 

veterinarians and other FSIS inspection personnel conducting humane handling and 

slaughter activities. The DVMSs have provided expert advice for the development 

of new Directives and Notices used to inform inspection personnel of the requirements, verification activities, and enforcement actions for ensuring that the handling and slaughter of livestock is humane. The DVMSs have also surveyed field 

employees on their knowledge of and training needs for humane handling and 

slaughter verification, so that the agency can determine what additional needs it 

may have in these areas. The DVMSs continue developing the HIKE scenarios to 

help improve the uniform understanding of humane enforcement throughout the 

field. The DVMSs also distributed up-to-date information to industry and FSIS personnel about new FSIS policies and provided FSIS field employees with information 

on industry’s Humane Good Management Practices and auditing systems so that 

they may encourage industry to not only follow FSIS regulations, but to also adopt 

a systems approach to continually improve livestock handling practices. In fiscal 

year 2004, the DVMSs also began a strategic planning process to continually improve their service to the field. 

The DVMSs will continue to build on the activities carried out in 2004, expand 

their ability to analyze trends, improve the tracking of the time spent by FSIS personnel on humane handling and slaughter activities, and continually improve the 

effectiveness of FSIS’ humane handling and slaughter verification activities. All 

DVMSs focus on humane handling and slaughter verification and will continue to 

do so. 

During 2004, DVMSs spent approximately 75 percent of their time conducting inplant assessments at plants subject to HMSA jurisdiction. 

Question. To what extent do DVMS personnel visit locations in Districts other 

than their own? 

Answer. DVMS personnel visit other Districts on an as needed basis. Each FSIS 

District Manager evaluates the needs of the District in order to effectively utilize 

DVMSs and ensure that needs are fully met. DVMSs have also crossed District lines 

when the Agency must follow-up on specific concerns that have been brought to the 

Agency’s attention. 

Question. Will USDA support assigning additional FSIS personnel to assist 

DVMS’s in order to increase the frequency of plant visits? 

Answer. Currently, the DVMSs enable the Agency to fully ensure enforcement of 

the HMSA. However, as the need arises, FSIS will adjust accordingly. For example, 

to ensure adequate humane handling verification in Puerto Rico, FSIS trained a veterinarian in the DVMS methodology to assist in this remote location. 

PASTURE-RAISED BEEF PROJECT

Question. The February 2004, edition of Agriculture Research Solving—Problems 

for the Growing World, published by the Agricultural Research Service, contained 

a story entitled Grass Fed Cattle Follow the Appalachian Trail. It is a story about 

a project that I have been proud to secure funds for over the course of the past few 

years. It is doing important research regarding pasture-raised beef. 

Now that Mad Cow Disease has reared its ugly head here in the United States, 

the markets for pasture-raised beef, naturally grown without hormones or antibiotics, will continue to grow. That is causing hope for Appalachia’s family farmers 

who are participating in this program. The goal of the project is to reduce foreign 

imports of beef by increasing the supply of healthy, grass-raised beef from Appalachia. This sounds like a wise use of the taxpayers dollars that will directly benefit 

the family farmers of West Virginia. 

With the Department highlighting the benefits of this project, can you then explain to me why this Administration, and the President, sent up a budget in Feb-
105 

ruary, the very month of the publication of this magazine, that would cut this program by 81 percent, from $1,625,024 to $301,312? 

Answer. We fully recognize the accomplishments of this project and its potential 

benefits to the family farmers of West Virginia. This project is part of the $169.4 

million in unrequested projects appropriated to ARS between fiscal years 2001 

through 2004. These unrequested projects were proposed for termination in the fiscal year 2005 President’s budget to redirect these resources towards the need to implement higher National priority initiatives, such as obesity research, food safety, 

emerging animal and plant diseases, controlling invasive species in plants and animals, and other research initiatives critical to advancing this Nation’s food and agriculture economy. Setting priorities requires that these kinds of choices be made. 

FUNDING FOR FOOD SAFETY/ANIMAL HEALTH INSPECTIONS AND RESEARCH

Question. In the fiscal year 2002 Supplemental Appropriations Bill, the Congress 

provided the President with resources to increase surveillance, inspections, and research to reduce the likelihood that diseases, such as Mad Cow Disease, would 

threaten American consumers. That bill included $5 million for animal health research, $13 million for food safety inspections (notably for imported products), and 

$39 million for enhanced animal health inspection and surveillance programs. In 

several instances, these funds were specifically directed for Mad Cow Disease-related activities. 

However, when given the opportunity to make those funds available, the President refused to designate those needs as an emergency. As a result, you were deprived of significant resources to fight problems like Mad Cow Disease. I don’t mean 

to imply that the use of those funds in fiscal year 2002 would have prevented the 

recent incident in Washington State, but it would have contributed toward greater 

surveillance and a better understanding of how to identify and control problems like 

Mad Cow disease. 

On January 6, 2004, I wrote President Bush a letter of admonishment pointing 

out that he let slip through his fingers resources which could have assisted him, and 

you, and the American people, be better prepared to meet the challenges that the 

introduction of a disease, such as Mad Cow Disease, would pose to this country. 

However, I note that the President’s fiscal year 2005 budget request includes increases for what he is calling a Food and Agriculture Defense Initiative to carry out 

some of these same activities that he rejected 3 years earlier. It appears that the 

President is more properly trying to play catch up in areas that Congress tried to 

initiate before the public’s attention was more brought to focus on these problems 

and the President began to feel the political heat. Even if the full Food and Agriculture Defense Initiative is funded in the fiscal year 2005 appropriations bill, those 

resources still will not be available until next fiscal year. Instead of immediate action, the President is proposing additional delay. 

Secretary Veneman, when the President was faced with the choice of using or rejecting those supplemental funds in 2002, did you make the case to President Bush 

that those resources should be utilized? If you didn’t think those funds were needed 

in 2002, why do you think they are needed in 2005? 

Answer. Each year, the Department submits a budget request based on program 

area needs at the time, and the Administration developed a funding request that 

it thought was appropriate in view of fiscal realities. The additional funds Congress 

added above the request were deemed not necessary given the timeframe related to 

the supplemental. 

FSIS, in conjunction with other Federal agencies, has conducted vulnerability assessments along the farm-to-table continuum for domestic and imported products in 

order to protect against intentional or unintentional contamination of the food supply. Based, in part, on the vulnerability assessments, USDA, the Department of 

Health and Human Services and the Department of Homeland Security are working 

together to create a comprehensive food and agricultural policy, known as the food 

and agriculture defense initiative. The Department’s fiscal year 2005 budget request 

includes funding to support FSIS’ components of the food and agriculture defense 

initiative—biosurveillance, the Food Emergency Response Network, data systems to 

support the Food Emergency Response Network, enhancing FSIS laboratory capabilities, and follow-up biosecurity training for front-line staff. 
106 

QUESTIONS SUBMITTED BY SENATOR DANIEL K. INOUYE

BROWN TREE SNAKE

Question. We understand that USDA–APHIS participated in a cross-cut budget 

process for invasive species funding with other departments and agencies and that 

brown tree snake was selected to be one of the ten issues to be focused on for enhanced effort. 

What level of new funding has been provided in the fiscal year 2005 budget request to address the urgent needs of Wildlife Services Operations and Wildlife Services Methods Development efforts dealing with the brown tree snake on Guam and 

in the U.S.-affiliated Pacific? 

Answer. In the fiscal year 2005 budget request, APHIS had to address areas that 

posed the highest levels of risk and potential losses to American agriculture, such 

as enhancing efforts to prevent the introduction of foreign animal diseases and foreign plant pests from entering the United States; we could not address all identified 

needs and as such the fiscal year 2005 budget request does not include additional 

funding to address brown tree snakes on Guam. 

PRECLEARANCE INSPECTIONS IN HAWAII

Question. While fiscal year 2005 budget request seems to include funding for direct and interline preclearance inspections in Hawaii, the specifics are not clear. 

Please provide details on the funds requested for fiscal year 2005 for direct and 

interline preclearance inspections in Hawaii, and provide a comparison for funds appropriated for fiscal year 2004. 

Answer. APHIS conducts pre-departure, agricultural inspections of passengers 

and cargo traveling from Hawaii and Puerto Rico to the mainland United States. 

To assist Hawaii, we also conduct inspections of passengers traveling from outlying 

Hawaiian Islands to the mainland. Prior to fiscal year 2003, Hawaii funded this 

service through a reimbursable agreement for $3 million. In fiscal year 2003, Congress provided $2 million for the interline inspection program, and Hawaii paid the 

remaining $1 million. Congress provided additional funding for the interline program in fiscal year 2004, bringing the total available for the program to $2.771 million. APHIS is not requesting funds for Hawaii interline inspections in fiscal year 

2005 and will rely on a reimbursable agreement with Hawaii to conduct the program. 

COQUI FROG

Question. The coqui frog is an alien invasive pest with no natural enemies in Hawaii and is now established in many areas throughout the State of Hawaii. Their 

presence and population levels are disruptive to the export of potted flowers and foliage and to the peace and quite of many communities in the State. 

Has APHIS made any estimates of the funds needed to control the coqui frog in 

Hawaii? Has APHIS included any funds in its fiscal year 2005 budget request to 

control coqui frog populations in Hawaii? 

Answer. APHIS Wildlife Services (WS) estimates it would take $1.85 million annually to enhance management and methods development efforts for the control of 

Caribbean tree frogs in Hawaii. In the fiscal year 2005 budget request, APHIS had 

to address areas that posed the highest levels of risk and potential losses to American agriculture, such as enhancing efforts to prevent the introduction of foreign 

animal diseases and foreign plant pests from entering the United States; we could 

not address all identified needs and as such the fiscal year 2005 budget request does 

not include additional funding to control coqui frogs in Hawaii. 

SUBCOMMITTEE RECESS

Senator BENNETT. On that happy note, the subcommittee is recessed. 

[Whereupon, at 3:01 p.m., Thursday, March 25, the subcommittee was recessed, to reconvene to subject to the call of the 

Chair.] 
(107) 

AGRICULTURE, RURAL DEVELOPMENT, AND 

RELATED AGENCIES APPROPRIATIONS FOR 

FISCAL YEAR 2005 

THURSDAY, APRIL 1, 2004 

U.S. SENATE, 

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, 

Washington, DC. 

The subcommittee met at 1:08 p.m., in room SD–192, Dirksen 

Senate Office Building, Hon. Robert F. Bennett (chairman) presiding. 

Present: Senators Bennett, Burns, and Kohl. 

DEPARTMENT OF AGRICULTURE 

STATEMENTS OF: 

ERIC M. BOST, UNDER SECRETARY, FOR FOOD NUTRITION AND 

CONSUMER SERVICES 

WILLIAM T. HAWKS, UNDER SECRETARY FOR MARKETING AND 

REGULATORY PROGRAMS 

ELSA A. MURANO, UNDER SECRETARY FOR FOOD SAFETY 

OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

Senator BENNETT. The subcommittee will come to order. 

And may I begin by thanking everyone for your willingness to rearrange your schedule and come at this slightly early hour and 

apologize for being a little late. Senator Byrd cast his 17,000th vote 

today on the floor and we lingered to pay tribute to him and give 

him our congratulations. 

This is the second hearing to review the fiscal year 2005 budget 

request. We had Secretary Veneman here last week and we appreciate how responsive she was on the various topics we covered. 

This week we have several of the Under Secretaries at USDA, as 

well as the Acting Commissioner of the Food and Drug Administration. 

So we look forward to hearing your testimonies. I am going to try 

to keep this fairly quick because I do have an unavoidable conflict 

at 2 o’clock and I would like to be through before then if we can. 

If we cannot, we can go over that time but I will be unable to participate in that. 

So I have no other further opening statement, other than to say 

welcome to all of you. Thank you for your service to the United 

States of America, your willingness to interrupt other careers to 

render public service. 
108 

This is the last time in this administration we will have the opportunity to offer our thanks for what you do. And it goes 

unappreciated and unnoticed too much. So I would like to be sure 

on this occasion to do that. 

Senator Kohl. 

Senator KOHL. I thank you, Mr. Chairman, and we welcome Mr. 

Bost, Dr. Murano, Mr. Hawks and Dr. Crawford. 

For the sake of time, Mr. Chairman, I will forego my opening 

statement but look forward to testimony and to ask questions. 

Thank you, Mr. Chairman. 

PREPARED STATEMENT

Senator BENNETT. The subcommittee has received a statement 

from Senator Durbin which we will insert into the record. 

[The statement follows:] 

PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN

Chairman Bennett, thank you for holding this important hearing today. I look forward to working with you and my Subcommittee colleagues on the fiscal year 2005 

(fiscal year 2005) Agriculture budget. Mr. Chairman, I would like to welcome our 

witnesses Eric Boast, Under Secretary for Food, Nutrition, Consumer Services, Elsa 

Murano, Under Secretary for Food Safety, William Hawks, Under Secretary for 

Marketing and Regulatory Programs and Lester Crawford, Acting Commissioner for 

Food and Drug Administration. 

I’d like to take a few minutes this morning to talk about some very important 

issues under USDA’s jurisdiction. 

An issue of great importance to me is dietary supplements. Obviously, I was 

pleased about the ban on ephedra and Dr. McClellan’s commitment to look at citrus 

autantium, aristolochic acid and usnic acid: all supplement ingredients I believe are 

dangerous. I was also pleased to see FDA take action against anabolic steroids. 

I want to see progress toward protecting the public from dangerous supplements 

continue. However, I believe several critical changes need to be made to the Dietary 

Supplement Safety and Education Act to make your job easier. First, I believe we 

need to require that supplement manufacturers report to the FDA when serious adverse events occur. I’m not talking about someone getting a little dizzy from taking 

a supplement. I’m talking about death, incapacity and hospitalization. 

It is absolutely necessary that we know when a product is harming people. The 

Office of the Inspector General at HHS estimates that the FDA receives reports of 

less than 1 percent of all adverse event associated with dietary supplements. How 

can the FDA effectively protect the public if it doesn’t know when a product is causing harm? 

The Institute of Medicine’s report that came out today supports a mandatory system of adverse event reporting. It says, ‘‘while spontaneous adverse event reports 

have recognized limitations, they have considerable strength as potential warning 

signals of problems requiring attention, making monitoring by the FDA worthwhile’’. 

The second change I would like to see made to DSHEA is a requirement to premarket safety review of supplements containing stimulants. I don’t believe that 

every natural substance needs to be subject to pre-market safety testing, but at the 

very least, DSHEA should be changed so stimulants are tested before marketed. 

When a supplement raises people’s blood pressure, increases their metabolism and 

constricts their blood vessels, it is only prudent that we test the product before it 

is marketed. 

Another issue of importance deals with childhood obesity. Under Secretary Bost, 

I know that you’ve been working with my staff to develop a school-based demonstration project in Illinois to help students make better food choices while they are at 

school. 

I’ve been in school cafeterias. I’ve watched students pass by the fresh vegetables 

and go straight for the fries. I’ve also seen them put fruit on the tray and then 

dump the tray after lunch, fruit untouched. We have to do a better job of helping 

our young people understand nutrition and why it matters. 
109 

I want to commend you and your staff for your efforts to work with us to develop 

some innovative demonstration projects in Illinois schools to help students make 

better food choices. 

Chairman Bennett and Senator Kohl, thank you again for the opportunity to talk 

about these issues and the fiscal year 2005 Budget. 

Senator BENNETT. Thank you very much. Let us go in the following order: Mr. Bost, who is the Under Secretary for Food, Nutrition, and Consumer Services of the USDA; William Hawks who is 

the Under Secretary for Marketing and Regulatory Programs; Elsa 

Murano, who is the Under Secretary for Food Safety. And then, 

with the USDA having been heard from, we will turn to the Acting 

Commissioner of the FDA, Dr. Lester Crawford. 

Mr. Bost. 

STATEMENT OF ERIC M. BOST

Mr. BOST. Good afternoon and thank you very much, Mr. Chairman. Good afternoon, Senator Kohl. 

Thank you for this opportunity to present the Administration’s 

budget request for fiscal year 2005 for the Food, Nutrition, and 

Consumer Services. 

You have my written testimony so I will try to be brief. 

Since I have been Under Secretary, I have focused my attention 

and energy on these priority challenges facing the nutrition assistance programs: expanding access to programs so that all eligible 

persons may participate; addressing the epidemic of obesity that 

threatens the health of individual Americans, our economy and 

health care system; and improving the integrity with which our 

programs are administered at all levels. 

Let me just briefly review some of our accomplishments over the 

course of the last 3 years. We have reached substantially more participants in each of our major programs, 5.8 million more people in 

Food Stamps; 1.6 million more children receiving a free or reduced 

priced lunch; over 1.4 million more children receiving a school 

breakfast; and over 400,000 more women, infants and children participate in the WIC program each month since January of 2001. 

We have successfully implemented the provisions of the 2002 

Farm Bill that met the Administration’s goals, including the important steps of restoring Food Stamp benefits to legal immigrants 

and increasing flexibility for the States. 

We have also expanded the Electronic Benefits Transfer, EBT, to 

all 50 States, the District of Columbia, Puerto Rico and the Virgin 

Islands. EBT now delivers over 95 percent of all food stamp benefits. At some point in time we are going to have to change the 

name because there will no longer be any food stamps. 

We reduced food stamp payment errors for the 4th year in a row, 

the lowest that it has ever been in the history of the Food Stamp 

Program, at 8.26. We also reduced food stamp trafficking to less 

than 2.5 cents for each benefit dollar issued, down by a third since 

1996–1998. 

We also promoted healthy lifestyles as a top priority through the 

President’s HealthierUS initiative, working with public and private 

partners to promote healthy eating and physical activity and to foster a healthy school nutrition environment. 
110 

We promoted a healthy way for children and adults across the 

program to increase emphasis on nutrition education. We are currently working in concert with the Department of Health and 

Human Services to update the Dietary Guidelines and a revision 

of the Food Guide Pyramid. 

We achieved a clean financial statement for FNS for the fifth 

consecutive year in support of the President’s initiative to improve 

financial management across the Government. 

I am very proud of these accomplishments, however much more 

work remains to be done. 

In terms of supporting the goals of the President’s budget, the 

President’s budget for fiscal year 2005 requests $50.1 billion in new 

budget authority. 

FOOD STAMP PROGRAM

Food Stamps, at $33.6 billion would serve an average of 24.9 million people each month. The Administration’s budget continues the 

$3 billion reserve appropriated in fiscal year 2004. 

CHILD NUTRITION PROGRAM

In terms of the Child Nutrition Programs, the request of $11.4 

billion supports an increase in school lunch participation from 28 

million children to over 29 million children. It also supports an increase in school breakfast participation of over 1 million children 

from 8 million to 9 million children. 

WIC PROGRAM

In our WIC Program, the President’s budget proposes $4.8 billion 

for WIC Program to provide food nutrition, education and a linkage 

to health care to a record level monthly average of 7.86 million 

needy women and young children. I think this speaks clearly to the 

President’s commitment to this program. Additionally, the $125 

million contingency reserve fund is available if there is a need for 

a increase if participation or food cost exceeds our projection. 

One of the things that I believe is very important that we are 

spending a great deal of time on, not only in my area but across 

the country, is addressing the overweight and obesity. Poor dietary 

choices and sedentary lifestyles are having a serious impact on the 

health and well being of this entire country. 

The most recent figures indicate that 62 percent of all adults in 

this country are overweight. Estimated health care costs at $123 

billion, and also 400,000 deaths are directly related to us being 

overweight. 

Senator BENNETT. Excuse me. Is that an annual cost of $123 billion? 

Mr. BOST. $123 billion, that is correct. 

Senator BENNETT. Annually? 

Mr. BOST. Annually. 

Senator BENNETT. That would pay for a lot of health care. 

Mr. BOST. Yes, but we are eating ourselves to death. $20 million for breast feeding peer counseling, $2.5 million to expand the successful Eat Smart Play Hard campaign so we can integrate the nutrition assistance programs to promote healthy eating 
111 

and physical activity. $1.65 million is requested to fund the updated 2005 Dietary Guidelines and the Food Guide Pyramid. We 

believe this is very important, given the fact that Americans are 

spending on average $33 billion a year on weight loss products, 

books and et cetera, to help them lose weight. We are spending 

that money even though we are getting heavier. 

NUTRITION PROGRAMS ADMINISTRATION

In addition, the President’s request includes an increase of $7 

million in our administrative budget which will be targeted at improving integrity in the Food Stamp Program, improving the accuracy of certifications for free and reduced price school meals and invigorating our oversight, training and technical assistance activities with our State and local partners. 

As a part of our Nutrition Programs Administration, we are requesting $152 million, an increase of $14.7 million. 

Our total request for Federal administrative resources, including 

those activities funded directly from the program accounts, represents only 0.39 percent of the program resources for which we 

are responsible. 

PREPARED STATEMENTS

In conclusion, the President’s direction has been very clear. The 

Administration request sets priorities to ensure access, maintain 

and improve integrity and supports our efforts to address the public health threat of overweight and obesity among all Americans in 

this country. 

Thank you, Mr. Chairman. 

[The statements follow:] 

PREPARED STATEMENT OF ERIC M. BOST

Thank you Mr. Chairman and members of the subcommittee for this opportunity 

to present the Administration’s budget request for fiscal year 2005 for the Food, Nutrition and Consumer Services (FNCS). 

During the past 3 years as Under Secretary for the Food, Nutrition and Consumer 

Services, I have focused my attention and my energy on three central challenges facing the Federal nutrition assistance programs: expanding access to the programs so 

that all eligible persons can make informed decisions about whether to participate; 

addressing the epidemic of obesity that threatens the health of individual Americans, and our economy and health care system collectively; and improving the integrity with which our programs are administered, at all levels, so that we are the best 

possible stewards of the public resources with which we are entrusted. 

Let me first review briefly some key accomplishments achieved over the last 3 

years: 

—We are reaching substantially more participants in each of our major programs: 

5.8 million more people in food stamps, 1.6 million more children receiving a 

free or reduced price school lunch, over 1.4 million more in school breakfast, 

and over 400,000 more women, infants and children each month in WIC since 

January 2001. 

—We successfully implemented the provisions of the 2002 Farm Bill that met the 

Administration’s goals of simplifying policies, improving access, and ensuring 

program integrity, including the important steps of restoring benefits to legal 

immigrants and increasing flexibility for the States. 

—We expanded electronic benefits transfer (EBT) to all 50 States, the District of 

Columbia, Puerto Rico, and the Virgin Islands; EBT now delivers over 95 percent of all food stamp benefits. 

—We have seen food stamp payment errors fall for the 4th year in a row, reaching 

the lowest level ever—8.26 percent—in 2002. 
112 

—We have reduced food stamp trafficking to less than 2.5 cents of each benefit 

dollar issued, down by one-third since 1996–1998. 

—We have made healthy lifestyles a top priority through the President’s 

HealthierUS initiative. We are working with public and private partners, such 

as the National 5 to 9 a Day Partnership, to increase fruit and vegetable consumption and have developed a soon to be released kit for schools entitled 

‘‘Fruits and Vegetables Galore: Helping Kids Eat More.’’ We are also expanding 

school-based efforts to promote healthy eating, and to foster a healthy school 

nutrition environment through technical assistance, training and nutrition education materials that help schools assess and improve the school nutrition environment, including improvements in school meals and overall food policies. 

—We have focused on promoting healthy weight for children and adults across 

programs through the Eat Smart. Play Hard.TM campaign, and within programs 

through Team Nutrition, the Fit WIC obesity prevention projects, and efforts to 

improve Food Stamp Program nutrition education. 

—We are working in concert with the Department of Health and Human Services 

to update the Dietary Guidelines for Americans, and we are revising the Food 

Guide Pyramid to ensure that each reflects the most comprehensive, up-to-date 

science available in order to provide clear and useful nutrition information to 

American consumers. 

—We achieved a clean financial statement for FNS for the 5th consecutive year, 

in support of the President’s management agenda initiative to improve financial 

management across government. 

I am proud of these accomplishments, and the hard work that they represent from 

USDA staff, from the Congress, and from our State and local program partners. But 

much important work remains to be done. I’d like now to review the budget request 

and the improvements in performance and results that it is designed to support. 

The President’s budget for fiscal year 2005 requests $50.1 billion in budget authority to continue this critical work. This record request reflects the Administration’s long-standing commitment to protect our children and low-income households 

from hunger and the health risks associated with poor nutrition and physical inactivity through the Nation’s nutrition safety net. The purposes to which we will put 

this substantial public commitment are clear: first, we seek to improve the public’s 

awareness of our programs and ease of access for all eligible persons, and second, 

through both the Federal nutrition assistance programs and the Center for Nutrition Policy and Promotion (CNPP), we will continue to do our part to address the 

growing public health threat that overweight and obesity poses to all Americans. Finally, we will strive to enhance the efficiency and accuracy with which these programs are delivered. 

ENSURING PROGRAM ACCESS

This Administration has demonstrated a long-term commitment to the Federal 

nutrition assistance programs and to the Americans whom they assist. The most 

fundamental expression of this commitment is making certain that sufficient resources are provided for these programs so that all who are eligible and in need 

have ready access to these critical benefits. We have delivered to you a budget that 

funds anticipated levels of program participation, while acknowledging the inherent 

difficulties in making such projections. 

For the Food Stamp Program, the budget continues the $3 billion contingency reserve appropriated in fiscal year 2004 but also offers, as an alternative, a proposal 

for indefinite budget authority for program benefits. This authority would be an efficient way to ensure that benefits are funded even as economic circumstances 

change, a goal we all share. In WIC, the $125 million contingency reserve appropriated in fiscal year 2003 continues to be available to the program should participation or food costs exceed the levels anticipated in the budget. Should this not be sufficient, we are committed to working with you to ensure that WIC is properly funded. 

Adequate program funding, however, is not enough to ensure access to program 

services for those who need them. Program structure and delivery methods must be 

designed so as not to create the types of barriers to program participation that can 

result in their underutilization. As we move forward with the reauthorization of the 

Child Nutrition and WIC Programs, improving program delivery and ensuring the 

access of eligible people who wish to participate will remain fundamental principles. 

ADDRESSING OVERWEIGHT AND OBESITY

Poor dietary choices and sedentary lifestyles are having a serious impact on the 

health and well being of all Americans. Obesity and overweight are widely recog-
113 

nized as a public health crisis. The costs of these conditions are enormous—reduced 

productivity and increased health care costs estimated at over $123 billion, and, 

most sadly, unnecessarily premature deaths for over 300,000 Americans annually. 

The Federal nutrition assistance programs can play a critical role in combating this 

epidemic by promoting better diets through nutrition education and promotion. 

These program services, along with the work of the Center for Nutrition Policy and 

Promotion, are an integral part of the President’s HealthierUS initiative, and the 

budget reflects our continuing commitment to this effort. It includes $5 million for 

ongoing demonstration projects to explore new ways for the WIC program to reduce 

and prevent unhealthy weight among our children. We are also seeking $2.5 million 

to expand our very successful Eat Smart. Play Hard.TM campaign, and to develop 

an integrated, family-oriented approach to nutrition education that cuts across all 

of the Federal nutrition programs and complements efforts in schools and other program settings to encourage healthy eating and physical activity. 

Our request also supports FNCS’ CNPP, which works with the Department of 

Health and Human Services and other agencies to promote good nutrition across all 

segments of the population. The budget includes resources that are critical to the 

development and promotion for the updated 2005 Dietary Guidelines for Americans 

and the concurrently revised food guide system, providing essential tools to communicate the Guidelines in ways that motivate Americans to improve their eating and 

physical activity behaviors. The requested funding for CNPP will enable us to capitalize on the investments we have already made with a new opportunity to build 

upon public awareness of basic nutrition messages with an enhanced food guide system that will target individual needs. 

ENHANCING PROGRAM INTEGRITY AND DELIVERY

With this budget request, we are asking the Nation to entrust us with over $50 

billion of public resources. We are keenly aware of the immense responsibility this 

represents. To maintain the public trust, we must demonstrate our ongoing commitment to be good stewards of the resources we manage, as an essential part of our 

mission to help the vulnerable people these programs are intended to serve. 

This is not a new commitment. As I noted earlier, in fiscal year 2002, the most 

recent year for which data is available, the Food Stamp Program achieved a record 

high payment accuracy rate of 91.74 percent. We have also been working to develop 

strategies to improve the accuracy of eligibility determinations in our school meals 

programs—an issue of mutual concern to all those that care about these programs. 

The budget features dollar and staff year resources which will allow us to continue 

to work closely with our State and local partners on both of these essential integrity 

initiatives—continuing both our successes in the Food Stamp Program and our intensified efforts in school meals. 

In the WIC program, we are requesting $20 million to continue our initiative to 

assist States with the modernization of their information technology infrastructure. 

These systems are essential underpinnings for the improvements in program management, program integrity, and, most importantly, program delivery that need to 

be achieved. The Administration has worked closely with the Office of Management 

and Budget (OMB) and the WIC community to fashion a procurement strategy that 

will ultimately produce a series of core model WIC systems. States updating their 

WIC systems will be able to select from among these model core systems as starting 

points for their own implementation, thus reducing their costs. 

In the remainder of my remarks, I’d like to touch on several key issues: 

FOOD STAMP PROGRAM

The President’s budget anticipates serving a monthly average of 24.9 million persons in fiscal year 2005, an increase of 1.2 million over our projections of the current 

fiscal year. Our $33.6 billion request supports this level of service. In addition, the 

budget continues the $3 billion contingency reserve appropriated in fiscal year 2004. 

While the President’s budget anticipates continuing improvement in the Nation’s 

economy, Food Stamp Program participation traditionally continues to rise for some 

time after the aggregate employment begins to improve. Moreover, we have made 

a concerted effort over the last 3 years to raise awareness of the benefits of program 

participation and encourage those who are eligible, especially working families, senior citizens, and legal immigrants, to apply. The rate of participation among those 

eligible to participate increased 2 years in a row, after 5 years of declines, reaching 

62 percent in September 2001. However, many eligibles remain who could be participating but are not. We have been aggressive in promoting the message that the 

Food Stamp Program Makes America Stronger in the sense that the program puts 

healthy food on the tables of low-income families and has a positive impact on local 
114 

economies. We have just recently embarked on a media campaign to carry this message and to reach those who are eligible but not participating. We have also paid 

particular attention to those legal immigrants who have had their eligibility restored by the Farm Bill by carrying messages on Hispanic radio stations across the 

country. 

These factors make this a particularly challenging period to forecast program participation and costs. To ensure the adequacy of resources available to the program, 

and as an alternative to the traditional contingency reserve, we have proposed indefinite authority for program benefits and payments to States and other non-Federal entities. 

CHILD NUTRITION PROGRAMS

The President’s budget requests $11.4 billion to support the service of appealing, 

nutritious meals to children in public and private schools and child care facilities 

through the Child Nutrition Programs in fiscal year 2005. In the National School 

Lunch Program, we anticipate serving over 29 million children per day in fiscal year 

2005. Similarly, the School Breakfast Program will serve approximately 9 million 

children each school day. The request for budget authority is a slight decrease from 

levels appropriated in fiscal year 2004. This is because the rate of program growth 

in fiscal year 2004, to date, has been slightly less than anticipated. As a result, the 

anticipated carry-over resources, in conjunction with the budget request, will fully 

fund the projected level of program activity. 

Several components of the Child Nutrition Programs expire at the end of March. 

We urge the Congress to move quickly to extend these provisions before they expire 

to ensure that all aspects of the Child Nutrition Programs continue to operate without interruption. We also want to work with the Congress to reauthorize and improve the entire range of Child Nutrition Programs, consistent with the principles 

outlined last year. These principles include ensuring that all eligible children have 

access to program benefits as well as streamlining the administration of programs 

to minimize burdens, supporting healthy school environments and strengthening 

program integrity. 

Reauthorization provides an opportunity to address our continuing concern that 

the certifications of children to receive free and reduced price meals are not performed as accurately as they reasonably could be. Correct certifications are a priority to ensure that school meal funds go to those most in need, and the many other 

Federal, State, and local resources that use this same data are properly targeted 

as well. 

In sum, we are committed to working with Congress to reauthorize the Child Nutrition Programs and to reinvesting any savings achieved in the process back into 

these important programs for program improvements. 

WIC

In fiscal year 2005, the President’s budget request of $4.79 billion anticipates providing essential support to a monthly average of 7.86 million women, infants and 

children through the Special Supplemental Nutrition Program for Women, Infants 

and Children (WIC). This is an increase of 60,000 participants per month from anticipated fiscal year 2004 participation levels. Additionally, the $125 million contingency reserve, appropriated in fiscal year 2003, remains available to the program 

should participation or food costs exceed our projections. The Administration remains steadfast in its support of WIC and is committed to working with Congress 

to ensure its proper funding. Finally, the request includes $20 million to continue 

our peer counseling initiative that is designed to enhance both rates of initiation 

and duration of breastfeeding among WIC participants. 

THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

Through TEFAP, USDA plays a critical supporting role for the Nation’s food 

banks. This support takes the form of both commodities for distribution and administrative funding for States’ commodity storage and distribution costs. Much of this 

funding flows from the States to the faith-based organizations that are a cornerstone of the food bank community. The President’s budget requests the fully authorized level of $140 million to support the purchase of commodities for TEFAP. Additional food resources become available through the donation of surplus commodities 

from USDA’s market support activities. In recent years, these donations have increased the total Federal commodity support provided to the Nation’s food banks by 

almost 300 percent. State administrative costs, a critical form of support to the food 

bank community, are funded at $50 million in the President’s request. 
115 

NUTRITION PROGRAMS ADMINISTRATION

We are requesting $152 million in our Nutrition Programs Administration ac- count, which reflects an increase of $14.7 million in our administrative funding. 

This increase supports the Child Nutrition and Food Stamp Programs integrity activities mentioned earlier, as well as a number of nutrition guidance initiatives 

under the Center for Nutrition Policy and Promotion. These resources are absolutely 

critical to our ability to successfully execute the mission of the Food, Nutrition and 

Consumers Services. Our total request for Federal administrative resources, including those activities funded directly from the program accounts, represents only 

about 0.39 percent of the program resources for which we have stewardship. I believe that we need this modest increase in funding in order to maintain accountability for our $50 billion portfolio and to assist our State and local partners in effectively managing the programs. 

Mr. Chairman, I appreciate the opportunity to share my thoughts with you, and 

would be happy to answer any questions you may have. 

PREPARED STATEMENT OF ROBERTO SALAZAR, ADMINISTRATOR, FOOD AND NUTRITION

SERVICES

Thank you, Mr. Chairman, and members of the Subcommittee for allowing me 

this opportunity to present testimony in support of the fiscal year 2005 budget request for the Food and Nutrition Service. 

The Food and Nutrition Service is the agency charged with managing the Nation’s 

nutrition safety net and providing Federal leadership in America’s ongoing struggle 

against hunger and poor nutrition. Our stated mission is to increase food security 

and reduce hunger in partnership with cooperating organizations by providing children and low-income people access to nutritious food and nutrition education in a 

manner that inspires public confidence and supports American agriculture. 

In fiscal year 2005, the President’s budget requests a total of $50.1 billion in new 

budget authority to fulfill this mission through the Federal nutrition assistance programs. With this record request we will touch the lives of more than 1 in 5 Americans over the course of a year. This includes providing nutritious school lunches to 

an average of 29 million children each school day (NSLP), assisting with the nutrition and health care needs of 7.86 million at risk pregnant and postpartum women 

(WIC) and children each month, and ensuring access to a nutritious diet each month 

for 24.9 million people through the Food Stamp Program (FSP). These are just 3 

of our 15 Federal nutrition assistance programs, which also include such important 

programs as the School Breakfast Program (SBP), The Emergency Food Assistance 

Program (TEFAP), the Summer Food Service Program (SFSP), the Child and Adult 

Care Food Program (CACFP), the Food Distribution Program on Indian Reservations (FDPIR), and the Commodity Supplemental Food Program (CSFP). Through 

the range of design and delivery methods these programs represent, FNS seeks to 

serve the children and low-income households of this Nation and address the diverse 

ways and circumstances in which hunger and nutrition-related problems present 

themselves. 

The resources we are here to discuss must be viewed as an investment—an investment in the health, self-sufficiency, and productivity of Americans who, from 

time to time, find themselves at the margins of our prosperous society. Under Secretary Bost, in his testimony, has outlined the three critical challenges which the 

Food, Nutrition and Consumer Services team has focused on under his leadership: 

expanding access to the Federal nutrition assistance programs, promoting healthy 

weight to address the problems of overweight and obesity; and, improving the integrity with which our programs are administered. In addition to these fundamental 

priorities specific to our mission, President Bush has laid out an aggressive agenda 

for management improvement across the Federal Government as a whole—the 

President’s Management Agenda. This agenda seeks to protect the taxpayers’ investment in all Federal activities by enhancing the accuracy and efficiency of program 

delivery and reducing improper payments, by improving decision-making through 

the integration of performance information into the budget process, by building partnerships with faith and community based organizations, and by planning carefully 

and systematically for the human capital challenges looming near for all of the Federal service. 

THE CHALLENGE OF IMPROPER PAYMENTS

Benefits of the Federal nutrition assistance programs must be carefully targeted 

and delivered to those who are eligible, in need, and wish to participate. Benefit 
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payments made in error increase the cost of these programs to the taxpayers and 

can divert needed assistance from eligible participants seeking services. Today I am 

pleased to report to you, for the second year in a row, record high payment accuracy 

rates for the Food Stamp Program. In fiscal year 2002, the most recent year for 

which data is available, the Food Stamp Program achieved an accuracy rate of 91.74 

percent, 0.4 percent higher than fiscal year 2001’s record achievement. Despite this 

success, much remains to be done to improve the accuracy and efficiency of benefit 

delivery in all the Federal nutrition assistance programs, not just the Food Stamp 

Program. The President’s budget requests additional funding to strengthen integrity 

and program management both at the Federal and State levels. Our request includes an increase of $7 million in our administrative budget which will be targeted 

at maintaining our continuing success in the Food Stamp Program, improving the 

accuracy of certifications for free and reduced price school meals, and improving delivery of program benefits and reinvigorating our oversight, training and technical 

assistance activities for our State and local partners. 

BUDGET AND PERFORMANCE INTEGRATION

The President’s Management Agenda recognizes that good decision-making depends on both the availability of relevant, high quality data and using that information in an analytical, business-like approach to problem solving. The Food and Nutrition Service has long been a leader in the Federal arena. Our entitlement programs are performance funded. This requires us to balance, through analysis and 

insight, an uncertain dynamic program demand with the constraints of a fixed appropriation. In this year’s budget explanatory notes, you will find expanded performance information and analysis with clear connections linking USDA’s strategic plan, 

our budget request, and program performance. 

Vital to the success of the President’s vision of improved Federal decision-making 

and seamless budget and performance integration is an adequately funded, properly 

positioned agenda of performance measurement and program assessment. Funding 

proposed in the request would support a range of important program assessment activities: focused studies of program operations, development of comprehensive measures of program performance to inform and foster outcome-based planning and management; and technical assistance to States and communities for practical demonstrations of potential policy and program improvements. These activities provide 

a crucial foundation for strategic planning and program innovation. This request 

will allow the programs to respond to emerging performance management issues 

identified by the Performance Assessment Rating Tool of the National School Lunch 

Program and Food Stamp Program as well as support effective stewardship of the 

taxpayer investment in nutrition assistance. 

REACHING OUT TO THOSE IN NEED THROUGH FAITH-BASED AND OTHER COMMUNITY

ORGANIZATIONS

To meet our commitment to improve access for all who are eligible, we must work 

closely with our program partners—individuals and organizations in communities 

across America who deliver the Federal nutrition assistance programs, and work to 

make them accessible and effective. Faith-based organizations have long played an 

important role in raising community awareness about program services, assisting 

individuals who apply for benefits, and delivering benefits. President Bush has 

made working with the faith-based community an Administration priority, and we 

intend to continue our outreach efforts in fiscal year 2005. The partnership of faithbased organizations and FNS programs, including TEFAP, WIC, NSLP, and the 

CSFP, is long-established. Indeed, the majority of organizations such as food pantries and soup kitchens that actually deliver TEFAP benefits are faith-based. Across 

the country, faith-based organizations have found over the years that they can participate in these programs without compromising their mission or values. They are 

valued partners in an effort to combat hunger in America. 

HUMAN CAPITAL MANAGEMENT

The General Accounting Office (GAO), have demonstrated that recruiting, developing and retaining a highly-skilled workforce is critical to sustaining our public 

service. This is especially true for the Food and Nutrition Service. We currently estimate that up to 80 percent of our senior leaders are eligible to retire within five 

years, as is nearly 30 percent of our total workforce. FNS must address this serious 

challenge by improving the management of the agency’s human capital, strengthening services provided to employees, and implementing programs designed to improve the efficiency, diversity, and competency of the work force. With just nominal 

increases for basic program administration in most years, the Food and Nutrition 
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Service has reduced its Federal staffing levels significantly over time. We have compensated for these changes by working smarter—re-examining our processes, building strong partnerships with the State and local entities which administer our programs, and taking advantage of technological innovations. We are extremely proud 

of what we have accomplished, but seek additional funding in a few targeted areas 

to address specific vulnerabilities. Full funding of the nutrition programs administration requested in the President’s budget, approximately 0.39 percent of our program portfolio, is vital to our continued success. 

Now, I would like to review some of the components of our request that relate 

to these outcomes under each program area. 

FOOD STAMP PROGRAM

The President’s budget requests $33.6 billion for the Food Stamp account including the Food Stamp Program and its associated nutrition assistance programs. 

These resources will serve an estimated 24.9 million people each month participating in the Food Stamp Program alone. Included in this amount, we propose to 

continue the $3 billion contingency reserve provided for the program in fiscal year 

2004. The importance of this reserve is especially critical in fiscal year 2005. While 

we anticipate that the improvement we are now seeing in the general economy will 

at some point begin to impact the program, predicting the turning point of participation is challenging. Our request also presents, as an alternative to the traditional 

contingency reserve, a proposal of indefinite authority for program benefits and payments to States and other non-Federal entities. 

CHILD NUTRITION PROGRAMS

The budget requests $11.4 billion for the Child Nutrition Programs, which provide 

millions of nutritious meals to children in schools and in childcare settings every 

day. This level of funding will support an increase in daily School Lunch Program 

participation from the current 28.7 million children to over 29.2 million children. 

This funding request also supports an increase in daily School Breakfast Program 

participation from the current 8.8 million to 9.0 million children. Requested increases in these programs also reflect rising school enrollment, increases in payment 

rates to cover inflation, and proportionately higher levels of meal service among 

children in the free and reduced price categories. We are proposing to extend provisions that would expire on March 31, 2004. 

WIC

The President’s budget includes $4.8 billion for the Special Supplemental Nutrition Program for Women, Infants and Children, the WIC program. The request will 

allow local communities to provide food, nutrition education, and a link to health 

care to a monthly average of 7.86 million needy women, infants and children during 

fiscal year 2005. We also propose to continue our vital initiatives, begun in fiscal 

year 2004, to enhance breastfeeding initiation and duration, improve State information technology infrastructure, and to maximize WIC’s potential to combat childhood 

obesity. The $125 million contingency fund provided for in the fiscal year 2003 appropriation continues to be available to the program. These resources are available 

if costs exceed current estimates. 

COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

The Commodity Supplemental Food Program (CSFP) serves elderly persons and 

at risk low-income pregnant and post-partum and breastfeeding women, infants and 

children up to age six. The budget requests $98.3 million for this program, the same 

level appropriated in fiscal year 2004. This request may not support the same level 

of program services as in fiscal year 2004 due to the availability of one-time carryover funds from 2003. However, we will take all available administrative actions to 

minimize any program impact. We face a difficult challenge with regard to discretionary budget resources. CSFP operates in selected areas in 32 States, the District 

of Columbia, and two Indian Tribal Organizations. The populations served by CSFP 

are eligible to receive similar benefits through other Federal nutrition assistance 

programs. We believe our limited resources are best focused on those program available in all communities nationwide. 

THE EMERGENCY FOOD ASSISTANCE PROGRAM (TEFAP)

As provided for in the Farm Bill, the budget requests $140 million for commodities in this important program. Our request for States’ storage and distribution 

costs, critical support for the Nation’s food banks, is $50 million. The Food and Nu-
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trition Service is committed to ensuring the continuing flow of resources to the food 

bank community including directly purchased commodities, administrative funding, 

and surplus commodities from the USDA market support activities. Surplus commodity donations significantly increase the amount of commodities that are available to the food bank community from Federal sources. 

NUTRITION PROGRAMS ADMINISTRATION (NPA)

We are requesting $152.2 million in this account, which includes an increase of $7 million for the program integrity initiative described earlier. Included are also 

a number of initiatives, under the Food and Nutrition Service and the Center for 

Nutrition Policy and Promotion, designed to combat obesity and improve the dietary 

quality of all Americans. Our total request for Federal administrative resources represents only about 0.39 percent of the program resources for which we have responsibility and sustains the program management and support activities of our roughly 

1,545 employees nationwide. I believe we need these modest increases in funding 

in order to maintain accountability for our $50 billion portfolio and to assist States 

to effectively manage the programs and provide access to all eligible people. 

Thank you for the opportunity to present this written testimony. 

Senator BENNETT. Thank you very much. Mr. Hawks. 

STATEMENT OF WILLIAM T. HAWKS

Mr. HAWKS. Thank you, Mr. Chairman, Senator Kohl. 

It is indeed a pleasure to be with you today to discuss the activities of the Marketing and Regulatory Programs. 

Senator BENNETT. Would you pull the microphone a little closer 

to you? 

Mr. HAWKS. Turning it on will help, as well. 

Senator BENNETT. That also helps. 

Mr. HAWKS. As I said, it is certainly a pleasure to be with you 

today to discuss the activities of the Marketing and Regulatory 

Programs and the 2005 budget for those agencies within Marketing 

and Regulatory Programs. Those are the Animal and Plant Health 

Inspection Service, Agricultural Marketing Service and the Grain 

Inspection, Packers and Stockyards Administration. 

My motto has been working together works. I am holding my 

agencies accountable to make sure that they work. 

I have five goals that I hold them accountable for. The first one 

is to build broader bridges. The second one is to move more product. The third goal is to invest in infrastructure. The fourth goal 

is to grow our people. The fifth goal is to sell agriculture as a profession. 

The Marketing and Regulatory Program activities are funded 

both by beneficiaries of the program services and by the taxpayers. 

They carry out programs costing nearly $1.8 billion with $418 million funded by fees paid by the beneficiaries of the services and 

$449 million collected from Customs receipts. 

On the appropriations side, the APHIS is requesting $893 million, GIPSA is requesting $44 million, and AMS is requesting $87 

million. 

APHIS’ primary mission is to safeguard animal and plant health, 

address conflicts with wildlife, faciliate safe Agricultural trade, promote environmental stewardship, and improve animal well being. 

APHIS has been working to enhance an already vigilant animal 

and plant health monitoring system. APHIS trade issues resolution 

management efforts enabled us to negotiate fair trade in the international market. APHIS also regulates the movement and field release of biotechnology derived plants. Recent developments in bio-
119 

technology hold great promise as long as we are able to ensure the 

protection of the environment and the safety of the foods. 

GIPSA facilitates the marketing of livestock, meat, poultry, cereals, oil seeds and related agricultural products and promotes fair 

and competitive trade. GIPSA is requesting increased funding for 

strengthening efforts to resolve international grain trade issues 

and to provide improved technology for the evaluating the value of 

livestock carcasses. 

AMS activities assist U.S. agricultural industry in marketing 

their products and in finding ways to improve their profitability. 

AMS budget request seeks an increase of $10 million of appropriated funds to begin investing in a new multi-agency web-based 

supply chain management system to manage purchases of $2.5 billion of commodities used in all food assistance programs every 

year. When fully implemented, this system will decrease the time 

for purchases from 24 days down to 5 days. 

PREPARED STATEMENTS

In light of time, this is going to conclude my statement. You have 

my full written statement and I look forward to responding to questions. 

Senator BENNETT. Thank you very much. 

For the record, without objection, the written statement of all of 

you will be included in the record. Dr. Murano. 

[The statements follow:] 

PREPARED STATEMENT OF WILLIAM T. HAWKS

Mr. Chairman and members of the Committee, I am pleased to appear before you 

to discuss the activities of the Marketing and Regulatory Programs of the U.S. Department of Agriculture and to present our fiscal year 2005 budget proposals for the 

Animal and Plant Health Inspection Service (APHIS), the Grain Inspection, Packers 

and Stockyards Administration (GIPSA), and the Agricultural Marketing Service 

(AMS). 

With me today are Dr. Charles Lambert, Deputy Under Secretary for MRP; Mr. 

Peter Fernandez, Associate Administrator of APHIS; Mrs. Donna Reifschneider, Administrator of GIPSA, and Mr. A.J. Yates, Administrator of AMS. They have statements for the record and will answer questions regarding specific budget proposals. 

Under my leadership, the Marketing and Regulatory Programs have addressed 

several broad goals and objectives to increase marketing opportunities and to protect American agriculture from damages caused by pests and diseases. 

Building Broader Bridges.—We strengthened cooperation and strategic partnerships with farmers and ranchers, States, foreign governments, congressional offices, 

agricultural commodity and industry associations, agricultural scientific groups, and 

other interested parties. We want to ensure that our policies and programs provide 

the most benefits they can to the affected people which demonstrates that working 

together works. 

Moving More Product.—We expanded domestic and international market opportunities for U.S. agriculture products including value enhanced products and products 

of biotechnology. We have worked closely with the Foreign Agricultural Service and 

the U.S. Trade Representative to aggressively and creatively resolve sanitary, 

phytosanitary, biotechnology, grain inspection, commodity grading and other trading 

issues that limit our potential for growth in international trade. 

Investing in Infrastructure.—We invested in stronger border security, pest and 

disease surveillance and monitoring, laboratory capacity such as the National Veterinary Science Lab in Ames, Iowa. We increased market news on export markets, 

made improvements in e-Government, enhanced investigations of anti-competitive 

market practices and provided greater support for biotechnology. Agriculture that 

is healthy, both biologically and economically, is a marketable agriculture. 

Growing Our People.—We made a concerted effort to recruit, recognize and reward accomplishment and inspire current and future leaders within MRP. We are 
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making MRP a place where the best and brightest want to be, including promising 

men and women in diverse fields such as journalism, accounting, and economics. 

Selling Agriculture as a Profession.—We are creatively marketing the vital role 

that agriculture plays in every American’s life to assist our efforts to recruit and 

retain the highest caliber workforce for MRP and USDA. 

FUNDING SOURCES

The Marketing and Regulatory Program activities are funded by both the taxpayers and beneficiaries of program services. The budget proposes that the MRP 

agencies carry out programs costing $1.8 billion; with $418 million funded by fees 

charged to the direct beneficiaries of MRP services and $449 million from Customs 

receipts. 

On the appropriation side, under current law, the Animal and Plant Health In- spection Service is requesting $828 million for salaries and expenses and $5 million 

for repair and maintenance of buildings and facilities; the Grain Inspection, Packers 

and Stockyards Administration is requesting $44 million, and the Agricultural Marketing Service is requesting $87 million. The budget again proposes user fees that, if enacted, would recover about $40 million. Legislation was submitted in 2003 which would authorize new license fees to 

recover the cost of administering the Packers and Stockyards (P&S) Act and authorize additional grain inspection fees for developing grain standards. Legislation will 

be submitted soon to enable additional license fees for facilities regulated under the 

Animal Welfare Act. I will use the remainder of my time to highlight the major activities and our budget requests for the Marketing and Regulatory Programs. 

ANIMAL AND PLANT HEALTH INSPECTION SERVICE

The fundamental mission of APHIS is to anticipate and respond to issues involving animal and plant health, conflicts with wildlife, environmental stewardship, and 

animal well-being. Together with their customers and stakeholders, APHIS promotes the health of animal and plant resources to facilitate their movement in the 

global marketplace and to ensure abundant agricultural products and services for 

U.S. customers. We believe that safeguarding the health of animals, plants, and ecosystems makes possible safe agricultural trade and reduces losses to agricultural 

and natural resources. 

APHIS builds bridges by working in concert with its stakeholders—States, Tribes, 

industry, and the public—to maintain and expand export market opportunities and 

to prevent the introduction and/or to respond to new threats of plant and animal 

pests and diseases. APHIS invests in the agricultural marketing infrastructure that 

helps protect the agricultural sector from pests and diseases while at the same time 

moving more U.S. product. 

I would like to highlight some key aspects of the APHIS programs: 

Safeguarding the Agricultural Sector and Resource Base.—While APHIS continues 

to work closely with the Department of Homeland Security (DHS) to exclude agricultural health threats, it retains responsibility for promulgating regulations related 

to entry of passengers and commodities into the United States. APHIS’ efforts have 

helped keep agricultural health threats away from U.S. borders through increased 

offshore threat-assessment and risk-reduction activities. APHIS has also increased 

an already vigilant animal and plant health monitoring and surveillance system to 

promptly detect outbreaks of foreign and endemic plant and animal pests and diseases. 

Management Programs.—Because efforts to exclude foreign pests and diseases are 

not 100 percent successful, APHIS also assists stakeholders in managing new and 

endemic agricultural health threats, ranging from threats to aquaculture to cotton 

and other crops, tree resources, livestock and poultry. In addition, APHIS assists 

stakeholders on issues related to conflicts with wildlife and animal welfare. 

Moving More Product.—The Trade Issues Resolution and Management efforts are 

key to ensuring fair trade of all agricultural products. APHIS’ staff negotiates sanitary and phytosanitary (SPS) standards, resolves SPS issues, and provides clarity 

on regulating imports and certifying exports which improves the infrastructure for 

a smoothly functioning market in international trade. Ensuring that the rules of 

trade are based on science helps open markets that have been closed by unsubstantiated SPS concerns. APHIS’ efforts contributed to the opening or retention of $2.5 

billion in export markets in fiscal year 2003 by helping resolve individual trade 

issues abroad. 

Biotechnology.—Recent developments in biotechnology underscore the need for effective regulation to ensure protection of the environment and food supply, reduce 

market uncertainties, and encourage development of a technology that holds great 
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promise. APHIS’ Biotechnology Regulatory Services unit coordinates our services 

and activities in this area and focuses on both plant-based biotechnology and 

transgenic arthropods. We also are examining issues related to transgenic animals. 

APHIS’ 2005 BUDGET REQUEST

In a year of many pressing high-priority items for taxpayer dollars, the budget request proposes about $828 million for salaries and expenses. There are substantial 

increases to support the Administration’s Food and Agriculture Defense Initiative 

and to protect the agriculture sector from bovine spongiform encephalopathy (BSE). 

A brief description of key initiatives follows. A total of about $173 million for Foreign Pest and Disease Exclusion.—Efforts will 

be focused on enhancing our ability to exclude Mediterranean fruit fly and foreign 

animal diseases. We also request funds to regulate the possession and transfer of 

Select Agents, toxins and pathogens necessary for research and other beneficial purposes which could be deadly in the hands of terrorists. A total of about $224 million for Plant and Animal Health Monitoring.—APHIS 

plays a critical role in protecting the Nation from deliberate or unintentional introduction of an agricultural health threat, and the budget requests $94 million, a $49 

million increase, as part of the Food and Agriculture Defense Initiative. This includes initiatives that enhance plant and animal health threat monitoring and surveillance; bolster a National Animal Identification Program; ensure greater cooperative surveillance efforts with States; improve connectivity with the integration and 

analysis functions at DHS for plant and animal health threats; and boost animal 

vaccine availability; and other efforts. In addition, $50 million is requested for bovine spongiform encephalopathy (BSE) activities to accelerate the development of a 

National animal ID effort and to increase testing to detect the presence of BSE in 

the U.S. livestock herd. 

A total of $320 million for pest and disease management programs.—Once pests 

and disease are detected, prompt eradication reduces longterm damages. In cases 

where eradication is not feasible (e.g., European gypsy moth), attempts are made 

to slow the advance, and damages, of the pest or disease. APHIS provides technical 

and financial support to help control or eradicate a variety of agricultural threats. 

The budget proposes $57 million of increased funding for efforts against low-pathogenic avian influenza, emerging plant pests (such as Citrus Canker and Emerald 

Ash Borer), tuberculosis, scrapie, and chronic wasting disease. 

Other programs offer offsets to those increases. Successes in boll weevil eradication efforts allow a reduction in that program. Decreased funding is requested for 

Asian Long-horned Beetle based on the ongoing levels of State contributions. Funding is reduced for Johne’s Disease since it is rather endemic and funds need to be 

rationed for other program needs. The budget also assumes that State cooperators 

will fund a greater share of wildlife management programs. 

A total of $17 million for the Animal Care programs.—APHIS will maintain its 

animal welfare and horse protection programs. The budget includes a proposal, similar to fiscal year 2004, to collect $10.9 million in additional fees charged to facilities 

and establishments required to be registered under the Animal Welfare Act but not 

currently subject to a fee. This includes research facilities, carriers, and in-transit 

handlers of animals. Since these facilities are the direct beneficiaries of taxpayer assistance, it is appropriate that a portion of the costs be funded by these beneficiaries. 

A total of about $82 million for Scientific and Technical Services.—Within USDA, 

APHIS has chief regulatory oversight of genetically modified organisms. To help 

meet the needs of this rapidly evolving sector, the budget includes a request to, in 

part, enhance the regulatory oversight of field trials of crops derived with biotechnology. Also, APHIS develops methods and provides diagnostic support to prevent, detect, control, and eradicate agricultural health threats, and to reduce wildlife damages (e.g., coyote predation). It also works to prevent worthless or harmful 

animal biologics from being marketed. 

A total of $12 million for management initiatives.—This includes building upon efforts started with Homeland Security Supplemental funds for improving physical 

and operational security, It also includes providing the State Department funds to 

help cover higher security costs for APHIS personnel abroad. A portion of the increase would also be used for enhanced computer security and eGov initiatives. 

GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION

GIPSA’s mission is to facilitate the marketing of livestock, meat, poultry, cereals, 

oilseeds, and related agricultural products and to promote fair and competitive trade 

for the benefit of consumers and American agriculture. It helps move more U.S. 
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product both domestically and abroad by investing in domestic infrastructure that 

supports marketing within the grain and livestock industry. GIPSA fulfills this 

through both service and regulatory functions in two programs: the Packers and 

Stockyards Programs (P&SP) and the Federal Grain Inspection Service (FGIS). 

Packers and Stockyards Programs.—The strategic goal for P&SP is to promote a 

fair, open and competitive marketing environment for the livestock, meat, and poultry industries. Currently, with 166 employees, P&SP monitors the livestock, 

meatpacking, and poultry industries, estimated by the Department of Commerce to 

have an annual wholesale value of over $118 billion. Legal specialists and economic, 

financial, marketing, and weighing experts work together to monitor emerging technology, evolving industry and market structural changes, and other issues affecting 

the livestock, meatpacking, and poultry industries that the Agency regulates. 

We conducted over 1,700 investigations in fiscal year 2003 to enforce the Packers 

and Stockyards Act for livestock producers and poultry growers, of which about 95 

percent were closed in a year. Financial recoveries were $27.2 million. 

The Swine Contract Library began operation on December 3, 2003. Producers can 

see contract terms, including, but not limited to, the base price determination formula and the schedules of premiums or discounts, and packers’ expected annual 

contract purchases by region. Since December 3, GIPSA has experienced approximately 27 ‘‘hits’’ each day to view the Contract Summary reports and approximately 

6 ‘‘hits’’ per day to view the Monthly reports. 

Federal Grain Inspection Service.—FGIS facilitates the marketing of U.S. grain 

and related commodities under the authority of the U.S. Grain Standards Act and 

the Agricultural Marketing Act of 1946. As an impartial, third-party in the market, 

we advance the orderly and efficient marketing and effective distribution of U.S. 

grain and other assigned commodities from the Nation’s farms to domestic and 

international buyers. We are part of the infrastructure that undergirds the agricultural sector. 

GIPSA works with government and scientific organizations to establish internationally recognized methods and performance criteria and standards to reduce the 

uncertainty associated with testing for the presence of biotechnology grains and oil 

seeds. It also provides technical assistance to exporters, importers and end users of 

U.S. grains and oilseeds, as well as other USDA agencies, USDA Cooperator organizations, and other governments. These efforts help facilitate the sale of U.S. products in international markets. 

Our efforts to improve and streamline our programs and services are paying off 

for our customers, both in terms of their bottom lines and in greater customer satisfaction. FGIS’ service delivery costs average $0.30 per metric ton, or approximately 

0.23 percent of the $14 billion value of U.S. grain exports. In fiscal year 2003 alone, 

more than 1.8 million inspections were performed on more than 222 million tons of 

grains and oilseeds. 

One indicator of the success of our outreach and educational initiatives is the 

number of foreign complaints lodged with FGIS regarding the quality or quantity 

of U.S. grain exports. In fiscal year 2003, FGIS received only 13 quality complaints 

and no quantity complaints from importers on grains inspected under the U.S. 

Grain Standards Act. These involved 229,587 metric tons, or about 0.2 percent by 

weight, of the total amount of grain exported during the year. 

GIPSA’S 2005 BUDGET REQUEST

For 2005, the budget proposes a program level for salaries and expenses of $44 

million. Of this amount, $20 million is devoted to grain inspection activities for 

standardization, compliance, and methods development and $24 million is for Packers and Stockyards Programs. 

The 2005 budget includes the following program increases: 

—$1 million for rapid response teams to closely examine livestock marketing to 

ensure that producers are not unfairly disadvantaged by the BSE situation. 

USDA will use the funds to conduct market surveillance and ensure that marketing and procurement contracts are honored in the aftermath of the BSE finding. 

—About $5 million to significantly upgrade the agency’s IT functions, including 

the ability to securely accept, analyze, and disseminate information relevant to 

the livestock and grain trades. About $4 million is a one-time increase for investment. Currently, GIPSA receives more than 2.5 million submissions from 

stakeholders, all of which are done on paper. The request also includes $150,000 

to maintain the Swine Contract Library. 

—$1.2 million to monitor the various technologies that livestock and meatpacking 

industries use to evaluate carcasses to ensure fair and consistent use of those 
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technologies. Producer compensation is increasingly dependent not simply on 

the weight of the animals they bring to slaughter, but the characteristics of the 

carcasses as well (e.g., fat content). 

—$0.5 million to enable GIPSA to better address and resolve international grain 

trade issues, thus precluding disruption of U.S. exports. GIPSA has experienced 

a growing demand for cooperative participation with other agencies with international trade responsibilities to help expand markets for U.S. agricultural 

products and removing barriers to trade. 

New User fees.—New user fees, similar to those proposed for fiscal year 2004, 

would be charged to recover the costs of developing, reviewing, and maintaining official U.S. grain standards used by the grain industry. Those who receive, ship, store, 

or process grain would be charged fees estimated to total about $6 million to cover 

these costs. Also, the Packers and Stockyards program would be funded by new license fees of about $23 million that would be required of packers, live poultry dealers, stockyard owners, market agencies and dealers, as defined under the Packers 

and Stockyards Act. 

AGRICULTURAL MARKETING SERVICE

The mission of the AMS is focused on facilitating the marketing of agricultural 

products in the domestic and international marketplace, ensuring fair trading practices, and promoting a competitive and efficient marketplace to the benefit of producers, traders, and consumers of U.S. food and fiber products. The Agency accomplishes this mission through a wide variety of publicly and user funded activities 

that help their customers improve the marketing of their food and fiber products 

and ensure that food and fiber products remain available and affordable to consumers. The following are just some of the ways that AMS is doing its job better 

in serving its customers. 

Customer Service and Technology.—AMS continues to improve its service delivery 

by taking advantage of new technology to improve public electronic access to information and services and to increase operational efficiency. For example, the Livestock Mandatory price reporting system processes huge amounts of raw data received from slaughter facilities that report their transactions involving purchases of 

livestock and sales of boxed beef and lamb, lamb carcasses, and imported boxed 

lamb cuts. These data, including prices, contracts for purchase, and other related 

information, are publicly disseminated in over 100 daily, weekly, and monthly reports on fed cattle, swine, lamb, beef and lamb meat. AMS continues to make enhancements to existing reports and to introduce new reports in consultation with 

industry stakeholders. 

In 2003, AMS began offering automatic e-mail delivery of comprehensive Market 

News information to subscribers. This free email subscription service, provided in 

partnership with the Mann Library at Cornell University, provides access to nearly 

1,500 daily, weekly and monthly market reports covering the six major AMS commodity groups. AMS also is developing a Market News web portal that will allow 

users to establish their own unique web pages through which they can immediately 

access preferred market news reports, have the capability to build specialized reports, and add customized features including nationwide weather reports and metric 

data conversions. Users will be able to access 5 years of data and download it in 

usable formats, including charts, spreadsheets, and graphs. The portal will be available to public users later this year for fruit and vegetable reports, and they hope 

to expand it to market reports for other commodities soon thereafter. 

Partnerships.—AMS depends on strong partnerships with cooperating State agencies and other Federal agencies to carry out many of our programs. State agency 

partners collect data, provide inspection, monitoring, and laboratory services for 

AMS, and otherwise maximize the value of both State and Federal resources 

through sharing and coordination. For instance, AMS’ Market News program maintains cooperative agreements with 40 States to coordinate local market coverage 

with the regional and national coverage needed for AMS market reporting. State 

employees who inspect shipments of seed within a State provide information on potential violations in interstate shipments to AMS’ Federal Seed program. Thirtythree States and territories participate with AMS in Pesticide Recordkeeping education and record inspection activities and are reimbursed for their services. Furthermore, the Pesticide Data program depends on its 10–12 State and three Federal 

partners to collect and test the product samples on which the program results are 

based. In fact, the Pesticide Data program directs 80 percent of its funding to its 

State partners in reimbursement for services provided. Another source of support 

for State agriculture programs is AMS’ Federal-State Marketing Improvement Program (FSMIP), otherwise known as the Payments to States Program. In 2003, AMS 
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allocated FSMIP grant funds to 20 States for 28 projects of local and regional importance, such as marketing studies or developing innovative approaches to the marketing of agricultural products. 

Under the National Organic program, AMS program personnel accredit State, private, and foreign certifying agents who certify that organic production and handling 

operations are in compliance with the national organic standards. As of February 

2004, AMS received 137 applications for accreditation. Of these, the program has 

thus far accredited a total of 90 certifying agents, including 15 States, and 37 foreign certifying agents. AMS also administers two cost share programs through 

agreements with the States that help to offset certification costs for organic producers. Additional resources provided in fiscal year 2004 will allow us to strengthen 

our support of the National Organic Standards Board activities, including technical 

advisory panel evaluations of materials and program evaluations—or peer reviews— 

and to strengthen program enforcement. 

Market Analysis.—In 2003, AMS supported wholesale or farmers market facility 

projects in Mississippi, Georgia, Florida, Oregon, Arizona, New York, Texas, American Samoa, Hawaii, and Kentucky. AMS also supports marketing and market technology research projects which were presented at numerous marketing conferences 

and workshops. AMS supports farmers markets by conducting research on emerging 

trends in market operations and practices and providing research reports, reference 

material and fact sheets to farm vendors, farm market managers, and the general 

public through the AMS website and a telephone hotline. 

AMS’ Transportation Services Program works with Federal, State, and local policy-makers to maintain an efficient national transportation system that supports the 

needs of farmers, agricultural shippers, and rural America. AMS conducts and sponsors economic studies of domestic and international transportation issues and provides technical assistance and information to producers, shippers, carriers, government agencies, and universities. Program experts have generated studies and reports on U.S. waterways, rail lines and rail car availability; rail and shipping rate 

analyses; geographically disadvantaged farmers and ranchers, and many others. 

AMS transportation specialists are often called upon to provide information and 

advice when agricultural transportation is disrupted. After September 11, 2001, 

AMS has increasingly been asked to provide more analyses on transportation security for agricultural products. In 2003, AMS developed a Transportation Security 

Briefing Book using the information currently available. The book provides an overview of the agricultural transportation system, existing safety measures, and discusses the adverse effects of past disruptions in the system. While this is a good 

start, we have found that much more study is needed in this area for all modes of 

transport, but particularly for trucking, which moves 90 percent of agricultural 

freight for at least one segment of its transportation to destination. 

Commodity Purchases.—AMS works in close cooperation with both the Food and 

Nutrition Service (FNS) and the Farm Services Agency (FSA) to administer USDA 

commodity purchases that stabilize markets and support nutrition programs, such 

as the National School Lunch Program, the Emergency Food Assistance Program, 

the Commodity Supplemental Food Program, and the Food Distribution Program on 

Indian Reservations. To maximize the efficiency of food purchase and distribution 

operations, AMS, FNS, and FSA each provide a component of program administration according to their organizational structure and expertise, but the system is 

complex and requires close coordination. To better coordinate the operations between the three agencies and control the vast array of details inherent to the procurement process, the Processed Commodities Inventory Management System 

(PCIMS) was developed more than 10 years ago to track bids, orders, purchases, 

payments, inventories, and deliveries of approximately $2.5 billion of commodities 

used in all food assistance programs every year and another $1 billion in price support commodity products maintained in inventory. PCIMS is still being used by the 

three agencies with modifications having been made over the years, when feasible, 

to add capabilities such as financial tracking or to meet changes in program delivery. 

AMS’ 2005 BUDGET REQUEST

For AMS, the budget proposes a program level of $732 million, of which over 88 

percent will be funded by user fees and Section 32 funds. The budget requests an 

appropriation of $87 million for Marketing Services and Payments to States. The 

2005 budget includes an increase of $10 million in appropriated funds to improve 

the information technology systems used to manage and control commodity orders, 

purchases, and delivery. Under this proposal, PCIMS would be replaced by the Webbased Supply Chain Management System (WBSCM). Implementation of WBSCM 
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will improve the efficiency of Federal procurement of commodities by reducing ordering and delivery times from 24 days to 5 days. The 2005 budget also includes 

an increase of $0.3 million to conduct studies aimed at improving the security of 

the U.S. transportation system for agricultural commodities and supplies. The budget includes a decrease of $2 million for FSMIP to reflect a reduction for a one-time 

increase in 2004 for creation of specialty markets in Wisconsin. 

CONCLUSION

This concludes my statement. I am looking forward to working with the Committee on the 2005 budget for the Marketing and Regulatory Programs. We believe 

the proposed funding amounts and sources of funding are vital to protecting American agriculture from pests and diseases, both unintentional and those caused by 

terrorist action, and for moving more product to foreign markets. It will provide the 

level of service expected by our customers—the farmers and ranchers, the agricultural marketing industry, and consumers. We are happy to answer any questions. 

PREPARED STATEMENT OF A.J. YATES, ADMINISTRATOR, AGRICULTURAL MARKETING

SERVICE

Mr. Chairman and Members of the Committee, I am pleased to have this opportunity to represent the Agricultural Marketing Service in presenting our fiscal year 

2005 budget proposal. To provide some context for our budget proposal, I would like 

to begin by reviewing our agency’s mission and describing some of the customer 

service improvements we have made in delivery of our programs. 

MISSION

The mission of the Agricultural Marketing Service—AMS—is focused on marketing: to facilitate the marketing of agricultural products in the domestic and international marketplace, ensure fair trading practices, and promote a competitive and 

efficient marketplace to the benefit of producers, traders, and consumers of U.S. 

food and fiber products. 

We accomplish this mission through a wide variety of publicly funded activities 

that help our customers better market their food and fiber products and ensure that 

food and fiber products remain available and affordable to consumers. More specifically, AMS helps to make the nation’s agricultural markets work efficiently by providing wide and equal access to market information for all producers and traders; 

by developing agricultural product descriptions that provide a common language for 

commercial trade; by providing data on pesticide residues and microbiological pathogens that support science-based risk assessment; by providing ‘‘how to’’ technical expertise to growers, transporters, and others in the marketing chain; and by helping 

to develop alternative or improved market outlets. 

AMS also offers voluntary fee-based services such as product quality grading, contract certification, export verification, and quality control services such as plant inspections, equipment reviews, and production quality or process control certification. 

Because these voluntary services are available to verify the quality of agricultural 

products and the efficacy of production processes, they support private contractual 

arrangements and marketing claims that can improve profitability for U.S. producers in both domestic and international markets. In delivering these voluntary 

services, we remain vigilant about their costs, while working in partnership with 

our customers to ensure that marketplace needs are met. 

CUSTOMER SERVICE AND TECHNOLOGY

We continue to improve our service delivery by taking advantage of new technology—to improve public electronic access to information and services and to increase our operational efficiency. For example, the Livestock Mandatory price reporting system processes huge amounts of raw data—some 2 to 3 million data items 

each week—received from 112 slaughter facilities, that report their transactions involving purchases of livestock and sales of boxed beef and lamb, lamb carcasses, and 

imported boxed lamb cuts. These data, including prices, contracts for purchase, and 

other related information, are publicly disseminated in over 100 daily, weekly, and 

monthly reports on fed cattle, swine, lamb, beef and lamb meat. AMS continues to 

make enhancements to existing reports and to introduce new reports in consultation 

with industry stakeholders. 

In 2003, AMS began offering automatic email delivery of comprehensive Market 

News information to subscribers. Market News reports cover prices, volume, quality, 

condition, and other market data on farm products in production areas and at spe-
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cific domestic and international markets. This free email subscription service, provided in partnership with the Mann Library at Cornell University, provides access 

to nearly 1,500 daily, weekly and monthly market reports covering the six major 

AMS commodity groups—cotton, dairy, fruit and vegetable, livestock and seed, poultry, and tobacco. Users can search by keyword or browse by commodity, then subscribe to and receive selected reports via email whenever an update is published. 

This initiative is part of the Federal e-government effort to streamline governmentto-citizen communications. 

AMS also is developing a Market News web portal that will allow users to establish their own unique web pages through which they can immediately access preferred market news reports, have the capability to build specialized reports, and add 

customized features including nationwide weather reports and metric data conversions. Users will be able to access 5 years of data and download it in usable formats, 

including charts, spreadsheets, and graphs. The portal will be available to public 

users later this year for fruit and vegetable reports, and we hope to expand it to 

market reports for other commodities soon thereafter. 

PARTNERSHIPS

AMS depends on strong partnerships with cooperating State agencies and other 

Federal agencies to carry out many of our programs. State agency partners collect 

data, provide inspection, monitoring, and laboratory services for AMS, and otherwise maximize the value of both State and Federal resources through sharing and 

coordination. For instance, AMS’ Market News program maintains cooperative 

agreements with 40 States to coordinate local market coverage with the regional 

and national coverage needed for AMS market reporting. State employees who inspect shipments of seed within a State provide information on potential violations 

in interstate shipments to AMS’ Federal Seed program. Thirty-three States and territories participate with AMS in Pesticide Recordkeeping education and record inspection activities and are reimbursed for their services. Furthermore, our Pesticide 

Data program depends on its State and Federal partners to collect and test the 

product samples on which the program results are based. In fact in fiscal year 2004, 

the Pesticide Data program will direct about 80 percent of its funding to its eleven 

State partners in reimbursement for services provided. The resulting information 

generated by AMS can be utilized by other Federal agencies such as EPA and FDA 

for policy and regulatory actions, as well as other USDA agencies, academia, agricultural industry, international organizations, and global traders. 

We work with local and city agencies to improve wholesale, farmers, and other 

direct marketing opportunities. In 2003, our Wholesale, Farmers, and Alternative 

Markets program supported wholesale or farmers market facility projects in Mississippi, Georgia, Florida, Oregon, Arizona, New York, Texas, American Samoa, Hawaii, and Kentucky. The program also supports marketing and market technology 

research projects as well as numerous marketing conferences and workshops. In an 

effort to help link farm direct sales with school nutrition programs, for example, 

AMS organized a workshop focused on farm to school marketing in fiscal year 2003 

at the first national ‘‘Farm to Cafeteria Conference’’ in Seattle, Washington. 

Farmers markets directly benefit local producers and continue to be an important 

farm product outlet for agricultural producers nationwide. Farmers markets have 

risen in popularity due to growing consumer interest in obtaining fresh products directly from the farm. The number of farmers markets has grown by 79 percent between 1994 and 2002 to more than 3,100 facilities nationwide. AMS supports farmers markets by conducting research on emerging trends in market operations and 

practices and providing research reports, reference material and fact sheets to farm 

vendors, farm market managers, and the general public through the AMS website 

and a telephone hotline. We also participate in industry, producer, and academic 

conferences and training sessions across the country. 

Another source of support for local agriculture programs is AMS’ Federal-State 

Marketing Improvement Program, or FSMIP. These matching grant funds, made 

available to State departments of agriculture and other State agencies, fund 25 to 

35 projects each year. In 2003, we allocated FSMIP grant funds to 20 States for 28 

projects of local and regional importance, such as marketing studies or developing 

innovative approaches to the marketing of agricultural products. 

Our National Organic program, in partnership with its advisory committee, provides nationwide standards and a certification system for the U.S. organic food industry, which has over $8 billion in sales and has seen annual growth in excess of 

22 percent. Between 1995 and 2000, the U.S. organic market expanded by 175 percent and is expected to more than double its 2000 value of $7.8 billion to approximately $16 billion by 2005. AMS works with the National Organic Standards Board 
127 

to develop standards for substances used in organic production, maintain a National 

List of approved and prohibited substances for organic production, and convene 

technical advisory panels to provide scientific evaluation of materials considered for 

the National List. AMS program personnel accredit State, private, and foreign certifying agents who certify that organic production and handling operations are in 

compliance with the national organic standards. As of February 2004, AMS received 

137 applications for accreditation. Of these, the program has thus far accredited a 

total of 90 certifying agents—53 domestic certifying agents, including 15 States, and 

37 foreign certifying agents. AMS also administers two cost share programs through 

agreements with the States that help to offset certification costs for organic producers. Additional resources provided in fiscal year 2004 will allow us to strengthen 

our support of Board activities, including technical advisory panel evaluations of 

materials and program evaluations—or peer reviews—and to strengthen program 

enforcement. 

Our Transportation Services Program works with Federal, State, and local policymakers to maintain an efficient national transportation system that supports the 

needs of farmers, agricultural shippers, and rural America. The program helps to 

support farm income, expand exports, and maintain the flow of food to consumers. 

AMS conducts and sponsors economic studies of domestic and international transportation issues and provides technical assistance and information on agricultural 

transportation, rural infrastructure and access, and food distribution to producers, 

shippers, carriers, government agencies, and universities. Program experts have 

generated studies and reports on U.S. waterways, rail lines and rail car availability; 

rail and shipping rate analyses; and geographically disadvantaged farmers and 

ranchers, and many others. The program also produces periodic publications that 

provide information for agricultural producers and shippers on various modes of 

transportation, such as the weekly Grain Transportation Report, the Refrigerated 

Transport Quarterly, quarterly issues of the Ocean Rate Bulletin and Agricultural 

Container Indicators, and the semiannual Agricultural Ocean Transportation 

Trends. 

Our transportation specialists are called upon to provide information and advice 

when agricultural transportation is disrupted, such as late in 2002, when a labor 

stoppage closed the West Coast ports and threatened millions of dollars of losses for 

agriculture from commodities spoiled in transit. After 9/11, we are increasingly 

asked to provide more analyses on transportation security for agricultural products. 

In 2003, AMS developed a Transportation Security Briefing Book using the information currently available. The book provides an overview of the agricultural transportation system, existing safety measures, and discusses the adverse effects of past 

disruptions in the system. While this is a good start, we have found that much more 

study is needed in this area for all modes of transport, but particularly for trucking, 

which moves 90 percent of agricultural freight for at least one segment of its transportation to destination. 

Finally, AMS works in close cooperation with both the Food and Nutrition Service 

(FNS) and the Farm Services Administration (FSA) to administer USDA’s nutrition 

assistance and surplus commodity programs. AMS purchases agricultural commodities under authority of Section 32 of the Act of August 24, 1935, which permanently 

authorized an appropriation equal to 30 percent of customs receipts to encourage 

the exportation and domestic consumption of agricultural commodities. These funds, 

plus unused balances up to $500 million from the previous fiscal year, may be authorized by the Secretary to support markets by purchasing commodities in temporary surplus, for domestic nutrition assistance programs, for diversion payments 

and direct payments to producers, for export support, and disaster relief. 

AMS retains only about 13 percent of the funds appropriated under Section 32. 

In 2005, AMS expects to retain $800 million, half of which—$400 million—will be 

spent on purchases for the Child Nutrition Programs. Most of the rest is available 

to AMS’ commodity purchases program for emergency surplus removal. Eighty-six 

percent of the $6.2 billion total appropriation will be transferred to FNS to administer the Child Nutrition Programs and 1 percent to the Department of Commerce 

to develop fishery products. 

The commodities purchased by AMS are donated to various nutrition assistance 

programs such as the National School Lunch Program, the Emergency Food Assistance Program, and the Food Distribution Program on Indian Reservations, according to their needs and preferences. In fiscal year 2003, AMS purchased 1.46 billion 

pounds of commodities that were distributed by FNS through its nutrition assistance programs. 

AMS purchases the non-price supported commodities—meat, fish, poultry, egg, 

fruit and vegetable products—and FSA supplies the price-supported commodities— 

flours, grains, peanut products, cheese and other dairy products, oils and 
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shortenings—that supply the National School Lunch Program and other nutrition 

assistance programs administered by FNS. 

To maximize the efficiency of food purchase and distribution operations, AMS, 

FNS, and FSA each provide a component of program administration according to 

their organizational structure and expertise, but the system is complex and requires 

close coordination. AMS and FSA purchase for FNS the entitlement commodities 

provided to schools. Schools and other nutrition assistance programs can also receive bonus commodities that are purchased to support agricultural markets 

through AMS’ surplus commodity program. AMS and FSA are responsible for 

issuing and accepting bids, and awarding and administering contracts. FNS is responsible for taking commodity orders from the States, monitoring purchases and 

entitlements throughout the year, and the overall administration of the commodity 

nutrition assistance programs. Before a purchase is announced, AMS and FSA specialists work with potential vendors, FNS, and food safety officials to develop a specification for each product purchased that details product formulation, manufacturing, packaging, sampling, testing, and quality assurance. After market conditions, availability, and anticipated prices are assessed, and recipient preferences determined, AMS and FSA invite bids for particular U.S. produced and domestic origin food products under a formally advertised competitive bid program. Bids received from responsible vendors are analyzed and contracts are awarded by AMS 

and FSA. FSA administers the payments to vendors, ensures the proper storage of 

commodities when needed, and assists in their distribution. 

To better coordinate the operations between the three agencies and control the 

vast array of details inherent to the procurement process, the Processed Commodities Inventory Management System, or PCIMS, was developed more than 10 years 

ago to track bids, orders, purchases, payments, inventories, and deliveries of approximately $2.5 billion of commodities used in all domestic and foreign food assistance programs every year and another $1 billion in price support commodity products maintained in inventory. PCIMS is still being used by the three agencies with 

modifications having been made over the years, when feasible, to add capabilities 

such as financial tracking or to meet changes in program delivery. 

FISCAL YEAR 2005 BUDGET REQUEST

This leads us to the first of our two budget requests for fiscal year 2005, which 

involves both a multi-agency partnership and an electronic (e-) government initiative that will significantly improve customer service. 

WEB-BASED SUPPLY CHAIN MANAGEMENT SYSTEM

AMS, FNS and FSA are working together to replace PCIMS with a Web-Based 

Supply Chain Management System, or WBSCM. For fiscal year 2005, AMS is requesting funding of $10 million in our Marketing Services appropriated account to 

begin developing the entire new system rather than each of the three agencies separately requesting portions of the funding needed. 

WBSCM has undergone extensive reviews within USDA and was approved as one 

of the Department’s selected e-government ‘‘smart choice’’ initiatives. WBSCM is designed to greatly reduce the time required for processing purchases; shorten delivery 

times; improve USDA’s ability to collaborate with other Departments; improve reporting capability; reduce transportation, inventory, and warehousing costs; and enable future system updates as needed. Furthermore, the system will create a singe 

point of access for customers, allow us to share information more quickly and conveniently, automate internal processes, and assist in breaking down bureaucratic divisions. Eventually, WBSCM will be able to support agencies that manage similar 

commodity distribution programs for export. The Foreign Agricultural Service, the 

Agency for International Development, and the Maritime Administration, have been 

included in the development phases to ensure the new system can address the needs 

of export programs. 

Over the last few years AMS, FNS, and FSA have undertaken extensive business 

practice reengineering efforts. Since PCIMS was developed and ‘‘hard coded’’ to 

automate the business practices of the time, it often cannot be modified to accept 

significant changes in process without undue costs. As a result, agency employees 

frequently have to develop electronic entries external to PCIMS and then update the 

system with the results. In contrast, WBSCM is designed to use commercial off the 

shelf software which will speed up implementation, incorporate industry and commercial best business practices, and give the agencies the flexibility to reconfigure 

the system after implementation when processes change. We expect that increased 

efficiency, better coordination, and improved services will begin as soon as the basic 

system is in place in mid-fiscal year 2007, when WBSCM will provide those services 
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being performed by PCIMS. Until then, we must continue to maintain the PCIMS 

system. 

AGRICULTURAL TRANSPORTATION SECURITY

Our second proposal this year is to strengthen our agricultural transportation security expertise within the Transportation Services program. We are requesting 

$300,000 to produce more in-depth analyses of agricultural transportation security. 

Transportation is a critical link in the food supply chain. Closer analysis of the sector will provide the information needed for critical assessments of the strengths and 

vulnerabilities of the various transportation modes used to move farm inputs, food, 

and other agricultural products from farm to market. These funds will strengthen 

USDA’s Homeland Security efforts by helping to safeguard the U.S. food supply and 

supporting the Department of Homeland Security. We will be better able to provide 

the information requested by policy officials in planning strategies to prevent potential disruptions, and to provide comprehensive information more quickly when any 

emergencies occur. Our current expertise and established contacts with transportation providers give us a distinct advantage in addressing agricultural transportation security issues. The transportation industry also has a serious interest in protecting shipments. For example, the Agricultural and Food Transporters Conference 

(AFTC) recently requested help from AMS in developing voluntary security guidelines. AMS is supporting a cooperative effort between USDA and the AFTC to prepare a guidebook. With expanded information and analysis, we will also be better 

able to advise agricultural producers and shippers on improving their own security. 

BUDGET REQUEST SUMMARY

Our total budget request includes $86 million for Marketing Services, which includes an increase for pay costs partially offset by a decrease for savings associated 

with information technology. We also include a decrease of $2 million in FederalState Marketing Improvement Program grants funding under Payments to States 

and Possessions. These funds were provided in fiscal year 2004 to support Wisconsin 

specialty products. We request $11 million in Section 32 Administrative funds for 

commodity purchasing and $16 million for Marketing Agreements and Orders. 

These requests also include an increase for pay costs. Thank you for this opportunity to present our budget proposal. 

PREPARED STATEMENT OF DR. PETER FERNANDEZ, ACTING ADMINISTRATOR, ANIMAL

AND PLANT HEALTH INSPECTION SERVICE

Mr. Chairman and members of the Subcommittee, it is indeed a pleasure for me 

to represent the Animal and Plant Health Inspection Service (APHIS) before you 

today. APHIS is an action-oriented agency that works with other Federal agencies, 

Congress, States, agricultural interests, and the general public to carry out its mission to protect the health and value of American agriculture and natural resources. 

APHIS strives to assure its customers and stakeholders that it is on guard against 

the introduction or reemergence of animal and plant pests and diseases that could 

limit production and damage export markets. At the same time, APHIS monitors 

for and responds to potential acts of agricultural bioterrorism, invasive species, diseases of wildlife and livestock, and conflicts between humans and wildlife. APHIS 

also addresses sanitary and phytosanitary trade barriers and certain issues relating 

to the humane treatment of animals. Finally, APHIS ensures that biotechnology-derived agricultural products are safe for release in the environment. We have developed a strategic plan to help us accomplish these objectives, and I would like to report on our fiscal year 2003 protection efforts and our fiscal year 2005 budget request in that context. 
130 

APHIS’ protection system is based on a strategic premise that safeguarding the 

health of animals, plants, and ecosystems makes possible safe agricultural trade 

and reduces losses to agricultural and natural resources. All nine objectives in the 

protection system are key components of this strategic premise. Failing to succeed 

in any one objective will eventually lead to overall failure, and American farmers 

will not reach their potential export markets. Additionally, the protection system is 

a key component of USDA’s Homeland Security role. The United States has a vital 

stake in the health of American agriculture, both economically and in terms of feeding our people and many throughout the world. Terrorists could well recognize that 

vital stake and seek to attack it. 

Five Objectives for Safeguarding Health of Animals, Plants, and Ecosystems 

Objective 1.1—Conduct offshore threat assessment and risk reduction activities.— 

In this era of increasing globalization and advancing technologies, APHIS must constantly assess the exotic health threats approaching our borders, and engage in offshore pest or disease eradication activities when the threat is imminent and the potential impact severe. 

To prevent the introduction of costly foreign animal diseases into the United 

States, our Foreign Animal Diseases (FAD) and Foot-and-Mouth Disease (FMD) program works to detect and control outbreaks of animal diseases in foreign countries 

far from our shores. This is our first line of defense against foreign animal diseases 

and has become more significant as international trade and travel have increased. 

APHIS conducts operations overseas through bilateral agreements and works with 

multilateral organizations, such as the World Organization for Animal Health (OIE). 
131 

Last year, for example, through an agreement with Panama and Mexico, we collected 1,260 samples of suspected vesicular disease throughout Central America 

from field investigations and tested the samples in Panama. Fortunately, all tested 

negative for FMD, while 639 were diagnosed as vesicular stomatitis. 

Through our Fruit Fly Exclusion and Detection program, we cooperate with the 

Governments of Mexico, Guatemala, and Belize on the Moscamed program to eradicate and control the Mediterranean Fruity Fly (Medfly), which could cause $2 billion 

in losses if it became established in the United States. Moscamed’s current top priorities are to eradicate the Medfly from Chiapas, Mexico, and move the barrier 

south into Guatemala in an effort to achieve APHIS’ and its cooperators’ goal of 

eradicating Medfly from Central America and thereby providing more secure prevention against the threat Medfly poses to the United States. A major component 

of the program is the production and release of sterile flies to disrupt normal reproduction. In fiscal year 2003, the Central America Medfly program produced 2.2 billion sterile fruit flies a week, exceeding its goal of producing 2 billion per week. This 

production increase allowed more flies to go to the preventive release program in 

the United States. 

Through our Tropical Bont Tick program, APHIS employees are preventing the 

introduction of heartwater and other diseases transmitted by tropical bont ticks into 

the livestock industry and wildlife populations of the United States from affected 

Caribbean islands. The cooperative program has eradicated ticks from six of the 

nine islands involved so far, bringing us closer to our goal of eradicating this pest 

from the Western Hemisphere. 

Objective 1.2—Regulate and monitor to reduce the risk of introduction of invasive 

species.—APHIS regulates the import of agricultural products, including commercial 

shipments and items carried into the United States by travelers, to prevent the 

entry of foreign pests and diseases. We work closely with the Department of Homeland Security (DHS) to monitor and intercept items that arrive at ports of entry. 

In fiscal year 2003, APHIS and DHS agricultural employees inspected the baggage of nearly 74 million arriving passengers. Passenger baggage is inspected manually, with x-ray technology, or through the use of detector dogs. Agricultural inspectors also cleared 54,033 ships and 3,128,660 cargo shipments. In cooperation with 

DHS, we increased the number of cargo inspections by 43 percent over fiscal year 

2002 because of the high entry risk of exotic wood boring and bark beetles, like 

Asian long-horned beetle and emerald ash borer. In total, agricultural inspectors 

intercepted 82,631 reportable pests at land borders, maritime ports, airports, and 

post offices. At plant inspection stations, our inspectors cleared 176,761 shipments 

containing over 1.2 billion plants units (cuttings, whole plants, or other propagative 

materials) and intercepted 4,260 pests. 

Part of APHIS’ safeguarding strategy is to prevent the intentional introduction of 

illegal products through market surveys, investigations, and enforcement action. In 

fiscal year 2003, our Safeguarding, Intervention, and Trade Compliance (SITC) staff 

and field personnel seized 15,706 illegal plant products and 488 illegal meat, poultry, and dairy products and found 112 reportable pests. When SITC detects a prohibited item, we identify the item’s origin and the responsible shippers, importers, 

and broker. By maintaining the relevant information in databases, the program can 

target specific commodities and importers. This year, SITC investigations led to the 

detection of 82 violations at markets and distributors’ warehouses. 

APHIS’ Animal and Plant Health Regulatory Enforcement program conducts regulatory enforcement activities to prevent the spread of animal and plant pests and 

diseases in interstate trade. These activities include inspection, surveillance, animal 

identification, and prosecution. This year, APHIS continued the development of a 

multi-year project to improve a headquarters-based, on-line computer system to 

track investigations and automate the enforcement process. The database will help 

our enforcement efforts by allowing APHIS programs and other agencies such as the 

Departments of Homeland Security and Treasury to share critical information and 

identify individuals, companies, cargoes, carriers, or pathways posing risk. 

In fiscal year 2003, APHIS conducted 1,782 investigations involving plant quarantine violations resulting in 142 warnings, 682 civil penalty stipulations, seven Administrative Law Judge decisions, and approximately $1 million in fines. Regarding 

animal health programs, we conducted 1,425 investigations, resulting in 210 warnings, 39 civil penalty stipulations, five Administrative Law Judge decisions, and approximately $44,900 in fines. Also during fiscal year 2003, the program conducted 

76 investigations of alleged Swine Health Protection Act violations in Puerto Rico. 

This was slightly less than the target of 80 investigations, mostly due to providing 

support for the exotic Newcastle disease outbreak in California. 

Objective 1.3—Ensure safe research, release, and movement of agricultural biotechnology events, veterinary biologics, and other organisms.—The growth of agricul-
132 

tural biotechnology hinges on the public’s acceptance of this technology as safe, and 

APHIS’ regulatory role is key to ensuring global acceptance. In addition to agricultural biotechnology, the Agency monitors and regulates to ensure safe agricultural 

research and commercialization activities involving the movement of non-indigenous 

organisms and veterinary biologics. 

APHIS’ Biotechnology Regulatory Services (BRS) program, created in August 

2002, regulates the introduction (importation, interstate movement, and field release) of genetically engineered organisms such as plants, insects, microorganisms 

and any other organism that is known to, or could be, a pest. APHIS also has determined that BRS may potentially regulate animals, insects, and other disease agents 

relevant to livestock health. Through a strong regulatory framework, BRS determines the conditions under which genetically engineered organisms can be introduced into the United States and allows for the importation, interstate movement, 

and field release of these materials only after rigorous conditions and safeguards are 

put into place. Under the authority of the Plant Protection Act of 2000, APHIS can 

pursue penalties for failure to adhere to our regulations, permit conditions, and requirements. 

With the creation of our new biotechnology compliance program, we have chosen 

measures that will accurately and visibly reflect the effectiveness of our inspection 

efforts for the testing of products that carry a higher degree of perceived risk. We 

believe that increased frequency of inspections—especially at high risk sites—coupled with efforts to improve the quality of inspections through expanded training, 

will translate into a high degree of stakeholder and public confidence that these 

products will be safely confined and not inadvertently enter the food supply. Our 

performance target for fiscal year 2004 is to inspect 10 percent of low risk sites, 40 

percent of medium risk sites at least once during the growing season, and 100 percent of pharmaceutical and industrial sites a total of seven times—five times during 

the growing season and two times afterwards. 

Our Veterinary Biologics program continues to ensure that veterinary biologics 

products are pure, safe, potent, and effective. Our goal is to ensure the availability 

of quality veterinary biological products for the diagnosis, prevention, and treatment 

of animal diseases. The program will continue to respond to emerging diseases with 

expedited reviews and inspections for new veterinary biologics, and it will follow a 

risk-based approach to inspect and test other products. 

In fiscal year 2003, APHIS performed 78 regulatory actions following routine inspections and 24 investigations of possible regulation violations. APHIS’ Center for 

Veterinary Biologics found the marketing of unlicensed veterinary biologics and 

false or misleading advertising of licensed veterinary biologics in over half of these 

investigations. Through education, cooperation, and regulatory actions, APHIS 

helped industry achieve increased compliance with the Virus-Serum-Toxin Act. 

Objective 1.4—Manage issues related to the health of U.S. animal and plant resources and conflicts with wildlife. Agricultural stakeholders also expect APHIS to 

help solve many types of health-related production issues in the United States. For 

example, producers need help in dealing with area-wide wildlife damage control 

problems. Indigenous pest problems affecting multiple States, such as boll weevil 

and grasshoppers, also require APHIS’ attention. We are not alone in these efforts 

and have good relationships are with our State and Tribal partners in conducting 

these eradication and control programs. That cooperation, in addition to support 

from academia and industry, is essential for these types of programs to succeed. 

We continue to make progress on a number of other animal health programs as 

well. At the beginning of fiscal year 2003, there was one pseudorabies-quarantined 

premise in the United States, compared to 12 at the beginning of fiscal year 2002. 

By the end of fiscal year 2003, there were no swine commercial production premises 

under quarantine for pseudorabies. As of September 30, 2003, there were 1,776 

flocks participating in the Scrapie Flock Certification Program of which 105 are certified, 1,663 are completely monitored, and 8 are selective monitored flocks. This is 

in comparison to 1,539 flocks enrolled, 78 flocks certified, 1,452 flocks completely 

monitored, and 9 flocks selectively monitored as of September 30, 2002. To continually improve on the 46 States, Puerto Rico, and the Virgin Islands as accredited 

Tuberculosis-free, the program depopulated three dairy herds in California, four 

beef herds in Michigan, and one beef herd in Texas during fiscal year 2003. 

Among a number of protection efforts, APHIS’ Wildlife Services (WS) Operations 

program works to protect agricultural crops from wildlife damage, to protect livestock from predation, and to protect human safety by preventing wildlife collisions 

with aircraft. In fiscal year 2003, the Agency’s beaver damage management activities in several States averted $25 million in impending damage to forest and agricultural resources, waterways and highway infrastructures. As wolf populations continue to increase, so do requests for assistance with wolf predation. As a result, 
133 

APHIS responded to 179 requests for assistance with wolf predation on livestock or 

domestic dogs during fiscal year 2003 in Minnesota alone. In the west, APHIS responded to 41 requests for assistance with gray wolf predation in Idaho and 87 requests in Montana. Airports reported approximately 6,100 wildlife strikes to civil 

aircraft in 2002, with the U.S. Air Force alone reporting more than 3,800 strikes 

to military aircraft. Wildlife strikes cost civil aviation in the United States over 

$480 million in damages in 2002. The requests for APHIS assistance in managing 

wildlife hazards at airports and military air bases continue to increase. In fiscal 

year 2003, APHIS wildlife biologists provided wildlife hazard management assistance to over 500 airports nationwide for the protection of human safety and property, compared to only 42 airports in fiscal year 1990 and 409 airports in fiscal year 

2002. At JFK International Airport, APHIS biologists have reduced gull strikes by 

over 80 percent in 2000–2003 compared to strike levels in the early 1990s. 

APHIS’ Wildlife Services (WS) Methods Development program, through the National Wildlife Research Center (NWRC), functions as the research arm of APHIS’ 

Wildlife Services program by providing scientific information for the development 

and implementation of effective, practical, and socially acceptable methods for wildlife damage management. This helps ensure that high-quality technical and scientific information on wildlife damage management is available for the protection 

of crops, livestock, natural resources, property, and public health and safety. The 

program provides technical support for the development of 5 drug/vaccine products 

through Investigational New Animal Drug Authorizations under the Food and Drug 

Administration. These materials are under development as wildlife immobilizing 

agents and contraceptive products. APHIS continued to develop and evaluate nonlethal methods for managing blackbird damage to sunflowers and rice by conducting 

extensive laboratory testing of registered chemicals for bird repellency characteristics. Scientists continued multi-year research studies at various airports in the 

United States to reduce wildlife strike hazards. These scientists researched turf 

management, non-lethal repellents, and dispersal techniques to minimize strikes by 

gulls, waterfowl, turkey vultures, hawks, and other species that threaten aviation 

safety. In fiscal year 2003, we met our performance target of testing and/or improving 18 wildlife damage management methods and will maintain this target for fiscal 

year 2004. 

APHIS’ Animal Welfare program carries out activities designed to ensure the humane care and handling of animals used in research, exhibition, the wholesale pet 

trade, or transported in commerce. The program places primary emphasis on voluntary compliance through education with secondary emphasis on inspection of facilities, records, investigation of complaints, reinspection of problem facilities, and 

training of inspectors. However, when necessary, APHIS personnel investigate alleged violations of Federal animal welfare and horse protection laws and regulations 

and oversee and coordinate subsequent prosecution of violators through appropriate 

civil or criminal procedures. In fiscal year 2003, we conducted 365 animal welfare 

investigations resulting in 172 formal cases submitted for civil administrative action. We also issued 90 letters of warning and resolved 44 cases with civil penalty 

stipulations resulting in $56,373 in fines. Administrative Law Judge Decisions resolved another 58 cases resulting in $668,995 in fines. 

Objective 1.5—Respond to emergencies—response planning, surveillance, quick detection, containment, and eradication.—Even though we devote many resources to 

pest and disease prevention and regulatory compliance to safeguard agricultural 

health, it is impossible to intercept every potential biological threat. APHIS must 

have the capacity to quickly respond in order to limit the spread of the outbreak 

and to eradicate it so that production losses are minimized and exports of affected 

commodities do not suffer long-term disruptions. 

APHIS’ Emergency Management System (EMS) is a joint Federal-State-industry 

effort to improve the ability of the United States to deal successfully with animal 

health emergencies, ranging from natural disasters to introductions of foreign animal diseases. The EMS program identifies national infrastructure needs for anticipating, preventing, mitigating, responding to, and recovering from such emergencies. By Presidential Homeland Security Directive, APHIS is restructuring its 

emergency response systems according to the National Incident Management System, or NIMS. APHIS implemented the incident command structure in response to 

the exotic Newcastle disease (END) outbreak in California, Arizona, Nevada, and 

Texas during fiscal year 2003. During the END outbreak, APHIS followed the NIMS 

structure and established five incident command posts in three States. 

This same structure was put into place when, on December 23, 2003, laboratory 

testing at the National Veterinary Services Laboratories indicated that a single cow, 

slaughtered on December 9, 2003, in Washington State, tested positive for BSE. The 

world reference laboratory in the United Kingdom confirmed these presumptive 
134 

positive results on December 25 for BSE, and we immediately began a swift and 

comprehensive investigation. 

The epidemiological tracing and DNA evidence proved that the BSE positive cow 

was born on a dairy farm in Alberta, Canada in 1997. She was moved to the United 

States in September 2001 along with 80 other cattle from that dairy. The epidemiological investigation to find additional animals from the source herd led to a total 

of 189 trace-out investigations. These investigations resulted in complete herd inventories on 51 premises in three States: Washington, Oregon and Idaho. 

On February 9, 2004, APHIS announced that we had completed our field investigation of the BSE case in Washington. During our investigation, a total of 255 

‘‘Animals of Interest’’—animals that were or could have been from the source herd— 

were identified on 10 premises in Washington, Oregon and Idaho. All 255 animals 

were depopulated and sampled for BSE testing. Results were negative on all samples. The carcasses from all of the euthanized animals were properly disposed of in 

accordance with all Federal, State, and local regulations. Consistent with international guidelines on BSE, we focused on tracing the 25 animals born into the 

birth herd of the index cow during a 2-year window around her birth. Based on normal culling practices of local dairies, we estimated that we would be able to locate 

approximately 11 of these animals. In fact, APHIS definitively located 14 of these 

animals. 

We are confident that the remaining animals represent very little risk. Even in 

countries like the United Kingdom where the prevalence of BSE has been very high, 

it has been very uncommon to find more than one or maybe two positive animals 

within a herd. 

Thus far in fiscal year 2004, USDA has transferred $80.4 million from the Commodity Credit Corporation (CCC) to APHIS for BSE-related activities. APHIS is 

using these funds to respond to the Washington State incident and to enhance BSE 

surveillance around the country. This CCC funding will supplement the funds already set aside for BSE surveillance in APHIS’ base appropriation. This enhanced 

surveillance plan incorporates recommendations from the international scientific review panel and the Harvard Center for Risk Analysis; both have reviewed and supported the plan. 

On December 30, 2003, Secretary Veneman announced that an international 

panel of experts would be convened to review our BSE investigative efforts and recommend enhancements to our BSE program. The panel delivered their report on 

February 4, 2004, and commended USDA for conducting such a comprehensive epidemiological investigation. The panel also made recommendations for further enhancements to the BSE program. The Secretary applied all of this information in 

considering future actions with regard to BSE, and on March 15, she announced a 

plan to enhance the BSE surveillance program. Previous targeted surveillance efforts were designed to detect BSE in the adult cattle population at the level of at 

least one infected animal per million adult cattle with a 95 percent confidence level. 

The goal of the new plan is to test as many cattle in the targeted high-risk population as possible in 12 to 18 months, and then evaluate future actions based on 

the results of this effort. 

The plan also incorporates random sampling of apparently normal, aged animals 

at slaughter. More than 86 percent of all adult cattle processed annually are slaughtered in 40 plants; random sampling efforts will be focused on these plants. 

More intensive surveillance will allow us to refine our estimates of the level of 

disease present in the U.S. cattle population and provide consumers, trading partners, and industry better assurances about our BSE status. Testing will be conducted at USDA’s National Veterinary Services Laboratories and at participating 

network contract laboratories. As an example, if a total of at least 268,444 samples 

is collected from the targeted population, we believe this level of sampling would 

allow USDA to detect BSE at a rate of 1 positive in 10 million adult cattle (or 5 

positives in the entire country with a 99 percent confidence level). We also plan on 

testing at least 20,000 BSE slaughter samples from apparently healthy, aged bulls 

and cows. During this effort, we will be utilizing approved rapid screening tests, 

working with industry on disposal issues, and enhancing our BSE education and 

outreach activities. 

USDA remains confident in the safety of the U.S. beef supply. Out of an abundance of caution, USDA recalled all meat products processed in the affected slaughter plant the same day as the positive cow. However, the meat presents an extremely low risk to consumers, because all of the central nervous system related tissues—those most likely to contain the BSE agent—were removed from the affected 

animal during slaughter and did not enter the human food supply. 

Even with the recent detection, the United States continues to have a very low 

BSE risk. An independent assessment conducted by Harvard University in 2001 and 
135 

again in 2003 demonstrated that even with a detection of BSE in this country, 

United States control efforts would minimize any possible spread of the disease and 

ultimately eliminate it from the U.S. cattle population. These controls include a 

long-standing ban on imports of live cattle, other ruminants, and most ruminant 

products from high risk countries; the Food and Drug Administration’s 1997 prohibition on the use of most mammalian protein in cattle feed; and an aggressive surveillance program that has been in place for more than a decade. In each of the past 

2 years, the United States tested over 20,000 head of cattle for BSE, which is 47 

times the recommended international standard. 

We opened the APHIS Emergency Operations Center (AEOC) in March 2003. The 

AEOC is a state-of-the-art facility that allows a national management response 

team to communicate with field personnel and USDA leadership during an outbreak 

situation. Communications capabilities include video teleconferencing, advanced 

computer interfaces, geographical information system mapping, and a strong multimedia component. 

Through the Pest Detection program, APHIS and its State cooperators work to ensure the early detection of harmful or invasive plant pests and weeds through the 

Cooperative Agricultural Pests Survey (CAPS) program. The CAPS program provides the domestic infrastructure necessary to conduct national surveys for plant 

pests and weeds and document the results in a national database, the National Agricultural Pest Information System (NAPIS). NAPIS provides a summary of pest 

survey results and allows APHIS to track the spread of pests within the United 

States, demonstrate their presence or absence, plan their control, and support the 

export of agricultural commodities. APHIS is currently engaged in a multi-year effort to enhance its early detection program through an increased level of communication and cooperation with its State partners, increased staffing levels, the use 

of new technology, and a new focus on international pest risk analysis. These efforts 

will help us meet our goal of detecting significant pest introductions before a new 

pest can cause serious damage. Finding newly arrived exotic pests before they 

spread will reduce the money spent on costly eradication programs and prevent 

losses to farmers and our natural ecosystems. 

APHIS has completed pest risk assessments for ten of the 18 pests on the national CAPS list for fiscal year 2003 and 2004 and is working with State cooperators 

to develop State CAPS lists. We are also instituting CAPS committees at the State, 

regional, and national levels to ensure that stakeholders are involved in the process 

of targeting pests for survey. In fiscal year 2003, APHIS and 21 States conducted 

the Exotic Wood-Borer and Bark Beetle Survey, one of our new commodity-or resource-based surveys. While the data is still not complete, this year’s survey turned 

up evidence of three new forest pests previously not known to exist in the United 

States. We believe that these new pests provide strong evidence of the need for the 

nationally directed and risk-based detection program that we are currently implementing. 

APHIS’ Animal Health Monitoring and Surveillance program continues to conduct 

activities such as: monitoring and surveillance of various animal disease programs, 

foreign animal disease surveillance and detection, emergency disease preparedness 

and response, animal health monitoring, and epidemilologic support and delivery for 

both ongoing disease programs and post-disease eradication programs. For example, 

APHIS completed the Scrapie Ovine Slaughter Surveillance project sample collection by gathering 12,508 samples from 22 slaughter plants and one slaughter market. Losses from affected flocks cost producers approximately $20 to $25 million annually. 

APHIS has been challenged with numerous emergencies over the last several 

years. However, we took quick and aggressive action to address the following plant 

and animal situations: Asian Longhorned Beetle, Chronic Wasting Disease, Citrus 

Canker, Emerald Ash Borer, Exotic Newcastle Disease, Karnal Bunt, Mediterranean 

Fruit Fly, Mexican Fruit Fly, Pierce’s Disease/Glassy-winged Sharpshooter, Rabies, 

Spring Viremia of Carp, and Tuberculosis. The Secretary used her authority to 

transfer over $378 million to battle these pests and diseases. Without the quick detection and early, rapid response, the cost to control these outbreaks would have undoubtedly been higher. 

Four Objectives for Facilitating Safe Agricultural Trade 

APHIS’ two goals of safeguarding U.S. agriculture and facilitating international 

agricultural trade reinforce each other. By protecting and documenting the health 

of our agricultural products, we can retain existing markets and open new markets 

for our farmers. By facilitating safe trade with other countries (including activities 

such as monitoring world agricultural health and helping developing countries build 
136 

regulatory capacity), we help ensure that imported products will not threaten our 

domestic production capability and health status. 

Objective 2.1—Verify and document the pest and disease status of U.S. agriculture 

and related ecosystems.—The World Trade Organization’s (WTO) Sanitary and 

Phytosanitary (SPS) Agreement and the North American Free Trade Agreement 

commit countries to recognizing disease- and pest-free areas within a country even 

if a particular pest or disease exists elsewhere in the nation. This concept of regionalization has resulted in APHIS’ becoming increasingly involved in demonstrating 

our pest and disease free status to allow agricultural exports to trading partners. 

APHIS’ Pest Detection program conducted 150 surveys to document the pest status of our plant resources and support U.S. producers’ ability to export their products. For example, by collecting extensive survey data demonstrating the limited 

distribution of Karnal bunt in the United States, APHIS provides assurance to our 

trading partners that the disease is not present in major wheat-producing areas of 

the United States, thereby ensuring annual agricultural exports of up to $5 billion 

and supplying the raw ingredients for domestic and foreign customers of flour, 

pasta, and other wheat products. Plum pox is another case in which the collection 

of national data has helped to keep budwood markets open by demonstrating the 

absence of the pest from various areas around the United States. 

APHIS officials collaborate with State and other Federal agencies to conduct animal health surveillance activities through the Animal Health Monitoring and Surveillance (AHMS) program. These activities include pre- and post-entry testing of 

imported animals, sample collection at slaughter, and routine testing of animals for 

export and interstate movement. APHIS also conducts surveillance for domestic animal disease eradication programs, like brucellosis, tuberculosis, chronic wasting disease, and others. This surveillance information allows APHIS to make key regulatory decisions. In doing so, APHIS strives to preserve U.S. exports markets, protect livestock or poultry producers in disease-free areas, and provide the best options 

possible for those producers who are affected by our regulatory decisions. 

When foreign animal disease outbreaks occur in the United States, our trading 

partners routinely ban U.S. animal and animal product exports until APHIS has the 

opportunity to confirm the extent of the disease’s spread and demonstrate what regulatory actions are being taken to contain it. Last year, the poultry breeding and 

hatchery industry lost approximately $1 million per week due to bans by various 

trading partners on U.S. poultry exports because of exotic Newcastle disease. Our 

trading partners will lift such bans in unaffected and unregulated areas only if we 

can convince them that measures are being taken to mitigate the risk of the disease’s spread via host commodity exports. Providing our trading partners accurate 

and detailed information about a foreign animal disease outbreak and the subsequent Federal/State disease management response is critical. This information gives 

our trading partners the assurances they need without exposing them to undue risk. 

Such a regionalized approach helps minimize trade disruption and negative market 

reactions. 

Objective 2.2—Certify the health of animals and plants and related products for 

export and interstate commerce.—In carrying out this role, APHIS spends well over 

$100 million on disease diagnostics and epidemiology and pest detection infrastructure. This infrastructure makes our health certificates credible for trading partners, 

but it also is instrumental for quickly detecting and limiting the spread of outbreaks 

of new pests and diseases, part of our emergency response strategy (Objective 1.5). 

The Import/Export program promotes simple, science-based export conditions and 

negotiates requirements based on technical-level mitigation and guidelines established by OIE. The program is working hard to strengthen its evaluation and risk 

assessment capabilities to meet international and domestic responsibilities and respond to international and domestic requests for regionalization in a timely manner. 

For example, during fiscal year 2003 the Import/Export program increased its capacity to conduct regionalization analyses for foreign markets (import purposes) and domestic markets (export purposes). During the early stages of the exotic Newcastle 

disease outbreak in fiscal year 2003, many countries—including all members of the 

European Union—suspended poultry imports from all regions of the United States. 

APHIS, however, identified END-free regions of the country and helped these regions regain market access. These actions helped protect the entire U.S. poultry export industry, which has an estimated annual worth of $2.5 billion. 

APHIS’ Agricultural Quarantine Inspection program facilitates the export of agriculture shipments through EXCERT, an electronic database containing plant health 

import requirements for over 200 countries. APHIS export certifications ensure that 

U.S. products meet the agricultural requirements of the country of destination. In 

fiscal year 2003, APHIS issued over 400,000 Federal plant health export certificates 
137 

for agriculture shipments, including the issuance of heat treatment certificates for 

coniferous solid wood packing materials to the People’s Republic of China. 

Objective 2.3—Resolve trade barrier issues related to animal and plant health.— 

Because of APHIS’ expertise in animal and plant health issues and our regulatory 

role (Objective 1.2), the Agency serves as a key resource for trade policy agencies, 

like the Foreign Agricultural Service and the U.S. Trade Representative, in resolving sanitary and phytosanitary issues that often become trade barriers (Objective 

2.3). The negotiations that occur to resolve these issues often result in trading partners providing additional information about the pests or diseases in question, and 

this information in turn leads to more effective preventive regulatory strategies. 

Officials with the Trade Issue Resolution and Management program work to minimize trade disruptions caused by animal and plant health issues. In fiscal year 

2003, APHIS retained poultry markets in Japan, Korea, and the Philippines worth 

over $169 million, expanded market access for apples in Mexico worth $88 million, 

and opened new markets for seed potatoes to Uruguay and apricots from the Pacific 

Northwest to Mexico. Additionally, APHIS expanded market access for U.S. cherries, canola seed, and potatoes in Mexico, and with the concerted efforts of APHIS, 

Foreign Agricultural Service, and the Office of the United States Trade Representative, we retained markets for wheat in Argentina and Peru. 

When individual agricultural shipments are held up at foreign ports, APHIS 

attache ́s correct problems and negotiate with host government officials to facilitate 

the shipment’s acceptance. APHIS obtained authorization for apples at four additional ports of entry in Mexico resulting in the release of a $5 million apple shipment. In addition, APHIS facilitated $1 million worth of U.S. cotton in Chile, three 

rice shipments in Costa Rica and Guatemala, the release of $13 million in citrus 

shipments held by Japanese officials, and the waiving of phytosanitary certification 

with Romanian officials for soy beans, allowing a shipment of 14,000 tons of soybeans valued at over $3 million. 

Objective 2.4—Provide expertise and training in animal and plant health.—The 

WTO’s SPS Agreement requires member countries to provide technical assistance to 

developing countries to enable those countries to participate more fully in the global 

trade arena. Using cooperative agreements, preclearance trust fund agreements, 

and other international arrangements, APHIS provides many countries with technical assistance to strengthen their animal and plant health infrastructure, risk assessment capacity, and food production capabilities (Objective 2.4). By doing this, 

APHIS not only fulfills requirements for the SPS Agreement but also improves offshore threat assessment and risk reduction capabilities (Objective 1.1). 

APHIS attache ́s continue to identify specific weaknesses in foreign regulatory systems and provide technical assistance where appropriate. Capacity building improves foreign countries’ regulatory infrastructure, U.S. relationships with key foreign officials, United States regulatory concepts and approaches, and, ultimately, 

the agricultural health status of the foreign country. 

In fiscal year 2003, the Veterinary Biologics program continued working with the 

Committee of the Americas for the Harmonization for Registration and Control of 

Veterinary Medicines (CAMEVET). The objectives of this committee include coordinating technical information for the registration and control of veterinary medicines. 

The intention of this program is to exchange information and harmonizes technical 

procedures to improve the quality of veterinary medicines and the trade of products 

among countries in the Americas. 

A part of APHIS’ Veterinary Diagnostics program assists foreign governments in 

the diagnosis of animal diseases by maintaining national and international laboratory recognition with the highest quality reference assistance and by conducting developmental projects for rapidly advancing technologies. In fiscal year 2003, as an 

OIE reference laboratory, APHIS’ National Veterinary Services Laboratories (NVSL) 

continued to use their diagnostic expertise to provide training, consultation, and assistance to both domestic and international laboratories. NVSL prioritized the evaluation/validation of new technologies such as the exotic Newcastle disease and 

Avian Influenza polymerase chain reaction and Chronic Wasting Disease kits to 

offer new tools for control of certain key diseases. NVSL also shipped 117,095 vials 

of reagents to domestic and foreign customers to meet critical testing needs. And, 

NVSL acquired a new chemistry analyzer for blood screening purposes and doubled 

the number of fraudulent cases detected over those detected in fiscal year 2002. The 

fraudulent blood testing program at NSVL helps to assure confidence in the health 

of animals exported from the United States to other countries. 
138 

NEW DIRECTION

After evaluating the current challenges and opportunities that exist today, APHIS 

has developed a new strategic plan of action that will set the Agency’s course over 

the next 5 years. During this time, APHIS is committed to focusing on the following 

overarching goals: safeguarding the health of animals, plants, and ecosystems in the 

United States; facilitating safe agricultural trade; and ensuring effective and efficient management of programs to achieve its mission. 

As part of its new strategic plan, APHIS intends to strengthen key components 

of its protection system by focusing on the following objectives: 

—Ensuring the safe research, release, and movement of agricultural biotechnology; 

—Strengthening the Agency’s emergency preparedness and response; 

—Resolving trade barriers related to sanitary and phytosanitary requirements; 

—Reducing domestic threats through increased offshore threat-assessment and 

risk-reduction activities; 

—Reducing the risk of invasive species introductions by enhancing risk-analysis 

capabilities; and, 

—Managing issues related to the health of U.S. animal and plant resources and 

conflicts with wildlife. 

FISCAL YEAR 2005 BUDGET REQUEST

APHIS has developed its fiscal year 2005 Budget Request in the context of the 

Strategic Plan, the overriding imperative of Homeland Security, and the need to restrain Federal spending. The fiscal year 2005 Budget Request for Salaries and Expenses under current law totals $828.4 million or $112 million more than the fiscal 

year 2004 Consolidated Appropriations Act. About $8.5 million is for the cost of the 

pay raise. 

The fiscal year 2005 increase, approximately 15.5 percent above the fiscal year 

2004 appropriation, is for initiatives designed to address the increasing threats to 

the health of American agriculture and Homeland Security and to support the President’s Food and Agriculture Defense Initiative. About 40 percent of the increase, approximately $45.4 million, is an investment to substantially reduce the over $378 

million fiscal year 2003 emergency transfers and to protect and expand the $53 billion annual agricultural export market by fully funding Federal costs up front in 

the budget. Other notable increases stem from the highest priority components of 

APHIS’ Strategic Plan and the Food and Agriculture Defense Initiative. APHIS’ request for fiscal year 2005 contains $94.36 million for programs that support the 

Food and Agriculture Defense Initiative, an increase of nearly $50 million over fiscal 

year 2004. 

HIGHEST PRIORITY COMPONENTS OF THE STRATEGIC PLAN AND HOMELAND SECURITY

APHIS proposes to increase funding for the Biotechnology Regulatory Services 

program by $6.544 million. This will enable us to inspect all high risk fields five 

times during the growing season and two times in the subsequent season to provide 

the maximum confidence level that pharmaceutical and industrial developments are 

managed safely. Such a confidence level is necessary to convince skeptics and trading partners that these, and other biotechnologically derived products, are safe. 

That confidence is vital to the growth of the industry and American agriculture. 

We propose to increase the Import-Export program by $3 million and the Pest Detection program by $1.5 million to fulfill APHIS’ responsibilities under the Bioterrorism Preparedness and Response Act of 2002. APHIS must regulate possessors 

and users of ‘‘select agents,’’ toxins and pathogens necessary for research and other 

beneficial purposes which could be deadly in the hands of terrorists. 

In light of the first BSE case in the United States, we propose increasing the Animal Health Monitoring and Surveillance program by an additional $8.641 million 

to support enhanced BSE surveillance to maintain the confidence of the American 

people in the safety of the beef supply and allow us to continue our efforts to prevent the introduction and spread of BSE in the U.S. cattle population. In this program, we also request $33.197 million to accelerate implementation of a National 

Animal Identification program. Timely tracebacks of animals are integral to a rapid 

response and recovery to incursions of animal illness and foreign animal disease. 

Early detection of new animal and plant pest or disease introductions has the potential to significantly reduce eradication costs and producer losses and, accordingly, 

is a high priority for APHIS. We propose to increase the funding available to our 

State cooperators through cooperative agreements for plant pest surveys and animal 

health monitoring efforts by $15.2 million (including $9.1 million for the Pest Detec-
139 

tion program and $6.1 million for the Animal Health Monitoring and Surveillance 

program). In addition to requesting increased funding to provide to our cooperators, 

we are proposing a $6.202 million increase for the Pest Detection program to enhance our pest detection infrastructure and national coordination efforts. By establishing basic capacity in all 50 States now, we will enhance our ability to find and 

contain pests and diseases like citrus canker, Asian longhorned beetle, emerald ash 

borer, Karnal bunt, exotic Newcastle disease, and avian influenza before they become widespread and require expensive emergency eradication programs. Similarly, 

we request an increase in the Wildlife Services Operations program by $5 million 

to expand infrastructure to monitor and gather data on the disease status of freeranging animals and integrate this data with existing agricultural animal health 

monitoring systems. APHIS will use this information to detect and respond to disease outbreaks in wildlife populations and mitigate the risk of wildlife diseases 

transmission to farmed livestock. 

The budget requests a $5 million increase for the Biosurveillance program to enhance several data collection systems already in use, allowing us to improve our surveillance capabilities and establish connectivity with the integration and analysis 

function at DHS. 

The increase of $3.149 million in the Trade Issue Resolution and Management 

program will allow APHIS to place more officials overseas to facilitate the entry of 

U.S. agricultural products and to help establish international standards based on 

sound science. Having APHIS attache ́s on site in foreign countries pays dividends 

weekly. They can intervene when foreign officials raise false barriers to the entry 

of individual American export shipments. In 2002, APHIS attache ́s successfully in- tervened to clear shipments worth $53 million in such cases. 

We propose to increases the Low Pathogenic Avian Influenza (LPAI) program by $11.783 million to conduct a vigorous surveillance and control program in the live 

bird markets in the Northeast—the most threatening continuing reservoir of LPAI 

in the United States. Eliminating LPAI in these markets would help prevent costly 

eradication programs like the one we conducted in Virginia in 2002. It also would 

remove a barrier to poultry exports—a $2.2 billion market—that many countries 

have or are threatening to invoke. OIE is likely to upgrade LPAI status to ‘‘List A,’’ 

which could result in more restrictions on our exports if we do not move to eradicate 

LPAI in the United States. 

We also propose to increase the Foot and Mouth Disease/Foreign Animal Disease program by $4.229 million to further our goal of reducing domestic threats through 

increased offshore threat assessment and risk-reduction activities by placing more 

officers overseas to monitor animal disease incidence and assist foreign countries in 

controlling outbreaks. We propose to increase the Pest Detection program by $3.875 

million to do the same for plant pests and diseases. We request an increase in the 

Tropical Bont Tick (TBT) program by $2.495 million to eradicate TBT from Antigua 

completely and quickly prevent threats to other islands already free, to control and 

eradicate TBT from St. Croix, and establish surveillance on other U.S. islands and 

mainland to determine if TBT has spread. 

We propose to increase the Emergency Management Systems program by $10.625 

million to enhance animal health emergency preparedness throughout the United 

States and to establish a vaccine bank to complement the North American Foot and 

Mouth Disease Vaccine Bank. This additional resource would include vaccines or 

preventives for other foreign animal disease of significance. These efforts will help 

protect our Nation’s meat, poultry, and livestock exports, which are valued at $7.7 

billion annually, and the livestock and poultry industries overall, which are valued 

at $87 billion. 

The budget proposes an increase in the Veterinary Biologics program by $1.861 

million to increase inspections, licensing, and testing of biotechnology-derived veterinary biologics and to enhance tools available to the national animal health laboratory network that would fulfill international standardization requirements. United 

States sales of agricultural biotechnology products (transgenic seeds [excluding rice 

and wheat], animal growth hormones, biopesticides, and other products) are projected to increase from $2.4 billion in 2003 to $2.8 billion by 2006, an increase of 

$144 million annually. 

The budget proposes an increase in the Veterinary Diagnostics program by $4.347 

million to enhance the national animal health laboratory network and continue its 

diagnostic work at the Foreign Animal Diseases Diagnostic Laboratory on Plum Island to provide critical services to the animal industry and help protect the United 

States herd against potential acts of bioterrorism. 

The request increases the Agricultural Quarantine Inspection program by $3 million to enhance operations at the National Germplasm and Biotechnology Laboratory to develop technology to detect and identify high-risk plant pathogens as well 
140 

as protocols for quarantine testing. These efforts support APHIS’ emergency response capabilities, eradication programs, pest exclusion activities, biotechnology 

permitting programs, and the newly mandated Select Agents program. This increase 

is offset by a decrease of $2.771 million associated with inter-line inspections in Hawaii and a decrease of $1.246 million for fiscal year 2004 equipment investments. The budget increases the Import/Export program by $1.355 million to fully develop and begin implementing an automated system to track animal and animal 

product movements. We are developing this tool in response to increasing global 

trade and travel and demands for increased efficiency in tracking animals and animal products entering and leaving the country. 

FUNDING TO CONTINUE EMERGENCY PROGRAMS

APHIS has been battling several pests and diseases that have entered or unexpectedly spread to new areas of the United States over the past few years. Finishing 

the job is important if we are to achieve the goals we established when these programs began. Chief among these goals is maintaining export markets. Only by aggressively attacking pest and disease introductions can we assure trading partners 

that the problems are not endemic to the United States and thus not a reason to 

ban our products from their markets. The budget requests, and the value of the industries and markets at stake, follow. 

—Emerald ash borer, $12.5 million, an increase of $11.009 million. This pest has 

emerged as a serious pest in the Northern Midwest States and threatens the 

ash saw timber industry, with a value of $25 billion. Much like the Asian 

Longhorned Beetle, this pest probably arrived via non-agricultural imports and 

reflects a new threat; not only do the contents of a container pose a risk, so 

does the container itself. The budget request would provide for Federal costsharing of 75 percent for this program. 

—Glassy-winged sharpshooter (vector of Pierce’s Disease), $24 million, an increase 

of $1.881 million. Without a program to control Pierce’s Disease, the U.S. wine 

industry could face losses of $33 billion. The budget request would provide for 

Federal cost-sharing of 57 percent for this program. 

—Citrus Longhorned Beetle (CLHB), $325,000. The CLHB attacks over 40 varieties of hardwood and fruit trees and has no natural enemies. The CLHB could 

cause $41 billion in losses to forest resources nationwide. The budget request 

would provide for Federal cost-sharing of 100 percent for this program. 

—Citrus Canker, $52.5 million, an increase of $19.071 million. This program protects the Florida citrus industry worth over $9 billion. The budget request 

would provide for Federal cost-sharing of 57 percent for this program. 

—Infectious Salmon Anemia, $235,000. This program protects a part of the burgeoning aquaculture industry—salmon exports of over $100 million annually. 

The budget request would provide for Federal cost-sharing of 47 percent for this 

program. 

—Spring Viremia of Carp, $285,000. This program protects the common and silver 

carp industries, with a value of $2.8 billion. The budget request would provide 

for Federal cost-sharing of 77 percent for this program. 

—Chronic Wasting Disease, $20.1 million, an increase of $1.478 million. In addition to the potential spread to other species, this program directly protects the 

elk farming and antler industry (with annual gross receipts of $150 million) and 

white-tailed deer farms (with capital investments estimated at $2.5 billion). The 

budget request would provide for Federal cost-sharing of 77 percent for this program. 

—Bovine Tuberculosis, $20.9 million, an increase of $5.998 million. This program 

protects the entire livestock industry, which has annual earnings from exports 

of $5.4 billion. The budget request would provide for Federal cost-sharing of 57 

percent for this program. 

—Scrapie, $20.9 million, an increase of $5.106 million. This program minimizes 

losses to sheep and goat producers, who currently incur annual losses of $20– 

25 million because of scrapie. The budget request would provide for Federal 

cost-sharing of 67 percent for this program. 

OTHER INCREASES

We recognize the need for fiscal restraint, but believe that the following additional 

investments are important if we are to meet the challenges facing us. 

—To support the Biotechnology priority, we request an increase of $441,000 for 

the Animal and Plant Health Regulatory Enforcement program to help ensure 

compliance by investigating alleged violations of permit restrictions regarding 

pharmaceutical and industrial plants. 
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—To further improve our pest and disease surveillance and detection capability— 

both to protect and gain export markets and to prevent recurring, costly emergency programs—we request $6.171 million for the Fruit Fly Eradication and 

Detection Program to increase detection trapping in Florida and California. 

—To provide the funding requested by the State Department in providing adequate security for APHIS personnel overseas and to continue security and mission critical facilities, we request $7.133 million in our Physical/Operational Security program. 

—To establish and maintain liaison positions at key government agencies and to 

investigate and evaluate disposal techniques for contaminated biological materials, e.g., animal carcasses, we request $932,000 for our Biosecurity program. 

—To continue to modernize our information technology infrastructure to include 

network capacity planning and management, implementation of eGov initiatives, and cyber security compliance and management, we request $891,000 in 

our APHIS Information Technology Infrastructure program. 

—To increase nematode resistant potato varieties and regulatory treatments, we request $184,000 for the Golden Nematode program and to maintain current efficiencies, we request $451,000 in the Screwworm program. 

DECREASES

To allow us to fund these high priority programs, we offer key offsets: 

With $15.585 million in reduced funding for the Johne’s program, APHIS would 

rely more on the collaborative working relationship between Federal and State animal health workers. For the Boll Weevil program, we are proposing that the Federal 

Government assume 15 percent of program costs, which in conjunction with the projections of lower nationwide needs, will result in a request of $17 million, a reduction of $33.4 million. To offset the $5 million increase for the wildlife surveillance 

system, we assume a $5.556 million increase for State cooperators to fund a larger 

share of the cost of other wildlife management programs such as predator, bird, and 

invasive species damage. Funding for the Asian longhorned beetle program is requested to be $9.3 million, or a reduction of $20.670 million. The fiscal year 2005 

request is based on an overall program level consistent with the $4 million traditionally provided by cooperating (non-Federal) agencies. This would change the program from an eradication program to a control program. The aim is still to protect 

$41 billion of U.S. forest resources while facilitating the $122 billion trade market 

with China, the source of the pest. We also propose a reduction of $10.857 million associated with animal welfare 

user fees. This will allow the industry to cover an estimated 66 percent of the cost 

of enforcing the animal welfare regulations. 

CONCLUSION

APHIS’ mission of safeguarding U.S. agriculture is becoming ever more critical. 

Although the processes by which we protect America’s healthy and diverse food supply are being increasingly challenged, APHIS is committed to taking the lead in 

building and maintaining a world-class system of pest exclusion, surveillance, detection, diagnosis, and response. Like the APHIS Strategic Plan, the APHIS Budget 

consists of interdependent components that only when taken together can truly protect the health and value of American agriculture and natural resources. 

On behalf of APHIS, I appreciate all of your past support and look forward to 

even closer working relationships in the future. We are prepared to answer any 

questions you may have. 

PREPARED STATEMENT OF DONNA REIFSCHNEIDER, ADMINISTRATOR, GRAIN

INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION

INTRODUCTION

Mr. Chairman and Members of the Committee, I am pleased to highlight the accomplishments of the Grain Inspection, Packers and Stockyards Administration 

(GIPSA), and to discuss the fiscal year 2005 budget proposal. 

GIPSA is part of USDA’s Marketing and Regulatory Programs, which works to 

support a competitive global marketplace for U.S. agricultural products. GIPSA’s 

mission is to facilitate the marketing of livestock, poultry, meat, cereals, oilseeds, 

and related agricultural products, and to promote fair and competitive trading practices for the overall benefit of consumers and American agriculture. 

GIPSA serves in both service and regulatory capacities. The Packers and Stockyards Programs promote a fair, open, and competitive marketing environment for 
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the livestock, meat, and poultry industries. The Federal Grain Inspection Service 

provides the U.S. grain market with Federal quality standards, a uniform system 

for applying these standards, and impartial, accurate grain quality measurements 

that promote an equitable and efficient grain marketing system. Overall, GIPSA 

helps promote and ensure fair and competitive marketing systems for all involved 

in the merchandising of livestock, meat, poultry, and grain and related products. 

ORGANIZATION

GIPSA comprises 737 employees. Grain inspection services are delivered by the 

national inspection system, a network of Federal, State, and private inspection personnel that is overseen by GIPSA. The system includes 12 GIPSA field offices, 2 

Federal/State offices, and 8 State and 58 private agencies that are authorized by 

GIPSA to provide official services. This network insures the availability of official 

inspection and weighing services anywhere in the United States. GIPSA also maintains 3 Packers and Stockyards Programs regional offices that specialize in poultry, 

hogs, and cattle/lamb. 

PACKERS AND STOCKYARDS PROGRAMS

GIPSA’s Packers and Stockyards Programs (P&SP) administers the Packers and 

Stockyards Act (P&S Act) to promote fair and open competition, fair trade practices, 

and financial protection in the livestock, meat packing, meat marketing, and poultry 

industries. The objective of the P&S Act is to protect producers, growers, market 

competitors, and consumers against unfair, unjustly discriminatory, or deceptive 

practices that might be carried out by those subject to the P&S Act. To meet this 

objective, GIPSA seeks to deter individuals and firms subject to the P&S Act from 

engaging in anti-competitive behavior, engaging in unfair, deceptive, or unjustly discriminatory trade practices, and failing to pay livestock producers and poultry growers. GIPSA initiates appropriate corrective action when there is evidence that firms 

or individuals have engaged in anti-competitive, trade, payment or financial practices that violate the P&S Act. 

The livestock, meatpacking, and poultry industries are important to American agriculture and the Nation’s economy. With only 166 employees, GIPSA regulates 

these industries, estimated by the Department of Commerce in fiscal year 2002 to 

have an annual wholesale value of $118 billion. At the close of fiscal year 2003, 

5,287 market agencies and dealers, and 2,067 packer buyers were registered with 

GIPSA. In addition, there were 1,429 facilities that provided stockyard services, 

with an estimated 6,000 slaughtering and processing packers, meat distributors, 

brokers and dealers, and 128 poultry firms running 202 poultry complexes operating 

subject to the P&S Act. 

Our regulatory responsibilities are the heart of our mission to administer the P&S 

Act. To this end, GIPSA closely monitors practices that may violate the P&S Act. 

Our top priority continues to be investigating complaints alleging anti-competitive, 

unjustly discriminatory, or unfair practices in the livestock, meat, and poultry industries. Last year, GIPSA conducted over 1,700 investigations. As a result of these 

investigations, the Packers and Stockyards Programs helped restore over $27 million to the livestock, meatpacking, and poultry industries. While this is not the largest amount GIPSA has ever reported to Congress, it constitutes more than the 

amount that P&SP received in appropriated funding. 

GIPSA divides its regulatory responsibilities into three areas: financial protection, 

trade practices, and competition. In the area of financial protection, GIPSA continued to provide payment protection to livestock producers and poultry growers in a 

year where the livestock, meatpacking, and poultry industries faced tremendous financial pressures. Financial investigations last year resulted in $3.2 million being 

restored to custodial accounts that are established and maintained for the benefit 

of livestock sellers. Livestock sellers recovered over $1.5 million under the P&S Act’s 

packer trust provisions. During fiscal year 2003, 55 insolvent dealers, market agencies and packers corrected or reduced their insolvencies by $6.6 million. In addition, 

GIPSA’s financial investigators analyzed more than 400 bond claims exceeding $7 

million. However, GIPSA has no statutory authority to compel payment by the 

trustee or bond surety. 

In its Trade Practices Programs, GIPSA continued to promote fair trading between industry participants. Much of GIPSA’s work in the Trade Practices Program 

focuses on insuring accurate weights and prices. GIPSA continued to work with 

local states weights and measures programs to provide scale training and to secure 

testing of every scale used to weigh livestock or live poultry twice a year. In addition, GIPSA initiated or completed 41 investigations of weight and price manipulation of livestock. Some of these investigations are on-going. GIPSA also investigated 
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the operations of 143 live poultry dealers; most of these investigations examined 

whether live poultry dealers were in compliance with contracts entered into with 

poultry growers. With members of the regulated industries, we developed industry 

standards on new technologies that are entering the marketplace to evaluate and 

price livestock purchased on a carcass merit basis. We anticipate implementing two 

more voluntary standards in the next 6 months. 

GIPSA continues to develop its Competition Program. During fiscal year 2003, the 

Competition Branch began or continues evaluations of 31 complaints regarding attempted restriction of competition, failure to compete, buyers acting in concert to 

purchase livestock, apportionment of territory, unlawful price discrimination, and 

predatory pricing. Of these complaints, one firm was brought into compliance, and 

a second firm went out of business. Six of the investigations revealed that the concerns raised were not supported by evidence. 23 complaints were still pending at 

the end of the fiscal year. GIPSA continues to work closely with the CFTC, attending CFTC Commissioner briefings on the cattle, hog, and meat markets. 

GIPSA’s Rapid Response Teams remain a powerful tool to address urgent industry issues that place the industries in imminent financial harm. Last year, GIPSA 

rapid response teams investigated 59 situations across the Nation. During fiscal 

year 2003, these rapid response investigations contributed to returning $5.9 million 

to livestock producers and poultry growers at a cost of $413,010 in salary and travel 

expenses. 

GIPSA continues to work with violating firms to achieve voluntary compliance, 

and GIPSA continues to initiate appropriate corrective action when we discover evidence that the P&S Act has been willfully violated. During fiscal year 2003, GIPSA, 

with assistance from the Office of the General Counsel, filed 22 administrative or 

justice complaints alleging violations of the P&S Act. This number, similar to last 

year, represents more than a 50 percent increase over the number of complaints 

filed in fiscal year 2001. 

To ensure that producers and growers are aware of the protections the P&S Act 

provides, the Agency provides a hotline (1–800–998–3447) by which stakeholders 

and others may anonymously voice their concerns. Last year GIPSA responded to 

and investigated issues raised by 88 callers. These calls were in addition to calls 

received in our regional offices. GIPSA also increased its outreach activities. GIPSA 

conducted 28 orientation sessions for new auction market owners and managers and 

4 feed mill orientations to educate them about their fiduciary and other responsibilities under the P&S Act. 

It is important to note some of the activities that GIPSA has been engaged with 

in recent months. Following the discovery of the bovine spongiform encephalopathy 

(BSE) positive cow in December, 2003, GIPSA created Financial Protection, Trade 

Practices and Competition Task Forces to provide protection to livestock producers 

and members of the cattle industry commensurate with its authority under the 

Packers and Stockyards Act. These task forces are based in Denver, Colorado, 

GIPSA’s cattle office, and include technical experts from each of GIPSA’s regional 

offices and headquarters. The task forces have developed strategies to identify and 

respond to potentially unlawful practices unique to current market conditions. Daily 

Agency-wide meetings are being held to inform and share all BSE related information so that employees, task forces, and headquarters are all current on the latest 

issues. 

GIPSA’s Financial Protection Task Force is monitoring livestock markets for financial failures. The Task Force has identified scheduled sales at auction markets 

that were cancelled in the days and weeks following the BSE announcement. It’s 

monitoring firms likely to be more vulnerable to impacts of the BSE incident, identifying industry changes in payment practices, and standing ready to deploy rapid response teams to investigate financial concerns in the industry. GIPSA is currently 

conducting several investigations of particularly financially vulnerable firms. 

GIPSA’s Trade Practices Task Force is reviewing changes in marketing and procurement practices implemented by packers in response to the BSE incident. GIPSA 

has been in contact with major packers and industry groups to stay current on packer responses. GIPSA is reviewing notices sent by packers to livestock producers informing producers of purchasing and pricing changes implemented as a result of 

BSE. GIPSA has received complaints from producers who claim that packers have 

changed the payment terms of their contracts and has deployed rapid response 

teams to investigate these complaints. GIPSA’s Competition Task Force is analyzing, and when warranted, investigating cattle markets when anti-competitive 

practices may be occurring. Several investigations have been initiated. The Competition Task Force analyzes reported fed-cattle prices in various geographic markets 

to identify abnormal patterns that may indicate violations of the P&S Act. The task 

force assesses whether price differences are the result of normal market forces, or 
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packer behavior that may violate Section 202 of the P&S Act. When normal market 

forces fail to explain abnormal prices, the Competition Task Force conducts a rapid 

response investigation to determine whether the P&S Act has been violated. 

GIPSA has also communicated with the Commodity Futures Trading Commission 

(CFTC), the Agricultural Marketing Service, Food Safety and Inspection Service, the 

Animal and Plant Health Inspection Service, and local and State governmental organizations to discuss issues and coordinate plans. GIPSA attends CFTC’s surveillance meetings and is prepared to work with CFTC on any investigation that may 

involve a potential violation of the P&S Act. GIPSA is actively responding to the 

BSE incident and is prepared to continue enforcement of the Packers and Stockyards Act and regulations in light of this situation. 

In addition, this year GIPSA made significant progress on the Livestock and Meat 

Marketing Study for which Congress appropriated $4.5 million in fiscal year 2003. 

The study will look at issues surrounding a ban on packer ownership. GIPSA, 

through APHIS, is in the process of contracting out the study. Since packers’ use 

of non-spot arrangements is intertwined with other advance marketing arrangements throughout the supply chain, the study has a broad focus. 

The issues addressed by the study are complex. The research is expected to involve several academic disciplines, varied research methods, and large amounts of 

data that are not already available. Business schools, economics departments, and 

agricultural economics departments at universities have indicated an interest in 

bidding, as have consulting firms. GIPSA expects to see collaborations of disciplines 

in the bids. 

Contractors are expected to complete the study in phases over 2 years, with the 

first reports due 1 year after contract award. Some descriptive findings will be released prior to completion of the analytical parts of the study. Information about the 

study, including the Federal Register notice, the public comments, and RFP notices, 

is available on GIPSA’s website at: www.usda.gov/gipsa, by following the ‘‘marketing 

study’’ icon. 

Also in fiscal year 2003, GIPSA completed development of the Swine Contract Library as an internet application that meets the requirements of the Livestock Mandatory Reporting Act of 1999’s amendments to the Packers and Stockyards Act. 

Packers are required to file swine purchase contracts with GIPSA, and monthly reports about the number of swine expected to be delivered, under contract, to packers. 

The Swine Contract Library includes information from swine packing plants with 

a slaughter capacity of 100,000 swine or more per year. 31 firms operating 51 plants 

accounting for approximately 96 percent of industry slaughter are subject to the 

SCL. GIPSA has received over 530 contracts to date. In the first 2 months of operation, the SCL recorded more than 1,400 hits. Through the SCL, producers have the 

ability to see contract terms, including, but not limited to, base price determination 

formula and the schedules of premiums or discounts, and packers’ expected annual 

contract purchases by region. 

The Swine Contract Library went live with information on contract provisions 

available to the public in early fiscal year 2004, and is available on the GIPSA web 

site at http://www.usda.gov/gipsa/. 

FEDERAL GRAIN INSPECTION SERVICE

GIPSA’s Federal Grain Inspection Service (FGIS) facilitates the marketing of U.S. 

grain in domestic and international markets by providing the market with services 

and information that effectively and accurately communicate the quality and quantity of grain being traded. GIPSA administers its inspection and weighing programs 

under the authority of the U.S. Grain Standards Act, as amended, and the Agricultural Marketing Act of 1946 (AMA) as it relates to the inspection of rice, pulses, 

lentils, and processed grain products. 

Providing reliable, high quality inspection and weighing services at a reasonable 

price remains a key commitment of GIPSA and the State and private officials comprising the official inspection system. Federal export inspection services average 

$0.30 per metric ton, or approximately 0.23 percent of the $14 billion value of U.S. 

grain exports. In fiscal year 2003, more than 1.8 million inspections were performed 

on more than 222 million metric tons of grains and oilseeds. Over 84,000 weighing 

certificates were issued on 91.5 million metric tons of grain. 

There have been many changes in official inspection services over the past several 

years to respond to changing market demands. GIPSA has programs and services 

in place to facilitate the loading of shuttle trains; to address greater product differentiation; and to provide customers with inspection results electronically. These 
145 

all represent steps in the right direction, but we recognize that the market is changing daily and we must change with it to remain relevant. 

GIPSA is focusing on a number of key areas to better facilitate the marketing of 

U.S. grain. We are enhancing our international outreach capabilities to remove obstacles to U.S. grain reaching world markets. We are bringing standardization to 

domestic and international markets. We are focusing on providing the market with 

the information it needs on the end-use functional quality attributes of grain that 

determine its true value in an increasingly quality-specific market. We are improving service delivery, and the efficiency and cost-effectiveness of the official system. 

International outreach is one component of our efforts to facilitate the marketing 

of U.S. grain. We will continue to expand our outreach efforts to support market 

development around the world. Our international customers are making great use 

of the wide array of recently produced multimedia educational materials. 

In recent years, we have significantly expanded our outreach efforts to ensure 

open markets for U.S. grain in Asia and Mexico. Last year, GIPSA initiated two 3- 

month regional assignments, one in Asia and one in Mexico, to address immediate 

and long-term grain marketing issues in each region. In Mexico, GIPSA has worked 

extensively with APPAMEX (an organization of Mexican grain importers), the 

USDA/Foreign Agricultural Service (FAS), and USDA cooperator organizations to 

address Mexico’s concerns about U.S. grain quality. We have conducted in-depth 

grain grading seminars to educate Mexican buyers, traders, and end users on the 

U.S. grain marketing system, GIPSA’s impartial grain quality assessment, and U.S. 

grain standards, sampling procedures, and inspection methods. In fiscal year 2003, 

GIPSA also helped several of Mexico’s private sector grain elevators and processing 

facilities set up grain inspection laboratories mirrored after GIPSA’s. Last fiscal 

year, we also worked with Mexican and Canadian officials to secure a trilateral 

agreement on implementation of the Biosafety Protocol. 

Our international outreach program also includes technical consultative services 

for international customers. In fiscal year 2003, GIPSA responded to 17 requests for 

technical assistance from exporters, importers, and end users of U.S. grains and oilseeds, as well as other USDA agencies, USDA Cooperator organizations, and other 

governments. 

Our international outreach are not the only initiatives we have underway to improve the standardization of, and in turn, facilitate marketing in, domestic and 

international markets. In the biotech arena, GIPSA is helping bring standardization, consistency, reliability, and accuracy to the biotech testing entities and tools 

used by the market. GIPSA’s test kit evaluation program validates the performance 

of rapid tests for biotechnology-derived grains and oilseeds. Our Proficiency Program 

improves the performance and reliability of government and private laboratories in 

the United States and worldwide that test for biotechnology-derived grains. Under 

this voluntary program, participants are evaluated based on results of their quantitative and/or qualitative testing of samples of all commercially available corn and 

soybean biotechnology events. More than 88 organizations participated in the program in fiscal year 2003, a threefold increase from 22 organizations in February 

2002. 

In fiscal year 2002, GIPSA established formal research collaboration with the National Institute of Science and Technology (NIST) to investigate DNA-based testing 

for biotechnology-derived grains and oilseeds, and to investigate the development of 

reference materials and methods for DNA-based testing. Using information obtained 

through confidentiality agreements with life science organizations, GIPSA and NIST 

produced event-specific plasmids for evaluation as reference materials and potentially to be in the development of reference methods. In fiscal year 2003, GIPSA and 

NIST hosted a workshop entitled AStandard Reference Materials for Biotechnology 

Crops.’’ Thirty-six representatives from the life science organizations, testing laboratories, test kit manufacturers, food processors, Canada, European Union, and Japan 

attended. 

In fiscal year 2004, GIPSA will continue to collaborate with NIST to investigate 

challenges associated with Polyermase Chain Reaction (PCR) technology and develop reference materials to improve the reliability and accuracy of DNA-based testing and to harmonize testing on a global basis, and will continue to work with NIST 

to establish global agreement on the development of reference materials for biotechnology-derived grains and oilseeds. 

Our market facilitation efforts also include bringing standardized information to 

markets. In 1999, wheat importers and exporters asked GIPSA to declare that the 

United States does not produce transgenic wheat. In September 1999, GIPSA began, 

in accordance with the authority provided under the U.S. Grain Standards Act (7 

U.S.C. 79), issuing the following letterhead statement upon an applicant’s request: 

‘‘There are no transgenic wheat varieties for sale or in commercial production in the 
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United States.’’ The potential deregulation of Round-Up Ready wheat added potential uncertainty to world markets. Wheat industry representatives anticipate that 

continued issuance of the current statement will be essential to ensure the continued marketing of U.S. wheat. To facilitate the marketing of U.S. wheat if deregulation occurs, GIPSA has agreed to continue issuing the non-transgenic wheat statement, upon request, provided that Monsanto meets several requirements verifying 

that seed has not been sold for commercial production. 

GIPSA also continues to ensure that the official United States standards are responsive to the needs of the domestic marketplace. Developments in plant breeding, 

the use of new marketing strategies such as identity preservation, increasingly complex processing, food manufacturing, and feed formulation, and other factors will 

continuously challenge GIPSA to promote current, market-relevant grades and 

standards that reflect required quality characteristics for specific end uses. In fiscal 

year 2003, GIPSA proposed creating two subclasses in the class Hard White wheat, 

which would differ based on seed coat color. Seed coat color can be an important 

quality factor depending on the target flour product and the miller’s flour extraction 

goal. Also underway are reviews of the soybean standards with a focus on test 

weight, and the sorghum standards to clarify the various class definitions and to 

revise the definition of non-grain sorghum. 

Working closely with barley producers and the barley malting industry, GIPSA 

began developing new official criteria called ‘‘Injured-by-Sprout’’ in malting barley. 

Sprouting occurred in barley in the U.S. Northern Plains region during 2002, which 

prevented malting barley production contracts from being honored. Barley producers’ insurance claims also were denied because official procedures to assess barley sprout damage differ from those used by the malting industry. GIPSA’s response 

is facilitating the marketing of malting barley by enabling USDA’s Risk Management Agency to implement the new procedure for the 2004 barley crop year. 

Other standards enhancements undertaken to facilitate marketing in fiscal year 

2003 include amendments to the U.S. Standards for Rice to establish and add Ahard 

milled ‘‘rice as a new milling degree level and to eliminate the reference Alightly 

milled.’’ These changes better align the GIPSA standard with current industry processing and marketing standards. 

GIPSA knows that customers also need more information about the specific enduse qualities of the products they are purchasing. We are focusing on providing 

rapid testing of end-use functionality factors to differentiate the functional qualities 

that meet specific end-use needs. 

GIPSA continues cooperative efforts with groups from Canada, Australia, and several European countries to develop and evaluate global artificial neural network 

(ANN) near-infrared transmittance (NIRT) calibrations for wheat and barley protein. GIPSA conducted a field study on current partial least squares (PLS) wheat 

protein calibrations and the global ANN calibration. GIPSA also evaluated the field 

performance of the ANN barley protein calibration. In fiscal year 2004, GIPSA will 

finalize individual instrument standardization procedures to support implementation of an ANN calibration for wheat and barley protein. 

In April 2003, GIPSA convened a meeting of leading North American wheat researchers to generate new avenues of research that would lead to rapid tests for 

wheat end-use functional characteristics, applicable at the time of inspection and at 

other points in the value chain. Participants developed a list of quality factors and 

possible technical approaches for measuring them, with the overarching goal of having a market applicable test ready for use by May 2006. To help keep researchers 

focused on the task, GIPSA will establish a virtual discussion room for researchers 

to further collaboration on and support for this effort, and to help researchers find 

extramural grant sources. 

GIPSA is working with the United Soybean Board on their ‘‘Better Bean Initiative,’’ a program directed at improving the nutritional composition of U.S. soybean 

meal and oil. USDA/ARS currently is receiving funding to develop measurement 

technology for meal and oil. GIPSA is taking part in the Soybean Quality Trait initiative that is seeking to standardize soybean protein, oil, moisture, and fatty acid 

measurements. GIPSA is part of an inter-laboratory collaborative study to evaluate 

the consistency of soybean protein, oil, and moisture reference methods. GIPSA is 

also helping to assemble a soybean sample library suitable for use in developing and 

evaluating near-infrared (NIR) calibrations. 

GIPSA is also exploring new approaches to compliment and supplement our traditional array of services. In fiscal year 2003, GIPSA continued developing a process 

verification service for grains in response to market demand. 

Our efforts to develop new programs did not preclude us from making significant 

improvements to existing ones. During fiscal year 2003, GIPSA revised the regulations on reinspections and appeal inspections under the U.S. Grain Standards Act 
147 

to better reflect market needs and to remove an inefficient, costly, and unnecessary 

regulatory requirement. Previously, reinspections and appeal inspections for grade 

included a review of all official factors that may determine the grade, are reported 

on the original certificate, or are required to be shown. The revised regulations 

allow interested parties to specify which official factor(s) should be redetermined 

during the reinspection or appeal inspection service. To safeguard against inadvertent misgrading, official personnel may determine other factors, when deemed 

necessary. In fiscal year 2004, GIPSA plans to propose a similar action for rice and 

pulses and other commodities that are inspected for quality factors under the authority of the Agricultural Marketing Act of 1946. 

Improving service delivery is essential, as is improving the efficiency and cost-effectiveness of the official system. This will include many initiatives, ranging from 

harnessing technology to improve operational efficiency and service delivery to making needed program policy changes. 

In addition, GIPSA has dedicated resources to homeland security efforts. GIPSA 

continues to work closely with the USDA Office of Crisis Planning and Management 

(OCPM) to refine the Department’s and the Agency’s Continuity of Operations Plan 

(COOP) and to support and staff the Department’s Crisis Action Team (CAT). In fiscal year 2003, GIPSA’s COOP and CAT representatives participated in numerous 

USDA and Marketing and Regulatory Program-sponsored disaster-related exercises 

and training sessions. They also completed the GIPSA Supplement to the USDA 

Headquarters COOP Plan, which provides guidance for the continuation/reestablishment of GIPSA’s COOP essential functions, including identifying GIPSA’s emergency relocation facilities where these functions will be performed and GIPSA personnel who will be required to perform them. The provisions of the GIPSA Supplement, which mirrors the USDA Headquarters COOP Plan, applies only to GIPSA 

headquarters offices in Washington, D.C. 

GIPSA provided technical assistance related to homeland security issues to a 

number of industry and governmental groups, including the National Grain and 

Feed Association Safety Committee, the Security Analysis System for U.S. Agriculture (SAS–USA) Technical Advisory Committee, the Interagency Food Working 

Group, and the USDA Homeland Security Working Group. The Agency is currently 

working with the National Food Laboratory Steering Committee to coordinate and 

integrate resources to support the key components of the Food Emergency Response 

Network (FERN). 

GIPSA also continued to face challenges in maintaining an appropriate operating cushion in its user fee account. During fiscal year 2003, GIPSA transferred $2 million from our appropriated account to preclude fiscal over-obligation in violation of 

the Anti-Deficiency Act. As of May 31, 2003, the cash balance of GIPSA’s user fee 

account had fallen to $2.9 million, a dangerously low amount considering GIPSA’s 

monthly obligations of about $3.0 million. 

Due to flat or decreasing exports, and marketing trends that are reducing revenue 

generated by our current fee structure, there has been a persistent gap between 

costs and revenue. GIPSA has absorbed losses in its reserve user fee funds. GIPSA 

has executed many cost-cutting measures to reduce obligations. The Agency has cut 

employment levels, closed field and sub-offices, streamlined support staffs, and introduced new technology to improve program efficiency. 

In the longer term, GIPSA is pursuing several options to preclude future funding 

difficulties, including implementing a new fee schedule. Program efficiencies, such 

as streamlining the official inspection processes using a web-based technology and 

re-engineering program delivery, and opening discussions with stakeholders on how 

and by whom official inspection services should be delivered to American agriculture 

were undertaken. 2005 Budget Request 

To fund important initiatives and address the Agency’s responsibilities, GIPSA’s 

budget request for fiscal year 2005 is $44.1 million under current law for salaries 

and expenses and $42.5 million for our Inspection and Weighing Services. There is 

an increase of $662,000 for employee compensation. GIPSA already submitted legislation last fall which would collect $29.0 million in new user fees in fiscal year 2005, 

$5.8 million for the grain standardization activities and $23.2 million for the Packers and Stockyards Programs. A substantial portion of the IT increases will be onetime only requests. 

For grain inspection, the President’s fiscal year 2005 budget proposes a current 

law request of $20.0 million; a total increase of $1.8 million. 

An increase of $1,300,000 would allow GIPSA to merge data from several Agency 

computer information systems for efficient oversight and management of the official 

grain inspection system and to provide on-demand, Web based access to this data 

by our partners, customers, and GIPSA personnel. Management needs a single 

source to capture information about each inspection provided to track work accom-
148 

plishment, technical analysis, and compliance verification. With the information reported, GIPSA will be able to automate the generation of billings records that will 

be used by the NFC FFIS to generate the invoice for each customer. GIPSA will 

also use the data system to automatically document and generate a statement of 

fees owed by each customer on a monthly basis. 

By implementing this application, GIPSA will be able to retire two Unix applications and the computer equipment that it runs on. Retiring these Unix applications 

will allow GIPSA to move towards achieving its goal of a common computing environment within and between FGIS and P&SP, free up one half of a staff year required today for support, and eliminate dependency for support of this application 

to a single developer. Also requested is $500,000 to expand GIPSA’s technical outreach in key international markets, which is required because GIPSA has experienced a growing demand for cooperative participation with other agencies with international trade responsibilities—for example, State Department, U.S. Trade Representative (USTR), 

Foreign Agricultural Service (FAS), and the Animal and Plant Health Inspection 

Service (APHIS)—toward achieving our overall mutual objective of expanding markets for agricultural products and removing barriers to trade. 

Modern biotechnology has presented new challenges to U.S. grain markets as 

many countries develop domestic regulations regarding biotech grains. GIPSA has 

served the international grain trade community by developing programs to address 

these emerging needs, and working with related agencies—State, USTR, FAS, and 

APHIS, among others—to share information regarding these programs and contribute our expertise. For example, China announced broad biosafety regulations 2 

years ago that continue to threaten U.S. soybean exports. Partner agencies have 

sought GIPSA’s active participation in negotiations challenging this technical barrier to trade. Such issues are likely to increase in number and frequency in the future. 

As another example, a new international environmental treaty, the Biosafety Protocol, which entered into force in September 2003, requires new documentation on 

biotech grain shipments, and many countries already are developing regulations 

that are unnecessarily trade-disruptive. During the years ahead, it will be essential 

for GIPSA to continue in what has been its integral role in an interagency process 

for implementation of the Protocol by contributing expertise in grain handling, 

transportation, and marketing, to prevent unnecessary trade disruption. 

The funding increase will enable GIPSA to provide personnel on overseas temporary duty to better address and resolve grain trade issues, precluding market disruption due to technical differences in analytical methods and standards; expand 

U.S. market share due to increased customer satisfaction; and continue to provide 

critically important technical support as the U.S. government seeks to ensure practical implementation of new regulatory requirements being developed by a growing 

number of trading partners. 

For the Packers and Stockyards Programs, the President’s fiscal year 2005 budget 

proposes a current law request of $24.2 million; a total increase of $3.81 million. 

An increase of $1,460,000 for the development of web applications which is required because the current database and application architecture will not support 

the volume, security, or recovery requirements of GIPSA and USDA as GIPSA 

moves to support GPEA and OMB and USDA eGov initiatives. Further, the Enterprise Architecture project completed in 2003 identified fifteen (15) business functions that are not supported by any applications within the Packers & Stockyards 

Programs area, seven of those being key business functions. In addition, the current 

applications lack integration on the information that is common between the applications, hence requiring duplication (albeit minimal) information entry by program 

users. 

To enable the timely implementation of customer-centric applications within the 

Packers and Stockyards Program, additional Information Technology developmental 

resources are required. Currently the Packers and Stockyards Program does not 

have the web designers or programmers that would allow it to rapidly and accurately deploy Web-based applications. To supplement the current information technology staff and to bring new technology into the program area, GIPSA is requesting contracting funds. 

These funds would be used to contract-out the design, development, implementation, and maintenance of important Web initiatives as identified as part of GIPSA’s 

overall Enterprise Architecture and approved by USDA’s OCIO. For example, with 

the requested funding, entities regulated under the Packers and Stockyards Act 

would be able to register with GIPSA via the internet, electronically file annual reports, and submit bond claims and complaints via the internet. GIPSA would be 

able to increase its efficiency by electronically verifying bond and trust accounts 
149 

with banks, the integration of three stove piped applications, and the real-time 

tracking of the status and cost of an investigation. (The submission of annual reports alone would save GIPSA over 1,500 hours annually by personnel that are 

GS14s and 15s.) This would allow the Resident Agents to complete an additional 

200 investigations in the future. An increase of $150,000 is required to operate and maintain the Swine Contract 

Library (SCL), which is one of GIPSA’s Packers and Stockyards Programs’ (P&SP) 

first e-government initiatives. As such, GIPSA has developed an Internet web site 

that offers packers the opportunity to submit their contracts and anticipated number of hogs procured under contract to GIPSA via a secured connection and producers the opportunity to view contract information via the Internet. 

The funding increase will be used to operate and maintain the SCL system. This 

position will monitor, review, and analyze the contract information and monthly reports submitted by packers, ensure that packers are in compliance by examining 

submissions for completeness, consistency, and accuracy, conduct confidentiality 

analysis on information before release, and make the information available at the 

P&SP regional office and on the GIPSA web site. The increase will also fund Information Technology services and the annual renewal cost for computer software licenses. This IT position will provide software, hardware, and web site maintenance 

for the SCL program. An increase of $1,200,000 to support fair and transparent product differentiation 

and valuation which is required because packers significantly reduced the numbers 

of livestock purchased based on live weight in recent years. In a stated effort to better meet consumer demand and provide greater ‘‘value,’’ packers and producers 

began trading livestock through contract and marketing agreement or formulapriced transactions. In conjunction with this change in marketing methods, packers 

explored and began using new means of automating the evaluation of live cattle and 

hogs, and carcasses based on new technologies, including among other methods, 

ultrasound and photographic imaging. 

Technologies and their applications for evaluating the quality of both live animals 

and carcasses are changing at an accelerating pace. Previously, carcass merit purchases were generally based on a carcass weight and often one or two grades assigned by USDA graders. Today, packers increasingly rely on internally assigned 

measures of carcass quality using modern and complex technologies. 

Live poultry dealers, as well, are exploring new technologies to assist in evaluating the quality of birds obtained from poultry growers. Implementation of new 

technologies in the poultry industry may supplement or replace the current methods 

used by live poultry dealers to determine bird quality and payment to growers, including contract growers. 

The technologies now being implemented by packers have a direct effect in determining the prices paid to producers for livestock. Technologies being developed by 

live poultry dealers will likely affect prices paid to poultry growers. These changes 

introduce new risks for producers and growers, because these new technologies are 

not standardized and their accuracy is inconsistent. 

This lack of standardization and inconsistent accuracy makes it difficult for producers and growers to detect errors and deliberate changes in the way the technology is used, leaving producers and growers vulnerable to unfair and unjustly discriminatory practices by members of the meat packing and poultry industries. A 

change that affects as little as one half of 1 percent of the value of livestock in a 

multi-billion dollar industry can have a huge impact on producers and growers over 

time. Therefore, P&SP needs to dramatically increase its monitoring and regulatory 

presence. 

This increase in funding will provide P&SP ongoing funding to obtain industrial 

engineering expertise in the operation of these new electronic evaluation technologies and the methods in which packers and live poultry dealers use them; to 

develop enforcement tools, investigation techniques and regulatory policies necessary to continue to effectively regulate the meat packing and poultry industries, 

and when appropriate, initiate enforcement action; to educate and inform the meat 

packing and poultry industries about responsibilities under the P&S Act with regard to these new technologies; and to educate and inform livestock producers and 

poultry growers about how the electronic evaluation technologies are used in the 

meat packing and poultry industries, and how the technologies are regulated by 

P&SP. 

An increase of $1,000,000 is required because immediately following the announcement that a U.S. cow tested positive for BSE, P&SP created task forces to 

provide protection to livestock producers and members of the cattle industry. These 

task forces are developing strategies to identify and respond to anti-competitive 

practices unique to current market conditions; monitor markets for financial failures 
150 

and investigate any livestock sale barn or slaughtering facility that closes to ensure 

that any unpaid cattle sellers are identified and appropriately compensated and investigate complaints related to livestock marketing and procurement contracts. 

P&SP regulates 1,429 posted stockyards, 5,287 market agencies and dealers, 

2,067 packer-buyers, and 340 bonded packers (those purchasing over $500,000 

worth of livestock per year). An additional group of packers that purchase less than 

$500,000 are also subject to P&SP jurisdiction. A large number of these entities may 

be adversely impacted as the BSE situation develops, creating circumstances that 

require immediate P&SP action. 

P&SP is developing strategies to identify anti-competitive practices that could 

occur as a result of current market conditions. These strategies will be implemented 

and appropriate responses will be initiated where anti-competitive conduct is suspected. 

P&SP is looking closely at suspect livestock transactions to ensure that market 

participants are not taking advantage of the unique market conditions created by 

the BSE situation. P&SP will deploy rapid response teams to investigate BSE-related complaints. Costs for rapid response investigations related to BSE could easily 

exceed amounts typically expended on all other rapid response investigations. In the 

past three fiscal years, P&SP spent $1,372,210 conducting 150 rapid response investigations, or an average of 50 investigations per year at a cost of $457,403. 

An increase of $1,200,000 will allow the Agency to establish computer industry 

standard hardware, software, and facilities to implement the development of customer oriented electronic interfaces to the Federal Grain Inspection Program and 

the Packers and Stockyards Program. This will allow for a common Information 

Technology environment for the receipt and delivery of electronic data necessary to 

efficiently conduct the Agency’s programs. 

These capabilities will by necessity need to be closely integrated with the existing 

Information Technology Architecture in GIPSA and conform to the USDA Enterprise Architecture. The computer equipment will be composed of multiple, high performance servers which must accommodate the transfer of very large amounts of 

data securely and transparently between themselves and the existing Agency information systems. These computer servers must be developed to have the capability 

to implement a wide range of Web based interactive applications. 

Finally, an increase of $1,000,000 is needed because in order to bring the Information Technology Systems security up to an acceptable level within GIPSA, the Agency’s network infrastructure must be brought up to the standards as depicted in the 

USDA Enterprise Architecture. The Agency will need to add network switches, routers and firewalls to bring the network infrastructure up to an acceptable security 

standard. To insure thorough security planning, the Agency will need funding for 

additional contractor support in the development of disaster recovery plans, continuity of operations plans, risk analysis, and the certification and accreditation of 

existing information systems. 

CONCLUSION

Mr. Chairman, Members of the Committee, I would like to conclude my testimony 

on the fiscal year 2005 budget proposal for the Grain Inspection, Packers and Stockyards Administration with an observation. 

Technological advances in new products and in business practices create remarkable opportunities and challenges for producers, marketers, and consumers. GIPSA 

is uniquely situated to facilitate the marketing of products at a time when assurances of product content or production processes are in demand. Further, GIPSA 

helps ensure that market power by some is not abused. Responding effectively to 

the needs of our stakeholders requires dynamic activity. 

We continue to adapt our efforts, look toward our capabilities, work to understand 

and accommodate the changes, and serve American agriculture through our efforts 

to ensure a productive and competitive global marketplace for U.S. agricultural 

products. 

I would be pleased to address any issues or answer any questions that you may 

have. 

Thank you. 

STATEMENT OF ELSA A. MURANO

Dr. MURANO. Thank you, Mr. Chairman, Senator Kohl. 

I am glad to have the opportunity to speak to you this afternoon 

regarding the status of the Food Safety and Inspection Service pro-
151 

grams and on our fiscal year 2005 budget request for food safety 

within the U.S. Department of Agriculture. 

As we begin the new year at USDA, I am proud to highlight several areas in which we have used science to improve public health 

during the past year. 

BSE

First, though, I want to briefly touch on the Bovine Spongiform 

Encephalopathy or BSE issue. Since December 23rd of last year, 

BSE has been front and center with us, as it has with everyone 

who has concerns about public health and food safety. Upon learning of the BSE find, we immediately took action to protect the 

public’s health. New regulations were published on January 12th, 

a mere 2 weeks after the BSE case was announced, truly a remarkable example of how quickly the Bush Administration responded to 

this threat. 

The removal of specified risk material from the food supply, 

which was the hallmark of these new regulations, was indeed the 

single most significant step we could have taken to protect the 

public’s health. 

SIGNIFICANT FOOD SAFETY ADVANCEMENT OF 2003

The American public remains confident in the safety of the U.S. 

meat supply, and with good reason. The confidence is due in part 

to the significant advancements that we have made during 2003. 

For example, we have seen a dramatic decline in pathogen levels 

and regulatory samples for Listeria monocytogenes, E. coli 

O157:H7, and Salmonella. In addition, we had a striking decline in 

the number of meat and poultry product recalls last year. In fact, 

the number of class one recalls has nearly been cut in half from 

the total during 2002. These are dramatic indicators that our scientifically-based policies and programs are working to ensure that 

the American public receives the safest food possible. 

CHALLENGES FOR 2004

Despite these advancements, there is always room for improvement and FSIS has identified challenges for 2004. Through reflection and refinement we have outlined specific initiatives to ensure 

that we continue to improve health outcomes for American families. These include improving training through the Food Safety 

Regulatory Essentials program, using the recently established New 

Technologies Office to promote and accelerate the use of innovative 

food safety technologies, improving risk assessment coordination to 

ensure the best available information and science is used in policy 

development, continuing to conduct baseline studies to determine 

the nationwide prevalence and levels of various pathogenic organisms in raw meat and poultry, and coordinating with other Federal agencies to strengthen existing efforts to prevent, detect and 

respond to food related emergencies resulting from acts of terrorism. 
152 

FISCAL YEAR 2005 BUDGET REQUEST

I will now turn to the fiscal year 2005 budget request for FSIS. 

FSIS is requesting a program level of $951.9 million, a net increase 

of about $61 million from the levels for fiscal year 2004. Under current law, we are requesting an appropriation of $838.7 million with 

an additional $113 million in existing user fees. 

The budget request will fund increased BSE surveillance programs as well as additional training for inspection personnel and 

numerous programs that will continue to keep us among the leading public health agencies in the world. 

The budget request includes a $15.5 million increase for pay 

raises in Federal and State programs. The budget request includes 

a $17.3 million increase for humane slaughter enforcement and the 

full cost of in-plant inspection. Included in this request is $5 million to continue the humane slaughter enforcement work funded in 

fiscal year 2003. 

The remaining $12.3 million of the $17.3 million is for staff support costs that are critically important to maintaining front-line inspection. 

The fiscal year 2005 request includes a $33.6 million increase for 

new initiatives that support our goals at FSIS. First, we include an 

increase of $3 million for BSE surveillance. The BSE inspection 

program will add permanent BSE control measures in 2005. 

Second, our budget requests $23.5 million to increase support for 

our Food and Agriculture Defense Initiative. Food contamination 

and animal and plant diseases and infestations can have catastrophic effects on human health and the economy. So, our portion 

of the Food and Agriculture Defense Initiative has five components: 

the Food Emergency Response Network or FERN; data systems to 

support the Food Emergency Response Network; enhancing FSIS 

laboratory capabilities; biosurveillance; and follow-up biosecurity 

training. 

To improve the infrastructure under FERN, the budget request 

calls for a $10 million expansion. Of that funding, $6.1 million 

would be spent on contracts with state and local laboratories and 

$2.6 million would be used to establish five regional hubs and a national operating center to coordinate FERN’s efforts and conduct 

training. 

The budget request also includes initiatives to support FERN. 

The Electronic Laboratory Exchange Network, eLEXNET, is a national web-based system that allows laboratories to rapidly report 

and exchange standardized data. So the budget request of $4 million will be used to make eLEXNET available to additional FERN 

and other food testing laboratories nationwide. 

The budget request includes $2.5 million to enhance our laboratory capabilities for detecting new bioterror-associated agents and 

to ensure that our capability and capacity to perform toxin and 

chemical testing is maintained. 

The final new initiative is training, which is a very important 

issue for us. FSIS has been criticized in the past for having insufficiently trained field employees. So, we are working very, very hard 

to address these concerns and need additional resources in order to 

significantly improve our training. We are requesting $7.1 million, 
153 

over a 50 percent increase in the FSIS training budget for fiscal 

year 2005. Included in the requested training budget is $3.1 million 

for our Food Safety Regulatory Essentials training to supplement 

training for current on and off-line field employees to improve enforcement of HACCP and food safety sampling. 

PREPARED STATEMENTS

Thank you again, Mr. Chairman and Senator Kohl, for your attention. And we certainly look forward to responding to your questions. 

[The statements follow:] 

PREPARED STATEMENT OF DR. ELSA A. MURANO

Mr. Chairman and Members of the Subcommittee, I am glad to have the opportunity to speak with you regarding the status of the Food Safety and Inspection 

Service (FSIS) programs and on the fiscal year 2005 budget request for food safety 

within the U.S. Department of Agriculture (USDA). 

In Washington, people talk about their inspiring view of the Capitol or the monuments, and the sights that inspire them to work harder and better. The view in my 

office is quite awesome—at once humbling and challenging. I am referring to a famous portrait on my wall of Louis Pasteur, examining a spinal cord sample. Pasteur 

disagreed with the popular attitude of the day, ‘‘science for science’s sake;’’ he felt 

that science as a purely academic exercise did not properly serve the people of the 

19th century. Instead, he believed that science should have practical applications 

that could be used to improve the lives of others. As we begin the new year at 

USDA, I am proud to highlight several areas in which we have used science to improve public health during the past year. I also will share with you our goals for 

this year, and will conclude with a discussion of the fiscal year 2005 budget request. 

First though, I want to briefly touch on the Bovine Spongiform Encephalopathy 

(BSE) issue. Since December 23, 2003, BSE has been ‘‘front and center’’ with us, 

as it has with everyone who has concerns about public health and food safety. Upon 

learning of the BSE find, we immediately took action to protect the public’s health. 

New regulations were published on January 12th, a mere 2 weeks after the BSE 

case was announced—truly a remarkable example of how quickly the Bush Administration responded to this threat. The removal of specified risk material (SRM) 

(brain, spinal cord, etc.) from the food supply, which was the hallmark of these new 

regulations, was indeed the single most significant step we could have taken to protect the public’s health. To ensure that these measures are implemented effectively, 

part of the fiscal year 2005 budget request that I will discuss later consists of $3 

million for the agency to conduct surveillance of SRM and advanced meat recovery 

(AMR). We are confident that the aggressive BSE measures we have developed will 

continue to protect the U.S. food supply. 

SIGNIFICANT FOOD SAFETY ADVANCEMENTS OF 2003

The American public remains confident in the safety of the U.S. meat supply— 

and with good reason. The confidence is due, in part, to the significant advancements that we made during 2003. One such advancement has been the dramatic 

decline in pathogen levels in regulatory samples. Late last year, we released data 

that showed a 25 percent drop in the percentage of positive Listeria monocytogenes 

samples from the previous year, and a 70 percent decline compared with years prior 

to the implementation of the Hazard Analysis and Critical Control Point (HACCP) 

program. In June 2003, to further reduce the incidence of Listeria monocytogenes, 

we issued regulations for establishments producing ready-to-eat products. 

Our measures to prevent E. coli O157:H7 contamination of ground beef have 

yielded similar results. In September 2002, based on evidence that E. coli O157:H7 

is a hazard reasonably likely to occur at all stages of handling raw beef products, 

FSIS issued a directive requiring all establishments that produce raw beef products 

to reassess their HACCP plans. Last year, FSIS’ scientifically trained personnel conducted the first-ever comprehensive audits of more than 1,000 beef establishments’ 

HACCP plans. A majority of those plants made major improvements based on their 

reassessments, and, as a result, we are seeing a substantial drop in the percentage 

of ground beef samples that are positive for E. coli O157:H7. In 2003, of the ground 

beef samples collected and analyzed for E. coli O157:H7, only 0.30 percent tested 

positive, compared to 0.78 percent in 2002—a 62 percent reduction. This is a defi-
154 

nite improvement, and the strongest signal that science can drive down the threat 

from pathogens. 

In 2002, we issued new enforcement procedures for the Salmonella performance 

standard that are paying off. Instead of waiting for three cycles of tests for Salmonella, the failure of the first set now triggers an FSIS review of an establishment’s HAACP plan. Due to this process and other science-based initiatives, the percentage of ‘‘A’’ samples (a sample from a randomly scheduled initial set) positive for 

Salmonella in raw meat and poultry has dropped by 65 percent over the past 6 

years. Out of the number of random ‘‘A’’ samples collected and analyzed by FSIS 

during 2003, only 3.8 percent of the samples were positive for Salmonella, as compared with 10.6 percent in 1998. Again, this is very good news. The data for these 

three pathogens validate our scientific approach to improving public health through 

safer food. 

We also had a striking decline in the number of meat and poultry product recalls 

last year. In fact, the number of Class I recalls has nearly been cut in half from 

the total during 2002. This is a dramatic indicator that our scientifically-based policies and programs are working to ensure that the American public receives the 

safest food possible. 

FSIS has also had great success with its food safety education programs. Through 

new and innovative methods, FSIS is sharing its food safety message with the general public, including culturally diverse and underserved populations and those at 

highest risk for foodborne illnesses. From March to November 2003, the USDA Food 

Safety Mobile traveled over 24,000 miles and participated in 87 events in 64 cities 

across the country, providing information and publications on food safety to approximately 179,000 people face-to-face and making an estimated 64.4 million media impressions. Another success story is a public service announcement (PSA) featuring 

former Miss America Heather Whitestone McCallum, which has aired 14,448 times 

since September 2003. This PSA ranked in the top 3 percent of all PSA’s shown during the month of January 2004 along with PSA’s by the American Red Cross, the 

Federal Emergency Management Agency (FEMA), and the Department of Homeland 

Security (DHS). We are very proud of these far-reaching FSIS food safety education 

campaigns. 

CHALLENGES FOR 2004

Despite the advancements we made last year, there is always room for improvement, and FSIS has identified challenges for 2004. Louis Pasteur said, ‘‘In the realm 

of science, luck is only granted to those who are prepared.’’ Food safety is too important to be left to guess work or luck; we must be prepared to identify and meet challenges head-on. 

When I joined USDA over 2 years ago, I established five goals—a roadmap of improvements for our food safety mission: 

—To improve the management and effectiveness of our regulatory programs; 

—To ensure that policy decisions are based on science; 

—To improve coordination of food safety activities with other public health agencies; 

—To enhance public education; and 

—To protect FSIS regulated products from intentional contamination. 

Through reflection and refinement, we have outlined specific initiatives to make 

sure we fulfill those goals, thereby improving health outcomes for American families. These initiatives were outlined in our food safety vision document, Enhancing 

Public Health: Strategies for the Future. This detailed plan will continue to drive 

our policies and actions during this calendar year. 

Initiative One: Training 

In April 2003, FSIS inaugurated new Food Safety Regulatory Essentials (FSRE) 

training, which is designed to better equip inspection personnel in verifying an establishment’s HACCP food safety system. All trainees received training in the fundamentals of inspection, covering the Rules of Practice, Sanitation Performance 

Standards, and Sanitation Standard Operating Procedures. FSIS also provides food 

safety training based on the types of products being produced at the establishments 

where inspectors are assigned. As of the end of last year, more than 1,000 individuals had completed this training regime. 

During 2004, FSIS will continue to train all new entry level slaughter establishment inspectors and veterinary medical officers in technical, regulatory and public 

health methods. We are also looking at expanding the types of training in the future 

to meet evolving agency needs and challenges. 
155 

Initiative Two: Furthering the Use of Innovative Food Safety Technologies 

I believe that we must encourage the use of safe and effective interventions. One 

way we can encourage such intervention is by hosting public meetings. In January, 

in Omaha, Nebraska, FSIS held a public meeting to discuss the development and 

use of new food safety technologies to enhance public health. The meeting generated 

useful ideas regarding how plants can best utilize new technologies in their operations. 

FSIS established a New Technology Office in August 2003. This group is tasked 

with reviewing new technologies and, where appropriate, expediting the use of new 

technologies at meat and poultry official establishments and egg products plants. 

Our New Technology staff is an experienced team of 9 veteran FSIS employees who 

serve as the single portal for all new technology submissions. We designed this 

group to better manage the new technology process and allow for implementation 

as quickly as possible. They also ensure that FSIS personnel are aware of new technologies and where they are being used. 

To increase the pool of new technology submissions to the agency, we have established an e-mail address, FSISTechnology@fsis.usda.gov, through which parties may 

submit their information. I am happy to report that we have received over 30 Notifications and Protocols for new food safety technologies since we have streamlined the 

submission process. Of the 27 Notifications received, 19 have been issued letters indicating that FSIS has no objections, and 4 are still pending. Once the agency issues 

a no objection letter, the firm that submitted the proposal may use the new technology. 

Initiative Three: Risk Assessment Coordination 

In order to better focus its resources on food safety risk assessment activities, 

FSIS established a risk assessment coordination team with USDA-wide membership. As risk assessment becomes increasingly important as a means of providing 

the science behind policy decisions, the need for such a group within USDA is clear. 

This group will promote scientifically sound risk assessments and foster research to 

support risk assessments. 

Microbial risk assessment is still in its infancy compared to chemical risk assessments, so the need to share ideas and resources is critical. In November 2003, we 

started this interactive process by holding a public meeting to discuss how the government uses the three components of the risk analysis framework—risk assessment, risk management, and risk communication—to inform and implement risk 

management decisions. In particular, we examined several crucial elements for FSIS 

to consider in its risk assessments, including how: 

—FSIS can improve the transparency of the risk analysis process; 

—FSIS can balance the need for transparency, stakeholder involvement and peer 

review with the need for timely scientific guidance; and 

—Risk assessments can better inform policy development and decision-making. 

Initiative Four: Developing a Research Agenda 

In November 2003, FSIS and the Research, Education and Economics mission 

area, announced a unified research agenda to coordinate USDA food safety research 

priorities and needs. For FSIS, research is critical to achieving its public health vision. Although FSIS does not conduct research itself, the agency must identify its 

research needs based on its public health goals so that the research community can 

meet them. The unified agenda includes research to: 

—Investigate the ecology, epidemiology, virulence and genetic characteristics related to pathogenicity for E. coli O157:H7, Salmonella, Listeria monocytogenes, 

and other foodborne pathogens to identify targeted control measures; 

—Develop effective on-farm, feedlot, transportation, handling, and other pre-processing intervention strategies for reducing the incidence and levels of antibiotic 

resistant microorganisms and key foodborne pathogens in meat, poultry, eggs 

and fresh produce; 

—Develop, validate, and transfer technology of new and improved processing 

methods to reduce or eliminate key foodborne pathogens in meat, poultry, fresh 

produce, seafood, and ready-to-eat foods; and 

—Develop rapid and sensitive detection methods for abnormal prions to prevent 

the possible spread of transmissible spongiform encephalopathies. 

Initiative Five: To Develop Best Practices for Animal Production 

In consultation with producers, researchers, and other stakeholders, FSIS is developing a list of best management practices for animal production in order to provide guidance for reducing pathogen loads before slaughter. 
156 

Last September, FSIS arranged a symposium with USDA partners to discuss 

ways to significantly reduce the levels of E. coli O157:H7 in live animals before 

slaughter. We understand that preventing the spread of E. coli and other pathogens 

on the farm is vital to increasing food safety and protecting public health. The dialogue generated at the meeting helped us develop guidelines outlining the best management practices at the pre-harvest stage, which we expect to publish this year. 

Once these guidelines are published, FSIS will initiate an aggressive outreach effort 

to distribute them to producers. 

Initiative Six: Baseline Studies 

It is imperative that FSIS develops baseline studies. FSIS is developing protocols 

to conduct continuous baseline studies to determine the nationwide prevalence and 

levels of various pathogenic microorganisms in raw meat and poultry. The studies 

will help the agency and the industry to better understand what interventions are 

working or how they could be improved. To achieve the agency’s goal of applying 

science to all policy decisions, the fiscal year 2004 budget included a new $1.7 million initiative to establish a continuous baseline program for risk assessments and 

performance measurement. 

In the past, baseline studies have been used to establish pathogen reduction performance standards, which are an important part of verifying the sanitary operation 

of meat and poultry establishments. The new baseline studies will take into account 

regional variation, seasonality and other critical factors. 

The continuing nature of the baseline studies will provide information on national 

trends and a tool to assess performance of initiatives designed to reduce the prevalence of pathogens in meat and poultry products. These baseline studies will also 

yield important information for conducting risk assessments that can outline steps 

we can take to reduce foodborne illness. 

These surveys will also be important in establishing the link between foodborne 

disease and ecological niches, as well as levels and incidence of pathogens in meat 

and poultry. The net result will be more targeted interventions and the effective 

elimination of sources of foodborne microorganisms. 

Initiative Seven: Food Biosecurity 

While the events of September 11, 2001, brought the issue of the vulnerability of 

our food supply to the forefront, FSIS’ food biosecurity efforts did not start on September 12, 2001. FSIS’ 100 plus years worth of experience in dealing with food 

emergencies have allowed the agency to develop the expertise to protect the U.S. 

meat, poultry, and egg products supply wherever and whenever emergencies or new 

threats arise. 

It is imperative that FSIS coordinates with other public health agencies to protect 

the food supply against intentional harm. The agency has improved such coordination, as well as strengthened existing efforts to prevent, detect, and respond to foodrelated emergencies resulting from acts of terrorism. With a strong food safety infrastructure already in place, FSIS has been able to focus on strengthening existing 

programs and improving lines of communication, both internally and externally. 

Later, when I discuss the fiscal year 2005 budget request, I will describe the components of our food and agriculture defense initiative. 

ACHIEVING THE NEXT LEVEL OF FOOD SAFETY

The emergence of previously unrecognized pathogens, as well as new trends in 

food distribution and consumption, highlights our need for new strategies to reduce 

the health risks associated with pathogenic microorganisms in meat, poultry and 

egg products. Through analysis and discussions with stakeholders, we have identified three issues that need to be addressed to attain the next level of public health 

protection. 

Issue One: To anticipate/predict risk through enhanced data integration 

To better anticipate risks involving meat and poultry products, we must have the 

best available data to clearly identify the extent and nature of these risks, so that 

we may determine an effective response. These data consist of regulatory samples, 

as well as samples collected by food processing establishments. Thus, we must improve data analysis while encouraging data sharing from all reliable sources. 

With regard to food biosecurity, FSIS works closely with the White House Homeland Security Council, DHS, the Food and Drug Administration (FDA) and the 

USDA Homeland Security Staff to develop strategies to protect the food supply from 

an intentional attack. For example, FSIS, along with FDA and industry partners, 

is working with DHS to establish new food information sharing and analysis activity 

for the food sector. This public/private partnership will aid in the protection of the 
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critical food infrastructure by centralizing the information about threats, incidents, 

and vulnerabilities. 

Issue Two: To improve the application of risk analysis to regulatory and enforcement 

activities 

Food safety problems need to be documented as they occur, so that conditions may 

be analyzed and, if need be, corrected. A better understanding of the prevalence and 

causes of food safety failures could allow better assessment of how to best address 

them. Data regarding the causes of food safety violations, either within a specific 

establishment, or within a class of establishments, can be utilized in order to better 

focus prevention and regulatory enforcement strategies. 

FSIS is exploring the development of a real-time measure of how well an establishment controls the biological, chemical, and physical hazards inherent in its operations. Such a predictive model would help the agency make resource allocation decisions across the country’s more than 6,000 meat and poultry establishments to 

maximize food safety and public health protection. 

Issue Three: To better associate program outcomes with public health surveillance 

data 

We have seen notable advances in preventing foodborne illness, which the Centers 

for Disease Control and Prevention (CDC) have attributed, in part, to the implementation of HACCP. However, there still is a need to determine how specific policies 

affect public health. In order to accomplish this, we need to obtain and document 

data that links foodborne illness outbreaks with specific foods. It may then be linked 

with prevalence data of specific pathogens in specific foods. However, to complete 

the linkage with public health outcomes, we need accurate and timely human health 

surveillance data. 

We have already taken steps to secure such surveillance data, and we continue 

to update our systems. In 1995, FSIS worked with CDC, FDA, and public health 

laboratories in several States to establish FoodNet, the Foodborne Diseases Active 

Surveillance Network, as part of CDC’s Emerging Infections Program. 

FoodNet includes active surveillance of foodborne diseases, case-control studies to 

identify risk factors for acquiring foodborne illness, and surveys to assess medical 

and laboratory practices related to foodborne illness diagnosis. FoodNet provides estimates of foodborne illness and sources of specific diseases that are usually found 

in the United States, and interprets these trends over time. Data are used to help 

analyze the effectiveness of the Pathogen Reduction/Hazard Analysis and Critical 

Control Point rule and other regulatory actions, as well as public education aimed 

at decreasing foodborne disease in the United States. We are also considering establishing a joint task force with CDC to determine ways to improve FoodNet. 

In addition to data collected through FoodNet, FSIS is a partner with CDC and 

State agencies in PulseNet, a national computer network of public health laboratories that helps to rapidly identify outbreaks of foodborne illness. Laboratories perform DNA ‘‘fingerprinting’’ on bacteria that may be foodborne, then the network permits rapid comparison of the ‘‘fingerprint’’ patterns through a CDC database. 

PulseNet is an early warning system that links seemingly sporadic illnesses, and 

enables public health officials to more quickly identify and react to the emergence 

of multi-State illness outbreaks. 

FSIS is also working with CDC’s National Center for Infectious Diseases to design 

and support studies that enable definite connections to be made between occurrence 

of specific pathogens in specific foods and the occurrence of human foodborne illness. 

FoodNet, PulseNet and other similar programs are excellent examples of Federal 

and State agencies working together to accomplish public health goals. These programs will help FSIS and other regulatory agencies to focus inspection and enforcement on those practices where risk is deemed to be highest, resulting in a more efficient use of government resources. 

FISCAL YEAR 2005 BUDGET REQUEST

I will now turn to the fiscal year 2005 budget request for FSIS. In fiscal year 

2005, FSIS is requesting a program level of $951.7 million, a net increase of about 

$61 million from the enacted level for fiscal year 2004. Under current law, we are 

requesting an appropriation of $838.7 million, with an additional $113 million in existing user fees. The budget request will fund the increased BSE surveillance programs I mentioned earlier, as well as additional training for inspection personnel 

and numerous programs that will continue to keep FSIS among the leading public 

health agencies in the world. By continuing the principle of making policy based on 

sound science, we will modernize our inspection system to handle the challenges of 
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food safety in this century. Implementation of these budget initiatives is imperative 

to help us attain the public health vision we have set for FSIS. 

Supporting FSIS’ Basic Mission 

The FSIS budget request for fiscal year 2005 supports the agency’s basic mission 

of providing continuous food safety inspection in each meat, poultry, and egg products establishment in the United States. The budget request includes a $15.5 million increase for pay raises in Federal and State programs. In addition, the budget 

supports an agency-wide staff-year ceiling of 9,641, an 84 staff year increase from 

the 2004 appropriation level. The budget reflects the proposed calendar year 2005 

pay raise of 1.5 percent for Federal and State personnel, a 0.2 percent increase for 

employee rewards, and the annualized cost of the 4.1 percent pay increase for calendar year 2004. The costs also include a total net increase of approximately 

$721,000 for state food safety and inspection. 

Two critical elements of FSIS’ mission are to continue the enforcement of humane 

slaughter regulations and to provide for the full cost of front-line inspection. FSIS 

will continue strict enforcement of its regulations for the humane handling and 

slaughter of livestock. In fiscal year 2003, over 7,600 inspection personnel stationed 

in over 6,000 federally inspected meat, poultry, and egg products plants verified that 

the processing of 43.6 billion pounds of red meat, 49.2 billion pounds of poultry, and 

3.7 billion pounds of liquid egg products complied with statutory requirements. The 

fiscal year 2005 budget request includes a $17.3 million increase for humane slaughter enforcement and the full cost of in-plant inspection. Included in the request is 

$5.0 million to continue the work funded in fiscal year 2003 for fiscal year 2003 

through fiscal year 2004. 

The remaining $12.3 million of the $17.3 million is for staff support costs that are 

critically important to maintaining front line inspection. Over 80 percent of FSIS 

costs are for salaries, benefits, and travel costs for inspectors to travel between 

plants. Increases in benefit and travel costs cannot be deferred to another year. The 

agency’s share of employee benefits costs has been rising in recent years by over 

$4 million annually. The agency has also experienced large increases in retirement 

costs, hiring incentives, and employee allowances for the purchase of safety equipment and related items. The increase is needed to avoid employment restrictions in 

the inspection program, which would result if unavoidable cost increases are not 

fully funded and must be absorbed. 

New Initiatives 

The fiscal year 2005 request includes a $33.6 million increase for new initiatives 

that support the Department’s goals for FSIS. 

First, as I discussed in my opening, the fiscal year 2005 budget request includes 

an increase of $3 million for BSE surveillance. FSIS’ BSE inspection program will 

add permanent BSE control measures in fiscal year 2005. These control measures 

will include increased in-plant verification of slaughter plant designs for controlling 

SRMs, overtime inspection, and travel for Veterinary Medical Officers to test nonambulatory disabled livestock when they arrive at small slaughter plants that do 

not have a resident veterinarian. In fiscal year 2005, FSIS will also perform about 

60,000 screening tests at processing plants that use AMR equipment, to ensure that 

SRMs do not enter the food supply. 

The fiscal year 2005 budget also requests a $23.5 million increase to support our 

food and agriculture defense initiative. Food contamination and animal and plant 

diseases and infestations can have catastrophic effects on human health and the 

economy. USDA, the Department of Health and Human Services and DHS are 

working together to create a comprehensive food and agriculture policy that will improve the government’s ability to respond to the dangers of disease, pests and poisons, whether natural or intentionally introduced. FSIS’ portion of the food and agriculture defense initiative has five components: 

—Biosurveillance; 

—The Food Emergency Response Network; 

—Data systems to support the Food Emergency Response Network; 

—Enhancing FSIS laboratory capabilities; and 

—Follow-up biosecurity training. 

To finance the biosurveillance component of the food and agriculture defense initiative, the fiscal year 2005 budget requests $5 million. The Homeland Security 

Council (HSC) Biodefense End-to-End Assessment, in cooperation with all relevant 

U.S. Government agencies, identified early attack warning and surveillance as a top 

priority to prepare against a potential bioterrorist attack. The HSC supports an 

interagency biosurveillance initiative to improve the Federal Government’s ability to 

rapidly identify and characterize such an attack. This initiative will improve Fed-
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eral surveillance capabilities in human health, food, agriculture, and environmental 

monitoring. It will also allow Federal agencies to establish integration capability at 

DHS so that DHS may rapidly compile these streams of data and integrate them 

with threat information. 

FSIS has conducted its own vulnerability assessments of regulated domestic and 

imported products. The assessments identify potentially vulnerable products and 

processes, likely threat agents, and points along the production/consumption continuum where attack is most likely to occur. The agency will focus its resources on 

the points of greatest vulnerability. 

The second component of the food and agriculture defense initiative is the Food 

Emergency Response Network (FERN). A nationwide laboratory system with sufficient capacity to meet the needs of anticipated emergences is integral to any bioterror surveillance and monitoring system. FERN consists of Federal and State governmental laboratories which are responsible for protecting citizens and the food 

supply from intentional acts of biological, chemical, and radiological terrorism. Currently, over 60 laboratories, including public health and veterinary diagnostic laboratories, representing 27 States and five Federal agencies, have agreed to participate in FERN. The goal is to establish 100 FERN laboratories, creating a network 

of Federal, State and local laboratories that FSIS could call upon to handle the numerous samples that would be required to be tested in the event of a terrorist attack on the meat, poultry or egg supply. 

To improve the infrastructure under FERN, the budget request calls for a $10 

million expansion. Of that funding, $6.1 million would be spent on contracts with 

State and local laboratories, and $2.6 million would be used to establish five Regional Hubs and a National Operating Center to coordinate FERN’s efforts and conduct training. In addition, during fiscal year 2005, FSIS would also use $1.3 million 

to establish five to seven State laboratories for screening of microbiological agents, 

with more laboratories in the future, based on the availability of funds. The staff 

of these laboratories will receive training, perform methods validation, and analyze 

surveillance and check samples. 

The third and fourth components of the food and agriculture defense initiative 

support FERN. The electronic laboratory exchange network (eLEXNET) is a national, web-based system that allows laboratories to rapidly report and exchange 

standardized data. The fiscal year 2005 budget request of $4 million will be used 

to make eLEXNET available to additional FERN and other food-testing laboratories 

nationwide. Access to properly validated methods used for screening, confirmation, 

and forensic analysis is critical to all laboratories, and laboratories need rapid access to new or improved methods that use emerging technologies, have greater sensitivity, or are more efficient. FSIS is working with FDA to develop a web-based repository of analytical methods that is compatible with eLEXNET. The budget request also includes $2.5 million to enhance FSIS’ laboratory capabilities for detecting new bioterror-associated agents, and to ensure FSIS’ capability and capacity to 

perform the toxin and chemical testing that will be standardized across all FERN 

laboratories. 

The final component of the food and agriculture defense initiative is follow-up biosecurity training for the workforce. Follow-up training is essential as part of the ongoing effort to protect the public by educating the workforce regarding the latest 

threat agents and countermeasures to those agents. The budget request includes $2 

million for follow-up training for fiscal year 2005. 

The final new initiative I will discuss is training. FSIS has been criticized over 

the years by the General Accounting Office and the Office of the Inspector General 

for having poorly trained field employees. We have been addressing these concerns 

over the last year, but need additional resources in order to significantly improve 

our training. We are requesting $7.1 million—over a 50 percent increase—in the 

FSIS training budget for fiscal year 2005. Of the requested training budget, $4.0 

million would be used to increase the number of entry level inspectors receiving formal classroom training from 20 percent to 100 percent. Under this proposal, all new 

inspectors will receive formal training on how to identify and respond to food safety 

problems. New employees will be required to demonstrate mastery of training in 

order to be certified to assume inspection duties. 

The requested training budget also includes $3.1 million for Food Safety Regulatory Essentials training, to supplement training for current on- and off-line field 

employees to improve enforcement of Pathogen Reduction/Hazard Analysis and Critical Control Point regulations and food safety sampling. These frontline employees 

are responsible for making the critical decisions to ensure that products are safe to 

eat, so it is essential to have a scientifically and technically trained workforce. 
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User Fee Proposal 

FSIS’ fiscal year 2005 budget also includes a legislative proposal to recover the 

costs of providing inspection services beyond an approved 8-hour primary shift. The 

proposal was submitted to Congress last August. If the proposal is enacted, the level 

of appropriated funds needed would be reduced by an estimated $124 million, making the FSIS budget request $714.7 million. Under current law in 2005, FSIS estimates it will collect $113 million in annual user fees to recover the costs of overtime, 

holiday, and voluntary inspection. 

CLOSING

We intend to continue to engage the scientific community, public health experts 

and all interested parties in an effort to identify science-based solutions to public 

health issues to ensure positive public health outcomes. It is our intention to pursue 

such a course of action this year in as transparent and inclusive a manner as is 

possible. The strategies I discussed today will help FSIS continue to pursue its goals 

and achieve its mission of reducing foodborne illness. 

Mr. Chairman, thank you again for providing me with the opportunity to speak 

with the Subcommittee and submit testimony regarding the steps that FSIS is taking to remain the world leader in public health. I look forward to working with you 

to improve our food safety system, ensuring that we continue to have the safest food 

supply in the world. 
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162 
163 

PREPARED STATEMENT OF DR. BARBARA J. MASTERS, ACTING ADMINISTRATOR, FOOD

SAFETY AND INSPECTION SERVICE

Mr. Chairman and distinguished members of the Subcommittee, I am pleased to 

be here today as we discuss public health and the U.S. Department of Agriculture’s 

(USDA) fiscal year 2005 budget request for the Food Safety and Inspection Service 

(FSIS). 

Infrastructure 

FSIS has a long, proud history of protecting public health. Although the Agency 

under its current name was established by the Secretary of Agriculture on June 17, 

1981, its history dates back to 1906. FSIS’ mission is to ensure that meat, poultry, 

and egg products prepared for use as human food are safe, secure, wholesome, and 

accurately labeled. FSIS is charged with administering and enforcing the Federal 

Meat Inspection Act (FMIA), the Poultry Products Inspection Act (PPIA), the Egg 

Products Inspection Act (EPIA), and the regulations that implement these laws. 

Ensuring the safety of meat, poultry, and egg products requires a strong infrastructure. To accomplish this task, FSIS has a large workforce of approximately 

10,000 employees, most of who are stationed in the field, dedicated to inspection. 

In fiscal year 2003, over 7,600 inspection personnel stationed in over 6,000 federally 

inspected meat, poultry, and egg products plants verified that the processing of 43.6 

billion pounds of red meat, 49.2 billion pounds of poultry, and 3.7 billion pounds of 

liquid egg products complied with statutory requirements. In addition, we re-inspected 3.8 billion pounds of imported meat, poultry and processed egg products 

from 28 of 33 countries that we determined have inspection systems equivalent to 

our own. Assuring that these products are safe and wholesome is a serious responsibility. 

As you are well aware, these are compelling times in food safety, and it is because 

of your support that we are making real progress in improving the safety of the U.S. 

food supply. I would like to thank you for the past support you have given us in 

our budget requests. Now, I would like to tell you how we are fulfilling our responsibilities through FSIS’ food safety vision and about our initiatives for better ensuring the safety of meat, poultry, and egg products. 
164 

Fulfilling the Vision 

The continued mission of FSIS is to ensure that consumers have the safest possible food supply. To fulfill this vision, we have set out to continuously modernize 

FSIS’ ability to improve the safety of meat, poultry, and egg products. Our efforts 

are paying off, as seen by the 16 percent decline in foodborne illness over the last 

6 years. The Centers for Disease Control and Prevention (CDC) attributes these results in part to the implementation of the Hazard Analysis Critical Control Point 

(HACCP) system in all meat and poultry plants in the United States. However, in 

spite of these positive trends towards a safer food supply, FSIS recognizes that intensified efforts are needed to reach the next level of food safety. That is why the 

agency has diligently worked to carry out Dr. Murano’s five core goals: 

—To improve the management and effectiveness of our regulatory programs; 

—To ensure that policy decisions are based on science; 

—To improve coordination of food safety activities with other public health agencies; 

—To enhance public education; and 

—To protect FSIS regulated products from intentional contamination. 

Improving the Management and Effectiveness of Regulatory Programs 

In order for policies and programs to be successful, they must be uniformly and 

correctly applied. Thus, proper training of the workforce is essential. In addition, 

communication to field personnel needs to be timely and accurate, with proper supervision from the district and from headquarters in order to foster accountability 

in the system. 

Training and Education 

The key to improving the management and effectiveness of FSIS’ considerable infrastructure is to ensure that the agency is well prepared with the tools necessary 

to protect the food supply. Training is a top priority of the agency. FSIS can only 

achieve its public health, food safety, and food security mission with adequate preparation of its workforce through scientific and technical training. 

In April 2003, FSIS began the Food Safety Regulatory Essentials (FSRE). The 

goal of the training is to teach inspection personnel how to do their jobs properly, 

and emphasizes the regulatory decision-making thought process both through lecture and workshop examples. In fiscal year 2003, FSIS exceeded its goal to train 

800 inspectors under FSRE. A comparison between pre-test and post-test scores has 

shown that the knowledge improvement of our inspectors has increased by an average of 20 percent. Feedback from our inspectors has been extremely positive, and 

industry representatives have noted the positive difference that these courses are 

having on how inspection procedures are performed. 

FSIS has also initiated a comprehensive 2-year training and education effort designed to ensure that every FSIS employee fully understands their role in preventing or responding to an attack on the food supply. Last year, over 1,600 employees received food security training. By the end of fiscal year 2004, over half of our 

workforce will have received this training. The Law Enforcement Academic Research Network (LEARN), which is carrying out the training, has stated that this 

training effort is unparalleled in the Federal sector since it is being provided to such 

a broad base of our employees. 

Another initiative the agency has undertaken to enhance FSIS’ training effort is 

taking training opportunities closer to our employees. In August 2003, the agency 

announced new regional training centers designed to bring comprehensive workforce 

training programs to FSIS field employees throughout the country. FSIS has established the regional training centers in five field locations: Atlanta, GA; Dallas, TX; 

Philadelphia, PA; Des Moines, IA; and Boulder, CO. FSIS has hired three of the regional trainers to head the new centers, and expects to hire the remaining two 

trainers by April. In addition, FSIS will be providing distance learning that will be 

easily accessible to our field employees. These approaches will allow FSIS to train 

more inspectors each year in various skills to enhance their technical and regulatory 

abilities. 

Another step we’ve taken is to increase our cadre of scientifically trained personnel, known as Consumer Safety Officers (CSOs). CSOs have a scientific and technical background and receive additional FSIS training that enables them to use a 

disciplined methodology to assess and verify the design of food safety systems. FSIS 

has trained every entering CSO—150 of them—in a cooperative agreement through 

the Texas Agricultural Experiment Station. In fiscal year 2004, the agency plans to 

train 200 additional employees in this program, including employees who have been 

promoted to CSOs, Veterinary Medical Officers, Program Investigators, and others. 
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Accountability 

FSIS inspection personnel are held accountable for ensuring that public health is 

protected. To emphasize the importance of accountability, FSIS created the Office 

of Program Evaluation, Enforcement and Review (PEER) during the agency’s recent 

reorganization. PEER serves as a quality control team by ensuring that FSIS functions, such as reviews of plants for compliance and food safety investigations, are 

carried out in a way most conducive to protecting the public health. PEER retains 

the role of ensuring prompt and appropriate enforcement of the inspection laws. The 

work of the field Program Investigators in PEER places them on a daily basis in 

close proximity to performance and compliance problems and concerns at the inplant level, which affords the agency the ability to deal with necessary adjustments 

and problems in a much more immediate and direct fashion than in the past. PEER 

was formed because a strong quality assurance program that uses reviews, evaluations, and audits as its tools can have a significant impact on management effectiveness, efficiency and policy development. 

Because accountability is crucial in delivering programs in a consistent and effective manner, FSIS implemented the Humane Activities Tracking (HAT) program in 

February 2004. This new electronic tracking system will document inspection activities to ensure that livestock are humanely handled and slaughtered in federally inspected facilities. The HAT program will provide FSIS with more accurate and complete data on the time spent by FSIS personnel performing nine specific humane 

handling related tasks to ensure humane handling and slaughter requirements are 

met. 

In addition, in November of 2003, FSIS issued an updated directive to all inspection personnel and district offices providing specific, detailed information about requirements of the Humane Methods of Slaughter Act to ensure that verification and 

enforcement requirements are clearly and uniformly understood. In May of 2003, 

FSIS also issued a directive to provide guidance and direction to inspection personnel to ensure consistent use of enforcement actions. 

ENSURE THAT POLICY DECISIONS ARE BASED ON SCIENCE

FSIS continuously reviews its existing authorities and regulations to ensure that 

emerging food safety challenges are adequately addressed. In addition, FSIS is committed to continuing its emphasis on the use of science, research, and technology 

in the development of improved food safety policies, focused on prevention whenever 

possible. 

Risk Assessment 

Risk assessment is one tool that can provide FSIS with the solid scientific foundation on which to base regulatory and policy decisions. In fact, the Agency has used 

risk assessment to estimate the likelihood of exposure to various hazards, and to 

estimate the resulting public health impact. For example, in February 2003, FSIS 

released a draft of a quantitative risk assessment conducted on Listeria in readyto-eat (RTE) meat and poultry products. On February 26, 2003, FSIS held a public 

meeting to discuss the design of the risk assessment, the results, and conclusions 

that could be drawn from it regarding the risk of contamination of RTE products 

with this pathogen during processing. 

The Listeria risk assessment, in conjunction with a previously released Food and 

Drug Administration (FDA)/FSIS risk ranking, peer review, and public comment, 

provided important data enabling FSIS on June 6 to publish a final Listeria rule 

originally proposed in early 2001. This risk-based regulation will serve as the cornerstone of the FSIS efforts to prevent listeriosis from RTE meat and poultry products. The rule requires all establishments that produce RTE products that are exposed to the environment after cooking to develop written programs to control Listeria monocytogenes and to verify the effectiveness of those programs through testing. Establishments must share testing data and plant-generated information relevant to their controls with FSIS. The rule also encourages all establishments to 

employ additional and more effective Listeria monocytogenes control measures. 

Innovative Testing Methods 

In October 2003, FSIS announced the adoption of the BAX® system to screen for 

Salmonella in raw meat and poultry products. The Microbial Outbreak and Special 

Projects Laboratory, in collaboration with three FSIS field service laboratories, evaluated the BAX® system to determine whether it would be beneficial to the agency 

and to determine its validity and reliability. FSIS determined that the BAX® system was as sensitive as the existing method of detecting Salmonella in raw meat 

and poultry products, but also reduced the reporting time for negative samples by 

one to 2 days. FSIS has been using the BAX® screening system for Salmonella in 
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ready-to-eat meat, poultry and pasteurized egg products since February 2003, and 

for Listeria monocytogenes since April 2002. This new measure increases efficiency 

in detecting pathogens and saves valuable agency time and resources. 

Reducing E. coli O157:H7 

FSIS has instituted major changes in its E. coli O157:H7 policy to further ensure 

that beef plants address and reduce the presence of E. coli O157:H7. In October 

2002, the agency took strong steps to address E. coli O157:H7 contamination based 

on USDA’s Agricultural Research Service’s data and FSIS’ draft risk assessment. 

Those measures are starting to pay dividends to the American consumer. Our scientifically trained personnel have examined prevention mechanisms at more than 

1,000 beef establishments and a majority of those plants have made major improvements based on reassessments of their HACCP plans. As a result, we are seeing a 

drop in the number of E. coli O157:H7 positive samples in ground beef. For instance, in E. coli O157:H7 samples collected and analyzed during 2003, 0.30 percent 

tested positive, compared to 0.78 in 2002—or a 62 percent reduction. 

IMPROVE COORDINATION OF FOOD SAFETY ACTIVITIES WITH OTHER PUBLIC HEALTH

AGENCIES

With primary authority over meat, poultry, and egg products, FSIS plays an integral role in ensuring the safety of America’s food supply. As one partner in the U.S. 

food safety effort, FSIS strives to maintain a strong working relationship with its 

sister public health agencies. Cooperation, communication, and coordination are absolutely essential if we are to be effective in addressing public health issues. 

BSE Coordination 

The December 2003 discovery of a single case of Bovine Spongiform 

Encephalopathy (BSE) in Washington State provides an excellent example of the 

strong communication ties and the cooperation between USDA and its Federal and 

State food safety partners. The Federal Government’s swift and substantial reaction 

to the BSE diagnosis played a vital role in maintaining high consumer confidence. 

FSIS and its sister agencies moved effectively and forcefully upon the discovery of 

a BSE case in this country, further strengthening already formidable BSE preventive measures. Being a part of the continuous briefings, planning meetings, international trade discussions, and all the other events surrounding this situation has 

been both challenging and rewarding. FSIS has worked closely with USDA’s Animal 

and Plant Health Inspection Service (APHIS) and other mission areas in USDA, 

FDA, state governments, industry and consumers to ensure our BSE prevention and 

response measures are fully effective in the United States. 

MOU with FDA 

Since 1999, FSIS and the Food and Drug Administration (FDA) have had a 

Memorandum of Understanding (MOU) to exchange information on an on-going 

basis about establishments that fall under both jurisdictions. FSIS will continue engaging in substantive discussions with FDA and other agencies who share public 

health and food safety responsibilities. The Bioterrorism Act of 2001 (Public Law 

107–188) further enhanced this cooperation by authorizing FDA to commission FSIS 

employees to conduct inspection at dual jurisdiction facilities. 

Public Health Service Commissioned Corps Officers 

In addition to its partnerships with the White House and Federal agencies, FSIS 

has entered into a working relationship with the U.S. Public Health Service (PHS) 

and the Office of the Surgeon General. In April 2003, FSIS signed a Memorandum 

of Agreement with the Surgeon General and the PHS that allows expanded numbers 

of PHS Commissioned Corps Officers to be detailed to the agency. FSIS currently 

has 19 PHS Commissioned Corps Officers detailed to the agency and will incorporate additional PHS Officers nationwide across all program areas under the 

agreement. Not only will these officers help FSIS respond to foodborne disease outbreaks and assist in preventing foodborne illness, but they will assist in the agency’s 

homeland security efforts as well. Since the Commissioned Corps Officers are available 24 hours a day, 7 days a week, this affords a greater flexibility to respond immediately during heightened security alerts or an actual threat to the food supply. 

USDA’s Unified Food Safety Research Agenda 

Another example of FSIS’ commitment to communication, cooperation, and coordination was the November 2003 announcement of a unified food safety research 

agenda to improve the efficiency and effectiveness of food safety programs. USDA 

also released a list of additional research needs specific to meat, poultry and egg 

products that FSIS will encourage non-governmental entities to address. The gov-
167 

ernment research agenda will complement these efforts by industry and academia. 

USDA’s Research, Education, and Economics (REE) mission area worked with 

USDA’s Office of Food Safety, other government food safety agencies, and stakeholders to develop the unified research agenda. The unified agenda prioritizes research needs and maximizes use of available resources. 

ENHANCE PUBLIC EDUCATION EFFORTS

Because everyone has a responsibility for food safety, educating the public about 

this responsibility is a crucial element in FSIS’ food safety mission. All food preparers, from consumers to food service employees, must know and understand basic 

safe food-handling practices. These efforts must be broad enough to ensure that no 

segment of the public is uninformed about safe food handling practices, yet at the 

same time, target various segments of the population to positively influence those 

behaviors that pose the greatest potential risk. Communicating with the public 

about food safety must be accomplished in a manner that is easily understandable 

so that it is useful to every segment of the population. Thus, FSIS has considered 

innovative and collaborative methods for delivering the food safety message. 

The Food Safety Mobile 

One such innovative way of spreading the food safety message is USDA’s Food 

Safety Mobile, which was introduced in March 2003. This eye-catching ‘‘food safety 

educator-on-wheels’’ brings food safety information to consumers and builds on our 

partnerships in communities across the country. Through the Food Safety Mobile, 

FSIS is sharing its food safety message with the general public as well as culturally 

diverse and underserved populations and those with the highest risk from foodborne 

illnesses. From March to November 2003, the Mobile traveled over 24,000 miles and 

participated in 87 events in 64 cities across the country. These events ranged from 

county fairs and grocery store demonstrations, to the Taste of Minnesota and the 

Philadelphia Thanksgiving Day Parade. FSIS used these opportunities to provide information and publications on food safety to approximately 179,000 people face-toface at Mobile events. FSIS estimates 64.4 million media impressions from the Mobile, and that does not include internet exposure. 

Educational Campaign 

FSIS has also been conducting an educational campaign through public events 

and media interviews with national and regional media organizations in order to 

reach more of the population with important public health messages. Recent events 

were held in Houston, Philadelphia, Portland, San Francisco, Miami, and the Flathead Reservation in Montana. National television interviews have been conducted 

with major television networks, including Fox News, Telemundo and Univision. National celebrities, such as former Miss America Heather Whitestone McCallum, pop 

music legend Olivia Newton-John, and country singer Wynonna Judd, have also 

been recruited to help FSIS reach even larger audiences with food safety messages 

through special events and the filming of Public Service Announcements (PSA). The 

results have been impressive. The Heather Whitestone McCallum PSA has aired 

14,448 times since September 2003. This PSA ranked in the top 3 percent of all 

PSA’s shown during the month of January 2004 along with PSA’s by the American 

Red Cross, the Federal Emergency Management Agency (FEMA), and the Department of Homeland Security (DHS). 

USDA’s Meat and Poultry Hotline 

USDA’s Meat and Poultry Hotline is an additional tool that FSIS uses to share 

its food safety message. The Hotline handled over 98,000 calls and 80 media and 

information multiplier calls during fiscal year 2003. Calls included requests from 

newspapers, magazines, radio, television, and book authors, and included live interviews with radio and television stations. The Hotline also provides recorded information and live assistance for our Spanish-speaking callers. Additionally, the Hotline was a key resource for keeping the public informed about the BSE situation 

in Washington and has handled approximately 4,000 calls and 1,000 emails concerning BSE since December 23, 2003. 

PROTECT MEAT, POULTRY, AND EGG PRODUCTS AGAINST INTENTIONAL CONTAMINATION

In the aftermath of September 11, 2001, there is recognition that threats to the 

well being of the Nation’s citizens can come in the form of terrorist attacks, including the intentional contamination of food. With a strong food safety infrastructure 

already in place, FSIS has been focusing on fortifying existing programs and improving internal and external lines of communication. By partnering with other 

agencies, including CDC, FDA, USDA’s Agricultural Research Service (ARS), DHS, 
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APHIS, the Environmental Protection Agency (EPA), as well as international partners such as the Canadian and Mexican governments’ food inspection agencies, and 

State and local health agencies, FSIS is in a pivotal position to share information 

and to strengthen critical infrastructure protection activities concerning food from 

farm to table. 

FSIS Office of Food Security and Emergency Preparedness 

To date, FSIS has undertaken a number of initiatives to protect meat, poultry, 

and egg products from the potential of a terrorist attack. Immediately following September 11, 2001, FSIS established the Food Biosecurity Action Team (F-BAT). The 

charge of F-BAT was to coordinate all activities related to biosecurity, counter-terrorism, and emergency preparedness within FSIS. These activities are coordinated 

with USDA’s Homeland Security Council, other government agencies, and industry. 

Currently, FSIS’ newly created Office of Food Security and Emergency Preparedness 

(OFSEP) has assumed the responsibilities of F-BAT and serves as the centralized 

office within FSIS for food security issues. 

OFSEP interacts closely with USDA’s Homeland Security Council and represents 

the agency on all food security matters throughout the Federal Government, as well 

as in State and local activities. The Office’s mission is to lead in the development 

of the agency’s infrastructure and capacity to prepare for, prevent, and respond to, 

deliberate attacks or other threats to the U.S. food supply. As the lead coordinator 

and primary point of contact on all food security and emergency preparedness activities within FSIS, OFSEP focuses primarily on: 

—Emergency preparedness and response; 

—Federal/State/Industry Relations; 

—Continuity of operations (COOP); 

—Scientific expertise in chemical, biological, and radiological terrorism; and, 

—Security clearance and safeguarding classified information. 

To ensure coordination of these activities involves all program areas of the agency, 

OFSEP established a new standing advisory group, the Food Security Advisory 

Team (FSAT), comprised of representatives of the major program areas within FSIS, 

to provide program-specific technical support. 

Expanding Coordination with Federal, State, and Local Agencies 

FSIS collaborates and coordinates closely with its State partners to ensure an effective prevention and response program. Some of the many state organizations 

FSIS works with include the Association of Food and Drug Officials (AFDO); the Association of State and Territorial Health Officials (ASTHO); and the National Association of State Departments of Agriculture (NASDA). Most recently, FSIS teamed 

with FDA in cosponsoring a joint meeting between ASTHO and NASDA, entitled 

‘‘Homeland Security: Protecting Agriculture, the Food Supply, and Public Health— 

The Role of the States.’’ The purpose of this meeting was to enhance collaboration 

between State public health and agriculture agencies and the Federal Government. 

Both the Secretary of Agriculture and the Secretary of Health and Human Services 

(HHS) were on hand for this joint meeting. 

FSIS also works closely with the White House Homeland Security Council, DHS, 

FDA, and the USDA Homeland Security Staff to develop strategies to protect the 

food supply from an intentional attack. For example, FSIS, along with FDA and industry partners, is working with DHS to establish a new food information sharing 

and analysis activity for the food sector. This public/private partnership will aid in 

the protection of the critical food infrastructure by centralizing the information 

about threats, incidents, and vulnerabilities. 

Consumer Homeland Security Education 

Because everyone has a stake in a safe and secure food supply, FSIS published 

Food Safety and Food Security: What Consumers Need to Know in November 2003, 

as part of the agency’s continuing effort to protect public health by preventing and 

responding to contamination of the food supply throughout the farm-to-table continuum. The brochure, developed by FSIS, is available in both English and Spanish. 

In a concise and easy-to-follow format, Food Safety and Food Security: What Consumers Need to Know, lays out comprehensive and practical information about safe 

food handling practices, foodborne illness, product recalls, keeping foods safe during 

an emergency and reporting suspected instances of food tampering. This publication 

is the latest in a series of food security guidelines issued by FSIS that includes FSIS 

Security Guidelines for Food Processors and FSIS Safety and Security Guidelines 

for the Transportation and Distribution of Meat, Poultry and Egg Products. 
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Ensuring the Safety of Imports 

To further strengthen our import inspection program, we established a new position called the import surveillance liaison inspector, using funds provided in the fiscal year 2001 Homeland Security Supplemental Appropriations Act. These inspectors augment the current activities of traditional import inspectors at locations 

across the country. The import surveillance liaison inspectors conduct a broader 

range of surveillance activities, and they coordinate with other agencies, such as the 

APHIS, FDA, and the U.S. Customs and Border Protection within the DHS. Currently, 20 of these new inspectors are on board, and we anticipate more will be 

added. 

Laboratories 

Laboratories play a key role in our ability to quickly detect contamination of the 

food supply. FSIS has four ISO accredited laboratories—three regulatory laboratories that conduct testing on samples of meat, poultry and egg products, and a 

fourth laboratory that focuses on microbial outbreaks. FSIS has increased security 

at all of our laboratories. This includes instituting procedures to ensure proper 

chain of custody and other controls on all samples and materials received by the 

labs. The labs participate in the Electronic Laboratory Exchange Network 

(eLEXNET), which is a system designed to provide a secure network in which food 

safety labs at various levels of government can share test data on food samples. 

Furthermore, FSIS laboratories have enhanced analytical capability for compounds of concern and developed surge capacity. Our four labs have expanded capability to test for non-traditional microbial, chemical and radiological threat agents. 

In addition, the Agency has also begun construction of a Bio Security Level 3 facility 

that will be able to conduct analyses on a larger range of potential bioterrorism 

agents. 

FSIS is also represented on the interagency Laboratory Response Network and 

has worked to develop the Food Emergency Response Network (FERN) for potential 

foodborne contamination incidents. FERN was formed in 2002 and currently has 

about 61 members, including FSIS, FDA, and state labs. Participation is open to 

Federal, State, and local government labs that are capable of conducting food testing 

and forensic analysis for a wide variety of chemical, biological and radiological 

agents. FERN can help respond to national emergencies, including terrorist threats 

that might affect the food supply. In fiscal year 2005, FSIS plans to significantly 

expand its participation in FERN. 

FISCAL YEAR 2005 BUDGET REQUEST

I appreciate having the opportunity to discuss a number of FSIS’ accomplishments 

with you. Now I would like to present an overview of the fiscal year 2005 budget 

request for FSIS. Implementation of these budget initiatives is imperative to helping 

us attain FSIS’ public health mission. In fiscal year 2005, FSIS is requesting a program level of $951.7 million, a net increase of about $61 million from the enacted 

level for fiscal year 2004. Under current law, we are requesting an appropriation 

of $838.7 million, with an additional $113 million in existing user fees. 

Supporting FSIS’ Basic Mission 

The FSIS budget request for fiscal year 2005 supports the Agency’s basic mission 

of providing continuous food safety inspection in each meat, poultry, and egg products establishment in the United States. The fiscal year 2005 budget includes $15.5 

million in increases for mandatory pay raises in Federal and State programs. This 

includes annualization of the calendar year 2004 pay raise, as well as the anticipated calendar year 2005 pay raise. 

The fiscal year 2005 budget request includes a $17.3 million increase for the full 

cost of in-plant inspection and enforcement of humane handling and slaughter. FSIS 

employee salary, benefits, and inspector travel between plants make up a large portion of the FSIS budget and have a serious affect on our ability to staff plants if 

not fully funded. Thus, FSIS requires a $12.3 million increase to avoid detrimental 

employment restrictions within the agency, which would result if unavoidable cost 

increases are not fully funded and must be absorbed. An additional $5 million is 

requested so that FSIS’ inspection workforce can continue its strict enforcement of 

regulations for humane slaughter and handling of livestock, a top priority at FSIS. 

New Initiatives 

The fiscal year 2005 request includes a $33.6 million increase for new initiatives 

that support the Department’s goals for FSIS. 
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BSE Surveillance 

First, the fiscal year 2005 budget request includes an increase of $3 million for 

BSE surveillance. FSIS’ BSE inspection program will add permanent BSE control 

measures in fiscal year 2005, which include: increased in-plant verification of 

slaughter plant designs for controlling specified risk materials (SRMs), overtime inspection, and travel for Veterinary Medical Officers to test non-ambulatory disabled 

livestock when they arrive at small slaughter plants that do not have a resident veterinarian. FSIS will also perform about 60,000 screening tests in fiscal year 2005 

at processing plants that use advanced meat recovery (AMR) equipment, to ensure 

that SRMs do not enter the food supply. 

Food and Agriculture Defense Initiative 

The fiscal year 2005 budget also requests a $23.5 million increase to support a 

food and agriculture defense initiative in partnership with USDA, HHS, and DHS. 

Food contamination and animal and plant diseases and infestations can have catastrophic effects on human health and the economy. The three Federal Departments 

involved are working together to create a comprehensive food and agriculture policy 

that will improve the government’s ability to respond to the dangers of disease, 

pests and poisons, whether natural or intentionally introduced. Our food and agriculture defense initiative has five components: 

—Biosurveillance; 

—The Food Emergency Response Network; 

—Data systems to support the Food Emergency Response Network; 

—Enhancing FSIS laboratory capabilities; and 

—Follow-up bio-security training. 

First, the food and agriculture defense initiative will allow FSIS to participate in 

an interagency biosurveillance initiative that would improve the Federal Government’s ability to rapidly identify and characterize a potential bioterrorist attack. 

Funding this initiative will improve Federal surveillance capabilities and enable 

FSIS to integrate with DHS to compile FSIS surveillance information rapidly with 

threat information. This funding would also allow FSIS to focus its resources on the 

vulnerable products and processes identified during the agency’s vulnerability assessments of imported and domestic products; increase regulatory sampling for 

three additional threat agents; add five Import Surveillance Liaison Inspectors, 30 

program investigators for transportation, distribution, and retail surveillance, and 

two Public Health and Epidemiology Liaison Officers to our workforce; and establish 

a Foodborne Disease Surveillance Communication system to coordinate with DHS 

systems. 

The second component of the food and agriculture defense initiative is the Food 

Emergency Response Network (FERN), which I discussed earlier. A nationwide laboratory system with sufficient capacity to meet the needs of anticipated emergences 

is integral to any bioterrorism surveillance and monitoring system. The goal is to 

establish 100 FERN laboratories, creating a network of Federal, State and local laboratories that FSIS could call upon to handle the numerous samples that would be 

required to be tested in the event of a terrorist attack on the meat, poultry or egg 

products supply. The fiscal year 2005 budget request would expand FERN to contract with State and local laboratories, and to establish five regional hubs and a National Operating Center to coordinate FERN’s efforts and conduct training. In addition, FSIS would also fund the establishment of five to seven State laboratories for 

screening of microbiological agents, with more laboratories in the future, based on 

the availability of funds. 

The third and fourth components of the food and agriculture defense initiative 

provide further support to FERN. The electronic laboratory exchange network 

(eLEXNET), which I mentioned previously, is a national, web-based, electronic data 

reporting system that allows analytical laboratories to rapidly report and exchange 

standardized data. The fiscal year 2005 budget request would provide funding needed to make eLEXNET available to additional FERN and other food-testing laboratories nationwide. In turn, the budget request would enhance FSIS’ laboratory capabilities in order to detect new bioterror-associated agents, and to ensure FSIS’ capability and capacity to perform the toxin and chemical testing that will be standardized across all FERN laboratories. 

Because the realm of biosecurity is ever changing, FSIS must provide its workforce with the most up-to-date information necessary to ensure that meat, poultry, 

and egg products are protected from intentional contamination. Therefore, the final 

component of the food and agriculture defense initiative is follow-up biosecurity 

training of the workforce. This additional training is essential as part of the ongoing 

effort to protect the public by educating the workforce regarding the latest threat 

agents and countermeasures to those agents. 
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Training and Education 

Training is a top priority at FSIS. Our inspection workforce is our greatest asset, 

and this is why FSIS is dedicated to establishing and maintaining a comprehensive 

and fully integrated training program. The agency is continuing its extensive training effort by requesting approximately $7.1 million, or an increase of 50 percent 

over fiscal year 2004, to train all new inspection personnel and to expand existing 

training programs in fiscal year 2005. 

To ensure that newly hired inspection personnel receive the proper orientation 

and training to perform their jobs when they report to duty, FSIS is requesting approximately $4 million in fiscal year 2005. The agency has been criticized in the 

past for not immediately training all new employees. This initiative will provide the 

formal training needed to ensure that inspection procedures are performed consistently and appropriately under agency policies. This initiative will also enable FSIS 

to place 10 district trainers, in addition to five already funded in the agency’s baseline, throughout the Nation, to orient and train FSIS employees. 

Last year, FSIS began retooling and expanding its existing training programs by 

incorporating a public health focus and integrating scientific and technical principles with training on technical and regulatory approaches to inspection. Through 

the $3.1 million requested by FSIS in fiscal year 2005, the agency would continue 

to provide Food Safety Regulatory Essentials (FSRE) training to field employees, including food inspectors, CSOs, Inspectors-in-Charge, and Compliance Officers. The 

agency will offer the training regionally to accommodate inspection staff. Additional 

computer-based-training will be provided to implement the training, and will be catered to the inspection personnel’s specific food safety responsibilities. 

User Fee Proposal 

Under current law, in 2005 FSIS estimates it will collect $113 million in annual 

user fees to recover the costs of overtime, holiday, and voluntary inspection. FSIS’ 

fiscal year 2005 budget includes a legislative proposal to recover the costs of providing inspection services beyond an approved 8-hour primary shift. The proposal 

was submitted to Congress last August. If enacted, the level of appropriated funds 

needed would be reduced by an estimated $124 million, making the FSIS budget 

request $714.7 million. This will result in significant savings for the American taxpayer. 

CLOSING

The goals and initiatives that FSIS has laid out as its vision represent a monumental task. But let me assure you; this is a task that we are ready and willing 

to take on. I believe that with the appropriate support, FSIS will be able to achieve 

its public health vision and strengthen the safety of meat, poultry, and egg products. 

Mr. Chairman, this concludes my prepared statement. Thank you for your continued support. Thank you also for the opportunity to submit testimony to the Subcommittee on how FSIS is working with Congress and other partners to achieve its 

public health vision. 

ADDITIONAL COMMITTEE QUESTIONS

Senator BENNETT. Thank you very much for your testimony. 

[The following questions were not asked at the hearing, but were 

submitted to the Department for response subsequent to the hearing:] 

QUESTIONS SUBMITTED BY SENATOR ROBERT F. BENNETT

BSE

Question. On March 15, 2004, the Department of Agriculture announced details 

for an expanded surveillance effort for BSE. The release also stated that $70 million 

is being transferred from the Commodity Credit Corporation (CCC) to test cattle in 

the high risk population. According to the announcement, the $70 million will allow 

testing of 268,000 animals. Using the Department estimate, testing all animals destined for export could cost at or near $1 billion. 

In your opinion, do you believe testing 100 percent of the export market is possible? Also, any additional comments or updates in regard to the cost of animal testing would be appreciated. 

Answer. Although it is logistically possible to test 100 percent of the cattle slaughtered in the United States every year, USDA does not recommend following this 
172 

course of action. Testing predominantly young, healthy animals beyond the bounds 

of a scientific surveillance plan would create a false sense of security for consumers 

and could lead to either a tiered system (testing for exports but not for domestic 

consumption) or, more probably, testing all cattle slaughtered. 

USDA’s targeted surveillance program is designed to identify the presence of BSE 

in the U.S. cattle population if it exists. We understand that some in industry have 

suggested blanket-testing all animals presented at slaughter as a means of providing ‘‘BSE-screened products’’ and easing trade barriers. However, it is our contention that current barriers against U.S. beef are scientifically unwarranted, and we 

continue working at the highest levels to reopen foreign markets for U.S. producers. 

We must clarify that surveillance testing for BSE—especially if it is performed on 

clinically normal animals at slaughter—is not an efficient risk mitigation measure 

for protecting public health. USDA is confident that the removal of specified risk 

materials, along with other measures such as feed practices regulated by the Food 

and Drug Administration address the potential health risk of BSE. 

USDA’s BSE surveillance program has always focused testing efforts on those animals that fall into the highest-risk category for the disease. These include cattle exhibiting signs of neurologic disease; condemned at slaughter for neurologic reasons; 

testing negative for rabies and submitted to public health laboratories and teaching 

hospitals; and appearing non-ambulatory (including those exhibiting general weakness severe enough to make it difficult but not impossible to stand), also known as 

‘‘downer cattle.’’ We also sample adult cattle that have died for unexplained reasons. 

We estimate that approximately 35 million cattle are slaughtered in the United 

States annually. If each one of these animals were to be tested, and we included 

the cost of the test kit, sample collection, shipping and handling, laboratory processing and support, training, equipment, and other associated fees, USDA estimates 

that the total cost would be between $175 and $200 per animal. Thus, the total cost 

for testing every animal slaughtered could reach as high as $6 to $7 billion per year. 

Question. The livestock industry and Department of Agriculture are working toward reopening export markets in Japan, Mexico, and other exporting countries. 

The controversy arises over testing each animal and whether or not animals under 

the age of 30 months should be tested. 

Do you believe each animal, including those under 30 months of age, should be 

tested prior to export? 

Answer. USDA’s targeted surveillance program is designed to identify the presence of BSE in the U.S. cattle population if it exists. We do not agree that blankettesting all animals prior to export, including those under 30 months of age, is a scientifically sound approach to disease surveillance. 

USDA’s BSE surveillance program has always focused testing efforts on those animals that fall into the highest-risk category for the disease. These include cattle exhibiting signs of neurologic disease; condemned at slaughter for neurologic reasons; 

testing negative for rabies and submitted to public health laboratories and teaching 

hospitals; and appearing non-ambulatory (including those exhibiting general weakness severe enough to make it difficult but not impossible to stand), also known as 

‘‘downer cattle.’’ We also sample adult cattle that have died for unexplained reasons. 

AVIAN INFLUENZA

Question. The Administration’s fiscal year 2005 Budget request includes an increase in funding of $11.783 million to address Low Pathogenic Avian Influenza 

(LPAI) in live bird markets. 

Can you update the Committee in regard to ongoing action related to avian influenza and explain how the Department would utilize the additional funding? 

Answer. APHIS has been working to establish a national LPAI program and incorporate it into the National Poultry Improvement Plan (NPIP). The national LPAI 

program will be discussed and hopefully adopted at the NPIP meeting in July 2004. 

The program has drafted a Uniform Methods and Rules (UM&R) for the live bird 

marketing portion of the program and the subcommittee of the U.S. Animal Health 

Association is currently reviewing the draft to obtain their recommendations for program improvement. 

APHIS would utilize the additional funding for cooperative agreements with 

states that will support the LPAI prevention and control program; for indemnities; 

for additional field personnel, equipment, and other resources necessary to assist 

states with long-term prevention and control; for educational materials and training 

for recognition of avian influenza and for biosecurity practices to protect against the 

disease; for development and administration of vaccine to support industry when infected with LPAI; and for reagents and other laboratory support to incorporate the 

commercial program through the National Poultry Improvement Program (NPIP). 
173 

This program is currently testing poultry breeder flocks and will continue to expand 

its activities until all segments of the commercial industry are monitored and certified as avian influenza clean. 

Question. With the discovery of avian influenza, a number of countries have 

banned poultry imports from the United States. 

Can you provide the Committee with an update on poultry export markets and 

exactly what actions USDA is taking to reopen these markets? 

Answer. The USDA is currently working with countries that have imposed bans 

on taking the necessary actions to remove the bans on exports and reopen all poultry markets. Our actions include: depopulating positive testing flocks, cleaning and 

disinfecting those flocks, providing additional surveillance activities to ensure that 

all positive have been removed, and responding to inquiries and questionnaires to 

prove that areas are free of avian influenza and trade bans can be removed. 

On April 6, the Canadian Food Inspection Agency (CFIA) recognized the United 

States as free of highly pathogenic avian influenza (HPAI) and lifted all HPAI-related importation bans on U.S.-origin birds, poultry, and poultry products. Other 

countries including Armenia, Macedonia, and Serbia have removed their bans and 

have allowed exports to enter their country. Several other countries including: Chile, 

Czech Republic, Hungary, Israel, Poland, and Taiwan have reduced their restrictions to allow poultry exports from all states except for Texas. 

CHILDHOOD OBESITY

Question. Childhood obesity is a growing health concern for many Americans. The 

Department of Agriculture has and continues to conduct research to further understand the factors that contribute to obesity. 

Can you update the Committee in regard to actions that the Department is taking 

to inform consumers and to combat obesity? 

Answer. The Department is making a substantial commitment to promoting 

healthy weight through nutrition education and promotion. In the Food, Nutrition, 

and Consumer Services (FNCS) mission area, the Food and Nutrition Service (FNS) 

nutrition education efforts are targeted primarily to participants or potential participants in the nutrition assistance programs it administers, while the Center for Nutrition Policy and Promotion (CNPP) provides nutrition education and information 

for the general public. In addition, the Cooperative State Research, Education and 

Extension Service (CSREES) has a significant commitment to nutrition education, 

as well as the Agricultural Research Service and the Economic Research Service, 

who perform basic and applied research supporting this effort. 

FNCS undertakes a range of ongoing activities each year to deliver nutrition education and promotion to program recipients; all of these include maintenance of 

proper weight as one component of a healthy lifestyle, including: 

—Integrating nutrition and physical activity promotion within and across the programs.—The Eat Smart. Play Hard.TM campaign for children and their caregivers stresses the need to balance what you eat with how active you are, and 

Team Nutrition provides nutrition education for the Nation’s schoolchildren. 

Materials such as brochures, activity sheets and posters, coordinated with nutrition curricula, are used to help children, their parents, and caregivers learn 

healthy eating and active living behaviors. 

—Reshaping nutrition education in the Food Stamp Program.—To target activities 

that promote healthy weight. For example, we are developing new nutrition 

education materials that program staff can use to motivate low-income elderly 

people and women with children to improve their eating behaviors. 

—Developing new ways to support healthy weight through the WIC program.—The 

Fit WIC project developed five intervention programs that WIC and other community agencies can implement to prevent overweight in young children. Educational packages such as Fathers Supporting Breastfeeding are used in WIC 

clinics to support breastfeeding. Breastfed babies are less likely to become overweight as they grow, and mothers who breastfeed may return to pre-pregnancy 

weight more easily. 

—Promoting healthy school nutrition environments.—Unhealthful beverage and 

food choices at school can undermine children’s ability to learn and practice 

healthy eating. We developed and are distributing the Changing the Scene action kit to help local schools and communities to support healthier eating and 

active living behaviors. 

—Promoting increased fruit and vegetable intake.—Through partnerships with 

other Federal Agencies and the National 5-A-Day Program. For example, we 

worked together to develop the Fruits and Vegetables Galore-Helping Kids Eat 

More tool kit, which helps foodservice professionals with planning, preparation, 
174 

and promotion strategies to encourage the children they serve to consume more 

fruit and vegetables. For fiscal year 2005, the President’s Budget proposes several initiatives to enhance these efforts to better address obesity and promote 

healthy weight. These include: —The budget requests $20 million, a $5 million increase, to enhance WIC 

breastfeeding promotion efforts through peer counseling. The use of 

breastfeeding peer counselors has proven to be an effective method of increasing 

initiation and duration of breastfeeding, and breastfed babies are more likely 

to maintain a healthy weight as they grow. —The budget requests $5 million to initiate a new series of WIC Childhood Obesity Prevention Projects, which build on the success of the Fit WIC projects to 

work in partnership with States on innovative strategies to use WIC to prevent 

and reduce childhood obesity through enhanced nutrition and education, physical activity promotion, and environmental efforts. Ongoing funding for such 

projects is critical to ensuring continuous improvement in this area. —It requests $2.5 million to expand the Eat Smart. Play Hard.TM Campaign and 

establish a cross-program nutrition framework to help ensure a comprehensive, 

integrated approach to nutrition education in all FNS nutrition assistance programs. 

—The budget includes $1 million for the Center for Nutrition Policy and Promotion (CNPP) plans to build on previous work to implement the consumer 

messages developed and pilot tested with 20- to 40- year-old women, especially 

low-income women, to help consumers aim for a healthy weight. 

—The budget requests as additional $655,000 to complete the development of the 

6th edition of the Dietary Guidelines for Americans, as well as an additional 

$1 million to update and promote the new food guidance system which will update the Food Guide Pyramid. CNPP also plans to develop obesity prevention 

materials based on the Dietary Guidelines and the new food guidance system, 

as well as promote the consumption of fresh fruit and vegetables. Plans include 

the development of print materials and interactive tools, such as the Interactive 

Healthy Eating Index, that direct dietary guidance to the individual to facilitate 

healthful behavior change. 

INDEFINITE FUNDING IN THE FOOD STAMP ACT

Question. The Administration’s fiscal year 2005 Budget includes a request for new 

legislative language to allow for indefinite funding authority for the Food Stamp 

Act. 

Can you provide the Committee with an explanation of why this legislative language has been requested? 

Answer. The indefinite authority proposal in this year’s Food Stamp Program 

budget would provide such sums as necessary to fund program benefits and payments to States, in the last 4 months of the fiscal year if program needs exceed the 

anticipated level. It would ensure that sufficient resources will always be available 

to provide access to the program for all eligible persons who wish to participate. It 

can be difficult to estimate program needs or the size of an adequate contingency 

reserve, particularly when there are changes in the economy. With indefinite authority, if program costs should significantly exceed budget estimates, it would 

never be necessary to seek a supplementary appropriation or implement a benefit 

reduction. This proposal would bring the structure of this critical program in line 

with other major social welfare programs that already have indefinite authority. 

QUESTIONS SUBMITTED BY SENATOR CHRISTOPHER S. BOND

GUIDELINES ON FAT CONSUMPTION

Question. There is a linear relationship between high transfatty acid and high 

saturated fat intake and chronic disease. We also know that the consumption of 

foods high in these two elements likely contribute to the statistics on obesity. 

Does USDA intend to draft guidelines or standards for the consumption of these 

fats? 

Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in the process of evaluating the most recent scientific evidence on fatty acids and health and 

is preparing to make science-based recommendations specifically for saturated and 

trans fatty acids consumption. At its most recent public meeting held on March 30 

and 31, 2004, members of the Committee discussed the possibility of setting intake 

goals for both types of these fatty acids—saturated and trans—and also discussed 

the implications these proposed recommendations would have for the general public. 
175 

It is expected that the dietary fat recommendations will emphasize the reduction 

of current intake for saturated and trans fatty acids. The Committee is also expected to address the need for encouraging product reformulations by food manufacturers to reduce unhealthy fats in food products. It should be noted that on July 

11, 2003, the Food and Drug Administration published a final rule requiring food 

manufacturers to list the amount of trans fatty acids on product nutrition labels by 

January 1, 2006. Some manufacturers have already responded to the rule by implementing the labeling requirement or by eliminating trans fatty acids from their 

products. 

The Committee is continuing its deliberations on specific fatty acid recommendations. However, the final advisory report is expected to be submitted to USDA and 

HHS by June 30, 2004. The final science-based recommendations on saturated and 

trans fatty acids will be incorporated in the agency’s education and communication 

efforts after completion of the DGAC report. 

In an effort to help Americans reduce their risk of cardiovascular disease and improve their health, USDA’s proposed new Food Guidance System, to be released in 

2005, emphasizes consumption of oils instead of solid fats in the diet and differentiates between saturated and unsaturated fats. The guidance recommends that 

Americans choose fats mostly from foods higher in polyunsaturated or 

monounsaturated fat, and particularly Omega-3 fats such as those found in fish. 

Question. Since not all oils are equally healthy, will USDA provide guidelines and 

or regulations to restaurants and other food manufacturers and—more importantly—provide them a roadmap to increasing the nutritional content and decrease 

trans and saturated fat levels of their products? 

Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in the process of evaluating the most recent scientific evidence on fatty acids and health and 

is preparing to make science-based recommendations specifically for saturated and 

trans fatty acids consumption. The Committee is also expected to address the need 

for encouraging product reformulations by food manufacturers to reduce unhealthy 

fats in food products. 

Additionally, researchers from the Agricultural Research Service are working with 

agricultural producers and the fats and oils industry to find alternative ingredients 

and develop oils such as canola and sunflower oils with higher levels of the fatty 

acids that may help reduce levels of low-density lipoproteins—or bad cholesterol— 

without reducing the high-density lipoproteins—or good cholesterol. Through Federal research and education efforts, these ‘‘heart-friendlier’’ oil products are expected 

to be utilized by the food industry, offering trans fatty acid-free products in the marketplace. 

Question. Does USDA intend to provide specific guidelines and or regulations on 

the characteristics of healthy oils highlighting those oils that have low saturated fat 

and transfat profiles that can be used in most food manufacturing to improve overall health and nutrition of those foods? 

Answer. The 2005 Dietary Guidelines Advisory Committee (DGAC) is in the process of evaluating the most recent scientific evidence on fatty acids and health and 

is preparing to make science-based recommendations specifically for saturated and 

trans fatty acids consumption. At its most recent public meeting held on March 30 

and 31, 2004, members of the Committee discussed the possibility of setting intake 

goals for both types of these fatty acids and also discussed the implications these 

proposed recommendations would have for the general public. It is expected that the 

dietary fat recommendations will emphasize reduction in saturated fatty acids and 

trans fatty acids. The Committee is also expected to address healthy fats and provide intake recommendations on how consumers can incorporate ‘‘healthy’’ oils in 

their diets. The USDA will incorporate the recommendations from the DGAC into 

its education and communication efforts after completion of the DGAC report. The 

USDA will provide consumers with information on the most common sources for 

‘‘healthy’’ oils to offer them healthy choices in selecting a balanced diet. 

Question. Does USDA have this authority? 

Answer. USDA has authority to provide consumers with information on the nutritional content of foods, including oils and common sources for ‘‘healthy’’ oils. USDA 

attempts to help consumers, producers and industry by offering information regarding healthy choices when selecting a balanced diet. 

Question. How does USDA intend to incorporate the information it hopes to disseminate through the campaigns mentioned in Mr. Bost’s testimony into USDA run 

food programs? 

Answer. Nutrition promotion efforts such as the Eat Smart.Play Hard.TM campaign and Team Nutrition are designed specifically to be delivered through the Federal nutrition assistance programs. Materials are developed by the Food and Nutrition Service (FNS) and disseminated to State and local program partners through 
176 

the web and direct delivery. Program cooperators also order campaign materials 

through the Department of Commerce’s National Technical Information Service 

(NTIS). 

Most of the materials developed to date are designed for use in specific programs. Part of the requested $2.5 million increase for cross-program nutrition activities will 

support development of nutrition promotion materials that can be integrated into 

more than one program, maximizing the impact of limited nutrition education funding. 

FNS and the Center on Nutrition Policy and Promotion (CNPP) also work closely 

together to ensure that program-based nutrition education activities are fully consistent with the Dietary Guidelines for Americans and the food guidance system intended to deliver the Guidelines to the general population. These agencies confer directly, and participate together in the Dietary Guidance Working Group, which reviews nutrition education materials to ensure their consistency with Federal nutrition policy and guidance. When the new Guidelines and food guidance system are 

finalized, FNS will review all of its nutrition education interventions to ensure that 

they are consistent with the updated guidance, and make any needed changes. 

SOYBEAN RUST

Question. In part due to a short U.S. soybean crop in 2003, the U.S. livestock industry is expected to import a larger amount of soybean meal this year than in the 

recent past. The usual source for U.S. soymeal imports is Brazil, which experienced 

the arrival of Asian soybean rust a few years ago. Since Asian soybean rust has not 

yet arrived in the United States, it is important that we do everything we can to 

delay that arrival as long as possible. 

When will APHIS make a decision about any additional quarantine steps for imported soybeans or soybean meal that it will impose, and will APHIS consult with 

the relevant stakeholder groups, such as the American Soybean Association and 

livestock groups, before making a final decision? 

Answer. APHIS officials are looking closely at our country’s importation of soybean seed, meal, and grain. Our analysis to date has shown that clean soybean seed 

and soybean meal—which is a heat-treated, processed product—is unlikely to pose 

any risk of introducing this disease. Historically, there has never been a documented instance of soybean rust spread through trade. Rather, it is spread naturally 

through airborne spore dispersal. We are currently conducting a risk assessment to 

study the viability of the pathogen. The preliminary results of the assessment indicate a very low risk, if any, of introducing this disease through imports. We posted 

our initial risk document on the APHIS’ Web site and requested public comments. 

The comment period closed April 12, 2004. 

We have been working very closely with the American Soybean Association and 

other stakeholders throughout our efforts to prevent and prepare for the introduction of soybean rust. Most recently, USDA officials participated in a soybean rust 

conference that was cooperatively organized by USDA, five pesticide companies, and 

the American Soybean Association. The primary goal of the conference was to disseminate to soybean farmers the knowledge, information, and techniques they will 

need to manage this pathogen when it reaches the continental United States. We 

are committed to continuing and expanding this outreach, including working with 

the livestock industry, in our efforts develop policies for preventing the human-assisted entry of the disease. We will ensure that any new regulations regarding soybean imports are based on the best available scientific information. 

QUESTIONS SUBMITTED BY SENATOR HERB KOHL

COMBATING CHILDHOOD OBESITY

Question. Mr. Bost, both USDA and FDA have recently announced new efforts to 

combat the increasing problem of obesity. FDA announced the ‘‘Calories Count’’ program, and USDA has money in several programs, including WIC, to help battle this 

problem. However, for all of the government’s efforts, all of the money being put into 

this effort pales in comparison to the food industry’s billions of dollars worth of advertising. 

How can the government successfully get its message out when, at first glance, 

its efforts appear to be dwarfed by the food industry? How do your agencies compete 

with that? 

Answer. USDA has a strong partnership with the Department of Health and 

Human Services, including CDC and FDA, which helps ensure that the Federal investment to combat obesity is a collaborative effort with consistent messages to the 
177 

public. USDA plans to capitalize on the Federal infrastructure working with the 

vast network of State, county, and other local government agencies and groups to 

extend the reach of their messages and materials. USDA is participating in the creation of a new Food Guidance System which would be the cornerstone of other Federal nutrition assistance programs. USDA is also actively exploring options for partnerships and seeking opportunities to collaborate with other health organizations, 

advocacy and industry groups to help carry the Federal Government messages. 

Question. Mr. Bost, the Senate report of the fiscal year 2004 Agriculture Appropriations bill encouraged the USDA to work with Share Our Strength and its Operation Frontline (as well as other innovative organizations) to improve eating habits 

and food budgeting skills of program participants. In view of growing concern about 

obesity and health, those objectives seem as valid as ever. 

What progress can the Department report in response to this encouragement? 

Answer. Share Our Strength SOS provided my office with a proposal for Operation Frontline to provide nutrition education to nutrition assistance program participants. I also met with Bill Shore, the Executive Director of SOS, to discuss it 

with him personally before it was sent to the Food and Nutrition Service for a more 

thorough review. In our discussion, I learned that the project shares many of the 

same goals as USDA’s nutrition education efforts, and uses a model similar to that 

used by State agencies in providing nutrition education and promotion to Food 

Stamp recipients. 

As you know, nearly all of the nutrition education funding provided to FNS must 

be used for grants to State agencies that operate the programs, often for specifically 

earmarked purposes. The Department’s ability to provide direct funding for organizations such as SOS is thus highly constrained, and we were unable to offer a grant 

to support Operation Frontline in response to their proposal. However, I was 

pleased to learn more about their efforts, and value SOS as a non-profit sector partner in our shared effort to promote healthy eating and wise use of food resources 

among low-income people. 

COMMODITY SUPPLEMENTAL FOOD PROGRAM FISCAL YEAR 2004 FUNDING

Question. The Commodity Supplemental Food Program was forced to cut nearly 

30,000 participants in fiscal year 2004. The current budget flat lines program funding, but the carryover funding from the previous years is no longer available. It has 

been estimated that this will cause another 30,000 people taken off the roles—all 

senior citizens. 

How do you propose people at the state level, who actually carry out these programs, deal with a cut this deep? 

Answer. About 29,500 fewer caseload slots were assigned in 2004 than in 2003. 

However, the caseload of 536,196 allocated in 2004 exceeds actual participation in 

any month to date, including the peak participation of 526,955 achieved in September 2003. Thus, the caseload available in 2004 covered actual nationwide program participation. 

In reference to the President’s fiscal year 2005 budget request, the $98.335 million 

requested for the Commodity Supplemental Food Program (CSFP) equals Congress’ 

fiscal year 2004 program appropriation, and is higher than the $94.991 million requested in the budgets for fiscal years 2002 through 2004. However, variables beyond the Administration’s control have yielded significantly fluctuating levels of 

total program resources over the same period. These variables are the amounts that 

Congress appropriates and cash carryover from the previous year, which is determined primarily by the extent to which States utilize their assigned caseloads. Even 

though the fiscal year 2005 budget request includes an increase over the prior year’s 

request, the anticipated lack of cash carryover would result in a projected participation decrease of 60,700 nationally. 

The Department will pursue all means to minimize the impact of straight-line 

funding for the program. We also wish to point out that we are implementing major 

initiatives, including more extensive and varied Food Stamp Program outreach efforts, which address the nutritional needs of the population served by the CSFP. 

People eligible for the program should also be eligible to receive benefits under the 

Emergency Food Assistance Program and the Nutrition Services Incentive Program 

now administered by the Department of Health and Human Services. The Food and 

Nutrition Service will work closely with State agencies to help affected individuals 

meet their nutritional needs through these other Federal nutrition assistance programs. 
178 

FOOD GUIDE PYRAMID

Question. Mr. Bost, you mentioned in your statement that the FNS is currently 

working on updating the food guide pyramid. I understand that you have received 

a significant number of comments so far on your efforts. 

How many comments has FNS received on the proposed food guide pyramid? 

Answer. Last September, a Notice was published in the Federal Register requesting comments from all stakeholders on the proposed technical revisions to the current Food Guide Pyramid. USDA is using an open and transparent process to revise 

the science base and communications elements for the current Food Guidance System, the Food Guide Pyramid. This process resulted in 255 response letters with 

1,101 separate comments from a broad array of nutrition professionals, health organizations, academic faculty, food industry organizations and the general public. To 

continue this transparent process, we have made these comments available for anyone to view on our website at http://www.usda.gov/cnpp/pyramid-update/index.html. 

Question. Do you believe you will be able to make the June deadline for publication? 

Answer. The report to the Secretaries of Agriculture and Health and Human Services from the Dietary Guidelines Advisory Committee is expected to be finalized by 

June 30, 2004. The scientific advisory report will be published in electronic format 

on the USDA and HHS websites. The two Departments will then jointly review and 

publish the revised Dietary Guidelines, which is anticipated to be released in January 2005. The revised Food Guidance System is scheduled to be released approximately a month later, in February 2005. 

LOW-CARBOHYDRATE DIETS

Question. How is USDA working to take into consideration the various low-carbohydrate diets that have become so popular in this country? 

Answer. USDA continues to rely on consensus science from authoritative bodies 

and reports such as the report from the Dietary Guidelines Advisory Committee, the 

National Academy of Sciences, and USDA’s food consumption surveys. USDA’s Agricultural Research Service has six nutrition research centers that continually explore 

timely nutrition issues. As new weight-loss diet trends emerge, USDA works in collaboration with HHS as well as reputable organizations such as the American Dietetic Association and the Society for Nutrition Education, to plan communications 

strategies to help guide the American public to make healthy food choices. 

Question. Is USDA, NIH or CDC doing any research on the safety and validity 

of these diets? 

Answer. USDA’s research is focused on energy balance and nutrient adequacy to 

effect long-term health. For optimal nutrient adequacy, the research continues to 

look at the nutrition requirements that ensure a healthy life, maximum vigor and 

well being and reduced risk of chronic disease, not to study the comparative effects 

of weight-loss diets. Where many new diet programs capture the interest of the public and come and go, nutritional requirements remain constant regardless of any 

particular diet. Much of our Federal research includes the role of carbohydrates, 

proteins, and fats and other nutrients play in a healthy diet. 

NATIONAL ORGANIC STANDARDS BOARD

Question. Mr. Hawks, the Organic Foods Production Act is very clear that the 

NOSB should be able to hire their own Executive Director, and that that person 

should report to the NOSB directly. Is the job announcement published by USDA 

intended to meet the requirements of the statute in this regard? 

Answer. AMS intends to meet the requirements of the Organic Foods Production 

Act (OFPA) which provides that the Board shall have a staff director. 

The General Provisions of the Consolidated Appropriations Act, 2004, (Title VII) 

limit the Department’s spending authority to ‘‘not more than $1.8 million for all advisory committees within USDA. Of this total, AMS has been allotted $90,000 for 

the National Organic Standards Board. This means that AMS can spend up to 

$90,000 of the funds appropriated for Organic Standards on the expenses of the 

NOSB. The Organic Foods Production Act requires that Board members be reimbursed for their travel expenses, including per diem. AMS cannot transfer appropriated funds to the Board to hire its own staff, nor do we have the authority to 

hire or contract for an employee who is not responsible to AMS. 

Consequently, AMS recently filled an Advisory Board Specialist position. All of 

the specialist’s time is dedicated to NOSB support under the direction of the National Organic Program (NOP) Manager. A complete description of the Advisory 

Board Specialist’s duties will be provided for the record. 
179 

The increased funding provided by Congress in fiscal year 2004 will enable the 

Department to hire additional staff which will further increase the program’s quantity and timeliness of service. 

[The information follows:] 

Advisory Board Specialist Responsibilities: 

—Bi-annual re-establishment of the NOSB Charter 

—Development and publication of news releases and Federal Register notices 

seeking nominees for NOSB membership 

—Preparation of nominations packages and supporting documents for NOSB appointments 

—Development and publication of news releases and Federal Register notices 

alerting the public to NOSB meetings 

—Arranging public meetings; travel, hotel and meeting accommodations, and contracting for Court Reporters and Audio Visual Equipment 

—Arranging guest speakers at NOSB meetings 

—Reimbursing NOSB members for travel expenses in accordance with Federal 

travel regulations 

—Development, maintenance, and administration of an NOSB website 

—Reporting on Board activities 

—Arranging and participating in NOSB committee conference call meetings 

—Developing and publishing rulemaking actions to implement NOSB recommendations 

—Contracting with vendors for Technical Advisory Panel (TAP) review of petitioned materials 

—Reviewing petitions for compliance with OFPA, its implementing regulations, 

and the petition procedures 

—Communicating with petitioners and the TAP vendors 

—Identifying program needs for which the NOSB can provide advice 

—Reviewing the work of the NOSB for completeness, accuracy, and compliance 

with OFPA, its implementing regulations, and the requirements of other Federal entities 

—Performing all activities required for compliance with FACA 

—Representing USDA at all meetings of the NOSB and its committees 

Question. I understand that AMS has contracted with the American National 

Standards Institute to review the National Organic Program. Will the ANSI effort 

be a one-time audit or ongoing oversight panel, which is what was envisioned by 

the statute and the organic community. If the ANSI effort is a one-time review, 

what steps, if any, are being taken to create an ongoing Peer Review Panel, to oversee the accreditation activities of the National Organic Program? 

Answer. We are in the process of completing an initial peer review of the NOP 

and hope to complete that review later this fiscal year. After this review is completed, we will make the results public and invite members of industry and the 

Board to work with us to develop a process for ongoing Peer Reviews of the NOP. 

Question. Could you please provide the Committee with a list of the policy recommendations made by the NOSB since passage of the final organic rule, and what 

action has been taken by the Department in response to those recommendations? 

Answer. The information is submitted for the record. 

NOSB NON-MATERIALS RECOMMENDATIONS SINCE MARCH 2000 

NOSB Recommendations AMS Response 

June 2001: 

Recommended regulations pertaining to labels with 

principal display panel, ingredient deck and information panel all on a single labeling panel.

The recommendation is covered by existing standards. 

Should AMS determine that there are problems with application of the standards; AMS will engage in rulemaking to clarify the requirements. 

June 2001: 

Recommended Peer Review Panel procedures for review 

of accreditation program.

Review of AMS’ accreditation program could not begin until 

after certifying agents were accredited. AMS has contracted with the American National Standards Institute 

for review of AMS’ accreditation program. The review is 

underway. 

June 2001: 

Recommended technical corrections to the final rule .... AMS has acted on several of the recommended corrections 

and AMS is still working with the NOSB on others AMS 

will soon take action on the remainder. 
180 

NOSB NON-MATERIALS RECOMMENDATIONS SINCE MARCH 2000—Continued 

NOSB Recommendations AMS Response 

September 2001: 

Recommended Apiculture Standards ............................... The recommendation is covered by existing standards. 

Should AMS determine that there are problems with application of the standards; AMS will engage in rulemaking to clarify the requirements. 

September 2001: 

Recommended guidance for preservatives used in vaccines.The recommendation did not need AMS action beyond acceptance and posting on the Web. The recommendation is 

posted on the Web.1

October 2001: 

Recommendations on Aquatic Animals ........................... AMS accepted the recommendations. The recommendations 

are posted on the Web.1

October 2001: 

Recommendations on Pasture ......................................... The recommendation is covered by existing standards. 

Should AMS determine that there are problems with application of the standards; AMS will engage in rulemaking to clarify the requirements. 

October 2001: 

Recommendation, Principles of Organic Production and 

Handling.

The recommendation did not need AMS action beyond acceptance posting on the Web. The recommendation is 

posted on the Web.1

October 2001: 

Recommended procedures for amending the National 

List.

AMS follows the Federal Rulemaking procedures for amending regulations. 

October 2001: 

Recommended Greenhouse Standards ............................. The recommendation is covered by existing standards. 

Should AMS determine that there are problems with application of the standards; AMS will engage in rulemaking to clarify the requirements. 

October 2001: 

Recommended Mushroom Standards ............................... The recommendation is covered by existing standards. 

Should AMS determine that there are problems with application of the standards; AMS will engage in rulemaking to clarify the requirements. 

October 2001: 

Recommended removing handlers from the $5,000 exemption.AMS has not accepted the recommendation because it 

would violate the Organic Foods Production Act. 

October 2001: 

Recommended adding ‘‘certified’’ in front of ‘‘distributor’’ in 3 places.AMS has not accepted the recommendation because distributors are not required to be certified. 

May 2002: 

Recommended guidelines for determining whether a 

processing technology shall be reviewed by the 

NOSB.

The recommendation is posted on the Web.1 When AMS further defines what materials are subject to NOSB review, 

it may take further action on the technology recommendation. 

May 2002: 

Recommended guidelines for US/EU equivalency ........... AMS has considered all points within this recommendation. 

USDA and USTR are in equivalency negotiations with the 

EU. 

May 2002: 

Recommended that certifying agents use the Organic 

Farm Plan documents developed under an AMS cooperative agreement.

AMS fully supports the recommendation. The recommendation did not need AMS action beyond acceptance and 

posting on the Web. The recommendation is posted on 

the Web.1

May 2002: 

Recommended that certifying agents use the Organic 

Handling Plan documents developed under an AMS 

cooperative agreement.

AMS fully supports the recommendation. The recommendation did not need AMS action beyond acceptance and 

posting on the Web. The recommendation is posted on 

the Web.1

May 2002: 

Recommended clarification on ‘‘access to the outdoors’’ 

for poultry.

AMS accepted the recommendation and used it to develop 

an ‘‘access to the outdoors’’ policy statement for livestock which is posted on the Web.1
181 

NOSB NON-MATERIALS RECOMMENDATIONS SINCE MARCH 2000—Continued 

NOSB Recommendations AMS Response 

May 2002: 

Recommended a handling operation ingredient affidavit 

as guidance to handlers and certifying agents.

The recommendation did not need AMS action beyond acceptance and posting on the Web. The recommendation is 

posted on the Web.1

May 2002: 

Recommended clarification for section 205.606 relative 

to commercially available.

AMS is working with the NOSB on this issue. The NOSB is 

scheduled to provide a new recommendation on section 

205.606 at its April 2004 meeting. 

May 2002: 

Recommended clarification regarding planting stock for 

perennial crops grown as annual crops.

The recommendation did not need AMS action beyond acceptance and posting on the Web. The recommendation is 

posted on the Web.1

May 2002: 

Recommended guidance on transitional products .......... The recommendation is outside the National Organic Standards. AMS will take no action beyond posting the recommendation on the Web.1

May 2002: 

Recommended compost production methods beyond 

those specifically addressed in the NOP. The recommendation is intended as guidance.

AMS is working with the chair of the NOSB Compost Task 

Force on this issue. Specifically, AMS has requested scientific justification for the recommendations. AMS is concerned about the potential for human pathogens in the 

compost. 

October 2002: 

Recommended regulation changes for origin of livestock; dairy animals.The Organic Trade Association (OTA) filed its own recommendations relative to dairy animal replacement at 

the October 2002 NOSB meeting. The OTA and NOSB recommendations differ substantially. AMS is reviewing this 

issue. 

May 2003: 

Approved a new recommendation on origin of dairy animals.The Organic Trade Association (OTA) filed its own recommendations relative to dairy animal replacement at 

the October 2002 NOSB meeting. The OTA and NOSB recommendations differ substantially. AMS is reviewing this 

issue. 

October 2002: 

Recommended criteria for certification of grower groups AMS is reviewing this issue. 

May 2003: 

Recommended publication of clarification management 

of breeder stock.

AMS is reviewing this issue. 

May 2003: 

Recommended regulation change on chlorine contacting 

organic food.

AMS is working on a rulemaking docket that will address 

this recommendation. 

1Website: http://www.ams.usda.gov/nop/indexIE.htm. 

BEAVER CONTROL

Question. How does APHIS/Wildlife Services plan to uphold their cooperative responsibility with the Wisconsin Department of Natural Resources to provide beaver 

damage management activities that are being requested of them to restore trout 

streams that have been damaged by beavers? 

Answer. APHIS/Wildlife Services (WS) cooperates with the Wisconsin Department 

of Natural Resources (WDNR) to conduct beaver damage management on high quality trout streams in Wisconsin. Beaver dam building activities can greatly alter the 

natural flow of a trout stream, destroying its ability to support trout. Beaver dams 

and the impoundments they create cause decreased water flow, water warming, and 

increased siltation. They also pose a barrier to trout, interfering with spawning. One 

component of the WS trout habitat protection program is to maintain select trout 

streams in free flowing, natural condition in order to improve or restore trout habitat and protect habitat improvement structures. The fiscal year 2005 budget will 

continue to fund these programs at current levels. 

Question. Beaver damage to roads, bridges, crops, forests and property are also 

increasing in Wisconsin resulting in an increasing number of requests to Wildlife 

Services for assistance. The State of Wisconsin, some counties and some townships 
182 

provide cooperative funding to Wildlife Services for their assistance with beaver 

damage problems. 

How does Wildlife Services plan to fulfill their cooperative responsibilities in responding to Wisconsin citizens’ requests for beaver damage assistance? 

Answer. APHIS/Wildlife Services (WS) cooperates with a number of northern Wisconsin county highway and forestry departments, and numerous local township road 

departments, to provide beaver damage management services for the protection of 

roads and road structures, and forestry resources. The fiscal year 2005 budget will 

continue to fund these programs at current levels. 

BOVINE SPONGIFORM ENCEPHALOPATHY RECALL

Question. Dr. Murano, during the BSE scare, USDA announced that approximately 38,000 pounds of beef were recalled, after originally stating that the recall 

was only 10,400 pounds. Over the course of the following few weeks, we read stories 

about consumers who feared that they ate the contaminated meat because they 

were never informed that they purchased a part of the recalled amount, because 

proprietary information, including sales and distribution records, is kept secret during a voluntary recall. Further, there was a 3 week delay between the time the recall was announced and the time retailers found out about it. 

How much of the recalled beef was actually found? 

Answer. FSIS field personnel worked cooperatively with other Federal and State 

partners to conduct recall effectiveness checks on 100 percent of the establishments 

that sold or distributed the product associated with the recall. FSIS is confident that 

the product was quickly removed from the marketplace. FSIS determined that the 

recalling firm and its customers made extensive efforts to retrieve and dispose of 

the recalled product. 

FSIS announced the recall at 1:00 a.m. on December 24, 2003. Less than 18 hours 

later, over 325 locations—primarily grocery stores—had received notifications from 

their suppliers. 

On February 9, 2004, FSIS issued an update to the recall stating that approximately 21,000 pounds of product had been returned. This estimate was developed 

in late January 2004 using information from the FSIS investigation, including recall 

effectiveness checks. 

Question. How long did it take between the time USDA announced the recall and 

the time individual grocery stores found out they had part of the contaminated beef? 

Was the responsibility on the grocers to find out for themselves, or were they all 

informed by either their state governments or USDA? 

Answer. FSIS announced the recall at 1:00 a.m. on December 24, 2003. FSIS 

issued a press release that was distributed nationally. Simultaneously, its recall 

management division began collecting distribution information from the establishments that slaughtered and processed meat from the affected animal. Less than 18 

hours later, over 325 locations—primarily grocery stores—had received notifications 

from their suppliers. It is the responsibility of the recalling company to notify its 

customers, including grocers, that they had received recalled product. FSIS then 

conducted effectiveness checks on the recall to confirm that the responsibilities of 

the recalling firm were met. 

Question. If USDA had the authority to initiate mandatory recalls, do you think 

consumers would have found out more quickly? Why or why not? 

Answer. No establishment has refused to comply with a recall requested by FSIS. 

Should they refuse, then FSIS has the legal authority to detain and/or seize meat, 

poultry and egg products in commerce. The current recall process is the quickest 

way to determine where the affected product has been distributed because companies are familiar with who their customers are and can notify them much more 

quickly than the Federal Government could. Public health would not likely be enhanced by the addition of mandatory recall authority because the Agency already 

has the means to remove product quickly from commerce. 

Question. After all of the dust has settled, is USDA looking again at its policy of 

not wanting the authority for mandatory recalls? 

Answer. Through effectiveness checks, public meetings and other means, FSIS is 

constantly reviewing and looking for ways to improve the recall process. In December 2002, FSIS held a public meeting to discuss improving the process for recalls 

of meat, poultry and egg products and to gather useful input on related topics. FSIS 

expects to issue a revised recall directive in fiscal year 2004 taking into account the 

comments it received at the public meeting. The directive will discuss how public 

notification of recalls is to take place and will provide information on the new riskbased system the agency will use for determining the scope of effectiveness checks. 
183 

SOUND SCIENCE

Question. Dr. Murano, in your testimony you stated that there was a significant 

drop in E.coli 157:H7 between 2002 and 2003, and credited this drop to reassessment of plants’ HACCP plans and increased audits. 

Were the same plants that were sampled in 2002 sampled in 2003? If not, how 

can you make a comparison between the two years? Unless the exact same plants 

were sampled, how can you be statistically certain that the plants sampled in 2002, 

but not sampled in 2003 have shown any improvement? 

Answer. There are valid methods for analyzing a time series of data even though, 

as in this dataset, there are changes in the establishments being sampled from year 

to year. The analysis conducted by FSIS compares over 6,000 scheduled samples of 

ground beef production from fiscal year 2002 with over 6,000 samples of ground beef 

production from fiscal year 2003 and tests whether the populations are the same 

from year to year with respect to the presence of E. coli O157:H7. Statistical analysis was done using the Chi-square test to show the association between positive 

E. coli O157:H7 samples and laboratory method, season and year. A Poisson regression model was used to demonstrate the significant decline in percent positive samples from 2002 to 2003, after controlling for season and laboratory method. The conclusion is that the reduction in E. coli O157:H7 in raw ground beef from fiscal year 

2002 to fiscal year 2003 was statistically significant. 

On April 29, 2004, the Centers for Disease Control and Prevention, in its annual 

report on the incidence of infections from foodborne pathogens, noted a decline of 

42 percent of illness caused by E.coli O157:H7 from 1996 to 2003. Most significantly, 

between 2002 and 2003, illnesses caused by E.coli O157:H7, typically associated 

with ground beef, dropped by 36 percent. 

Question. Further, I have been informed that of the 58,000 samples collected for 

Salmonella in 2002, nearly 40,000 were collected from beef products, which have a 

lower rate of Salmonella than poultry products. It would appear that due to the high 

percentage of beef products sampled relative to other products, FSIS would be more 

likely to find a lower rate of positive Salmonella samples than if the percentages 

were weighted for equal comparison. Can you comment on this? 

Answer. The agency has seven Salmonella performance standards for classes of 

raw product, and the highest number of samples is for raw ground beef because 

more establishments are subject to this standard than other standards. 

On April 29, 2004, the Centers for Disease Control and Prevention, in its annual 

report on the incidence of infections from foodborne pathogens, noted that from 1996 

to 2003, illnesses caused by Salmonella decreased 17 percent and Salmonella 

Typhimurium (typically associated with meat and poultry) decreased 38 percent. 

Question. You mention the new need for new baseline studies in your statement. 

In fiscal year 2004 FSIS received funding for these activities. 

What will you do, or are you currently doing, to ensure that these studies do not 

have some of the same problems as the previous studies, as outlined by the National 

Academy of Science? Will FSIS be using any of its fiscal year 2005 funding to continue conducting new baseline studies? 

Answer. For the current baseline project, using the funds provided for fiscal year 

2004, the agency developed a study protocol that was reviewed by the National Advisory Committee on Microbiological Criteria for Foods (NACMCF). FSIS modified 

the current plans based on NACMCF recommendations and will continue to seek 

comments from the National Advisory Committee on Microbiological Criteria for 

Foods on future baseline projects. 

FSIS considers the fiscal year 2004 $1.65 million baseline initiative to be an addition to its base program and will continue to review funding needs for fiscal year 

2005. 

INSPECTOR TRAVEL

Question. Dr. Murano, it has been suggested that FSIS inspection personnel 

would benefit greatly from exposure and visits to slaughter facilities in different 

parts of the country, in order to compare differing methods of animal handling and 

slaughter practices to help them better enforce HMSA. 

Would you consider making changes to your travel policy to provide an employee 

per diem for time spent visiting slaughter facilities, if done as part of an unrelated 

personal or business trip? 

Answer. USDA is committed to strong enforcement of the HMSA. FSIS continually assesses its HMSA oversight and enforcement, primarily through the activities 

of the District Veterinary Medical Specialists (DVMSs). As methods are available to 

improve our HMSA efforts, the DVMSs develop strategies for incorporating them 

into the overall roles and responsibilities of the agency. Currently, DVMSs have au-
184 

thority and opportunity to travel across district boundaries for humane activities 

when necessary. 

SAUSAGE CASINGS

Question. Dr. Murano, this question involves a very specific issue related to food 

safety and sausage production in this time of concern about BSE. FSIS interim final 

regulations issued January 12 identify the distal ileum section of beef cattle small 

intestine as Specified Risk Material (SRM) in U.S. animals. In practice FSIS requires that the entire small intestine be removed and disposed of as inedible—presumably to ensure that the distal ileum is removed—even though I am told that 

the distal ileum can be definitively identified and removed without destroying the 

entire small intestine. This situation has the potential to cause harm to that segment of the sausage industry that relies on beef rounds as casing for their products. 

Is there a way to ensure that the distal ileum SRM is completely removed, while 

still ensuring the safety and availability of beef rounds used as sausage casings? 

Answer. FSIS is aware of the various methods for ensuring that the distal ileum 

is properly removed. FSIS specifically asked for comment in a Federal Register notice (January 12, 2004, Docket #03–025IF) on this issue and will be analyzing the 

comments. Meanwhile, FSIS also is aware that more than the distal ileum of the 

small intestine may demonstrate infectivity based on preliminary studies from the 

United Kingdom. FSIS is interested in gaining more information about this new development as FSIS analyzes the comments. 

Question. I am told that current inventories for sausage casings could be exhausted within 2 months. Is it possible to provide further regulatory refinements 

to address this issue within that time frame? 

Answer. Casings made from the small intestine of cattle slaughtered after January 12, 2004, are not currently allowed for human consumption. FSIS is aware of 

the demand for sausage casings made from the small intestine of cattle. However, 

in the interest of public health, FSIS will be analyzing the comments received on 

the interim final rule published on January 12, 2004, and further considering the 

potential ramifications of new findings that additional sections of the small intestine 

may demonstrate infectivity. FSIS will not change the restriction on the use of the 

small intestine in human food until after review of comments received. 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

FOOD AND DRUG ADMINISTRATION

STATEMENT OF LESTER M. CRAWFORD, D.V.M., Ph.D., ACTING COMMISSIONER 

Senator BENNETT. Dr. Crawford, we welcome you. I think this is 

your first time in this particular assignment and we look forward 

to hearing from you. 

Mr. CRAWFORD. Thank you, Mr. Chairman and Senator Kohl. It 

is a pleasure for me to be here with my colleagues from USDA. 

I want to thank you for the opportunity to discuss the Administration’s fiscal year 2005 budget for the Food and Drug Administration. 

As we approach our 100th birthday in 2006, our mission of promoting and protecting the public health has never been more vital. 

Likewise, the challenges and opportunities we face have never been 

greater. 

This committee’s generous support of FDA’s mission over the 

past few years testifies to your recognition of the essential role our 

agency plays in the well being of all Americans. 

The President’s budget for proposal for fiscal year 2005 asks you 

to continue that support. It seeks $1.85 billion, $1.5 billion in budget authority and $350 million in user fees. 

The budget authority increases total $138.9 and savings from administrative efficiencies and deferred facilities repairs and improvements of $30.1 million for a net increase of $108.8 million. 
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The President’s budget request also asks you to build on your 

past support by increasing FDA funding in several priority areas. 

For Food Defense and Counterterrorism, we are seeking an increase of $65 million. Working with the White House Homeland Security Council, FDA and USDA have created a Joint Food Defense 

Budget that will strengthen our ability to protect the Nation’s food 

and agriculture supply from threats whether deliberate or accidental. 

$35 million is requested to establish a national laboratory net- work to test food samples. $15 million is requested for research to 

protect the food supply by such measures as better and faster tests 

to detect toxic agents in food. $7 million to increase FDA’s food import examinations to nearly 100,000, six times the number we did 

in 2001. $3 million to increase our crisis management capabilities 

and $5 million to support the Administration’s biosurveillance initiative. 

For BSE, or mad cow disease, we are requesting an increase of $8.3 million. 

Mr. Chairman, FDA is proud, and I think justifiably so, that we 

were able to trace and control all of the meat and bone meal associated with the BSE-infected cow discovered late last year in the Pacific Northwest. All of the rendering facilities we inspected as part 

of this one BSE case were in full compliance with our rules designed to create firewalls against BSE in this country. Nevertheless, we can and should do more. 

We have already announced several measures to make those firewalls even stronger. With this increased funding, which if you approve it would bring our total BSE resources to $30 million, we will 

do three things. We will increase our State-funded BSE inspections 

by 2,500, we will add more than 900 risk-based BSE inspections 

and 600 targeted animal feed inspections, and we will conduct a 

total of 10,000 BSE inspections, 52 percent more than planned for 

the current year. 

For our Medical Device Program, we are asking for an increase 

of $25 million. We are committed to ensuring that the Medical Device User Fee and Modernization Act is implemented in a manner 

that meets its performance goals and that ensure the strongest and 

most effective medical device review program possible under the 

law with available resources. We need this increase to meet the appropriations triggers required for the Agency to collect medical device user fees. With these resources, FDA will meet all of the performance goals by fiscal year 2008. 

For the Center for Drug Evaluation and Research move to White 

Oak in Maryland, we are requesting an increase of $20.6 million 

in new budgetary authority and $10 million in user fees. We will 

use these resources to relocate the 1,700 review staff in the Center 

for Drug Evaluation and Research to the White Oak Campus. 

For medical countermeasures, we seek an increase of $5 million. 

We are seeking this amount to bolster FDA’s ability to help companies develop new medical countermeasures against terrorist attacks and to review those products quickly. FDA will use this increase to expedite the review of new drug applications, biologics license applications, generic drugs and over-the-counter medical 

product countermeasures. 
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For the pay increase we request an increase of $14.4 million. 

Fully 60 percent of our budget pays the salaries of FDA’s dedicated 

expert employees. I need not emphasize here how important this 

money is for our ability to carry out our public health mission. 

For administrative efficiencies, this budget request includes a reduction of $30 million. These funds will be used to partially fund 

the high priority initiatives I just mentioned as well as to support 

the goals of the President’s Management Agenda. 

Mr. Chairman, by focusing on the President’s highest priorities 

for FDA, in some respects I have only scratched the surface of all 

that we do every day to protect the health of Americans. 

An additional agency priority of particular interest to the Subcommittee, is lowering the rate of obesity, one of the most serious 

public health issues facing America today. We have just finished an 

FDA obesity working group which prescribes a number of recommendations and public input to reforming the food label to make 

it more amenable to the control of obesity, and also for 

demystifying some of the myths that now occur with respect to our 

food supply, not the least of which is confusion about carbohydrates 

and various classifications of carbohydrates. 

PREPARED STATEMENT

I can list other additional program priorities, but in the interest 

of time I will submit my statement for the record and I appreciate 

very much the time accorded me. 

Thank you. 

[The statement follows:] 

PREPARED STATEMENT OF LESTER M. CRAWFORD

Introduction 

Good morning. Mr. Chairman and distinguished members of the Subcommittee, 

I’m pleased to have the opportunity to speak with you today and present to you the 

Food and Drug Administration’s fiscal year 2005 budget request. I am Dr. Lester 

M. Crawford, DVM, Ph.D. Acting Commissioner, Food and Drug Administration. 

The FDA is responsible for protecting the public health by assuring the safety, 

efficacy, and security of human and veterinary drugs, biological products, medical 

devices, our Nation’s food supply, cosmetics, and products that emit radiation. The 

FDA is also responsible for advancing the public health by helping to speed innovations that make medicines and foods more effective, safer, and more affordable; and 

helping the public get the accurate, science-based information they need to use 

medicines and foods to improve their health. 

I’d like to begin by conveying my appreciation to the Subcommittee members and 

their staffs for providing FDA with several key increases in the fiscal year 2004 appropriation such as those funds for generic drugs, food defense, and medical device 

review. In a moment, I will elaborate on how we have spent or plan to spend those 

funds in the current year. I can assure you that funds appropriated in the current 

year and additional increases appropriated in fiscal year 2005 will continue to be 

spent wisely. The American people would be impressed if they really knew how 

much bang for their buck they get out of FDA. 

I am fully aware of the difficult funding decisions all of you must face in the current session, but I want to remind you that marginal investments in FDA’s programs can have such a positive ripple effect across all of your constituencies—from 

the consumer to the farmer to the manufacturer and beyond. FDA is working diligently to reduce administrative and IT costs in fiscal year 2004 and 2005. In fiscal 

year 2004, we offered $57 million in IT and administrative savings and we have 

again proposed another $23 million in administrative savings in fiscal year 2005, 

which we are realizing through efficient administrative resource management. We 

will continue to seek administrative resource savings in order to support our critical 

mission requirements. 
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Executive Summary 

FDA makes substantial and meaningful differences in the lives of over 290 million 

Americans. I am extremely thankful for the professional dedication, creativity, and 

expertise of our staff. Through a combination of dedicated and skilled staff, new authorities of recently passed legislation, and the resources this Subcommittee provides us to carry out our mission, we will be in a better position to meet our challenges than ever before. 

The Administration and Congress have an obligation to the American public to 

ensure that adequate and properly targeted resources are available for the continued success of the Agency and the success of the Federal Government’s efforts to 

promote quality health care. The importance and complexity of FDA’s work will only 

increase in the years to come as FDA continues to carry out its primary mission 

of protecting and promoting the public health. This means that while more medical 

products and therapies will be available to save and improve lives, FDA also must 

think critically and carefully about how it uses its resources to improve the public 

wellbeing. In guiding us through our new Strategic Action Plan that attempts to 

balance demands with limited resources, we will constantly follow the practice of 

‘‘efficient risk management.’’ 

FDA’s Strategic Plan 

On August 20, 2003, FDA released a 5-Part Strategic Action Plan entitled ‘‘Protecting and Advancing America’s Health: A Strategic Action Plan for the 21st Century.’’ This is a dynamic and evolving document that outlines how the Agency is taking new steps to protect and advance America’s public health. In response to various 

public health threats, the Agency developed a core set of consumer-focused goals 

that includes the following: helping consumers get truthful and non-misleading information about FDA regulated products; promoting quick access to new medical 

technologies that are safe and effective; improving patient and consumer safety; responding to the new challenges of bioterrorism and food defense, and building a 

stronger, science-based FDA. These goals were developed and refined in conjunction 

with a number of key healthcare stakeholders, and were based on important feedback from the consumer and patient communities. These are among the many critical challenges the Agency faces as it moves forward into the 21st century. I will 

first discuss these challenges and progress within our strategic planning effort, and 

then will discuss the specifics of FDA’s 2005 budget request. 

Efficient, Science-Based Risk Management 

In fiscal year 2005, FDA will be charged with regulating over 150,000 drugs and 

devices, overseeing the development of almost 3,000 investigational new drugs, monitoring 125,000 domestic product establishments including over 10,000 firms involved in the animal drugs and feed process, reviewing and acting upon an estimated 13 million import line entries, and the list goes on and on. On top of this 

workload, we cover the full life cycle of nearly all food and medical products, and 

also interact on a daily basis with all facets of Federal and State governments, consumers, public and private institutions, and foreign entities. Our proposed budget 

includes the equivalent of 10,844 full-time employees, including reimbursables. The 

numbers speak for themselves and they explain why we must practice efficient, 

science based risk management in fulfilling our increasingly complex mission. 

FDA’s approach entails the use of the best scientific data, the development of 

quality standards, and the use of efficient systems and practices that provide clear 

and consistent decisions and communications to the American public and the regulated industries. This is achieved by employing principles and technologies that can 

reduce avoidable delays and cost in product approvals, overhauling and updating 

the way medical products are manufactured, implementing more effective strategies 

for food imports and food safety, and by implementing an enforcement strategy that 

combines clear communications to industry backed up by effective civil and criminal 

enforcement, FDA will achieve quicker access to safe and effective new products, 

and reduce public health risks without unnecessary costs. Over the past year, our 

work resulted in a wealth of success stories related to enforcement, new medical 

product development, imports and the safety of our food supply. 

Our science based enforcement strategy is one based on clarity, science, leveraging 

resources with our enforcement partners in Justice, Homeland Security, and the 

states, and most importantly, deterrence. In fiscal year 2003, our efforts led to 341 

arrests, 199 convictions, fines and restitutions of more than $800 million submitted 

to the U.S. Treasury (including a multimillion dollar settlement for health care 

fraud), 17 injunctions of firms/individuals, nearly 400 criminal cases opened, 25 seizures of violative products, and more than 500 Warning Letters. Additionally, we 

took action against drug counterfeiters, unscrupulous parties in the dietary supple-
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ment industry, and those who spread misinformation or commit fraud via false labeling and advertising. We remain vigilant when necessary but hold the belief that 

our regulations and the enforcement of the regulations should be no more burdensome than necessary. In addition, FDA remains concerned about the public health 

implications of unapproved prescription drugs from entities seeking to profit by getting around U.S. legal standards for drug safety and effectiveness. Many drugs obtained from foreign sources that either purport to be or appear to be the same as 

U.S.-approved prescription drugs are, in fact, of unknown quality. Consumers are 

exposed to a number of potential risks when they purchase drugs from foreign 

sources or from sources that are not operated by pharmacies properly licensed under 

state pharmacy laws. Although some purchasers of drugs from foreign sources may 

receive genuine product, others may unknowingly buy counterfeit copies that contain only inert ingredients, legitimate drugs that are outdated and have been diverted to unscrupulous resellers, or dangerous sub-potent or super-potent products 

that were improperly manufactured. The Agency has responded to the challenge of 

importation by employing a risk-based enforcement strategy to target our existing 

enforcement resources effectively in the face of multiple priorities, including homeland security, food safety and counterfeit drugs. However, the number of incoming 

packages, as it works today, already overwhelms the system, and this presents a 

significant ongoing challenge for the Agency. The Agency understands Congress’ desire to address importation of drugs and appreciates their understanding of FDA’s 

responsibility to uphold he current law. 

New drug development is an extremely costly process. Today, we see cases where 

the cost of developing a novel drug may reach $800 million and take a decade to 

get from discovery to the marketplace. According to a Tufts University study, only 

21.5 percent of new drugs successfully pass through the clinical phase and gain FDA 

approval. FDA must foster and encourage new product development by ensuring 

that its review and approval processes are efficient, transparent, consistent, and 

predictable. We need to ensure that biomedical innovation leads to the quick development of safe and effective medical products. As recently discussed in our report 

entitled ‘‘Innovation or Stagnation?—Challenge and Opportunity on the Critical 

Path to New Medical Products,’’ FDA, together with academia, patient groups, industry, and other government agencies, must embark on an aggressive, collaborative 

research effort to create a new generation of performance standards and predictive 

tools that will provide better answers about the safety and effectiveness of investigational products, faster and with more certainty. This action promises not only to 

bring medical breakthroughs to patients more quickly, but to do so in ways that ensure greater understanding about how to maximize patient benefits and minimize 

their risks. This can be accomplished by developing quality systems for the Agency’s 

review procedures, developing guidances in new areas of technology development, 

and continuing encouragement of quality improvement in the manufacturing sector. 

We want to build on the past success of industry-supported programs such as the 

drug review process, which is funded by a combination of appropriated dollars and 

user fees defined by the Prescription Drug User Fee Act that will allow FDA to collect up to $284 million in fiscal year 2005. This program’s support helped bring median approval times for standard new drug applications from 26.9 months in 1993 

to 15.4 months in 2003. Increased funding for the past several years in the generic 

drugs program has allowed median approval times to drop from 39.7 months in 

1993 to 17.3 in 2003, and an estimated time under 17 months with the fiscal year 

2004 appropriation. We plan on this kind of support translating into similar success 

for the medical device review program with the help of budget authority and user 

fee dollars in fiscal year 2004 and beyond. Increased funding in fiscal year 2005 will 

allow the Agency to expedite the speed and quality of the medical device review 

process. 

In the past year, highlights of our medical product review process include: 

—in total, approved 483 new and generic drugs and biological products, including 

21 New Molecular Entities with active ingredients never before marketed in the 

United States; 

—approved 85 new drug applications; 

—approved 373 generic drug applications; 

—approved 25 biologic license applications; 

—generic approvals included drugs for the treatment of hypertension and heart 

failure, the treatment and prevention of Cytomegalovirus Retinitis in AIDS and 

transplant patients; a treatment for major depressive disorder; and another for 

impetigo, an infection of the skin; 

—accelerated approvals of a drug used for the treatment of pediatric patients with 

a type of myeloid leukemia—a rare, life-threatening form of cancer that ac-
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counts for approximately 2 percent of all leukemias in children, and another for 

use in combination therapy for chronic Hepatitis C; 

—over-the-counter drug approvals including Claritin for allergies and Prilosec for 

frequent heartburn; 

—device approvals included the first drug-eluting stent for angioplasty procedures 

to open clogged coronary arteries, clearance of the first device for diabetics 

which integrates a glucose meter and an insulin pump with a dose calculator 

into one device, and an innovative rapid HIV diagnostic test kit that provides 

results with 99.6 percent accuracy in as little as 20 minutes. 

Lastly, FDA continues to pursue the most cost effective allocation of resources to 

identify food safety hazards and reduce injury and illness associated with food products. In 2003, building on an HHS strategic goal, FDA implemented new food security regulations that amount to the most substantial expansion of FDA’s food safety 

activities in three decades. The Agency also instituted various new risk communications to improve upon more routine food safety for consumers. Additionally, the 

Agency continues to practice a cost effective allocation of resources through the targeting of field resources to imports that present the most significant risk. With no 

sign of import entries decreasing, FDA will intensify these efforts by implementing 

preventative food safety measures through collaborative arrangements with domestic and foreign governmental bodies. 

Patient and Consumer Safety 

As beneficiaries of the world’s premiere heath care system, Americans should not 

have to endure preventable medical errors and adverse events related to medical 

products, dietary supplements, and foods that are responsible for thousands of 

deaths, millions of hospitalizations, and tens of billions in added health care costs. 

Americans deserve better than settling for serious health consequences that can’t 

be spotted until many years after a product has been on the market. And Americans 

and their physicians deserve better than having to rely on limited and often outdated information about risks, benefits, and costs of medical treatments when they 

are making medical decisions—which, these days, are among the costliest and most 

important decisions in their lives. So we are taking new steps to make our systems 

and processes for assuring the safety of food and medical products work better than 

ever, and to build new ways to assure better patient safety by taking advantage of 

modern information technology tools. We are thankful for the appropriated increases 

for patient, medical product safety and our various adverse event systems in the 

food and medical product centers that we have received in past years. 

Preventing medical errors is a top priority at the Department of Health and 

Human Services and at FDA, and over the past year, FDA has introduced a number 

of solutions that are enabling a more sophisticated and effective 21st century patient safety system, thus helping lower healthcare costs and ensure longer, healthier 

lives for Americans. As a result of these new strategic initiatives, more programs 

are now in place to improve consumer safety than at any time in the Agency’s history. In fiscal year 2003, FDA issued a new proposed requirement for bar codes on 

nearly all prescription drugs and some over-the-counter drugs, as well as machinereadable information on blood and blood components intended for transfusion, that 

will result in an estimated 413,000 fewer adverse events over the next 20 years. 

FDA has initiated partnerships that will allow use of external medical databases to 

investigate specific product safety issues. We continue to encourage the development 

of ‘‘active’’ reporting systems that use fast, easy web-based reports and systems to 

get more extensive and timely information on new drugs, important complications, 

and adverse events that are not well understood. In fiscal year 2003, we also proposed new safety standards to further reduce the incidence of adverse events, such 

as proposed amendments to radiation-safety standards for diagnostic x-ray equipment and new antibiotic labeling to prevent drug-resistant bacterial strains. 

Through enhanced testing and other improvements in blood safety, the risk of 

transmission of viruses such as HIV, hepatitis B and C has been dramatically reduced. While a blood supply with zero risk of transmitting infectious disease may 

not be possible, the blood supply is safer than it has ever been. The agency’s Center 

for Biologics Evaluation and Research, worked closely with other FDA Centers, the 

Center for Disease Control and Prevention, the National Institutes of Health, academic scientists, and the blood and diagnostic industries, in an unprecedented team 

effort that resulted in the development and implementation of investigational blood 

donor screening for West Nile Virus within 8 months of when the threat was first 

recognized. As a result, over 1,000 units of potentially WNV infected blood were 

identified and removed this past year before they could be transfused. 

Lastly, the Agency’s Center for Food Safety and Applied Nutrition launched the 

CFSAN Adverse Event Reporting System covering all food, dietary supplement, and 
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cosmetic products. Consumers submitted and FDA reviewed more than 6,000 adverse events and consumer complaints in an attempt to ensure consumers are alerted quickly to any potential new dangers. Recently, the CFSAN Adverse Event Reporting System provided information on the dangers of ephedra, which has been 

banned by FDA. 

Better Informed Consumers So many of our stakeholders focus their attention on 

our mission to protect public health, and ensure the safety of the food supply and 

the safety and effectiveness of medical products or therapies. However, at the beginning of my testimony I restated FDA’s mission which includes mention of our duty 

to promote public health and ‘‘[help] the public get the accurate, science-based information they need to use medicines and foods to improve their health.’’ The public 

entrusts our subject matter experts and public affairs specialists in Congressional 

districts across the country at the state and local level to provide consumers with 

the tools they need to make better-informed choices. These choices range from diet 

to medical practice recommendations to disease management on the part of the individual. Our role as an educator or informer of the public will become evermore important as patients make more independent decisions about their health and medical care. We must continue to assist the public in how to use their health care dollars as we have done with our generic drug campaigns, and at times protect them 

from misleading information that could endanger the public’s health. 

Providing information on diabetes care and prevention is a top priority of FDA 

and the Administration. In recent years, diabetes rates among people ages 30 to 39 

rose by 70 percent. Research shows that good nutrition lowers people’s risk for many 

chronic diseases, including obesity, heart disease, stroke, some types of cancer, diabetes, and osteoporosis. For at least 10 million Americans at risk for type 2 diabetes, 

proper nutrition along with physical activity can sharply lower their chances of getting the disease. 

FDA is also attempting to enhance the consumer understanding of the relationship between diet/obesity and chronic disease. A recently released report by FDA’s 

Obesity Working Group includes recommendations to strengthen food labeling, to 

educate consumers about maintaining a healthy diet and weight and to encourage 

restaurants to provide calorie and nutrition information. It also recommends increasing enforcement to ensure food labels accurately portray serving size, revising 

and reissuing guidance on developing obesity drugs and strengthening coordinated 

scientific research to reduce obesity and to develop foods that are healthier and low 

in calories. This effort is important, as a new study from Centers for Disease Control and Prevention (CDC) shows poor diet and inactivity are poised to become the 

leading preventable cause of death among Americans—causing an estimated 

400,000 deaths in 2000. CDC estimates that 64 percent of all Americans are overweight, including more than 30 percent who are considered obese. In addition, about 

15 percent of children and adolescents, aged 6 to 19, are overweight—almost double 

the rate of two decades ago. FDA must promote good nutrition by allowing consumers access to credible, science-based information, and fostering competition 

based on the real nutritional value of foods rather than on portion size or spurious 

and unreliable claims. Such labeling can promote better public health by empowering consumers to make smart, healthy choices about the foods that they buy and 

consume. This is a high priority for the Administration to ensure that health claims 

are supported by scientific information. President Bush continues to emphasize the 

improvement of health through better diets and lifestyles. 

FDA is undertaking major new efforts to ensure consumers have the most up-todate, truthful information on the benefits and risks of FDA regulated products. In 

this arena, FDA fulfills two complementary roles: ensuring that the information 

sponsors provide about products is accurate and allows for their safe use; and, communicating directly with the public concerning benefits and risks of products FDA 

regulates. 

FDA’s strategic plan calls for the Agency to learn how to more effectively communicate the risks and benefits of FDA regulated products to consumers, as well as 

those in the health and medical professions. The goal is a well-informed public, empowered to make better choices to improve their health. Just this past year, FDA 

has been involved in a number of consumer education campaigns related to the prudent use of antibiotics, the misuse of pain relievers, the parity between generic and 

name brand drugs, buying medicines and medical products online, and several other 

campaigns aimed at addressing a number of areas where the consumer needs to 

minimize the risks and maximize the benefits of medicine use. FDA also teamed up 

with women’s health organizations to raise awareness about hormone replacement 

therapy (HRT). The previous year, we conducted a similar campaign to raise awareness about diabetes. We spread the word widely about these efforts and we almost 
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always try to provide these messages in Spanish to reach as much of the public as 

possible. 

Counterterrorism 

FDA is improving its capability to assess and respond effectively to its mission 

of protecting the security of the Nation’s food supply, and ensuring the safety and 

effectiveness of medical products used to prepare and respond to biological, chemical, or radiological attacks. As Secretary Thompson reported in the July 2003 report 

entitled, ‘‘Ensuring the Safety and Security of the Nation’s Food Supply,’’ the Agency is working with other government agencies and the private sector to develop and 

implement a comprehensive strategy to protect the food supply from attack. These 

include additional staff for food safety field activities, greater import presence at our 

Nation’s borders, threat assessments, and additional money for food security research. FDA’s medical product centers are also working harder and more creatively 

than ever to speed the availability of the next generation of safer, more effective 

countermeasures to protect Americans against biological, chemical, nuclear, and radiological agents of terrorism. 

In fiscal year 2003, FDA implemented a number of fundamental enhancements 

on both the food defense and medical countermeasures fronts, in meeting the objectives of this strategic goal. In direct response to this heightened threat, and in conjunction with the Department of Health and Human Service’s larger 

counterterrorism initiatives, FDA has implemented new steps in food defense that 

represent the most fundamental enhancements in the Agency’s food safety activities 

in many years. FDA’s implementation of four new food security regulations prompted by the Public Health Security and Bioterrorism Preparedness and Response Act 

of 2002 (Bioterrorism Act), will be fundamental and long lasting. Two additional 

regulations are expected to be finalized in the near future. The Bioterrorism Act 

gave the Agency some potentially effective tools in identifying, preparing for or responding to terrorist attacks on the food supply. The design and implementation of 

these four regulations has also spawned a closer working relationship with the U.S. 

Customs and Border Protection Agency (CBP). Our close relationship led to a recent 

Memorandum of Understanding (MOU) between FDA and CBP in December 2003 

that allows FDA to commission thousands of CBP officers to conduct, on FDA’s behalf, investigations and examinations of imported foods in accordance with the prior 

notice requirements. This cooperative arrangement with FDA’s sister enforcement 

agency was in addition to a more than six-fold increase in the number of field examinations of imported foods from fiscal year 2001 to fiscal year 2003 (78,000) conducted by FDA inspectors and our state partners. Much more needs to be done in 

this area as we note in our Congressional budget request for an increase of $65 million. 

Protecting consumers against terrorism also requires that Americans have access 

to safe and effective medical countermeasures. This year, FDA has worked closely 

with scientists and product developers and has taken new steps to speed the development of these safe, effective treatments and preventive vaccines. FDA works 

closely with NIH, CDC, DHHS, DOD and industry to develop new and improved 

treatments and vaccines to counter smallpox, anthrax, and other potential emerging 

biowarfare and public health threats. 

FDA has had to become more proactive in identifying possible products for approval for medical countermeasures due to the fact that no known group of patients 

are currently affected by many of the conditions linked to biological, chemical, or 

radiological agents. So, in fiscal year 2003, the Agency issued new guidance on the 

development of Radiogardase (‘‘Prussian Blue’’) for treatment of internal contamination with thallium or radioactive cesium. Several months later, a firm submitted an 

application and FDA approved Radiogardase to treat people exposed to radiation 

contamination from harmful levels of cesium-137 or thallium after identifying existing safety and efficacy data. FDA has worked with other government agencies to 

facilitate the development of counter-terrorism products, such as vaccines and immune globulins against anthrax, smallpox, and botulism, by resolving regulatory 

issues and developing assays for potency testing. FDA also took various steps to 

make sure that manufacturers of medical countermeasures are following Current 

Good Manufacturing Practices (CGMPs). In 2003, FDA determined that CGMP inspections were lacking for 27 manufacturers of identified medical countermeasures, 

and the Agency took action to address this. Even without the legislation creating 

Project BioShield, an act designed in part to provide incentives for developing safer, 

more effective countermeasures, FDA will remain the only governmental Agency involved with the approval of products necessary to prevent or treat human exposure 

to these terrorist agents. We hope this Subcommittee supports our $5 million request in fiscal year 2005. 
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A Strong FDA 

The final goal of our Strategic Plan revolves around our world-class, professional 

workforce that is highly dedicated and committed to making a difference. FDA is 

aware of the need to maintain the highest level of public trust in its activities. I 

believe this component of our plan is the bedrock and the most critical component 

for the success of the Agency. For that reason, the Agency must adequately develop 

and support its cadre of experienced physicians, toxicologists, chemists, biologists, 

statisticians, mathematicians, and other highly qualified professions. Since 2001 

and into the foreseeable future, we have continually sought new opportunities to improve our management, and efficiencies in our organization, infrastructure and information technology. The practice of efficient risk management certainly applies 

here as we must strive to adopt management practices that make the Agency’s core 

programs most efficient. The fiscal year 2005 request fully funds the $33.1 million 

($20.6 million of which is budget authority) to complete a part of the work force consolidation at White Oak, Maryland. 

FDA’s adherences to the strategies and goals of the President’s Management 

Agenda have brought about real and positive change toward improving the management of the Agency. These five goals are Strategic Management of Human Capital, 

Competitive Sourcing, Improved Financial Performance, Expanded E-government, 

and Budget and Performance Integration. Over the past year, FDA management 

achieved a number of milestones in the area of ‘‘Strategic Management of Human 

Capital,’’ including the development and phased stand-up implementation of the 

new shared service organization (SSO). Consolidation into the SSO, combined with 

improved business processes, will allow FDA to maintain administrative service levels with substantially fewer staff. Another area of continued progress is towards the 

goal of ‘‘improved financial performance.’’ Due to this Subcommittee’s continued support, the Agency is making progress towards the eventual replacement of its obsolete legacy accounting systems. The Department-wide Unified Financial Management System will integrate financial management to provide more timely and consistent information, and promote the consolidation of accounting operations that will 

substantially reduce the cost of accounting services. In addition, FDA has continued 

its progress towards the consolidation of its IT infrastructure by collaborating with 

HHS toward achieving its ‘‘One HHS’’ goals and objectives. FDA also competed six 

agency support functions in fiscal year 2003 to determine the most efficient organization for running and managing each function. The agency determined that the inhouse operations for all six functions were the most efficient organizations for providing their respective services. We estimate savings of $16.3 million over a 5 year 

performance period from just these six organizations. These are just a few examples 

of FDA’s outstanding progress in making efficient use out of limited resources, and 

practicing efficient risk management. 

Fiscal year 2005 Budget Request 

As I noted earlier, adequate funding of the Agency’s highest priorities is vital to 

our success. Our fiscal year 2005 President’s budget request totals $1.845 billion, 

including $1.495 billion in budget authority and $350 million in user fees. The Administration proposes both increases and savings related to the President’s initiatives for a net budget authority increase of $108.8 million above the fiscal year 2004 

Appropriation. Requested increases cover: Cost of Living, Food Defense, Medical Device Review, Medical Countermeasures, Bovine Spongiform Encephalopathy prevention, and the Agency’s relocation of the Center for Drugs to the consolidated campus. Additionally, the budget includes management savings achieved through administrative efficiencies and savings achieved by using carryover funds from our 

Buildings and Facilities account. The user fee increases total more than $40 million. 

This proposed budget will support a total of nearly 10,800 full time employees. 

Cost of Living 

Adequate annual pay increases are essential to allow FDA to fully utilize programmatic increases. More than 60 percent of FDA’s budget goes toward paying our 

highly skilled scientific workforce, far more than some Agencies. FDA’s labor percentage is higher due to a number of reasons, but most importantly because the 

Agency’s diverse workload requires numerous interdependent specialists in each of 

the Agency’s product areas, the inspectional responsibilities require great geographic diversity to perform duties across the country and around the world, and 

the number of personnel necessary to monitor the entire life-cycle of all products 

under the Agency’s purview (e.g., clinical drug trials to drug application review to 

advertising of approved product to actual effect of drug on patient’s health). The 

lack of cost of living increases has the potential to limit or nullify other targeted 
193 

increases towards high priority Administration, Congressional and/or mission critical initiatives. 

FDA is thankful for this Subcommittee’s involvement in providing the Agency 

with additional funding to cover the cost of inflationary pay increases between fiscal 

year 2002 and fiscal year 2004. We approach you once again and request that you 

provide a $14.4 million increase representing a congressionally approved 4.1 percent 

cost of living increase for calendar year 2004 as well as a 1.5 percent increase for 

calendar year 2005 as proposed by the President. 

Food Defense 

As I noted earlier, Food Defense is a major component of FDA’s strategic goal to 

protect America from terrorism as it relates to foods and medical products under 

our purview. I am also pleased to report that this Subcommittee’s support in the 

hiring of 655 new field staff through the fiscal year 2002 supplemental appropriation as well as the increases provided in fiscal year 2003 is beginning to produce 

positive results. 

Despite some significant progress over the past year with the rapid implementation of the food registration and prior notice regulations and systems, increased 

training and outreach, record amounts of import examinations, expanded research 

programs, daily intelligence briefings of FDA officials, etc., additional steps need to 

be taken to fully prepare our Nation to handle various types of intentional attacks 

on the food supply. 

FDA has spent an extensive amount of time over the past year coordinating this 

multifaceted plan with the White House Homeland Security Council, the Department of Homeland Security, and the USDA. The result is a joint budget developed 

with USDA and DHS for food defense to protect the agriculture and food sectors. 

Based upon the Administration’s current knowledge, ability to respond, and capacity 

to handle an actual attack, FDA requests $65 million in increased funding to shore 

up five key areas—$35 million for the Food Emergency Response Network [FERN], 

$15 million for research, $7 million for inspections, $3 million for incident management, and $5 million for biosurveillance. The investments in these particular areas 

will help develop awareness amongst the various components of the food sector, 

build upon existing surveillance tools, institute prevention techniques to shield 

against an attack, prepare for an attack, and provide the capacity to respond if such 

an event should occur. 

It is also vital that the Agency has the capability to coordinate and handle a food 

defense response with state and local governments and other Federal agencies. We 

are seeking to build a food defense laboratory network among states, part of a system called FERN. FERN is comprised of labs specializing in food testing for biological, chemical and radiological threat agents and these laboratories will have the capacity to rapidly test a large number of food products. We need to make a distinction here between a corresponding network of labs handled by the Centers for Disease Control and Prevention. CDC is in charge of the Laboratory Response Network 

that primarily handles clinical testing of human specimens such as blood or urine. 

Another system we will build upon with our fiscal year 2005 request is the Electronic Laboratory Exchange Network or eLEXNET. This network is the Nation’s 

first seamless, integrated, secure, web-based data exchange system for food testing 

information. eLEXNET allows health officials at multiple government agencies engaged in food safety activities to compare, share, and coordinate laboratory analysis 

findings on food products. Whereas FERN laboratories are involved in the actual 

analysis of food samples, eLEXNET provides a forum for the exchange of laboratory 

data. FDA is continuing efforts to expand eLEXNET to provide better nationwide 

data on food product analyses by regulatory agencies. 

Between fiscal year 2001–2005, FDA will increase the number of import food inspections from approximately 12,000 to 97,000. Along with increased inspectional 

needs, FDA must take the lead in conducting or overseeing research projects that 

help us understand the effects of contaminated food supplies on people. There are 

some hostile agents capable of entering our food supply that we don’t know how 

they will react in humans. This is a complex challenge and we must conduct calculated risk assessments and then use limited resources to study human food consumption contaminated with these agents. Our food defense task is challenging and 

we will make a concerted effort to gain a greater understanding of these threats to 

the food supply. We currently have over 90 research projects devoted to identifying 

food adulteration and we hope to improve testing and identification with these 

projects. 
194 

Bovine Spongiform Encephalopathy (BSE) 

Although 150 deaths in Europe from variant Creutzfeldt-Jakob disease (vCJD) are 

linked to consumption of beef from cows with BSE, the economic impact to the farming communities was also devastating. The European Union estimated the cost of 

BSE contamination in affected countries to reach $107 billion and Canada’s recent 

discovery was costing an average of $11 million a day in lost exports. The Administration is acting vigorously to limit the distribution or spread of any products suspected of carrying BSE following the December 23, 2003 discovery of a Holstein cow 

with BSE in the state of Washington. On January 26 of this year, FDA announced 

several new public health measures to strengthen the five existing firewalls that 

protect Americans from exposure to the agent thought to cause BSE. FDA intends 

to ban from human food, dietary supplements, and cosmetics a wide range of bovinederived material so that the same safeguards that USDA implemented for meat 

products, also apply to food products that FDA regulates. FDA will also prohibit certain feeding and manufacturing practices involving feed for cattle and other ruminant animals. The Agency will strengthen its current controls and implement these 

new protections by publishing two interim final rules. In fiscal year 2004, the base budget is $21.5 million for BSE activities across all FDA programs. In fiscal year 2005, we request $8.3 million for a total of $29.8 million in total funding for this initiative. With the increased funding, we will undertake a trilateral approach of increased inspections, enforcement activities, and education. The requested resources will enable the Agency to increase field BSE inspections, sample collections and analyses; increase targeted sample collections and 

analyses of both domestic and imported animal feed or feed components; fund 2,500 

more state inspections of animal feed firms; conduct industry outreach to better inform industry of responsibilities and opportunities to prevent BSE from contaminating animal feed; and strengthen the states’ infrastructures to monitor, and respond to, potential feed contamination with prohibited materials. The Administration believes that an $8.3 million request is a relatively modest increase in light of 

the potential health benefits and cost savings that can be achieved with these resources. 

Medical Device 

Review FDA is committed to ensuring that the Medical Device User Fee and Modernization Act (MDUFMA) performance goals are met and that the strongest and 

most effective medical device review program possible is available. The Administration requests a budget authority increase of $25.5 million for a total of $217 million, 

the amount needed to match the original levels specified by law for fiscal year 2005. 

On October 29, 2003, OMB Director Josh Bolten wrote to Congress describing the 

Administration’s commitment to support this program at the level intended by 

MDUFMA in fiscal year 2005 and beyond. Within the approach outlined by Mr. 

Bolten, the Agency is committed to meeting the original MDUFMA performance 

goals. 

As you know, MDUFMA requires that $205.7 million be appropriated in budget 

authority each year for FDA’s Center for Devices and Radiological Health and related field activities, adjusted for inflation (CPI). The President’s fiscal year 2005 

budget meets the MDUFMA threshold for fiscal year 2005 appropriations requirements. We look forward to working with Congress to modify MDUFMA to preclude 

the requirement to appropriate the entire ‘‘shortfall’’ from fiscal year 2003 and fiscal 

year 2004, in order to continue the user fee program beyond fiscal year 2005. FDA 

is committed to achieving the performance goals of MDUFMA. 

In fiscal year 2005, FDA will utilize the appropriated increases to build upon the 

success in fiscal year 2003 and fiscal year 2004. In fiscal year 2003, FDA invested 

user fee and appropriated dollars in a number of ways that will contribute to the 

ultimate improvement in the review process in later years, including the hiring of 

more than 50 new scientific, medical, engineering, and other review staff and the 

development of process improvements to speed review from beginning to end. 

Medical Countermeasures 

Counterterrorism is a major priority for the FDA and the Department of Health 

and Human Services. Speeding the development of safe medical countermeasures to 

improve protection against terrorism and emerging diseases requires that Americans have access to safe and effective medical treatments. Prior to September 11th, 

FDA had been engaged in coordinated efforts with other Departments to develop 

and make available better countermeasures for biological, chemical and radiological 

attacks. The urgency is far greater now and so in fiscal year 2005, FDA will continue to work closely with scientists and product developers and take new steps to 

speed the development of these safe, effective treatments. FDA requests $5 million 
195 

to expedite the review of new drug applications, biologics license applications, generic drugs and over-the-counter medical product countermeasures. The Agency 

must get involved in each facet of the process from animal studies to dosing requirements to the development of postmarket systems that will be in place to ensure 

rapid reaction to adverse events. These initiatives are all necessary to ensure that 

adequate treatments are available for a wide assortment of threats. One of these 

initiatives is Project BioShield, a program designed to help ensure that medical 

products are reviewed and approved for safety and effectiveness in the event of war 

or catastrophic events. The first request for proposals for procurement of a new generation anthrax vaccine through Project BioShield will be initiated shortly. 

Center for Drugs Relocation 

I can only imagine that it is difficult for members of this Subcommittee to write 

home about the funding you helped secure for FDA’s consolidation of its Washington, D.C. metro area Headquarters Offices from 16 locations to three. However, 

I think they would be happy to hear that the eventual settling into the three new 

sites in White Oak, Laurel, and College Park, MD, create greater economies of scale 

and operational efficiencies. The bottom line is that you will save the American taxpayers money when this project is complete. Although substantial facility needs at 

White Oak are mostly addressed through the GSA appropriation, FDA must continue to seek your support for relocation costs. In accordance with the President’s 

Management Agenda, the FDA plans to modernize document handling, use shared 

library and conference facilities, reduce redundancies in a wide range of administrative management tasks, convert to a single computer network, and reduce management layers. Without the requested funds, these management improvements and efficiency gains would be jeopardized. 

This current plan calls for the relocation of 1,700 drug review personnel in April 

of 2005. The budget funds the total need for this move, $33.1 million, and the request includes an increase of $20.6 million in new budget authority. The remainder 

would come from $2.4 million in the base budget, and $10 million in PDUFA user 

fees. The General Services Administration has requested $89 million in their fiscal 

year 2005 budget request to continue construction on the campus. If GSA’s subcommittee approves the full request, the building construction would proceed as 

schedule. However, if GSA does not receive its full request for White Oak, it would 

have severe financial consequences for FDA. In a 2003 GAO report entitled ‘‘Federal 

Real Property: Executive and Legislative Actions Needed to Address Long-Standing 

and Complex Problems,’’ the report spells out the Federal Government’s problems 

in managing property, including the inefficient use of space. FDA would be faced 

with paying unnecessary rental payments for multiple properties unless the funding 

of construction and relocation costs are synchronized as is currently the plan. 

User Fees 

In fiscal year 2005, the Agency expects to collect $350 million in user fees, primarily from PDUFA, MDUFMA, and ADUFA fee programs. These user fee programs provide substantial funding that compliment budget authority resources and 

allow FDA to meet agreed upon performance measures that allow for more rapid 

reviews of human drugs, medical devices and animal drugs. Additionally, the Agency collects modest fee amounts for the Mammography Quality Standards Act program as well as export certification and color certification programs. 

President’s Management Agenda & Administrative Consolidation 

FDA has been very proactive in streamlining its operations and reducing its administrative expenses. Since November 2001, the Agency has worked with the Department of Health and Human Services to do its part to comply with the President’s goal to improve the Strategic Management of Human Capital across the Federal Government. We have demonstrated tremendous success in efforts to delayer 

our organizational structure, consolidate FDA’s decentralized Human Resources 

(HR) services to a single FDA HR office which has consolidated into the HHS Rockville HR Center; implement a shared services organization that makes best use of 

administrative resources; plan for consolidated facilities at White Oak Maryland, 

consolidation of IT activities, and, find efficiencies via competitive sourcing or A– 

76 studies. Thanks to your support, we also continue to improve financial management at FDA through the planned implementation of a new financial system. In fiscal year 2005, FDA proposes its second straight year of reductions by way of $23.1 

million in savings achieved through a seven and a half percent reduction in administrative staff, or a combined reduction of 15 percent between fiscal year 2004 and 

fiscal year 2005. In addition, no request is being made this year in the Buildings 

and Facilities appropriation. This represents a savings of $7 million that was de-
196 

voted to higher priority programs. Approximately $4.6 million in carryover funds 

will sustain the program through fiscal year 2005. 

Conclusion 

I thank you for your commitment and continued support of FDA. I am confident 

that the information I provide to you today, and any additional information provided 

to the Subcommittee following this hearing, will give you further evidence of the 

Agency’s needs in fiscal year 2005, and justify the requested increases these priorities. Thank you for the opportunity to testify today. I look forward to working with 

all of you and your staffs in the months ahead. 

Senator BENNETT. Thank you, sir. 

We appreciate all of you. 

PROPOSED LEGISLATION

Mr. Bost, there are several requests in the budget for legislative 

language. One, you have requested a legislative proposal to exclude 

special pay for military personnel deployed in a designated combat 

zone if that pay was not received immediately prior to deployment. 

And second, a request for new legislative language to allow for indefinite funding authority for the Food Stamp Act. 

Could you furnish the committee with a written explanation in 

both of these cases? Senator Kohl and I have determined that we 

are not going to legislate on an Appropriations Bill without the 

complete cooperation of the members of the authorizing committee. 

You have asked us to do this when it is within the purview of the 

authorizing committee. So I think a clear written statement on 

those two things would be helpful to us as we make our decision 

as to whether or not we are going to proceed on that. 

Mr. BOST. Certainly Mr. Chairman. I would be more than happy 

to do so. 

[The information follows:] 

The President’s fiscal year 2005 budget includes a provision to exclude ‘‘special’’ 

military pay when determining food stamp benefits for deployed members of the 

armed services. Current rules count all military pay received by the household as 

earned income in determining household eligibility and benefits. Military personnel 

receive supplements, such as combat or hazardous duty pay, to their basic pay when 

they serve in combat, which could reduce a family’s benefits or make them ineligible. 

The proposal excludes this income as long as it was not received immediately 

prior to deployment. It supports the families of servicemen and servicewomen fighting overseas by ensuring that they do not lose food stamps as a result of the additional income resulting from their deployment. 

This change is being sought in appropriations language for fiscal year 2005 when 

it is most needed. The cost in fiscal year 2005 is $3 million. Total cost for fiscal year 

2005 to 2009 is $12 million if it is needed and enacted in all those years. In fiscal 

year 2005, we expect to help 2,900 military families. 

The indefinite authority proposal in the fiscal year 2005 budget request for the 

Food Stamp Program would provide such sums as necessary to fund program benefits and payments to States. It would ensure that sufficient resources were always 

available to provide access to the program for all eligible persons who wish to participate. Unlike the contingency reserve funds, if program costs should significantly 

exceed budget estimates, it would never be necessary to seek a supplementary appropriation or implement a benefit reduction. This proposal would bring the structure of this critical program in line with other major entitlement programs that already have indefinite authority. 

Senator BENNETT. Thank you. 
197 

FOOD GUIDE PYRAMID

We have talked to you about the pyramid. I seemed to get a lot 

of publicity the last time I did that. You say it is currently undertaking a reassessment. Should we just leave it at that and say that 

it is still being reassessed or do you have any progress reports you 

want to share with us? 

Mr. BOST. We do not really have any progress to report at this 

point but I think it is real important to know that the first aspect 

of that is a review of the Dietary Guidelines. Secretary Veneman 

and Secretary Thompson appointed a group of leading scientists 

and they are in the midst—I think they have had two meetings 

and one is upcoming to review the Dietary Guidelines. A review of 

the Dietary Guidelines will fold into a review of the Pyramid itself. 

It is going to come as a result of the challenges we are facing 

concerning obesity and it continues to come under a great deal of 

scrutiny. 

I think the challenge is trying to be everything to everyone and 

that is the biggest challenge. Essentially, we eat too much and exercise too little. We are trying to move everybody in this country 

toward a healthy lifestyle. 

Senator BENNETT. Thank you. 

LIVE BIRD MARKETS AND AVIAN INFLUENZA

Mr. Hawks, the Washington Post has run some stories on live 

bird markets and the fact that these markets may be a breeding 

ground for bird flu or avian influenza. Do you have any information 

you could provide to us here about that issue? Should we expect 

the Department to be taking any action with respect to the live 

bird markets? 

Mr. HAWKS. Yes, sir, you sure should. As a matter of fact, there 

is almost $13 million in our 2005 budget request to address avian 

influenza. That encompasses the live bird markets. 

We are actually, as we speak, moving forward with plans to do 

more surveillance in those live bird markets, and to do more surveillance in general with respect to low path avian influenza. We 

are engaged with the States involved and certainly recognize the 

significance of the live bird markets and the need to address them. 

We have already, in the past, actually closed those live bird markets. We have what we call a holiday in those bird markets. We 

close them for 3 days. We clean, disinfect and depopulate those 

birds that are there. 

It certainly is an area that is of concern to us. 

Senator BENNETT. What about those countries that have banned 

poultry exports from the United States because the bird flu? Are 

we doing anything to try to get those markets reopened? 

Mr. HAWKS. Yes sir, we sure are. We are very much engaged in 

that. 

We have submitted a significant amount of information to our 

trading partners about what we are doing about the epidemiological investigations that are ongoing. 

The one that is the most significant is the high path avian influenza in Gonzalez, Texas. We have completed our surveillance programs there and have found no additional avian influenza. 
198 

I will personally be in Mexico City on April 13th, the week after 

next, to engage in continued discussions with my Mexican counterparts to try to reinforce our desire for them to open the market and 

follow the appropriate path. 

BOVINE SPONGIFORM ENCEPHALOPATHY

Senator BENNETT. While we are on the subject of markets, that 

brings us now to BSE, and the request on the part of some countries that there be a 100-percent testing of the export market. I understand you are working, as you say, with Mexico, also Japan. Is 

100-percent testing of the export market physically possible? Is 

that a feasible thing? 

Mr. HAWKS. Mr. Chairman, we do not think that is the prudent 

thing to do, to test 100 percent for BSE. As a matter of fact, Mexico 

has opened parts of its market to us. We continue to move there. 

But the Japanese market is the one that seems to be the most insistent on an increased level of testing. We have communicated 

earlier this week with the Japanese our desire to go to the OIE, 

the Office of International Epizootics, with a panel there to look at 

our proposals and their proposals to make sure that we are taking 

the appropriate scientific measures. But we do not believe that 100- 

percent testing is the appropriate path. 

Senator BENNETT. Thank you. 

RECALL REPORT BY OFFICE OF INSPECTOR GENERAL

Dr. Murano, I was pleased to hear you talk about the dramatic 

decline in recall, but the Office of Inspector General has recently 

released a report—not that recently, but September of 2003—a report critical of several aspects of a specific recall in Colorado. Is 

that a one-of-a-kind situation that has been dealt with, or do you 

feel that the OIG has raised some issues that should be examined 

Department-wide? 

Dr. MURANO. Thank you, Mr. Chairman. As you know, that particular recall took place in the summer of 2002, and as that recall 

was taking place, we identified right away things that we needed 

to correct to improve our effectiveness at overseeing how recalls are 

conducted by companies. 

We identified a lot of the things that ended up in the OIG report, 

many months later. We certainly did not wait for the OIG report 

to start doing something about it, and I think that is what has 

made a big difference in the results that we see now. 

Of course, the OIG takes quite a while to put out their reports. 

I think the report came out, as you said, last fall. We obviously had 

been working very, very diligently to address a lot of the issues. We 

have revised a lot of our directives. We have put in place new policies, and instituted new training modules for our inspectors. I 

think the proof of it is the recent BSE-related recall that we 

oversaw, because I think in that particular case, we were able to 

conduct effectiveness checks in a way that was certainly an improvement over what was done back in 2002. 

MEDICAL DEVICE USER FEE AND MODERNIZATION ACT

Senator BENNETT. Thank you. 
199 

Dr. Crawford, you and I have visited about MDUFMA—I am 

learning the acronyms and how to pronounce them—and as you 

know, I was very supportive of that program, got a commitment 

from OMB. I am pleased to note—and you mention it in your testimony—how that is being followed through on. 

There is speculation that we here on Capitol Hill may have to 

go to a year-long continuing resolution if we cannot get the appropriations bill through. If they left it to Senator Kohl and me, we 

would get them all through. But people above our pay grade seem 

to have some problem. 

If there is a year-long continuing resolution, what would be the 

impact on MDUFMA? 

Dr. CRAWFORD. Well, Mr. Chairman, we believe that under the 

law we would be required and obligated to continue with the user 

fee program. The problem would be—within the scope of my testimony, I mentioned that we will increase the funding for the medical device program. The President has asked for the increase of 

funding to $25 million to fully fund this particular program. 

Also, within the context of the Administration’s budget request, 

we would seek relief from the shortfalls in fiscal year 2003 and fiscal year 2004. That probably would not be met under a continuing 

resolution, and so we would have to have another plan in place. If 

the continuing resolution did not last too long, I think it would be 

all right in correcting that. 

However, we would be working with OMB to try to get an exception under the continuing resolution for this. And I can commit to 

doing that. Working with them is something we always do, but we 

would be particularly interested in getting this accomplished. 

I was Acting Commissioner before when we got MDUFMA 

passed, and even though I was here then, I never did learn about 

the acronym. And I appreciate being educated on it. 

I have a real commitment to making this thing work before this 

administration year is up, and I would feel pretty good about that. 

GENERIC BIOLOGICS

Senator BENNETT. A final question. Let’s talk about both generic 

versions of biotech drugs and counterfeit drugs. The Wall Street 

Journal ran an article a month or so ago: ‘‘FDA Takes Step Towards Allowing Generic Versions of Biotech Drugs.’’ Are you familiar with that? 

Dr. CRAWFORD. Yes, I am. 

Senator BENNETT. Okay. Well, it is clear from reading the article 

that there is much to be learned, and it seems unusual to me that 

FDA is developing scientific guidance on how to do something when 

there is no legal structure by which to do it. There are some serious intellectual property and patient safety questions. 

First, wouldn’t everybody be better off if there was an open, 

transparent, and science-driven process before the FDA announces 

its conclusions? 

Dr. CRAWFORD. Yes, I agree. And I also agree that we will need 

to pay special attention to the regulatory and legal framework that 

will enable this or not enable it to take place. 

When I first testified on this subject some time ago, FDA had 

been in the mode of saying that generic biologics were not possible 
200 

for a number of reasons. Some of them were pharmacological, that 

is, characterizing what is actually in the biologic so that it can be 

transferred from one manufacturer to another one, that is, from the 

pioneer to the generic manufacturer. And the second thing was the 

very legal and regulatory constraints that you mentioned. 

But as the science improves, we have no recourse, Mr. Chairman, 

but to be open-minded about it and to receive input from the public 

and from experts in the field, as well as the manufacturers. And 

although we do not know what the path is at this point to achieve 

that or even if it is achievable, we are open to suggestions. 

We announced just last week a new initiative at FDA called the 

Critical Path Initiative, in which we are trying to take basic research developments and get them from the laboratory to the bedside quicker. So we intend a large investment, as much as we can 

afford, in trying to get that kind of thing done. It used to be called 

technology transfer. It is now much more complex than that and 

the tools are better. 

I do not know what the outcome will be. All I can say to you is 

that we are open to suggestions from this committee, of course, but 

from all others. 

COUNTERFEIT DRUGS

Senator BENNETT. Thank you. And, very quickly, the FDA earlier 

this year issued a report on the issue of counterfeit drugs, the efforts of a counterfeit task force. Is that task force report now available? 

Dr. CRAWFORD. Yes, it is, and we can make one available to the 

committee. And if we haven’t already done that, I apologize, Mr. 

Chairman. But it will be done before very much more time passes 

by, I assure you. 

Senator BENNETT. All right. I was going to ask you to list the 

recommendations and so on, but that can be done with the submission. 

Dr. CRAWFORD. We will submit that for the record, separately if 

we may. 

[The information follows:] 

COMBATING COUNTERFEIT DRUGS: A REPORT OF THE FOOD AND DRUG

ADMINISTRATION

EXECUTIVE SUMMARY

The counterfeiting of currency and consumer products are common problems that 

plague governments and manufacturers around the world, but the counterfeiting of 

medications is a particularly insidious practice. Drug counterfeiters not only defraud 

consumers, they also deny ill patients the therapies that can alleviate suffering and 

save lives. In some countries the counterfeiting of drugs is endemic—with some patients having a better chance of getting a fake medicine than a real one. In many 

more countries, counterfeit drugs are common. In the United States, a relatively 

comprehensive system of laws, regulations, and enforcement by Federal and State 

authorities has kept drug counterfeiting rare, so that Americans can have a high 

degree of confidence in the drugs they obtain through legal channels. In recent 

years, however, the FDA has seen growing evidence of efforts by increasingly wellorganized counterfeiters backed by increasingly sophisticated technologies and 

criminal operations to profit from drug counterfeiting at the expense of American 

patients. 

To respond to this emerging threat, Commissioner of Food and Drugs Mark 

McClellan formed a Counterfeit Drug Task Force in July 2003. That group received 

extensive comment from security experts, Federal and State law enforcement offi-
201 

cials, technology developers, manufacturers, wholesalers, retailers, consumer groups, 

and the general public on a very broad range of ideas for deterring counterfeiters. 

Those comments reinforced the need for FDA and others to take action in multiple 

areas to create a comprehensive system of modern protections against counterfeit 

drugs. FDA discussed those ideas, and considered alternatives and criticisms at its 

public meetings, to develop a comprehensive framework for a pharmaceutical supply 

chain that will be secure against modern counterfeit threats. The specific approach 

to assuring that Americans are protected from counterfeit drugs includes the following critical elements: 

1. Implementation of new technologies to better protect our drug supply 

Because the capabilities of counterfeiters continue to evolve rapidly, there is no 

single ‘‘magic bullet’’ technology that provides any long-term assurance of drug security. However, a combination of rapidly improving ‘‘track and trace’’ technologies 

and product authentication technologies should provide a much greater level of security for drug products in the years ahead. Similar anti-counterfeiting technologies 

are being used in other industries, and FDA intends to facilitate their rapid development and use to keep drugs secure against counterfeits. 

a. The adoption and common use of reliable track and trace technology is feasible 

by 2007, and would help secure the integrity of the drug supply chain by providing 

an accurate drug ‘‘pedigree,’’ which is a secure record documenting the drug was 

manufactured and distributed under safe and secure conditions. 

Modern electronic technology is rapidly approaching the State at which it can reliably and affordably provide much greater assurances that a drug product was manufactured safely and distributed under conditions that did not compromise its potency. FDA has concluded that this approach is a much more reliable direction for 

assuring the legitimacy of a drug than paper recordkeeping requirements, which are 

more likely to be incomplete or falsified, and that it is feasible for use by 2007. Radiofrequency Identification (RFID) tagging of products by manufacturers, wholesalers, and retailers appears to be the most promising approach to reliable product 

tracking and tracing. Significant feasibility studies and technology improvements 

are underway to confirm that RFID will provide cost-reducing benefits in areas such 

as inventory control, while also providing the ability to track and trace the movement of every package of drugs from production to dispensing. Most importantly, reliable RFID technology will make the copying of medications either extremely difficult or unprofitable. FDA is working with RFID product developers, sponsors, and 

participants of RFID feasibility studies to ensure that FDA’s regulations facilitate 

the development and safe and secure use of this technology. FDA is also working 

with other governmental agencies to coordinate activities in this area. 

b. Authentication technologies for pharmaceuticals have been sufficiently perfected that they can now serve as a critical component of any strategy to protect 

products against counterfeiting. 

Authentication technologies include measures such as color shifting inks, 

holograms, fingerprints, taggants, or chemical markers embedded in a drug or its 

label. The use of one or more of these measures on drugs, starting with those considered most likely to be counterfeited, is an important part of an effective anticounterfeiting strategy. Because counterfeiters will adapt rapidly to any particular 

measure and because the most effective measures differ by product, the most effective use of authentication technology will vary by drug product over time. FDA intends to clarify its policies and procedures to help manufacturers employ and update 

these technologies safely and effectively. In particular, FDA plans to publish a draft 

guidance on notification procedures for making changes to products (e.g., addition 

of taggants), their packaging, or their labeling, for the purpose of encouraging timely adoption and adaptation of effective technologies for detecting counterfeit drugs. 

FDA also intends to continue to evaluate and provide information to stakeholders 

on forensic technologies (e.g., use of product fingerprinting, addition of markers) and 

other analytical methods that allow for rapid authentication of drug products. FDA 

also plans to support the development of criteria that contribute to counterfeiting 

risk, and/or the development of a national list of drugs most likely to be counterfeited based on these criteria, to assist stakeholders in focusing their use of anticounterfeiting technologies as effectively as possible. 

2. Adoption of electronic track and trace technology to accomplish and surpass the 

goals of the Prescription Drug Marketing Act 

At the time PDMA was enacted the only way to pass on a pedigree for drugs was 

to use paper, which has posed practical and administrative challenges. RFID technology, which would provide a de facto electronic pedigree, could surpass the intent 

of PDMA and do so at a lower cost. In light of the rapid progress toward much more 
202 

effective electronic pedigrees that can be implemented within several years, FDA intends to continue to stay its regulations regarding certain existing pedigree requirements to allow suppliers to focus on implementing modern effective pedigrees as 

quickly as possible. 

3. Adoption and enforcement of strong, proven anti-counterfeiting laws and regulations by the States 

Because States license and regulate wholesale drug distributors they have an important role in regulating the drug distribution supply chain. The FDA is working 

with the National Association of Boards of Pharmacy on its effort to develop and 

implement revised state model rules for licensure of wholesale drug distributors. 

Such rules will make it difficult for illegitimate wholesalers to become licensed and 

transact business, thus making it easier to deter and detect channels for counterfeit 

drugs. Some states have already reduced counterfeit threats by adopting such measures. FDA will continue working with NABP and states to facilitate adoption of the 

Model Rules. 

4. Increased criminal penalties to deter counterfeiting and more adequately punish 

those convicted 

Although increased criminal penalties would not affect FDA’s regulatory framework for overseeing the U.S. drug supply, they would provide an added deterrent 

to criminals who work to counterfeit our citizens’ medications. FDA has requested 

that the United States Sentencing Commission amend the sentencing guidelines to 

increase substantially the criminal penalties for manufacturing and distributing 

counterfeit drugs and to provide for enhanced penalties based on the level of risk 

to the public health involved in the offense. 

5. Adoption of secure business practices by all participants in the drug supply chain 

Effective protection against counterfeit drugs includes actions by drug producers, 

distributors, and dispensers to secure their business practices such as ensuring the 

legitimacy of business partners and refusing to do business with persons of unknown or dubious background, taking steps to ensure physical security, and identifying an individual or team in the organization with primary responsibility for ensuring that effective security practices are implemented. The wholesalers have already drafted a set of secure business practices and FDA will continue to work with 

other major participants of the drug supply chain to develop, implement, and disseminate such business practices, through such steps as issuing guidance and supporting the development of industry best practices. To help ensure secure business 

practices, FDA intends to increase its inspection efforts of re-packagers whose operating procedures place them at increased risk for the introduction of counterfeit 

drugs. 

6. Development of a system that helps ensure effective reporting of counterfeit drugs 

to the agency and that strengthens FDA’s rapid response to such reports 

If counterfeit drugs do enter the American marketplace, procedures should be in 

place to recognize the hazard and alert the public quickly and effectively. FDA plans 

to take new steps to encourage health professionals to report suspected counterfeit 

drugs to FDA’s MedWatch system. FDA also intends to create a Counterfeit Alert 

Network to provide timely and effective notification to affected health professionals 

and the public whenever a counterfeit drug is identified. 

7. Education of consumers and health professionals about the risks of counterfeit 

drugs and how to protect against these risks 

FDA will develop educational materials, including new tools on the FDA website 

at www.fda.gov, new public service announcements, and new educational partnerships with consumer and health professional organizations, to help consumers avoid 

counterfeits. FDA will enhance its educational programs for pharmacists and other 

health professionals about their role in minimizing exposure to, identifying, and reporting counterfeits. 

8. Collaboration with foreign stakeholders to develop strategies to deter and detect 

counterfeit drugs globally 

Counterfeit drugs are a global challenge to all nations, and criminal counterfeiting 

operations are increasingly operating across national borders. FDA intends to work 

with the World Health Organization, Interpol, and other international public health 

and law enforcement organizations to develop and implement worldwide strategies 

to combat counterfeit drugs. 

The steps described in this report are intended to secure the safety and of the 

U.S. drug supply, which the FDA regulates. The FDA does not have the legal au-
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1The Task Force consists of senior agency staff from the Office of the Commissioner (Office 

of Policy and Planning, Office of External Affairs, and Office of the Chief Counsel), Office of 

Regulatory Affairs, the Center for Drug Evaluation and Research, and the Center for Biologics 

Evaluation and Research. 

thority or resources to assure the safety and efficacy of drugs purchased from other 

countries outside our domestic drug distribution system, or from unregulated Internet sites that are not run by pharmacies licensed and regulated by U.S. States. 

A. Purpose of the Anti-Counterfeiting Initiative 

The actions described in this report are based on the work of an internal FDA 

Counterfeit Drug Task Force 1, which was formed in July 2003 by Commissioner of 

Food and Drugs Mark McClellan, M.D., Ph.D., with the goals of: 

—Preventing the introduction of counterfeit drugs and biologics into the U.S. drug 

distribution chain; 

—Facilitating the identification of counterfeit drugs and biologics; 

—Minimizing the risk and exposure of consumers to counterfeit drugs and biologics; and 

—Avoiding the addition of unnecessary costs to the prescription drug distribution 

system, or unnecessary restrictions on lower-cost sources of drugs. 

B. Scope of the Problem 

FDA believes that counterfeiting is not widespread within the system of manufacturing and distributing pharmaceuticals legally in the United States, as a result of 

an extensive system of Federal and State regulatory oversight and steps to prevent 

counterfeiting undertaken by drug manufacturers, distributors, and pharmacies. 

However, the agency has recently seen an increase in counterfeiting activities as 

well as increased sophistication in the methods used to introduce finished dosage 

form counterfeits into the otherwise legitimate U.S. drug distribution system. FDA 

counterfeit drug investigations have increased to over 20 per year since 2000, after 

averaging only 5 per year through the late 1990’s. (See Figure 1—Chart of FDA investigations) Increasingly, these investigations have involved well-organized criminal operations that seek to introduce finished drug products that may closely resemble legitimate drugs yet may contain only inactive ingredients, incorrect ingredients, 

improper dosages, sub-potent or super-potent ingredients, or be contaminated. Thus, 

drug counterfeiting poses real public health and safety concerns today, and may 

pose an even greater threat in the future if we fail to take preventative measures 

now. As counterfeiters continue to seek out new technologies to make deceptive 

products and introduce them into legitimate commerce, our systems for protecting 

patients must respond effectively. 
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Although exact prevalence rates in the United States are not known, outside the 

U.S. drug counterfeiting is known to be widespread and affect both developing and 

developed countries. In some countries more than half of the drug supply may consist of counterfeit drugs. For example, recent reports have detailed that more than 

50 percent of anti-malarials in Africa are believed to be counterfeit. In virtually all 

countries, counterfeit drug operations have been uncovered in recent years. 

C. What is in this Report 

The body of this report contains a range of findings that have broad support from 

industry stakeholders and the public to identify and address the vulnerabilities in 

the U.S. drug distribution system to counterfeit drugs. 

This report is based on the potential options discussed in the Task Force’s Interim 

Report, the comments FDA received in response to that report, our internal discussions, and on information gathered and reviewed by the Task Force including: 

—Meetings with government agencies, manufacturers, wholesalers, retailers, professional and trade associations, standard-setting organizations, consumer 

groups, and manufacturers of anti-counterfeiting measures; 

—Reviewing reports prepared by, or on behalf of, Federal and State governments; 

—Sponsoring a public meeting where 72 presentations were made 

—Sponsoring a technology forum which included 54 exhibits 

—Reviewing public comments to the anti-counterfeiting initiative docket 

—Site visits to manufacturing facilities, wholesale distribution centers, retailers, 

radio-frequency identification (RFID) laboratories and pilot facilities; 

—Attendance at stakeholder task force meetings and industry RFID feasibility 

study meetings 

—Meetings with academic and industry experts 

Appendix A contains the Counterfeit Alert Network Co-sponsorship agreement. 

See www.fda.gov/oc/initiatives/counterfeit/ for background information that was 

included in the Task Force’s Interim Report (released on October 2, 2003) as well 

as a detailed discussion of the comments FDA received. Appendix B contains a more 

detailed discussion of the comments FDA received and considered in developing the 

final report. 

The FDA is grateful for the input and universal support, not only with regard to 

the creation of the task force, but also with regard to the need for securing the Nation’s drug supply. 
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D. Securing our Nation’s Drug Supply 

To secure the U.S. drug supply chain, there are several areas that deserve attention, including the areas of technology, business practices, legislation, regulation, 

public awareness and education, creation of an alert network, and international cooperation. 

1. TECHNOLOGY

a. Unit of Use Packaging 

(1) What FDA sought comment on: 

Whether to package all finished dosage form drugs in unit of use packaging as 

appropriate for the particular product (e.g., tablet, multi-dose vial) at the point of 

manufacture? 

(2) What the comments said: 

Comments cited a large number of benefits, including eliminating the need for repackaging and improved patient compliance, as well as a large number of costs, including those associated with shifting production from bulk packaging. The cost hurdle to counterfeiters, created by unit of use packaging, was said not to be high 

enough for it to be effective as a stand-alone anti-counterfeiting measure. A detailed 

discussion of the comments is in Appendix B. 

(3) Discussion: 

Although single unit containers (e.g., blister packs) usually come to mind, unit of 

use packaging is any container closure system designed to hold a specific quantity 

of drug product for a specific use and dispensed to a patient without any modification except for the addition of appropriate labeling. 

Unit of use packaging does not create a sufficiently high level of security to justify 

its use as a stand-alone anti-counterfeiting measure. However, because of its many 

other benefits, which may vary on a product specific basis (e.g., tablets, liquid 

forms), manufacturer initiated cost-benefit analyses of particular products, starting 

with newly approved products and products that are likely to be counterfeited, are 

likely to show that unit of use packaging could be effective as one layer in a multilayered anti-counterfeiting strategy. 

(4) FDA Conclusions: 

Unit of use packaging can be beneficial in fighting counterfeit drugs. 

—It would be beneficial for all manufacturers and re-packagers to analyze the 

costs and benefits of using unit of use packaging for each product, starting with 

newly approved products and products that are likely to be counterfeited, and 

to consider implementing unit of use packaging for products where the benefits 

are equal to or outweigh the costs; 

—Unit of use packaging can be helpful, but only as one layer in a multi-layered 

anti-counterfeiting strategy; 

—FDA intends to encourage adoption of unit of use packaging by: inviting stakeholders and other interested individuals and organizations to submit research 

on the relative costs and benefits of unit of use packaging to assist FDA in developing future policy; and encouraging standard setting bodies to develop 

standards for unit of use packaging with the goal of reducing its costs (e.g., in 

areas such as size, shape, and pill organization). 

b. Tamper Evident Packaging 

(1) What FDA sought comment on: 

Whether to use tamper evident packaging from the point of manufacture, for all 

dosage forms, active pharmaceutical ingredients (APIs), and bulk chemicals? 

(2) What the comments said: 

The comments on tamper evident packaging mirrored the comments on unit of 

use packaging. 

(3) Discussion: 

Decisions to employ tamper evident packaging on prescription drug containers as 

an anti-counterfeiting measure require a product specific cost-benefit analysis. As 

with unit of use packaging, FDA does not believe that tamper evident packaging 

presents a high enough hurdle for counterfeiters to make it effective as a standalone anti-counterfeiting measure. 
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(4) FDA Conclusions: 

Tamper evident packaging may be beneficial in fighting counterfeiting of prescription drugs. 

—It would be beneficial for manufacturers and re-packagers to consider using 

tamper evident packaging for prescription product containers, starting with 

products likely to be counterfeited or newly approved products, where the benefits are equal to or outweigh the costs; 

—Tamper evident packing can be helpful, but only as one layer in a multi-layered 

anti-counterfeiting strategy. 

c. Authentication Technology 

(1) What FDA sought comment on: 

Whether to incorporate at least two types of anti-counterfeiting technologies into 

the packaging and labeling of all drugs, at the point of manufacture, with at least 

one of those technologies being covert (i.e., not made public, and requiring special 

equipment or knowledge for detection) starting with those products at high risk of 

being counterfeited and where the introduction of counterfeit product poses a serious health risk; 

Whether to incorporate a taggant, chemical marker, or other unique characteristics into the manufacturing process of all drugs that is only identifiable with the 

use of sophisticated analytic techniques starting with those products at high risk 

of being counterfeited and where the introduction of counterfeit product poses a serious health risk; and 

Whether to issue FDA guidances concerning the appropriate use of anti-counterfeiting technologies and the application and review process for labeling and packaging changes or product changes such as incorporation of taggants, chemical markers, or other unique characteristics into the product for the purpose of product authentication. 

(2) What the comments said: 

The comments stressed that there was no ‘‘silver bullet’’ anti-counterfeiting technology because sophisticated, well-financed counterfeiters can defeat any anti-counterfeiting measure. Therefore, the best strategy is to use multiple, periodically 

changing, authentication measures on a product specific basis after doing a risk 

analysis that takes into account the risk that the product will be counterfeited and 

the public health risk if the product is counterfeited. 

Given the rapid developments in anti-counterfeiting technology and the dangers 

of aiding counterfeiters by locking in or requiring certain technologies, most comments stressed that the FDA should not mandate the use of specific anti-counterfeiting technologies. 

FDA issuance of guidance concerning the agency’s application and notification 

policies and procedures related to incorporating anti-counterfeiting measures into 

products (e.g., taggants), or labeling and packaging (e.g., inks, holograms) was universally supported. 

A detailed discussion of the comments is in Appendix B. 

(3) Discussion: 

FDA agrees that the danger of unwittingly assisting counterfeiters and stifling 

technologic development outweigh the benefits that would accrue if it were to mandate the use of a specific authentication technology at this time. Furthermore, the 

decision to deploy authentication technologies is best made by the manufacturer, 

based on a product specific risk-benefit analysis that, in the future, should take into 

account whether mass serialization and radio-frequency identification technology 

(see below) is being used for tracking and tracing the drug. 

However, due to the high costs and technical barriers that authentication technologies create for counterfeiters, their use is a critical component of any effective 

multi-layered anti-counterfeiting strategy, especially for products that are likely to 

be counterfeited. Therefore, FDA believes that an appropriate role for it is to facilitate the use of authentication technologies by reducing any regulatory hurdles that 

may exist relating to their use. 

(4) FDA Conclusions: 

Existing authentication technologies have been sufficiently perfected they can now 

serve as a critical component of any strategy to protect products against counterfeiting. 

—The use by manufacturers and re-packagers of one or more authentication technologies on their products, particularly those likely to be counterfeited, would 

protect the public health and diminish counterfeiting; 
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—To facilitate the use of authentication technologies on existing products, FDA 

plans to publish a draft guidance on notification procedures for making changes 

to products (e.g., addition of taggants) their packaging, or their labeling for the 

purpose of deterring and detecting counterfeit drugs; 

—FDA plans to continue to evaluate and disseminate information to stakeholders 

on developing forensic technologies (e.g., use of product fingerprinting, addition 

of markers) and other analytical methods that allow for rapid authentication of 

drug products. 

d. Identification of Products likely to be counterfeited 

(1) What FDA sought comment on: 

Are all products at high risk for being counterfeited? 

How can products at high risk for being counterfeited be identified? 

What criteria should be used to determine if a product is at high risk for being 

counterfeited? 

(2) What the comments said: 

Although a few comments suggested that all products were at high risk for being 

counterfeited, most of the comments FDA received supported the idea of developing 

criteria by which stakeholders could determine which products are likely to be counterfeited and/or developing a national list of products likely to be counterfeited 

based on these criteria. There was general agreement that the existence of state 

specific lists, each with its own regulatory requirements, could inhibit commerce and 

adversely affect the availability of drugs. FDA notes that the State of Florida has 

already published a list of ‘‘specified products’’ (i.e., a list of drugs most likely to 

be counterfeited) that is being used to implement state pedigree requirements. A detailed discussion of the comments is in Appendix B. 

(3) Discussion: 

Due to the large number of drugs with the potential to be counterfeited, FDA does 

not believe it is possible to create a comprehensive list of all such drugs. However, 

FDA does believe that a national list of those drugs most likely to be counterfeited 

and/or a set of criteria to use for determining those drugs would be useful for stakeholders to use at their discretion. Uses could include: 

—Assisting manufacturers and re-packagers in making decisions whether to use 

authentication technologies and unit of use packaging; 

—Assisting wholesalers in developing purchasing policies and allocating resources 

for detecting counterfeits; 

—Assisting retailers in targeting certain drugs for authentication and patient education prior to dispensing; 

—Assisting states in implementing regulatory requirements; 

—Assisting stakeholders in developing migratory paths to adoption of mass serialization and electronic track and trace technology. 

FDA strongly supports the development of such a set of criteria, or a list based 

on these criteria, that has the support and participation of all stakeholders. Regular 

input from interested parties as well as the ability to add or delete drugs from the 

list on short notice are important parts of the process. 

FDA believes that members of regulated industry are better positioned at this 

time than FDA to develop a process for creating, maintaining, and updating such 

a list (and/or set of criteria). 

(4) FDA Conclusions: 

FDA has concluded that there would be great value in the creation of a national 

list of drugs most likely to be counterfeited based on factors that are likely to contribute to counterfeiting risk. 

—FDA intends to encourage stakeholders and standards setting organizations to 

work together to create a national list of drugs most likely to be counterfeited, 

based on an assessment of criteria for determining counterfeit risk; 

—The best result would be achieved if all stakeholders, including FDA, and other 

interested parties participate in developing a list, or criteria for determining, 

drugs most likely to be counterfeited; 

—Any such list, and/or criteria, would be most effective if made publicly available 

to all stakeholders. 

FDA is aware of only one national list of drugs most likely to be counterfeited. 

The list was developed by the National Association of Boards of Pharmacy and is 

available at www.nabp.org. 
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e. Radio-frequency Identification (RFID) Technology 

(1) What FDA sought comment on: 

Whether a pedigree for all drug products can be achieved by phasing in track and 

trace technology (i.e., electronic pedigree) starting at a case and pallet level for products likely to be counterfeited and progressively including all products at the case, 

pallet, and package level; and 

Whether, as an interim measure, prior to widespread adoption of track and trace 

technology all drugs and biologics likely to be counterfeited should be tracked and 

traced either by limiting the number of transactions of the product or by using 

available track and trace technology, identifying the drug at the case and pallet 

level, and preferably at the product level, throughout the distribution system. 

(2) What the comments said: 

There was universal support for the adoption of electronic track and trace technology. RFID was cited as being the technology with the strongest potential for securing the supply chain but that it was not ready for widespread commercial use 

with pharmaceutical products. Many costs, potential benefits, and unresolved issues 

related to RFID were cited. The potential benefits included the ability to control inventory and conduct rapid, efficient recalls, while costs that could hinder the adoption of RFID included purchase of tags and other hardware, integration into existing 

information systems, and compliance with regulatory requirements (e.g., labeling, 

electronic records). Important unresolved issues included the need to develop standards and business rules for RFID, the need to address database management issues, 

and the need to determine the effect of RFID on product quality. 

FDA was also informed that some companies are planning feasibility studies concerning business uses of RFID for early this year and that other activities related 

to creating standards, business rules, and migratory pathways for RFID are also ongoing. A detailed discussion of these activities and other comments concerning RFID 

is in Appendix B. 

(3) Discussion 

Use of mass serialization to uniquely identify all drug products intended for use 

in the United States is the single most powerful tool available to secure the U.S. 

drug supply. Mass serialization involves assigning a unique number (the electronic 

product code or EPC) to each pallet, case, and package of drugs and then using that 

number to record information about all transactions involving the product, thus providing an electronic pedigree from the point of manufacture to the point of dispensing. This unique number would allow each drug purchaser to immediately determine a drug’s authenticity, where it was intended for sale, and whether it was 

previously dispensed. 

Although there is general agreement that widespread use of mass serialization is 

inevitable, several important issues remain unresolved, including the migratory 

paths that participants in the drug distribution system will follow as they begin to 

serialize their products, and the most likely timeline for widespread commercial use. 

It currently appears that the technology most likely to bring mass serialization 

into widespread commercial use by the pharmaceutical industry is RFID, although 

two-dimensional bar codes may be used for some products. RFID technology includes 

not only the silicon tags containing the EPC, but also antennas, tag readers, and 

information systems that allow all users to identify each package of drugs and its 

associated data. This data can be used not only to authenticate drugs but also to 

manage inventory, conduct rapid, targeted recalls, prevent diversion, and ensure 

correct dispensing of prescriptions. 

Acquiring and integrating RFID technology into current manufacturing, distribution, and retailing processes will require considerable planning, experience, and investment of resources. Currently, some manufacturers, wholesalers, and retailers 

are developing business plans and testing mass serialization using RFID while others are taking a wait and see approach. Due to rapid technologic advancements, the 

lack of significant market place experience with it in the pharmaceutical supply 

chain, each participant is best situated to determine his optimal paths to adopting 

it. 

Therefore, FDA has identified near term actions, described below, for it to take 

in order to facilitate the performance of mass serialization feasibility studies using 

RFID, and to assist stakeholders as they migrate towards the use of RFID technology. 

In the long term, after there is significant market place experience with RFID, 

FDA plans to propose or clarify, as necessary and appropriate, policies and regulatory requirements relating to the use of RFID. Labeling, electronic records, product quality, and Current Good Manufacturing Practices (cGMP) requirements are 
209 

issues that have arisen in connection with RFID. However, regulatory or policy determinations regarding these, or other, issues should not be made until they can be 

informed by sufficient data and significant marketplace experience with RFID. FDA 

has also identified a series of actions, discussed below, that would help industry 

stakeholders and standard-setting organizations achieve this goal. 

Lastly, stakeholders will need to ensure that they comply with the patient privacy 

protections provided by the Health Insurance Portability and Accountability Act as 

they implement use of RFID technology. 

(4) FDA Conclusions: 

The adoption and common use of RFID as the standard track and trace technology, which is feasible in 2007, would provide better protection. 

—Due to industry’s current initiatives, mass serialization and RFID technology is 

likely to be adopted according to the following timeline: 

January—December 2004 

—Performance of mass serialization feasibility studies using RFID on pallets, 

cases, and packages of pharmaceuticals; 

January—December 2005 

—Mass serialization of some pallets and cases of pharmaceuticals likely to be 

counterfeited; 

—Mass serialization of some packages of pharmaceuticals likely to be counterfeited; and 

—Acquisition and use of RFID technology (i.e., ability to read and use the information contained in RFID tags and the associated database) by some manufacturers, large wholesalers, some large chain drug stores, and some hospitals. 

January—December 2006 

—Mass serialization of most pallets and cases of pharmaceuticals likely to be 

counterfeited and some pallets and cases of other pharmaceuticals; 

—Mass serialization of most packages of pharmaceuticals likely to be counterfeited; and 

—Acquisition and use of RFID technology (i.e., ability to read and use the information contained in RFID tags and the associated database) by most manufacturers, most wholesalers, most chain drug stores, most hospitals, and some 

small retailers. 

January—December 2007 

—Mass serialization of all pallets and cases of pharmaceuticals; 

—Mass serialization of most packages of pharmaceuticals; and 

—Acquisition and use of RFID technology (i.e., ability to read and use the information contained in RFID tags and the associated database) by all manufacturers, all wholesalers, all chain drug stores, all hospitals, and most small retailers. 

—FDA plans to assist, to the extent necessary and appropriate, in facilitating the 

rapid, widespread adoption of RFID in the drug distribution system by working 

with stakeholders in the following areas: 

—Addressing any regulatory and policy issues related to the performance of feasibility studies; 

—Addressing any regulatory and policy issues relating to the notification requirements associated with implementation of RFID; 

—Addressing any product quality concerns and data issues related to the performance of feasibility studies; 

—Reviewing protocols for feasibility studies; 

—Working with other governmental agencies to coordinate activities; 

—Encouraging stakeholders to convene meetings of supply chain participants to 

identify, discuss, and propose solutions to technical, business, and policy 

issues related to the use of RFID technology in the pharmaceutical distribution system; and 

—Exploring the need for any other processes and venues that might be needed 

to assist stakeholders as they migrate towards the use of RFID technology. 

—FDA intends to regularly review the pace at which RFID is being adopted in 

the U.S. drug distribution system; 

—FDA plans to publish or clarify, as appropriate, regulatory requirements, policy 

guidance, and product quality testing requirements related to the use of RFID 

after sufficient data and marketplace experience with RFID are available to 

adequately inform our decision-making; and 

—FDA intends to consider taking further steps to facilitate the adoption of mass 

serialization. 
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1. Business steps for industry 

Each industry stakeholder interested in implementing RFID would benefit from 

the following steps: 

—Create an internal team focused on the adoption of mass serialization and use 

of RFID technology; 

—Perform internal feasibility studies to gain experience with mass serialization 

and RFID technology and to identify internal business issues requiring resolution; 

—Perform external pilot studies with stakeholders across the supply chain to gain 

experience using mass serialization and RFID and to identify opportunities, 

barriers and external business issues associated with them; 

—Develop policy and a business case for the use of mass serialization and RFID; 

—Cooperate and work with other stakeholders and government agencies to develop infrastructure and information systems to use with mass serialization of 

pallets, cases, and packages of drugs; 

—Participate on standard setting groups developing technical standards and business rules for use of mass serialization and RFID; 

—Work with government agencies and other members of the supply chain to identify and address regulatory and economic issues that could delay the adoption 

of mass serialization and RFID; and 

—Educate other members of the supply chain and government agencies about 

mass serialization and RFID. 

To the extent possible, it would be most useful for interested firms to perform 

these actions concurrently. For example, standards development requires knowledge 

gained from feasibility studies in order to move forward, and vice versa. 

2. Standards Setting Issues 

Any effort to develop standards for mass serialization of pallets, cases, and packages would be most effective if it addressed the following issues: 

—Minimum Information Requirements for the serial number—in the case of RFID 

tags this means containing a mass serialization code that uniquely identifies 

the object to which it is attached (e.g., minimum of 96 bits of information); 

—Communication protocol standards—in the case of RFID this means standard 

protocols for interrogating and reading tags; 

—Reader Requirements—Readers of mass serialization codes should be interoperable (e.g., readers must use protocols that allow them to read multiple classes 

of tags or bar codes, as applicable) and should be able to automatically upgrade 

software over an information network; 

—Pedigree requirements—this means that databases containing transaction information should be compatible (e.g., format, mark-up language); 

—Information Network Requirements 

—1. Database Structure (e.g., centralized vs. distributive) 

—2. Data ownership 

—3. Data access (to meet business, track and trace, and recall needs) 

—4. Data Access controls to assure information security; 

—Software Requirements—all applications should be compatible and compliant to 

assure global interoperability; and 

—Best use of Frequencies—(e.g., 13.56 megahertz on packages and 915 megahertz 

on cases and pallets due to interference and read range issues). 

2. REGULATORY INITIATIVES AND STATE MODEL RULES

All levels of government, in addition to the private sector, should take responsibility for ensuring the safety and security of the U.S. drug distribution system. Each 

level has a role in deterring and preventing the introduction of counterfeit drugs 

into the Nation’s drug supply chain. To complement and build on the technology 

measures described above, regulatory and legislative steps at all levels of government may be necessary. At the Federal level, FDA is taking steps to meet the objectives of the Prescription Drug Marketing Act (PDMA), which is intended to address 

vulnerabilities in the U.S. drug distribution system. At the State level, it would be 

beneficial for states to strengthen their provisions governing wholesale distribution, 

as described below in the revised Model Rules for Licensure of Wholesale Distributors. And, FDA plans to pursue increased criminal penalties for counterfeiting in the 

United States Sentencing Commission’s sentencing guidelines. 
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A. Prescription Drug Marketing Act (PDMA) 

(1) What FDA sought comment on: 

What are the most effective ways to achieve the goals of PDMA and, given recent 

or impending advances in technology discuss the feasibility of using an electronic 

pedigree in lieu of a paper pedigree? 

(2) What the Comments Said: 

Many of the comments that discussed PDMA acknowledged the limitations and 

concerns of full implementation of PDMA. However, many comments also supported 

the use of paper pedigrees for their deterrent value and as a means to verify prior 

sales through due diligence. A risk-based approach to implementing PDMA, which 

focuses on those drugs that are at high risk of being counterfeited, was suggested, 

as well as maintaining a full pedigree that documents all sales and transactions 

back to the manufacturer for drugs and high risk. One comment suggested an interim solution of ‘‘one forward, one back’’ pedigree for high-risk drugs. However, a 

number of the comments noted the high cost and incomplete protection provided by 

such paper requirements, especially as a general interim measure; by the time these 

costly requirements were phased in, they could be replaced by a more modern system. A majority of the comments supported the eventual use of an electronic pedigree for all drug products in the supply chain and indicated that an electronic pedigree should be considered as a modern solution to fulfilling and exceeding the 

PDMA goals, and urged FDA to take steps to help achieve a reliable pedigree solution as quickly as possible. As noted above, FDA believes that substantial progress 

toward a more cost-effective solution than incomplete and costly paper pedigrees is 

possible within the next several years. A detailed discussion of the comments is in 

Appendix B. 

(3) Discussion: 

FDA has worked closely with affected parties to identify and resolve concerns related to the implementation of the pedigree requirements of the PDMA. Through the 

various public comment opportunities over the years, the agency has heard mixed 

reviews about the value, utility, and difficulty of implementing a paper pedigree 

that identifies each prior sale, purchase, or trade of such drug. The comments received in response to questions raised in the Interim Report confirm that these concerns continue. 

FDA is encouraged by the enthusiasm and interest that stakeholders in the U.S. 

drug supply chain have expressed toward the adoption of sophisticated track and 

trace technologies that are more reliable than paper pedigrees. As discussed above, 

there appears to be movement by industry toward implementation of electronic 

track and trace capability in 2007. When this is in place, RFID should be able to 

function as a de facto electronic pedigree that follows the product from the place 

of manufacturer through the U.S. drug supply chain to the final dispenser. If developed properly, this electronic pedigree could be used to meet the statutory requirement in 21 U.S.C. § 353(e)(1)(A) to provide a pedigree under certain circumstances. 

In the interim, until the electronic pedigree is in widespread use, voluntary adoption of multi-layer strategies and measures discussed in this report would reduce 

the likelihood that counterfeit drugs will be introduced into the U.S. drug distribution system. These measures, combined with RFID technology, can help provide effective long-term protections that will minimize the number of counterfeit drug 

products in the United States distribution system. 

As discussed in a notice published in the Federal Register in conjunction with the 

publication of this report, FDA plans to continue to stay the implementation of 21 

CFR §§ 203.3(u) and 203.50. However, the agency intends to continue to reassess the 

stay of implementation on an annual basis. The agency will monitor closely whether 

progress toward the implementation of electronic pedigrees continues at the rapid 

pace evident in this task force analysis. Our plan to reassess the stay annually is 

part of the agency’s strong commitment to see that effective product tracing is implemented as quickly as possible. The agency also encourages wholesalers to provide 

pedigree information that documents the prior history of a drug product, particularly for drugs most likely to be counterfeited, even when the passing of such a pedigree is not required by the Act. The suggestion from the comments that there be 

a one-forward, one-back pedigree for high-risk drugs in the interim, until an electronic pedigree is uniformly adopted, may have merit. However, FDA believes that 

Congress would have to amend section 503(e) of the Act if such a system is to become a requirement. 
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(4) FDA Conclusion: 

Adoption of electronic track and trace technology would help stakeholders meet 

and surpass the goals of PDMA. Therefore, FDA intends to focus its efforts on facilitating industry adoption of this technology within the next few years. 

—To allow stakeholders to continue to move toward the goal of an electronic pedigree, FDA intends to delay the effective date of 21 CFR §§ 203.3(u) (definition 

of ADR criterion) and 203.50 (specific requirements regarding pedigree) until 

December 2006; 

—By December 2006, FDA intends to determine whether to further stay the regulations or take other appropriate regulatory action. 

B. Model Rules for Wholesale Distributor Licensing Strengthened 

(1) What FDA sought comment on: 

How should the NABP Model Rules for Licensure of Wholesale Distributors 

(Model Rules) be updated? 

Whether FDA regulations at 21 CFR Part 205, should be updated, as appropriate, 

to make it consistent with updates to the NABP Model Rules? 

(2) What the Comments Said: 

The comments overwhelmingly supported strengthening state requirements governing the licensure and oversight of wholesale distributors. Many comments cited 

the systemic weaknesses in the oversight of the wholesale drug industry and that 

existing inspection and due diligence processes are often insufficient to detect criminal activity. Some comments noted the positive steps already taken by some states, 

such as Florida, toward more effective regulation of wholesale distributors. For example, Florida has implemented more stringent requirements for licensure, stronger 

penalties, and due diligence requirements. Most comments stated that the full adoption of revised NABP model rules would improve security nationwide, and that 

stricter uniform standards were desirable across all 50 states so as not to create 50 

different sets of criteria and rules for licensing. FDA was encouraged to revisit the 

current minimum standards requirements described in 21 CFR Part 205 to assess 

whether a ‘‘Federal floor’’ for states would enhance or diminish state efforts to meet 

the NABP recommendations. A detailed discussion of the comments is in Appendix 

B. 

(3) Discussion 

FDA is pleased to recognize the recent efforts by NABP in revising the Model 

Rules. The revised Model Rules significantly strengthen the requirements for licensure, as well as put in place or fortify requirements that will ensure and protect 

the integrity of drug products as they travel through the U.S. drug supply chain 

from the manufacturer to the consumer. 

NABP sought comment from FDA, as well as interested stakeholders, in developing the revised Model Rules. The comments that FDA received as part of the anticounterfeiting initiative have been discussed with NABP. 

The revision of the Model Rules sought to enhance the protections included in the 

original version of the Model Rules and close existing gaps. The table below contains 

highlights of the revised Model Rules: 
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NABP is taking steps to facilitate implementation of the revised Model Rules, including: (1) publishing a list of susceptible products and calling for a coalition of national organizations to develop a process to maintain and update the list; (2) serving 

as bondholder for wholesalers in order to consolidate the need to hold a bond in all 

states where a wholesaler may do business; and (3) establishing a clearinghouse 

that will list wholesalers who receive accreditation by NABP and who have passed 

an inspection by their newly created inspection service, which NABP will conduct 

in partnership with the states. FDA supports NABP’s efforts to facilitate adoption 

and implementation of the enhanced Model Rules. 

Counterfeiting is a problem that is not isolated to one state. If a state strengthens 

its licensing requirements while a bordering state does not, the counterfeiters and 

illegitimate wholesalers will likely move into the bordering state. Widespread state 

adoption, implementation, and enforcement of the Model Rules would help combat 

counterfeiting. 

(4) FDA Conclusion: 

Because States have an important role in regulating drug distributors, adopting 

and enforcing stronger state anti-counterfeiting requirements would help in our collective effort to detect and deter counterfeiting. 

—FDA strongly supports the efforts taken by NABP to enhance the Model Rules 

and other actions taken to facilitate implementation; 

—FDA supports all efforts by the States to adopt these Model Rules. Adoption of 

the model rules by all States would have a significant impact on protecting the 

Nation’s drug supply by ensuring that all persons and entities involved in 

wholesale distribution of drug products meet stringent licensing criteria and 

maintained high ethical and business standards; 

—FDA encourages these state actions and the agency intends to explore whether 

and to what extent to revise the current minimum standards for state licensing 

of wholesale prescription drug distributors in 21 CFR Part 205. 

C. Higher Penalties for Drug Counterfeiting 

(1) What FDA sought comment on: 

Discuss the advantages and disadvantages of increased penalties for counterfeiting drugs 

(2) What the Comments Said: 

There was overwhelming support and unanimous agreement that higher penalties 

for counterfeiting are needed. 

(3) Discussion: 

FDA agrees with comments suggesting that higher penalties deter drug counterfeiters. 
214 

Current sentencing guidelines for counterfeit drug distribution are not commensurate with the public health threat posed by this criminal activity and strengthening 

the guidelines should help deter such conduct in the first instance. Despite the significant threat to public health posed by counterfeit drug products, current law provides penalties far below the level of some purely economic crimes. For example, 

counterfeiting a prescription drug label (bearing a registered trademark) is punishable by up to 10 years in prison, while counterfeiting the drug itself is punishable 

by a maximum of only 3 years in prison. Therefore, FDA plans to continue to pursue 

its request that the United States Sentencing Commission consider amending the 

sentencing guidelines to substantially increase criminal penalties for manufacturing 

and distributing counterfeit drug products and to specifically provide for enhanced 

penalties based on the level of risk to the public health involved in the offense. 

(4) FDA Conclusion 

FDA intends to pursue its request that the United States Sentencing Commission 

consider amending the sentencing guidelines to increase substantially criminal penalties for manufacturing and distributing counterfeit drugs and to provide specifically for enhanced penalties based on the level of risk to the public health involved 

in the offense. 

3. Creation of a Counterfeit Alert Network for Information Dissemination and Education 

(1) What FDA sought comment on: 

Whether a counterfeit alert network should be created through use of existing, or 

newly developed, communication tools, that allow reception, dissemination, and 

sharing of information about counterfeit drugs in a timely manner; 

What are the capabilities of current communication network, what a communication network should have in order to part of a counterfeit alert network, and costs 

associated with developing or adapting current systems. 

(2) What the Comments Said: 

The agency received many comments supporting the creation of a counterfeit alert 

network. Most of the comments suggested that the agency take steps to build on 

existing networks and several comments offered their organizations’ distribution 

lists or network as a conduit for the counterfeit alert network. The agency was advised that the counterfeit alert network should not be overused in order to avoid 

alert ‘‘fatigue,’’ which could create indifference or doubt regarding the importance 

of the messages. The agency was encouraged to consider cost-effective public/private 

partnerships to design communication strategies and facilitate efforts to standardize 

anti-counterfeit communications and to augment and coordinate communication systems. A detailed discussion of the comments is in Appendix B. 

(3) Discussion: 

The FDA is committed to informing the public, particularly consumers, pharmacists, other health professionals, wholesalers, and others involved in the U.S. 

drug distribution system, about counterfeit drug incidents in a timely manner. FDA 

is also committed to educating them about ways to identify and prevent counterfeits 

from entering into this system. To increase awareness of counterfeit drugs and safeguard the Nations drug supply, FDA is creating a network of national organizations, 

consumer groups, and industry representatives to deliver time-sensitive messages 

and information about specific counterfeit incidents and educational messages about 

counterfeits in general. The network is called the ‘‘Counterfeit Alert Network.’’ 

Partners in the Counterfeit Alert Network will be required to enter into a co-sponsorship agreement with FDA that lays out roles and responsibilities. Partners agree 

to disseminate the FDA time-sensitive messages to their members/subscribers/readers in the manner outlined in the co-sponsorship agreement, to partner in delivering 

educational messages, and in the case of health professionals, provide a link to the 

MedWatch website to report suspect counterfeits. A copy of the co-sponsorship 

agreement can be found in Appendix C. 

The agency plans to maintain a list (as it does now) of additional health professional, consumer, and industry organizations, and media outlets to notify when an 

actual counterfeit incident is confirmed and what steps to take to minimize risks 

and remove the product from the U.S. distribution system. This will help ensure the 

widest possible distribution to the appropriate audience’s. 

FDA met with consumer groups, pharmacy groups, and physician groups to determine the type of information that would be most useful to receive from FDA in the 

event of a counterfeiting incident. FDA intends to create templates for standardizing 

the format and content of health professional and consumer information in the 
215 

event of a counterfeit incident that can guide outreach efforts in an efficient manner, while assuring the flexibility FDA needs to formulate the messages. 

(4) FDA Conclusions: 

FDA will create a Counterfeit Alert Network that links together and enhances existing counterfeit notification systems, to provide for timely and effective notification 

to health professionals and consumers of a counterfeit event. 

—FDA is creating a counterfeit alert network to partner with national healthcare 

organizations, consumer groups, and industry representatives to deliver timesensitive messages about specific counterfeit incidents and educational messages about counterfeits in general, and information about how and when to report suspect counterfeit drug products; 

—FDA plans to develop and execute multi-media informational strategies for specific audiences to ensure that the messages reach the largest number of interested people possible through the network; 

—FDA plans to develop internal guidelines for the informational contents of outgoing FDA messages that will bemost useful to communicate a counterfeiting 

incident to individual stakeholder groups. 

4. Health Professional Reporting Encouraged via MedWatch 

(1) What FDA sought comment on: 

Whether FDA’s MedWatch system should be used as a tool to receive and disseminate timely information about counterfeit drug products, especially identification of 

suspect drug product? 

(2) What the Comments Said: 

Most of the comments supported the use of MedWatch for reporting suspect counterfeit drugs. These comments stated that health professionals are familiar with 

MedWatch and it would be too cumbersome and expensive to develop a new system, 

which people would have to be educated to use. One comment believed that reports 

of possible counterfeiting should be separate from MedWatch because it is not designed for criminal activity reporting and oversight. Another comment stated that 

because MedWatch is a voluntary reporting system, there could be significant 

under-reporting. 

(3) Discussion: 

For nearly 10 years, MedWatch has been FDA’s reporting portal for adverse drug 

reactions and ‘‘product problems.’’ These include problems with product quality that 

may occur during manufacturing, shipping, or storage, such as product contamination, defective components, poor packaging or product mix-up, questionable stability, 

and labeling concerns. If a pharmacist or consumer notices an unexplained change 

in size, shape, color, or taste of their dosage form, or notices that the coating is 

chipped or tablets are cracked, or that the drug is not working like it usually does, 

they may consider that to be a problem with their product. These are also characteristics that could occur if the product was a counterfeit drug. In fact, in the past, 

FDA has received some reports of suspect counterfeit drugs through MedWatch. 

If a consumer suspects that his or her medicine is counterfeit, they are encouraged to contact the pharmacist who dispensed the drug, rather than report directly 

to MedWatch. The pharmacist may have information from the manufacturer that 

the shape, color, or taste of the product may have changed, or other information 

that may be helpful in determining if the product may be counterfeit or if the suspicious characteristic of the product or its packaging is expected. 

The use of MedWatch is for health professional reporting. This would not affect 

the agreement with the Pharmaceutical Research and Manufacturers of America 

(PhRMA), whereby manufacturers have agreed to report counterfeits of their products to FDA’s Office of Criminal Investigations, within 5 days of becoming aware 

of the counterfeit. 

FDA has streamlined procedures for processing reports of suspect counterfeit 

drugs. The MedWatch Central Triage Unit (CTU) standard operating procedures 

(SOPs) have been amended to include ‘‘suspect counterfeit product’’ as a category 

of reports, so the CTU will know where to send the report for expedited processing. 

It is easy and convenient to file a report with MedWatch. All reports are confidential and the identity of the reporter is not disclosed. FDA encourages reporting using 

the online reporting form that can be found at www.fda.gov/medwatch. 

(4) FDA Conclusion: 

FDA plans to encourage and educate health professionals to report suspect counterfeit drugs to MedWatch. 
216 

—FDA plans to encourage and educate health professionals to report suspect 

counterfeit drugs to MedWatch as an overarching mechanism to report such information; 

—FDA plans to change the instructions for the MedWatch reporting form, both 

paper and online versions, so reporters will know how and when to report suspect counterfeits. Additionally, FDA plans to amend the MedWatch website description of product problems to include suspect counterfeits. 

5. Secure Business Practices 

(1) What FDA sought comment on: 

Whether to develop sets of ‘‘secure business practices’’ which would be voluntarily 

adopted by manufacturers, wholesalers, re-packagers, and pharmacies? 

Whether stakeholders should designate an individual or team to coordinate security and anti-counterfeiting activities? 

Issuance of an FDA guidance document concerning physical site security and supply chain integrity? 

There was no proposal specific to re-packagers. However, FDA identified independent re-packaging operations, through several ongoing investigations, as a point 

of entry for counterfeit drugs into the distribution system, and some of the proposed 

options would have had the effect of limiting those re-packaging operations. 

(2) What the comments said: 

The comments supported the need for development of secure business practices 

by all stakeholders in the drug distribution chain because each stakeholder has a 

responsibility to ensure that pharmaceutical products are authentic. The comments 

suggested that such practices include ensuring the legitimacy of business partners 

and refusing to do business with persons of unknown or dubious background, taking 

steps to ensure physical security, and identifying an individual or team in the organization with primary responsibility for ensuring that effective security practices are 

implemented. 

It is critically important that the physical facilities involved in the production, distribution, or dispensing of pharmaceuticals are secure against counterfeit drugs. In 

the area of food safety, our Center for Food Safety and Nutrition (CFSAN) has 

issued guidance for the food industry on preventive measures that establishments 

may take to minimize the risk that products under their control will be subject to 

tampering or other malicious, criminal, or terrorist actions. 
217 

Although it was acknowledged that re-packagers were required to comply with 

Current Good Manufacturing Practices as set forth in 21 CFR 210 and 21 CFR 211, 

due to the involvement of re-packaging operations in some recent counterfeiting 

schemes, FDA was asked to provide more oversight and to conduct more frequent 

inspections of re-packagers. 

See Appendix B for a detailed discussion of actions taken by manufacturers, 

wholesalers, and pharmacists to develop secure business practices. 

(3) Discussion: 

Recent counterfeiting cases demonstrate that the current business practices of 

participants in the U.S. drug distribution system are in some cases inadequate to 

prevent the introduction of counterfeit drugs. Implementation of secure business 

practices by participants in the U.S. drug supply chain is critical for deterring and 

detecting counterfeit drugs. Therefore, FDA commends and strongly supports efforts 

to develop and implement secure business practices for these participants. FDA 

plans to facilitate and encourage the development of innovative approaches to securing business transactions in the drug supply chain. The number of stakeholders who 

have told FDA they are already implementing the business practices discussed 

above is very encouraging. In addition to identifying effective security measures, the 

designation of an individual or team to have primary responsibility for coordinating 

security activities helps ensure effective implementation. 

FDA agrees that re-packaging operations can be a significant vulnerability in the 

drug supply chain. Although current statutory and regulatory requirements allow 

for appropriate oversight of re-packagers, FDA agrees that enforcement of those requirements could be strengthened. 

(4) FDA Conclusions: 

For government efforts against counterfeit drugs to be successful, drug producers, 

distributors, and dispensers will have to take effective actions to secure their business practices. 

—Efforts by stakeholders to develop the secure business practices listed above 

would help protect the public health and diminish counterfeiting; 

—FDA plans to work with individual stakeholders and groups representing stakeholders, as necessary and appropriate, to continue to develop, make publicly 

available, and widely disseminate secure business practices; 

—Good security practices include designation of an individual or team, reporting 

directly to the organization’s senior management, to coordinate the security and 

anti-counterfeiting activities for the organization; 

—FDA supports efforts by pharmaceutical manufacturers, wholesalers, and retailers to secure their physical facilities against counterfeit drugs. FDA plans to 

issue guidance on physical site security that applies to participants in the U.S. 

drug distribution system. 

—FDA plans to make its oversight over re-packagers of drugs a higher priority. 

FDA expects to increase the frequency with which it inspects re-packagers 

whose operations are found to be at increased risk for the introduction of counterfeit drugs. The increase in frequency will be based on the degree of risk, as 

determined by applying to re-packaging operations the risk based model FDA 

is developing for prioritizing inspections of drug manufacturing sites. 

6. FDA’S Rapid Response to Reports of Suspect Counterfeit Drugs Streamlined 

(1) What FDA sought comment on: 

Enhancing FDA’s internal processes for responding to and investigating reports 

of suspected counterfeit products 

(2) What the Comments Said: 

The comments unanimously supported any efforts by the agency to rapidly respond to reports of suspect counterfeit drugs. 

(3) Discussion: 

FDA takes reports of suspect counterfeit products very seriously. The agency is 

proud of its investigative tools and talents and its quick response to the public 

health needs when a counterfeit has been reported and has been confirmed. To improve this process, the agency evaluated its policies and procedures for responding 

to reports of counterfeit drugs to determine if FDA’s response could be more efficient. Although FDA has had many positive experiences in responding and working 

with manufacturers and the public, FDA identified several ways to further enhance 

coordination and communication among all initial responders within the agency. 

Because different parts of the agency throughout the country may receive the potential counterfeiting report, in some instances, it may take time for the information 
218 

to flow to the appropriate people who need it to respond efficiently. Therefore, FDA 

has established an FDA-wide rapid response protocol for suspect counterfeit drugs 

that will ensure that specified persons/offices/divisions within the agency are notified and engaged as soon as possible after the report is made to the agency. Policies 

and procedures have been or will be amended to reflect this streamlined information 

flow and coordination of agency response. Increased coordination and communication will help FDA to initiate rapidly any criminal or civil investigation, as well as 

to assess the health hazard of the counterfeit situation so the public health response 

can be launched. 

(4) FDA Conclusion: 

To respond rapidly to a report of a suspect counterfeit, FDA is further streamlining its internal processes to respond quickly to reports of suspect counterfeit 

drugs by improving coordination and communication among all initial responders in 

the agency. 

—FDA intends to amend its internal SOPs, where appropriate, to provide for 

more rapid response when a suspect counterfeit is reported; 

—FDA intends to build on lessons learned from working with manufacturers in 

past counterfeiting experiences to determine how industry/agency collaboration 

can and should be strengthened. 

7. Educating the Public and Health Professionals 

a. Consumers 

(1) What FDA sought comment on: 

As the sophistication of the ‘‘final product’’ drug counterfeiting operations has increased, the public needs to be more aware of ways to identify the risk of counterfeit 

drugs, receive instructions on ways to minimize the chance of receiving fake products and to identify potential counterfeits. 

(2) What comments said: 

The comments stated that it is imperative that consumers be encouraged to be 

more proactive in managing their health and be given useful tools to be vigilant to 

help avoid potential counterfeit drugs. Consumers should be educated to be aware 

of noticeable differences in their medication, the packaging, or any adverse events. 

In addition, consumers should understand the important role that their pharmacist 

and healthcare providers can play in identifying, reporting, and responding to counterfeit drug events. However, the comments warned that care should be taken in 

any education campaign to not unnecessarily alarm the public. 

(3) Discussion: 

Despite the growing sophistication of counterfeit drug threats, many consumers 

are not fully aware of these risks. The Agency, in conjunction with consumer and 

patient advocates, as well as industry representatives is eager to find additional creative ways to educate the public of the potential threat of counterfeit drugs. The 

messages should alert consumers to the risk, offer ways consumers can recognize 

the signs of a potentially counterfeit product, teach them how to reduce the risk of 

exposure and tell them what to do if they suspect they have encountered one. Of 

course, FDA wants to strike an appropriate balance in the need to proactively educate consumers without causing unnecessary alarm that could interfere with their 

use of prescribed drug regimes. Most important, it is critical to focus awareness, and 

education programs should focus on issues that consumers can control. 

FDA has an ongoing educational campaign that is intended to educate consumers 

about the risks of buying medicines online. FDA intends to reaffirm this message 

and focus the educational campaign on teaching safe purchasing methods. Particular focus will be placed on encouraging the public to seek out the Verified Internet Pharmacy Practice Site (VIPPS) seal when purchasing from an online pharmacy. 

In addition, stakeholders indicated that there is a need for better, timelier, accurate information about specific counterfeit situations. FDA plans to create a counterfeit drug resource page on our website. The objective of this webpage is to concentrate customized education tools into a resource library that can empower individual stakeholder groups. 

(4) FDA Conclusions: 

Educating the consumers about the risks of counterfeits is a critical piece in the 

effort to stop counterfeits from entering the stream of commerce. 

—FDA plans to develop additional, multi-layer, consumer-oriented educational 

materials that will help them learn about counterfeits, what to watch for, and 
219 

where to turn for useful information if they think they have encountered a suspected counterfeit; 

—FDA plans to re-launch the FDA public service announcement (PSA) campaign 

for best online buying practices to educate consumers about how to buy drugs 

online safely, and risks to avoid in online purchasing; 

—FDA plans to house on its www.fda.gov website a comprehensive, consumerfriendly online library that will contain both general and specific counterfeit 

drug information. It will also contain targeted educational materials for various 

interest groups that discuss counterfeit issues generally. In addition, the agency 

intends to develop a new FDA anti-counterfeiting resources icon to increase familiarity with the issue. 

b. Pharmacists and Other Health Care Professionals 

(1) What FDA sought comment on: 

Pharmacists need improved tools to receive information and to educate themselves 

about how to handle these situations and to keep abreast of current counterfeit 

events. They need to know how to identify and counsel consumers who might have 

received counterfeit products. 

Physicians, nurses and other health professionals also have contact with consumers taking pharmaceuticals and can help identify and counsel patients that 

could have accessed a counterfeit. This will require these groups keep up to date 

on current counterfeit events and know steps to take to report situations if a counterfeit is suspected. 

(2) What the comments said: 

Groups representing pharmacists and pharmacies recognize the need for pharmacists to take a leadership role in the identification of counterfeits, prevention of 

their introduction into the distribution chain, and education of consumers about 

counterfeits. 

The healthcare community indicated that awareness and education campaigns are 

important if its health professionals are to be active participants in the fight against 

counterfeit drugs. 

(3) Discussion: 

Pharmacists and health professionals can play a major role in helping identify 

counterfeits and preventing their introduction into the distribution chain. FDA has 

been working with pharmacy and medical professional groups to develop educational 

materials for pharmacists and other healthcare professionals, including doctors, 

nurses, and physician assistants. 

(4) FDA Conclusion: 

FDA plans to enhance its educational programs for pharmacists and other health 

professionals about their role in minimizing exposure to, identifying, and reporting 

counterfeits. 

—FDA intends to work with pharmacy and health care professional groups to develop materials to help educate their profession on the risk of counterfeits, what 

to do in case a counterfeit is suspected and ways to aid in educating consumers. 

This will include development of clear, concise messages and protocols, as well 

as the establishment of a delivery mechanisms that will help them learn about 

the threat of counterfeits, what to watch for, and where to turn for useful information in the case of a suspected counterfeit; 

—FDA intends to encourage pharmacy and health care professionals to become 

partners in the agency’s newly established Counterfeit Alert Network; 

—FDA intends to expand its outreach efforts by presenting at or participating in 

conferences and by publishing articles in professional journals and periodicals 

that target audiences of doctors, nurses, pharmacist and hospital administrators 

to educate them about counterfeits and raise awareness of the risks; 

—FDA intends to work with health professional trade groups to identify or improve data collection/reporting systems that could help identify counterfeits as 

they enter the stream of commerce (i.e, include appropriate questions on the ER 

patient admission questionnaire that might help diagnose usage of a counterfeit 

drug.) 

8. International Approach 

(1) What FDA sought comment on: 

Strengthening international cooperation in law enforcement efforts, identifying 

counterfeit products, using anti-counterfeiting technologies, and educating stakeholders and consumers 
220 

Whether there should be global standards for packaging of pharmaceuticals and 

the use of anti-counterfeiting technologies 

(2) What the comments said: 

The comments supported FDA involvement in global efforts to deter and detect 

counterfeit drugs. 

(3) Discussion: 

The growing global prevalence of counterfeit drugs must be curtailed. The steps 

described in this report are intended to secure the U.S. domestic drug supply. However, as long as counterfeit drugs exist worldwide, opportunities could arise for 

counterfeit drugs to find their way into the United States. Many countries have 

taken steps to secure their Nation’s drugs supply, while others struggle because of 

limited resources, inadequate regulatory infrastructure, or competing national 

health priorities. The World Health Organization (WHO) has taken the lead to increase worldwide collaboration and to develop strategies to deter and detect counterfeit drugs. There are several international criminal enforcement collaborations, such 

as the Permanent Forum on International Pharmaceutical Crime and the Interpol 

Intellectual Property Crimes Action Group. FDA intends to work with WHO and 

other international organizations to develop and implement worldwide strategies to 

combat counterfeit drugs. 

(4) FDA Conclusions: 

FDA will collaborate with foreign stakeholders to develop strategies to deter and 

detect counterfeit drugs globally. 

Below is a table showing when certain anti-counterfeiting measures will be available: 

APPENDICES

Appendix A: Counterfeit Alert Network Co-sponsorship Agreement 

Appendix B: More detailed description of the comments received for certain issues 

(where the comments were diverse or lengthy) 
221 

APPENDIX A

COUNTERFEIT ALERT NETWORK CO-SPONSORSHIP AGREEMENT

Background 

The U.S. Food and Drug Administration (FDA) is committed to informing the public, particularly consumers, pharmacists, other health care professionals, wholesalers, and others involved in the U.S. drug distribution system, about counterfeit 

drug incidents in a timely manner and educating these parties on ways to identify 

and prevent counterfeits from entering into this system. To increase awareness of 

counterfeit drugs and safeguard the Nations drug supply, FDA will create a network 

of national organizations, consumer groups, and industry representatives to deliver 

time-sensitive messages and information about specific counterfeit incidents and 

educational messages about counterfeits in general. FDA also will develop and execute informational strategies for specific audiences to ensure that the messages 

reach the largest number of interested people possible through the network. The 

network will be called the ‘‘Counterfeit Alert Network.’’ 

The goals of the Counterfeit Alert Network include, but are not limited to: 

—disseminating alert messages to a wide audience about specific counterfeit drug 

incidents in the United States and measures to take to minimize exposure (e.g., 

recall information); 

—outlining the roles and responsibilities of consumers, pharmacists, other health 

professionals, and wholesalers must play to identify counterfeit drugs, report 

suspect counterfeit drugs, and prevent them from entering the U.S. distribution 

system; and 

—developing a network of national organizations, consumer groups, and industry 

representatives to help disseminate the information. 

[INSERT CO-SPONSIOR ORGANIZATION INFORMATION] 

Importance of the Partnership to FDA and [Organization] 

This partnership will increase the potential audience of FDA’s important notifications about specific counterfeit drug incidents and messages about how and when 

to report suspect counterfeit drugs. By distributing FDA developed messages 

through the [ORGANIZATION] information system, these messages can reach more 

than [#] people. 

Responsibilities of FDA and [Organization] 

FDA will develop targeted messages, with a particular focus on consumers, pharmacists, and other health care professionals when a counterfeit drug is found in the 

U.S. distribution system. FDA will also develop educational and informational materials about how to detect a counterfeit drug, what to do if a drug is believed to be 

counterfeit, how to report the suspect counterfeit to the FDA, and ways to minimize 

the risk of receiving a counterfeit drug. These materials may include: web-based 

documents, print ads, posters, prepared newspaper articles, fact sheets, consumer 

brochures/pamphlets, and informational packets. FDA will provide any logistical 

and technical support, such as writing, layout, designing, and preparing illustrations for the products. 

FDA will ensure that all materials are cleared through the Agency and the U.S. 

Department of Health and Human Services before releasing material to the [ORGANIZATION] for public distribution FDA will provide these materials in a format 

(hard copy, digital, or electronic) that [ORGANIZATION] can use, as appropriate, 

to create, manufacture, and/or have printed in enough quantities to distribute to 

various audiences. FDA will not be responsible for any costs outside of the materials 

already produced by FDA. 

[ORGANIZATION] will distribute in a timely manner FDA’s notifications about 

specific counterfeit incidents as an alert through an active messaging system (separate email or fax alert correspondence). [ORGANIZATION] will facilitate the ability 

of their members/subscribers/website visitors to report suspect counterfeit drug 

products to FDA, e.g., via a link to the FDA Counterfeit Drugs webpage or FDA’s 

MedWatch webpage. [ORGANIZATION] will distribute relevant FDA-educational 

messages about counterfeits, covering such issues as awareness, recognition, prevention, tracking, and authentication of drug products. 

The [ORGANIZATION] will pay for the cost, if any, of printing materials, posting 

materials on its website, email distribution, renting ad space, and securing print 

placement in magazines and newspapers, as appropriate. [ORGANIZATION] will 

make clear, in any solicitation for funds to cover its share of the distribution costs 

that it, not FDA, is asking for the funds. [ORGANIZATION] will not imply that 

FDA endorses any fundraising activities in connection with the event. [ORGANIZA-
222 

TION] will make clear to donors that any gift will go solely toward defraying the 

expenses of [ORGANIZATION], not FDA. 

FDA and the [ORGANIZATION] I will develop a dissemination plan that outlines 

where and how the educational materials and alert messages about specific counterfeit incidents will be distributed to various audiences. 

FDA and the [ORGANIZATION] will review this agreement in 2 years from the 

original date of this agreement, but either party to this agreement can terminate 

its participation at any time by notifying the other party of its intent to do so in 

writing. 

Charges 

The [ORGANIZATION] will not sell any educational materials related to this joint 

effort. [ORGANIZATION] will not impose an enrollment or registration fee for subscribers to receive this information. 

Independently Sponsored Portions and Endorsements 

All materials and efforts related to the Counterfeit Alert Network will be jointly 

sponsored. FDA staff will not be used to develop, promote, or otherwise support any 

event that is independently sponsored by the co-sponsor, although official announcements and brochures may contain factual references to the available materials and 

Counterfeit Alert Network messages. 

The [ORGANIZATION] will not use the name or logo of FDA except in factual 

publicity. Factual publicity includes materials provided to [ORGANIZATION] on 

FDA’s program and Counterfeit Alert Network materials. Such factual publicity 

shall not imply that the involvement of FDA serves as an endorsement of the general policies, activities, or products of the [ORGANIZATION]. Where confusion could 

result, a disclaimer should accompany publicity to the effect that no endorsement 

is intended. The [ORGANIZATION] will clear all publicity materials with FDA to 

ensure compliance. 

Records 

Records concerning this partnership shall account fully and accurately for any financial commitments and expenditures of FDA and [ORGANIZATION]. Such 

records shall reflect, at a minimum, the amounts, sources, and uses of all funds. 

Public Availability 

This co-sponsorship agreement, as well as any financial records for this partnership, shall be publicly available. 

Co-Sponsorship Guidance 

FDA and the [ORGANIZATION] will abide by the memorandum of August 8, 

2002, ‘‘Co-sponsorship Guidance,’’ issued by the Associate General Counsel for Ethics. 

APPENDIX B

EXPANDED DESCRIPTION OF COMMENTS RECEIVED

Technology 

Unit of Use Packaging 

Comments supporting widespread utilization of unit of use technology cited: 

—The decreased need for repackaging which is a point of entry for counterfeit 

drugs; 

—Authentication technologies applied by the manufacturer would reach the dispensing pharmacy and the patient; 

—The lower cost for utilizing unit of use packaging on newly approved drugs; 

—The deterrent value to counterfeiters of the higher costs of duplicating unit of 

use packages; 

—Improvement in patient safety due to reduction in dispensing errors and better 

patient compliance; and 

—Increased pharmacist availability for patient counseling (due to reduction in 

time needed to fill prescriptions). 

Some comments cautioned the FDA against mandating unit of use packaging for 

all drugs citing: 

—The high cost, and length of time, it would take to change production lines from 

bulk to unit of use packaging; 

—The investment made by many pharmacies in re-packaging and pill counting 

equipment; 
223 

—The difficulty of packaging certain products (e. g. vaccines, multi-dose liquid formulations) in unit of use form; 

—The need to differentiate repackaging performed under contract to a manufacturer or by a pharmacy (which may achieve market efficiencies) from repackaging by other entities; 

—The need to perform a careful product-by-product cost-benefit analysis on unit 

of use packaging before creating any requirements; 

—The minimal hurdle that unit of use packaging creates for sophisticated drug 

counterfeiters; 

—The need to comply with the Consumer Product Safety Commission (CPSC) regulatory requirements for child resistant unit of use packaging; 

—The difficulty some consumers (e.g., arthritic patients) may have in opening 

unit of use packaging such as some blister packs; 

—The need for pharmacists to modify prescribed quantities to correspond with 

available unit of use packages which could require changes in state law; and 

—The need to establish standards for such things as size and shape of unit of use 

packaging in order to minimize patient confusion and address shelf space 

issues. 

Authentication Technologies 

They supported use of authentication technologies as part of an overall anti-counterfeiting strategy and stated that authentication technologies serve two purposes: 

They make it more difficult and expensive to produce a copy of the drug or its 

packaging and labeling, and 

They provide a means for determining if a specific drug, package, or label is authentic. 

Manufacturers of specific anti-counterfeiting technologies provided us with descriptions of their products that were extremely valuable in helping us understand 

how they work, their cost, and how they might be incorporated into pharmaceutical 

products, packaging, and labeling or used to detect counterfeit products through forensic and other analytical methods, including rapid methods. 

Many comments supported the issuance of an FDA guidance document on the use 

of authentication technologies. They stated that there was no clear FDA policy specifically targeted to this important subject. They suggested that current FDA policies and practices for New Drug Applications (NDAs), Abbreviated New Drug Applications (ANDAs), and Biologics License Applications (BLAs), supplements, and other 

notification procedures should be clarified so the policies and procedures applicable 

to use of anti-counterfeiting technologies are clearly articulated and available in a 

single document. 

The following points were made regarding the use of authentication technologies 

on drug products, their packaging and labeling: 

—There is no ‘‘silver bullet’’ solution—all anti-counterfeiting technologies can be 

defeated; 

—Because all anti-counterfeiting technologies can be defeated, a more extensive 

approach utilizing layered overt and covert technologies that are changed on a 

regular basis is frequently required; 

—Authentication technologies are expensive; 

—Manufacturers should determine which authentication technologies to use, on a 

product specific basis. The FDA should not require the use of any specific anticounterfeiting technology. For example: the number and type (e.g., overt, covert) 

of technologies utilized for a given product need to take into account the type 

of product (e.g., solid, liquid), use, cost, history of counterfeiting etc.; 

—Repackaging destroys anti-counterfeiting technologies employed by the manufacturer; 

—Incorporation of anti-counterfeiting measures into the product, packaging, and 

labeling may be subject to application and notification requirements which 

means that initiating or changing such technology could require a significant 

time and expense; 

—Although all products are at risk for being counterfeited there is a need to develop criteria or a classification system to help identify those products at highest risk for being counterfeited and thereby assist stakeholders in identifying 

products that might derive a greater benefit from the incorporation of authentication technologies; 

—The large number of available technologies coupled with the number of different 

products stocked in pharmacies and the need to change anti-counterfeiting 

measures make it difficult for pharmacists to be knowledgeable about the technologies used for a product at any given time; 
224 

—Technologies that do not allow for ‘‘real time’’ or consumer authentication (e.g., 

covert technologies known only to the manufacturer and/or the FDA) may have 

an uncertain benefit in rapid identification of counterfeit drugs. 

List of Drugs Likely to be Counterfeited 

Many comments stated that it was important for stakeholders to allocate financial 

resources to protect those products that are most likely to be counterfeited. There 

was agreement that the criteria we suggested to identify drugs that were likely to 

be counterfeited were correct. These included: 

—Impact on public health if the drug were counterfeited; 

—Drugs history of counterfeiting; 

—Drugs price; 

—Drugs volume; 

—Drugs dosage form; 

—Drugs clinical uses; and 

—Whether similar products had a history of being counterfeited. 

However, there was no consensus on how to apply these, or other, criteria in creating a list of such products. 

As stated above, some comments suggested that instead of developing a list of 

drugs likely to be counterfeited, a set of criteria for determining whether a drug was 

at likely to be counterfeited should be created. One proposal for such criteria was: 

A drug has been subjected to a seizure or stop sale notice because of counterfeiting, or 

There is documentation that a drug was counterfeited and is the subject of an investigation by Federal or State authorities AND 

The product is high cost (e.g., over $200 per dose) or high volume (e.g., top fifty 

drugs), or 

The product is used extensively for treatment of HIV/AIDS or cancer, or 

The product is injectable, or 

The product distributed in a special or limited way, or 

There are multiple documented instances of pedigrees not being passed with the 

product 

Radiofrequency Identification Technology 

We received a large amount of information on the benefits, costs, and unresolved 

issues relating to RFID. These include: 

Benefits 

—Ability to deter and detect counterfeit drugs; 

—Ability to conduct efficient targeted recalls; 

—Ability to manage inventory; 

—Ability to identify theft; 

—Ability to identify diverted drugs; and 

—Improvement in patient safety by assuring correct dispensing of drugs. 

Costs 

—Purchasing hardware (e.g., tags, readers) and software; 

—Integration into legacy information systems; 

—Database creation, security, and maintenance; 

—Integration of RFID technology into existing manufacturing processes, distribution procedures; 

—Compliance with regulatory requirements (e.g., cGMP, notification, product integrity); and 

—Feasibility studies. 

Unresolved Issues 

—Need for all stakeholders to embrace the technology in similar timeframes in 

order to realize the full potential of RFID technology including provision of a 

universal electronic pedigree; 

—Need to develop standards and business rules; 

—Need to address database issues such as structure (e.g., central vs. distributive), 

ownership, access, and security; 

—Clarification of regulatory requirements pertaining to use of RFID (e.g., cGMP, 

electronic records, notification); and 

—Need for a flexible migration path to the use of RFID in order to meet the needs 

of different stakeholders. 

Stakeholder Activities 

We have been informed of several feasibility studies, starting in early 2004, that 

should give members of the supply chain experience using RFID as well as provide 

them with an opportunity to test its business uses and identify potential barriers 

to its acceptance. These studies include: 
225 

—Wal-Mart.—Drug manufacturers and wholesalers will attach RFID tags to all 

bottles of controlled substances; 

—Accenture.—Coordinating a study of RFID involving manufacturers, wholesalers, and retailers that will explore the use of RFID for tracking, tracing, recalls and theft of selected pharmaceuticals; 

—CVS.—Is studying the potential benefits that tagging and tracing pharmaceuticals and prescriptions in a retail pharmacy would have on operating efficiency, quality of patient care, and customer service; and 

—Other feasibility studies using RFID are being planned in Europe to study the 

use of serialization for authentication at the point of dispensing. 

In addition to feasibility studies, we understand that several groups representing 

many supply chain participants have been meeting to discuss ways to facilitate the 

adoption of RFID. For example the Product Safety Task Force (PSTF) convened 

under the auspices of the Healthcare Distribution Management Association (HDMA) 

is developing business requirements and identifying business issues relating to 

RFID technology. 

The PSTF and other stakeholders have informed us that the migratory path (or 

phase in) to widespread use of RFID at a package level could vary by stakeholder 

based on the place of that stakeholder in the supply chain (e.g., manufacturer vs. 

retailer) and on specific costs and benefits accruing to that stakeholder (e.g., types 

of products manufactured, number of distribution centers, technology cost per product). 

Several migratory paths were mentioned, including: 

—Phasing in use of RFID technology with use at the case and pallet preceding 

use at the package level; 

—Phasing in use of RFID technology starting with use on pallets, cases, and packages of ‘‘high risk’’ products with gradual inclusion of other products at all levels; and 

—Use of RFID technology at the pallet and case level coupled with use of 2–D 

Bar Codes at the package level with gradual phase in of RFID technology at 

the package level. 

According to stakeholders, these paths are not mutually exclusive and it is likely 

all of these, and other, paths will be utilized as RFID technology becomes more 

widely adopted. 

Secure Business Practices 

Below are some of the secure business practices that have been developed by participants in the U.S. drug distribution system. 

Manufacturers 

Several manufacturers have announced policies intended to secure the supply 

chain. These policies include: 

—Limiting sales to authorized wholesalers. Authorized wholesalers are defined either as wholesalers who purchase a manufacturers products exclusively from 

that manufacturer or as wholesalers who purchase a manufacturers product directly from the manufacturer or from other authorized wholesalers; 

—Making the list of authorized distributors publicly available; 

—Ability to audit the sales records of wholesale distributors; 

—Working with dispensing pharmacies to ensure they are aware of the identities 

of authorized distributors; and 

—Designation of an individual or team to coordinate security and anti-counterfeiting activities. 

Wholesalers 

The Healthcare Distribution Management Association (HDMA) released a document entitled ‘‘Recommended Guidelines for Pharmaceutical Distribution System Integrity’’ which set forth a series of recommended actions for wholesalers to take 

prior to and while conducting business transactions with other wholesalers. In essence they comprise a ‘‘due diligence’’ checklist which includes items such as: 

—Obtaining detailed information about the wholesalers licensure, inspection results, history of disciplinary actions, corporate officers, owners, and management personnel; 

—Performing a criminal background check on the wholesaler, its officers, owners, 

and other key personnel; 

—Obtaining a credit history and information about its business activities, financial status, and liability insurance; 

—Performing a detailed physical site inspection; and 
226 

—Ensure that the wholesaler is in compliance with Federal and State requirements, verifies that the wholesaler is an authorized distributor for the products 

being transferred or has a process in place for verifying pedigrees. 

Individual wholesalers supported the HDMA guidelines and provided FDA with 

ideas for additional secure business practices including: 

—Not selling pharmaceuticals to other wholesalers at all; and 

—Completely separating the functions of quality assurance and compliance from 

sales and marketing and requiring quality assurance and compliance staff to 

perform due diligence on potential business partners. 

Pharmacies and Pharmacists 

We have been informed that several organizations representing pharmacies and 

pharmacists are developing secure business practices as a guide for pharmacies and 

pharmacists. One pharmacy group notified us that they have already published a 

list of strategies to use for assuring the integrity of pharmaceuticals. This list includes: 

—Staying informed about reports of counterfeit drugs; 

—Contacting wholesalers to get information about the status of their licensure, 

whether they are authorized distributors, and where they source their drugs; 

—Evaluate pharmacy security; 

—Educate hospital staff; 

—Follow up on patient complaints; and 

—Report suspect products. 

Prescription Drug Marketing Act (PDMA) 

A majority of the comments that discussed PDMA noted the limitations and concerns of full implementation of PDMA. Such limitations include: 

—Paper pedigrees can be forged and counterfeited; 

—Paper pedigrees are logistically difficult to accommodate in the drug distribution system; 

—ADRs are not required to pass pedigree information on to the next purchaser, 

so subsequent wholesalers are unable to obtain the pedigrees needed to sell 

their products; 

—The pedigree for a product that circulates several times through the supply 

chain loses all prior sales history if the drug product is sold to an ADR; 

—The net effect is that secondary wholesalers who cannot obtain pedigrees necessary to legally market drugs could be driven out of business; reducing the 

number of legitimate distributors in the system, decreasing competition and increasing prices; 

—Manufacturers do not update their lists of ADRs so it is difficult for a wholesaler to obtain ADR status; and 

—Costs of paper pedigrees outweigh the benefits. 

A number of other comments, however, supported the use of paper pedigrees for 

their deterrent value and as a means to verify prior sales through due diligence. 

Comments noted that even forged pedigree papers provide an additional opportunity 

to identify counterfeiters and block introduction of counterfeit drugs into the drug 

supply if wholesalers exercise due diligence by tracing the sales through the pedigree and identifying the place where the forgery occurred. A few comments suggested that FDA should exercise enforcement discretion and not take enforcement 

action against a wholesaler who fails to provide pedigree information back to the 

manufacturer as long as the wholesaler provides pedigree information back to the 

first ADR who received the drug from the manufacturer. 

Several comments suggested a risk-based approach to implementation of the 

PDMA, which focuses on those drugs that are at high-risk of being counterfeited. 

Many of these comments suggested that high-risk drugs maintain a full pedigree 

that documents all sales and transactions back to the manufacturer. One comment 

suggested an interim solution of ‘‘one forward, one back’’ pedigree for high risk 

drugs. This system would be analogous to recent bioterrorism legislation for food 

distributors, whereby participants in the food distribution system maintain only 

those records necessary to identify immediate previous sources and immediate subsequent recipients of food. However, comments on FDA’s food regulations have suggested it will take at least several years to phase in the paper recordkeeping requirements. Moreover, in contrast to drugs, there are no major steps in development 

now to provide widespread electronic pedigrees for drug products. Finally, as noted 

throughout the riskiest drug products are the ones for which modern anti-counterfeiting and track-and-trace methods should be implemented soonest. 

Most comments supported the development of an electronic pedigree for all drug 

products in the supply chain and that an electronic pedigree should be considered 
227 

as a long-term solution to fulfilling the PDMA requirements codified at 21 CFR 

203.50. Given the costs of implementing the partial anti-counterfeiting measures included in the PDMA, and the expectation of continued significant progress toward 

implementation of modern pedigree systems for drugs, more effective modern pedigree systems are likely to be available before it would be possible to phase in and 

achieve compliance with paper pedigree requirements. 

Model Rules for Wholesale Distributor Licensing 

The comments overwhelmingly supported strengthening requirements governing 

the licensure and oversight of wholesale distributors. Many comments cited the systemic weaknesses in the oversight of the wholesale drug industry, prior to Florida’s 

implementation of licensing reform, that were described in the Florida Grand Jury 

Report, such as issuing licenses without proper background checks and granting licenses despite one or more felony convictions. The comments also stated that existing inspection and due diligence processes are often insufficient to detect criminal 

activity. As mentioned above, there was uniform agreement that the penalties for 

counterfeiting drugs are insufficient to serve as an adequate deterrent. 

Many comments supported the concept of tighter requirements generally, while 

others gave specific suggestions for improvement. Some of the specific suggestions 

included: 

—Detailed and robust applications that provide greater disclosure of information 

about the applicant and their prior history; 

—Criminal background checks for applicant and company principals; 

—List of prescription drug-related or fraud-related activities that are ‘‘not in the 

public interest’’ such that states should deny licenses to persons with criminal 

records for these activities; 

—Pre-license inspection of wholesale distribution facilities; 

—Periodic and unannounced inspections; 

—National clearinghouse for information on wholesale licensure status, 

debarments, exclusions, and/or results of criminal background checks; 

—Bonds of up to $100,000; 

—Requiring all wholesalers to transmit pedigree tracing transactions back to the 

manufacturer for susceptible products; 

—Non-ADRs must pass pedigree with all drugs with transaction information back 

to an authorized distributor; 

—Amending the definition of ADR to include those on the manufacturers list, 

have a written agreement currently in effect with the manufacturer, or has a 

verifiable account with the manufacturer and minimal transactional or volume 

requirement thresholds from the manufacturer of 5,000 sales units within 12 

months or 12 purchases (invoices) within 12 months; 

—Requiring authentication of pedigree if there is reason to suspect that the product may be counterfeit, as well as on a random basis; 

—Migrating to electronic pedigree; 

—More aggressive penalties and enforcement on state and national level; 

—Quickly suspending and/or revoking licenses of violators; and 

—Including due diligence requirements for wholesalers to conduct on its suppliers. 

Most comments stated that the stricter standards should be uniform across all 50 

states so as not to create 50 different sets of criteria and rules for licensing. 

Concerns about several provisions in the new Florida and Nevada laws regarding 

licensing of wholesale distributors were expressed. Some of the comments described 

implementation and logistical problems that wholesalers have experienced in these 

states as a result of the new law. 

Some comments encouraged FDA to revsit the minimum standards requirements 

described in 21 CFR Part 205 to create a ‘‘Federal floor’’ for States to meet. The 

comments were not uniform, however, on whether such a Federal floor might enhance or deter state efforts to implement the complete set of NABP recommendations. 

Counterfeit Alert Network for Information Dissemination and Education 

The agency received many supportive comments about the counterfeit alert network concept. Most of the comments suggested that the agency use existing networks and several comments offered their organizations distribution list or network 

as a conduit for the counterfeit alert network. 

Some comments offered strategic approaches for the development of such a network, including suggested concepts for message delivery. Suggestions include using 

active notification via ‘‘push’’ e-mail technology, validated and secure systems, easily 

understood language with clear and unambiguous messages, multiple notification 

systems, accessible to all stakeholders, no cost for users, timely, visual alert to flag 
228 

importance, redundant delivery vehicles such as email, fax, direct mail, and phone, 

and have an embedded link to take user back to FDA or MedWatch website. The 

comments also suggested that consistency is an important element so there is familiarity in times of emergency situations. The agency was warned not to overuse the 

counterfeit alert network in order to avoid alert ‘‘fatigue,’’ which could create indifference or doubt regarding the importance of the messages. 

The agency was encouraged to consider public/private partnerships to design communication strategies and facilitate efforts to standardize anti-counterfeit communications and to augment and coordinate communication systems. The comments 

also said that costs to FDA and private partners should be kept to a minimum. 

Senator BENNETT. Thank you. I appreciate the opportunity to ask 

questions of all four of you, and, again, thank you for your service. 

Senator Kohl. 

WIC CONTINGENCY FUND

Senator KOHL. Thank you, Mr. Chairman. 

Mr. Bost, last week, when Secretary Veneman was here, I noted 

that States are already starting to take action to conserve WIC dollars because they are afraid they do not have enough money to finish out this year. I said we have a contingency fund to prevent 

things like this from happening and States need to be given as 

much advance notice as possible if contingency fund money will be 

made available. 

At that time the Secretary said that USDA was aware of the 

problem and was looking into it. It has been a week now and we 

have not heard anything, so I would like to ask you the question 

that we asked her: Do you anticipate using any of the contingency 

fund this year? And when will an announcement be made with respect to this issue? 

Mr. BOST. Well, Senator Kohl, it is interesting that you ask the 

question because the money was released to several States last 

night. 

Senator KOHL. Last night. 

Mr. BOST. Last night. 

Senator KOHL. That is great. You know, I cannot imagine—— 

Senator BENNETT. He knew you were going to ask the question. 

Senator KOHL. You cannot respond any more quickly than that. 

Mr. BOST. Beg your pardon? 

Senator KOHL. That is terrific. 

Mr. BOST. Well, I think to be perfectly—— 

Senator KOHL. So the contingency funding is being made available. 

Mr. BOST. Well, actually the States should have it in their letter 

of credit as we speak. They probably received it at midnight last 

night. 

Senator Kohl, I think it is really important to note, too, that the 

issue of tracking that information from the States in terms of looking at participation and looking at the food cost is it is not an exact 

science. And we have been following it for some time. And we were 

trying to look at being as judicious as we possibly could with those 

contingency funds, but we did release them last night to those 

States that were in need, and they will not have to stop serving 

any clients that are eligible. 
229 

WIC FOOD COSTS

Senator KOHL. A follow-up on that. Can you confirm that WIC 

food costs have been higher than anticipated and that the food cost 

assumptions upon which the fiscal year 2005 funding request was 

based are now outdated? 

Mr. BOST. Well, I don’t know if I would say that they were outdated, but I think the preliminary information that we currently 

have available to us and that we have been reviewing would lead 

us to believe that the overall food costs are a little bit higher than 

estimated. 

The other point I would like to make is that it is not only an 

issue of food cost, but it is also participation rates. In some States, 

the food costs are a little bit higher; in some States, it is not. We 

are watching and tracking it very, very closely. It is something that 

we are very concerned about. 

Senator KOHL. And do you anticipate that this updated data and 

increased participation rate will make it likely that we will have 

to provide some additional resources in fiscal year 2005 for WIC? 

Mr. BOST. I don’t think I have drawn those conclusions at this 

point. It is something we are watching very closely. If we see that 

is indeed the case, we will come and work with you and Congress 

to ensure that the needs of these persons are met. 

Senator KOHL. Good. 

NATIONAL ORGANIC PROGRAM

Mr. Hawks, in fiscal year 2004, we provided a significant increase in funding to the National Organic Program and required 

that part of the funding be used to meet several statutory requirements of the Organic Foods Production Act of 1990 that have not 

yet been met. These include directives to hire an executive director 

for the National Organic Standards Board, to create an ongoing 

peer review panel, and to improve scientific technical support for 

the Organic National Standards Board. 

Could you comment on the progress of the agency with respect 

to each of these three funding directives? 

Mr. HAWKS. Yes, sir. We are making extremely good progress toward hiring. I think the executive director is very close to being 

hired. My staff tells me that we are moving judiciously in all of 

these areas with regard to organic. 

Senator KOHL. The peer review panel, do you know if that is ongoing or are you moving in that direction? Have you created an ongoing peer review panel? 

Mr. HAWKS. We are in the process of completing initial peer review as we speak. 

Senator KOHL. And, finally, to improve scientific technical support for the National Organic Standards Board, any comment? 

Mr. HAWKS. Yes, sir. We are doing that. The funds that were provided in our 2004 budget are helping us on the technical scientific 

review as well. 

Senator KOHL. That is great. 

Mr. HAWKS. We appreciate those funds. 
230 

ANIMAL FEED INSPECTIONS

Senator KOHL. Yes, thank you. 

Dr. Crawford, FDA recently announced that they would be implementing new rules regarding animal feed as a result of BSE, including increasing inspections of rendering plants and feed mills. 

An increase of over $8 million is provided in the budget for this 

purpose. How many rendering plants and feed mills are in the 

United States? Of those, how many handle ruminant material prohibited from being used in animal feed? And will these inspections, 

specifically of plants that handle ruminant material be physical inspections or paper audits? And what about plants that do not handle ruminant material? 

Dr. CRAWFORD. With respect to the number of plants and what 

they handle, if it is agreeable, I would like to submit that for the 

record. 

The second thing is the inspections will be doubled next year. We 

are asking for that in this budget. The kinds of inspections will be 

both physical and also audit types. We expect for the plants to 

know where the material came from and where it is going, and we 

have records access for that. And we will be evaluating that. 

The other thing is that we want to know what kinds of materials 

went in there and what the feed was used for and whether or not 

we can trace that in order to be sure that it isn’t going to the 

wrong species. 

So it is a fairly complex inspection process that is reflected in 

that $8.3 million more that we want for BSE. One of the major 

things we are trying to do is to control BSE because the most likely 

source of infection is animal feed, as you know. 

[The information follows:] 

ANIMAL FEED

As of February 6, 2004, there are 235 rendering plants, 1,085 FDA licensed feed 

mills, and 5,071 non-FDA licensed feed mills in the United States. Of these, 157 

rendering plants, 310 FDA licensed feed mills, and 759 non-FDA licenses feed mills 

handle materials prohibited from being used in animal feed. 

Senator KOHL. All right. Dr. Murano, your budget requests an 

additional $23,500,000 for the Food and Agriculture Defense Initiative. Funding is also requested in FDA and other agencies for this. 

It sounds like the increases are going for computer system upgrades, increased surveillance, bio-surveillance and training. 

For those of us who are not steeped in the language of homeland 

security, can you explain in laymen’s terms what this money will 

be used for? 

Dr. MURANO. Certainly. As you said very well, this is a coordinated effort between ourselves and FDA and other agencies as 

well, because we understand that we must do several things to 

maintain the safety of our food supply from intentional attack. One 

is surveillance, so both we and FDA need funds to survey the food 

supply for specific agents that we do not normally test for, for what 

we deem to be normal contamination of food. These are threat 

agents for which both of these agencies have conducted vulnerability assessments to see where we are the most vulnerable. We 

have determined where we are the most vulnerable, and are trying 
231 

to close those gaps and then test for the threat agents that we believe are most likely to be used. 

Secondly, the Food Emergency Response Network that I described very briefly in my opening remarks, is also a joint effort 

with FDA. It is a network of laboratories throughout the entire 

country that have to work together and be well coordinated to respond to an event. More importantly, it must do the important surveillance work that needs to be done even before an event takes 

place. All of these labs have to be coordinated in terms of using the 

same methods and the information has to be shared among all the 

laboratories. That is why part of the funds are being asked for 

eLEXNET, which is a web-based information sharing platform. 

For all of these reasons, we have our budget request and FDA 

has their budget request, but funds are to be used jointly to establish a very robust network of 100 labs in this coming year. 

WIC-ONLY STORES

Senator KOHL. All right. Mr. Bost, I have recently been informed 

about a growing problem that is costing the WIC program several 

million dollars a year. The WIC-only stores that, as you know, 

serve only WIC clients and accept only WIC certificates, are increasing in numbers very rapidly. In California alone, there were 

82 WIC-only stores in 1996, and now there are more than 600 

across that State. 

The problem with these stores is that they do not have to compete in the normal market, and so they are able to charge extremely high prices for their products. In California, the estimates 

are that the WIC-only stores charge 15 percent or more in addition 

to normal price for WIC food packages than other stores. This is 

a growing problem, and the WIC program obviously is suffering additional, unnecessary, and unprogrammed costs because of it. 

With money so tight, obviously, Mr. Bost, we need to do as much 

as we can to control this problem. Can you comment on the problem? And to what extent are you aware and consider it serious and 

what you may be doing about it? 

Mr. BOST. Well, interestingly enough, Senator Kohl, I think it is 

important to note that only 2 percent of all the authorized WIC 

vendors are essentially WIC-only. Right now we have the WIC-only 

stores only in California and in the Commonwealth of Puerto Rico. 

So, one, it is not widespread. 

The second point is the fact that we have heard anecdotally that 

the cost to the Federal Government is more. However, the service 

is better than our clients are receiving other places. So we are in 

the process of reviewing that data to make a determination, if it 

is accurate information, generally speaking, is the cost more. So we 

have just started that review. I think we actually have two of my 

senior staff that are going to go into some of the stores in California over the course of the next couple of months and ascertain 

exactly what the situation is. We are concerned given the fact that 

we are seeing an increase in our overall WIC costs. 

CRITICAL PATH INITIATIVE

Senator KOHL. Yes. 
232 

Dr. Crawford, FDA recently announced that they are going to use 

new technologies to help reduce the cost of developing new drugs. 

While the goal of this announcement is definitely worthy, announcements such as these raise a question of how closely the FDA 

should be working with the industry that it regulates. 

What considerations are being taken before FDA makes a decision on something that will cause them to work in close collaboration with the industry that you are regulating? 

Dr. CRAWFORD. Thank you, Senator Kohl. As you know, we are 

bound by very strict ethical guidelines to keep us from acting and 

colluding with the industry that we regulate. We have to be very 

careful about that. 

Our record has been good over the years, but we want to keep 

it good and even better. So we are separated from working directly 

with the industry, either in a consulting capacity or in any other 

kind of capacity to improve their bottom line, their profitability, 

and even the approval of these drugs. 

The genesis of this program, which we are very pleased with, is 

some years ago, as you know, there was a move to double the National Institutes of Health budget. And so that budget went from 

between $13 and $14 billion, to $27 billion. This is expected with 

some concomitant increases in industrial research and development 

to produce a large number of new technologies and scientific developments that could and I believe will lead to the capability of this 

country and its pharmaceutical industry producing more useful 

products, not just in the human drug category but probably in 

other categories. 

The bottleneck for these breakthroughs periodically in terms of 

getting the technology from the laboratory to the patient and, 

therefore, saving lives and improving the well-being of people in 

this country and in other countries has sometimes been the Food 

and Drug Administration. Obviously, if a large number of new 

products are developed as a result of the NIH research and the research that is taking place in the pharmaceutical world, we have 

to be ready for them. We have to know what kinds of categories 

of products are coming. We have to have the personnel that can 

rapidly, accurately review these products so that we are sure they 

are safe and effective, but also to get them to the market as quickly 

as we possibly can, consistent with their safety and efficacy. That 

needs a new mind-set, a new model at FDA, and we call it the Critical Path from the laboratory to the patient. It is a modest program 

to begin with, but it does require us to rethink how we do this. 

Now, in saying that, although we will not be divorced from cooperating with NIH, we will be distanced from the pharmaceutical 

industry that we regulate as we try to get together a new system. 

So thank you for the question, and I assure you we will be separated to the maximum ethical extent. 

BIOTERRORISM REGULATIONS

Senator KOHL. Thank you. 

Dr. Crawford, it was recently announced that FDA would delay 

publishing a final rule on contaminated food tracking by 2 months. 

The purpose of this rule, as you know, is to help FDA track down 
233 

contaminated food and food ingredients as quickly as possible, and 

it has been lauded by consumer groups. 

Why did the FDA postpone publishing the rule? Can you give us 

a date certain by which the rule will be published? 

Dr. CRAWFORD. Thank you for the question. When the Bioterrorism Act was passed in June of 2002, we did get the authority 

to do this kind of thing, the recordkeeping authority that you are 

talking about, as well as three other new authorities which enable 

us to police the food supply better than ever before, thanks to the 

wisdom of the Congress. This is something that had been developing for a long time, but the advent of the terrorist threats that 

we are all aware of moved the Congress and also moved the agency 

to work together to try to get this passed. 

We are delayed a bit from what we projected in December with 

publishing this final regulation. Exactly when it will come out we 

are not sure at this point. It shouldn’t be very much longer. We are 

putting the finishing touches on it, and we are working with the 

administration to get it forward. 

But I wanted you to know and I wanted to say for the record that 

the authority to take these kinds of action exists. We just have not 

implemented the regulations which set out how we will do it. But 

we are acting already and we are protecting the food supply 

through the authorities that were vested in us by the Bioterrorism 

Act. 

BSE

Senator KOHL. Finally, Mr. Hawks, the Secretary announced on 

March 15th that USDA would greatly enhance BSE testing over a 

year to a year and a half period, 12 to 18 months. Do we understand that this enhanced testing is scheduled only for this limited 

length of time? And if test results show any additional BSE-positive cases in the United States, will USDA further enhance testing 

and continue it for an indefinite amount of time? And if so, will 

CCC funds be used for that purpose, or how will these costs be covered? 

Mr. HAWKS. Thank you, Senator Kohl. You are exactly right, we 

did announce on March the 15th our enhanced surveillance package. We also announced that $70 million would be transferred from 

CCC to implement this enhanced surveillance plan. This is in keeping with the international review team report, which recommended 

that we conduct very intensive surveillance of the targeted population for a period of 1 year. So that is what we have to do. Determinations will be made about where we move from here when we 

see what we find with this surveillance plan. 

Our objective is to try to get as many of these samples as we possibly can. If we collect approximately 268,000, we believe this sampling will show one BSE positive animal in 10 million adult cattle 

a 99-percent confidence level. We are very committed to this. We 

are also testing a random sampling of normal animals in this process. We are working with the industry to make sure that we are 

able to get these samples as well. 

So I think the answer is we will have to see where we are, see 

what the surveillance turns up, and then it would be appropriate 

to make determinations about how to proceed after that. 
234 

Senator KOHL. What happens in the public eye, Mr. Hawks? We 

tested one animal for BSE, and there was a panic across our country. Suppose you find one other animal or two other animals out 

of—how many do you intend to test? 

Mr. HAWKS. We are going to test as many of the target population as we possibly can. We have been testing roughly 20,000 per 

year for the last 2 years. This year, we had intended to test 40,000. 

Now our goal is to test as many as we possibly can for the next 

12 to 18 months. 

Senator KOHL. Well, suppose you test 5 million and you find five 

and you announce that. I suppose you would announce that, right? 

Mr. HAWKS. Well, I think statistically speaking, if we test 

268,000 from the target population, it is almost as good as testing—— 

Senator KOHL. All right. Suppose you do and you find three more 

or four more. 

Mr. HAWKS. The measures that we have already taken to protect 

food safety, including the removal of specified risk materials, those 

measures have been taken to ensure that the food supply is safe. 

And I think whether we find one more, or whether we find three 

more, or if we don’t find any more, the measures that are in place 

are there to adequately protect our public. 

The U.S. case is totally unlike what happened in Asia. In Japan, 

there was a total loss of consumer confidence. As we have seen in 

this country and in Canada as well, our consumers believe that we 

are doing a good job in protecting food safety. I will eat beef quite 

often. So I think it is very important to understand that I have 

total confidence, Dr. Murano has total confidence, because that is 

her responsibility as well. We share those responsibilities. 

Senator KOHL. I thank you so much, Mr. Hawks. 

Senator Burns. 

Senator BURNS [presiding]. Senator Kohl, how are you this afternoon? I noticed that the chairman here asked me to come down 

here and to really mess up this whole hearing. He sent the right 

guy. And he has already covered a lot of these things: obesity, as 

if he had a problem. 

Senator BURNS. And I am glad he took care of that before I got 

here. So let’s go down the line. 

By the way, first of all, since I have got you here, Mr. Hawks, 

and most of you, we all know that we probably dodged a 

humongous bullet last December the 23rd and again May the 4th 

up in Canada. We didn’t have to go through the situation the Canadians went through up there. 

I appreciate your actions, and I know it was the cow that stole 

Christmas, but, nonetheless, it was one of those things. And I don’t 

know what my telephone log looks like, but it was pretty full. 

I talked to the Secretary yesterday, and I expressed my gratitude, and I think it was done as well as it could be done for a bureaucracy. So I am happy about that. However, we still come under 

some criticism, but, nonetheless, it is usually criticism that probably does not quite understand how the system works and what we 

did. 

If we tested 100 percent—I don’t know. You might have already 

been asked this question, and I apologize if you have been. If we 
235 

started testing tomorrow 100 percent of our production in the beef 

market right now, do you think that export market would just snap 

back overnight? 

Mr. HAWKS. No, sir, I do not. We did discuss this earlier. I think 

100 percent testing has absolutely no scientific justification. I believe that the path that we are on with the aggressive surveillance, 

with the measures that we have taken to remove SRMs and the 

measures that FDA is announcing to put additional firewalls in 

place are more than adequate to prevent the spread of BSE if it 

is here and also to protect food safety. 

NATIONAL ANIMAL IDENTIFICATION

Senator BURNS. Let me ask you another question. How are you 

moving on the national ID system? 

Mr. HAWKS. We are moving very well. As you know, we have 

been developing a plan over a period of years. USAIP has been 

working for over 2 years. They have done a tremendous amount of 

work. The Secretary asked our Chief Informational Officer, Scott 

Charbo, as well as Nancy Bryson, and our Chief Economist, Keith 

Collins to look at this, with each one of them looking from their respective viewpoints, the legal, the technological and the economic. 

We have put together a plan drawing heavily upon what USAIP 

is doing. It is certainly our intent later this year to be able to issue 

premises identifications, and early next year to do individual identifications. We have a few principles that we are working on, such 

as being technology neutral. We want to make sure that any system that we put in place does not add burden to our producers, as 

you and I both know and appreciate those concerns. We protect 

confidentiality of information. So those are some of the things we 

are addressing. 

Senator BURNS. When can we expect to see that plan? 

Mr. HAWKS. You should be able to see that plan real soon. It is 

going through final review at the Department now, and so we hope 

to have that plan to you in the very near future. 

BSE TESTING

Senator BURNS. Give me an idea of those packing facilities that 

want 100 percent test in order to maybe get into the international 

market or see what they could do. We have seen a reluctance from 

the USDA for that. Can you give me an update on that situation 

and the position that you have taken? 

Mr. HAWKS. Yes, sir. Certainly that is continually under review. 

We do not believe there is, as I have said, a scientific justification 

for doing 100 percent testing. We have recently approved some 

rapid-test test kits for use in our surveillance plan. We will continue to review those requests that are before us now in the Department of Agriculture, but we certainly do not believe there is 

scientific justification for doing 100 percent testing. 

Senator BURNS. Tell me, on the test itself, have you settled on 

a particular test? 

Mr. HAWKS. No, sir. We have recently approved two rapid tests 

for the surveillance plan. We are continuing to review other tests 

as we speak and hope to have, in the very near future, additional 

test kits approved for use. 
236 

Senator BURNS. When will we see those? 

Mr. HAWKS. I would hope to see those, as I said, in the very near 

future. I am like you, coming into Government out of the private 

sector. It is very difficult to nail down those exact dates as we could 

when you and I are out there on the farm. 

DENTICIAN

Senator BURNS. We look at those things. I am not an expert on 

that and I would have none, but I can tell you that I know some 

people that do know the difference. I think false positives are always out there, those kinds of situations in that respect. Now, age. 

You have first come out with a system to mouth the cattle. That 

has not been the most accurate procedure sometimes. In other 

words, it all depends on a little bit of heredity and genetic makeup 

of the animal. Also, whether it calved and where they are raised. 

And so, Dr. Murano, you want to—— 

Mr. HAWKS. She is our dentician expert. 

Senator BURNS. Are you pretty good on horses? 

Dr. MURANO. Sir, I will tell you that we have had to come up 

with a system that would help us determine the age of these cattle, 

and you are correct in that the dentician method is not perfect. We 

all know that. We have instructed our inspectors that what they 

do first and foremost is look, at the records that come with the animals, and use that as their main gauge of the age of the animal. 

If those records are complete, that is what we go by because that 

is the most accurate. When those records are not accurate or not 

available—and I presume that will be corrected once this animal 

ID system is all in place—the only other method that we have 

available to us that we know is the dentician. 

However, having said that, the regulations that we published 

January 12th are still under an open comment period, and we have 

actively sought the input of the industry, any stakeholders, and 

anyone who may have information and evidence on what might be 

a better method than dentician. We are surely open to whatever 

other suggestions the experts in the field have for us, and we will 

move to do the best job we can and be as accurate as possible. 

NATIONAL ANIMAL IDENTIFICATION

Senator BURNS. With a national ID system and a producer that 

keeps records—and most do now and especially in performance 

herds; we are doing it more with range cattle more every day to 

identify those animals who excel in their production and this type 

thing, I would say—and if we go to some sort of a digital ear tag, 

that at least the week the animal was born, it would also be part 

of that record on that ear tag. That is the only thing that I think 

the ear tag has an advantage over a hot iron brand, but that is a 

westerner talking and not the general run of the cattle business. 

So I think we have to approach that because I will tell you, being 

in that business, I sat up there the other day, and just to see if 

I had any talent left at the auction when they were selling cattle 

the other day at the auction. I sat up there and I still got the 

touch, I want you to know, right now. 

Mr. HAWKS. Are you looking for a job, Senator? 

Senator BURNS. No. 
237 

I tell you how it can go. A farmer came in and set down beside 

me, and there was a little package of calves come in, and they 

probably weigh, I do not know, pretty close to 6 and pretty green. 

And he just leaned over and he said, ‘‘Conrad, what do you think 

those things will weigh?’’ And I said, ‘‘Do not ask me. I missed the 

weight of a chicken by 7 pounds one time.’’ 

But I really believe that the national ID system, I think you have 

a working group out there right now that is headed by Gary Wilson 

out of Ohio, and I have talked with him—he was in town about a 

week, week and a half ago—on the national ID system, and also 

on the age, because I will tell you, that age is critical. It is critical 

because we know of people that some feed calves, some feed yearlings, and then there is a little thing called a heiferette, and we 

know about those kind of stock, but it is critical as far as the return to the producer, and also critical to the man who sends them 

to market for slaughter, and how they are graded and this type of 

thing. Right now it is a pretty rapid market out there right now, 

especially on that class of cattle and livestock. 

We would like to see what you have proposed. We would like to 

work with you on that, especially that working group on national 

ID and on age. I also talked to some people that want to do some 

work as far as verification of the animal from birth to the grocery 

store, tests along the way. Because there are some plans and programs in the private sector that are being developed, but they will 

depend on—they want to work with the Department of Agriculture, 

because we know when we go into the export market, it is the Department of Agriculture who really carries the message into the 

international market. So we want to do that if we possibly can. 

ADDITIONAL COMMITTEE QUESTIONS

As far as the chickens, I know there are probably some people 

in this room that think chickens is awfully important. I am not one 

of them. 

Only on Sunday every now and again. But I am really concerned 

about the cattle business. 

I do not have any more questions. Senator, are you all done? 

Senator KOHL. Yes. 

Senator BURNS. I would just be like any other chairman. The 

record will be kept open for a couple of weeks. We may have some 

questions from other committee members that will be directed your 

way. We would appreciate if you would respond to those questions 

both to the committee and to the individual member of the committee. We appreciate that very much. 

[The following questions were not asked at the hearing, but were 

submitted to the Department for response subsequent to the hearing:] 

QUESTIONS SUBMITTED BY SENATOR ROBERT F. BENNETT

DRUG INFORMATION WEB SITE

Question. I noted that the FDA recently launched a web site to allow both consumers and the medical community to find comprehensive information about FDAapproved drugs quickly and easily. Since the web site was launched on March 3, 

how many ‘‘visitors’’ has it had? 

Answer. Drugs@FDA has had 154,065 visitors for the period March 3 through 

April 12, 2004. 
238 

Question. Has the FDA received any feed-back from consumers and health care 

professionals about the ease of access, and whether the information is comprehensive and useful? 

Answer. Since March 1, 2004 we have received 70 comments on Drugs@FDA, 

version 1. It’s important to note that there were two previous beta versions of 

Drugs@FDA on the Internet: beta 1 in June 2003, and beta 2 from September 2003- 

March 2004. We received a significant volume of very helpful feedback which was 

incorporated into Drugs@FDA, version 1. 

The nature of the comments Drugs@FDA, version 1, ranged from the general (5) 

we liked it or didn’t like it to questions about specific drug products (25) that were 

referred to CDER’s Division of Drug Information for response. Most comments pertinent to Drugs@FDA (40) fall in the category of requesting new features. For example, users requested the ability to search by indication or drug class, wanted more 

labels added, to obtain NDC numbers and imprint information, to have more regulatory terms added to the glossary, links to the Orange Book, and even the ability 

to download the database for analysis. 

MEDICAL DEVICE REVIEW

Question. According to the 2003 Annual Report of the Office of Device Evaluation, 

the Center for Devices and Radiological Health was meeting or exceeding most of 

its MDUFMA-prescribed performance goals in 2002. As previously noted, the fiscal 

year 2005 budget request includes $25.555 million for this user fee program. What 

will the FDA actually do with this increased funding? 

Answer. The FDA commitment letter defines the performance objectives FDA is 

pursuing under MDUFMA. It requires FDA to meet challenging objectives for both 

cycle and decision goals and to pursue a variety of other goals that do not involve 

quantifiable measures of progress, such as maintaining current performance in 

areas where specific performance goals are not identified, working with its stakeholders to develop appropriate performance goals for modular review of PMAs, and 

working to improve the scheduling and timeliness of pre-approval inspections. 

The appropriation requested by the President’s fiscal year 2005 Budget will provide FDA the resources needed to move forward to effectively implement MDUFMA. 

Substantial improvement will be required to meet both the fiscal year 2005 performance goals and to lay the foundation for the increasingly challenging performance 

goals of fiscal year 2006 through fiscal year 2007. 

The additional funding will be used to: 

—Cover the cost of living increases so that FDA can maintain staffing levels and 

scientific capabilities to meet the demands of an increasing workload and new 

challenges; 

—Enhance the IT systems that support the current review process and develop 

system capabilities to facilitate the submission and acceptance of electronic premarket applications; 

—Enhance reviewer training and skill maintenance so that FDA reviewers are 

able to keep pace with rapidly developing and increasingly complex device technologies; 

—Employ research and science based activities that provide support critical to the 

device product approval process; 

—Invest in office and laboratory infrastructure to keep pace with rapid technological and scientific change in diverse fields of expertise; 

—Work with outside experts to develop guidance and standards to help industry 

understand and meet FDA requirements, and to help support FDA’s role in 

international harmonization on emerging technologies. 

—Expand FDA’s small business assistance program as required by the FD&C Act. 

Approximately 35 percent of the PMAs approved last year were from first time 

submitters who needed FDA’s assistance; 

—Conduct pre-approval inspections of device manufacturers; 

—Enhance policy guidance document development, emergency response, review 

management and risk communication for products developed and used to respond to terrorist threats and national security crisis; and 

—Contract with professional societies and agencies to address the agency’s needs, 

including the need for adequate laboratory facilities, to plan bio-effects research, 

and to develop requirements for the safe use of devices. 

Question. Since the agency has already reached most of its MDUFMA performance goals, should the FDA be working toward more aggressive goals? 

Answer. Although FDA is making satisfactory progress towards achieving the ambitious performance goals established under MDUFMA, the fiscal year 2003 Office 

of Device Evaluation/Office of In Vitro Diagnostic Device Evaluation and Safety 
239 

(ODE/OIVD) Annual Report does not claim or imply that we ‘‘have already reached 

most’’ of MDUFMA’s performance goals. MDUFMA’s goals are based on receipt cohorts; for example, the fiscal year 2003 receipt cohort includes applications received 

from October 1, 2002 through September 30, 2003. For PMAs and PMA supplements, the receipt cohort performance data shown for fiscal year 2003 in the ODE/ 

OIVD Annual Report represents only receipts through March 31, 2003 (6 months 

of data); for 510(k)s, the receipt cohort performance data shown for fiscal year 2003 

represents only receipts through June 30, 2003 (9 months of data). See the footnotes 

on pages 48, 53, 56, and 68 of the fiscal year 2003 report. Furthermore, the results 

applicable to our MDUFMA performance goals will change over time as FDA completes work on pending applications. As of March 31, 2004, the following fiscal year 

2003 applications were still pending (the numbers were substantially higher when 

the fiscal year 2003 report was prepared): 

—PMAs—21 

—Expedited PMAs—1 

—180-day PMA Supplements—2 

—510(k)s—316 

Also, the goals become more stringent beginning in fiscal year 2005. 

The ODE/OIVD Annual Report shows promising progress towards achieving 

MDUFMA’s objectives, but those results represent only preliminary indicators of 

performance. FDA will provide quarterly reports updating our progress towards 

achieving MDUFMA’s performance goals on our MDUFMA web site (www.fda.gov/ 

cdrh/mdufma). 

MEDICAL DEVICE/DRUG MARKETING

Question. We have all heard that a particular DC laser surgeon fixed Tiger Woods’ 

eyesight, and that former Senator Bob Dole has benefited from a particular prescription drug. Now we learn that golfer Jack Nicklaus has a new hip made by a particular company. The implications here are if it is good enough for Tiger/Bob/Jack, 

its good enough for me. What role does the FDA play in monitoring these types of 

advertisements? 

Answer. FDA regulates drugs and medical devices in the United States under the 

authority of the Federal Food, Drug, and Cosmetic Act (FDCA). This authority extends to promotional labeling for all drugs and devices and advertising for prescription drugs and so-called ‘‘restricted’’ devices. (21 U.S.C. 342(a); 352(a), (n), (q), (r); 

362(a).) The Federal Trade Commission (FTC) also has legal authority to regulate 

advertising (15 U.S.C. 52), and takes the lead in regulating the advertising of OTC 

drugs and non-restricted devices. FDA takes the lead in regulating the labeling of 

over-the-counter (OTC) and prescription drugs and non-restricted and restricted devices, and the advertising of prescription drugs and restricted devices. 

Advertisements for prescription drugs must include, among other things, ‘‘information in brief summary relating to side effects, contraindications, and effectiveness,’’ as specified in FDA regulations. (21 U.S.C. 352(n); see also 21 CFR 202.1.) 

Advertisements for restricted devices must include ‘‘a brief statement of the intended uses of the device and relevant warnings, precautions, side effects, and contraindications. . . .’’ (21 U.S.C. 352(r).) Both prescription drug and restricted device 

advertisements also must not be false or misleading, meaning they must disclose 

material risk information. (21 U.S.C. 352(q)(1) & 321(n); 21 CFR 202.1(e)(5).) FDA’s 

rules for prescription drug and restricted device advertising are the same, whether 

the advertising is aimed at a consumer audience or at health care professionals. 

The FDCA contains no special rules for celebrity endorsements in advertising. In 

general, an endorsement could be subject to the general rules for advertising set 

forth above. Thus, if a celebrity spokesperson were to make a statement in an advertisement for a prescription drug or restricted device that is false or misleading, 

or if an advertisement contained a celebrity testimonial but lacked the risk information required under the above provisions, FDA likely would have authority to initiate enforcement action under the FDCA. Statements by independent individuals 

not speaking on behalf of a drug firm are not subject to FDA’s advertising jurisdiction. Oral representations by paid representatives of drug firms concerning the safety or effectiveness of a product might also within FDA’s regulatory authority if they 

create a new intended use for a product, for which adequate directions would be required in labeling and for which premarket approval might be required. (See 21 

U.S.C. 352(f)(1), 355.) 

FDA believes consumer-directed advertisements play an important role in advancing the public health by encouraging consumers to seek treatment. Since 1997, consumer-directed advertisements have been aired (on television or radio) for about 98 

prescription drugs. Of those, 14 are intended for under-treated conditions, such as 
240 

high cholesterol, heart disease, and mental health problems like depression. Others 

are for serious conditions such as asthma, Alzheimer’s disease, arthritis, chronic obstructive pulmonary disease, diabetes, insomnia, migraine, obesity, osteoporosis, 

overactive bladder, serious heartburn, smoking cessation, and sexually transmitted 

diseases. 

FDA held a public meeting to discuss the results of FDA surveys and other research on consumer-directed advertising on September 22–23, 2003. Based in part 

on discussion at that meeting, FDA has developed guidance to encourage advertising 

that provides risk and benefit information appropriate to support conversations between consumers and their health care providers. On February 4, 2004, the agency 

issued three draft guidance documents, addressing (1) options for presenting risk information in consumer-directed print advertisements for prescription drugs, to encourage use of consumer-friendly language and formats (2) criteria FDA uses to distinguish between disease awareness communications and promotional materials, to 

encourage manufacturers to disseminate disease educational messages to the public, 

and (3) a manner in which restricted device firms can comply with the rules for disclosure of risk information in consumer-directed broadcast advertising for their 

products, to help encourage compliance in this emerging area of medical product 

promotion. 

FDA has adopted a comprehensive, multi-faceted, and risk-based strategy for regulating consumer-directed advertising of medical products. This strategy includes legally sustainable letters, guidance development, frequent informal communications 

with industry and advertisers, and research on the public health effects of consumer-directed promotional materials. We continue to monitor the impact of consumer-directed promotion on the public health. 

METHYLMERCURY ADVISORY FOR SEAFOOD

Question. As you will recall, Dr. Crawford, in the Statement of the Managers to 

accompany the fiscal year 2004 Omnibus Appropriations bill, the conferees encouraged coordination between the FDA and the EPA on what is considered a safe level 

of methylmercury exposure. I was pleased to note that an updated consumer advisory regarding fish consumption and methylmercury was released in mid-March. 

How does this new advisory differ from that which was released by the FDA in July 

of 2002? 

Answer. The FDA issued an advisory for mercury in fish in March of 2001; this 

advisory was then reviewed by the FDA’s Food Advisory Committee (FAC) in July 

2002. There was no new advisory issued in July 2002. The FAC made six recommendations at their meeting in July 2002 as follows: 

—Better define what is meant by ‘‘eat a variety of fish’’ so that consumers can 

follow this recommendation effectively; 

—Work with other Federal and State agencies to bring commercial and recreational fish under the same umbrella; 

—Publish a quantitative exposure assessment used to develop the advisory recommendations; 

—Develop specific recommendations for canned tuna, based on a detailed analysis 

of what contribution canned tuna makes to overall methylmercury levels in 

women; 

—Address children more comprehensively in the advisory to relate dietary recommendations in the advisory to the age/size of the child; and, 

—Increase monitoring of methylmercury to include levels in fish and the use of 

human biomarkers. 

Based on these recommendations, meetings with stakeholders, focus group testing 

as well as further input from the FACs in December 2003, the FDA issued a revised 

advisory on March 19th 2004. The revised advisory differed from the 2001 advisory 

in a number of ways as follows: 

—The 2004 Advisory is a joint advisory by FDA and EPA that addresses both 

commercial caught and locally caught fish and shellfish; 

—The 2004 Advisory more strongly emphasizes the positive benefits of eating fish; 

—The 2004 Advisory provides examples of commonly eaten fish that are low in 

mercury; 

—The 2004 Advisory and the Question and Answers section specifically addresses 

canned light tuna and canned albacore (‘‘white’’) tuna, as well as tuna steaks; 

—The 2004 Advisory recommends not eating any other fish in the same week as 

locally caught fish are consumed (the Advice on the amount of locally caught 

fish to eat is the same as in the 2001 EPA advisory); and, 

—The 2004 Advisory contains a section that addresses the frequently asked questions about mercury in fish. 
241 

The 2004 advisory was revised to provide useful information for keeping fish as 

part of a healthy diet and at the same time reduce the exposure to mercury. The 

2004 Revised Advisory more accurately reflects the purpose of the information. 

NEW DRUG APPROVAL PROCESS

Question. The FDA recently issued a report which described the decrease in the 

number of new innovative drug application, and recommends reform to the existing 

regulatory process. I would appreciate it if you could explain just exactly what the 

FDA plans to do in this regard. 

Answer. The ‘‘critical path’’ is best described as the crucial steps that determine 

whether and how quickly a medical discovery becomes a reliable medical treatment 

for patients. There are certain points on this path where difficulties are occurring. 

FDA believes that a major problem in today’s drug development process is that the 

new science and scientific tools being used in the discovery process are not being 

harnessed to guide the development process that brings products to market. FDA 

has called for a new focus on modernizing the tools that applied biomedical researchers and product developers use to assess the safety and effectiveness of potential new products, and the manufacturing tools necessary for high-quality mass production of cutting-edge therapies. FDA is in a unique position to identify scientific 

challenges that cause delays and failures in product testing and manufacturing because of its experience overseeing medical product development, assessment, and 

manufacturing/marketing; its vast clinical and animal databases; and its close interactions with all the major players in the critical path process. 

FDA, through collaboration with academia, patient groups, industry, and other 

government agencies, will play a major role in identifying systemic medical product 

development problems via development of a Critical Path Opportunities List, and 

in conducting or collaborating on research to create a new generation of performance 

standards and predictive tools that will provide better answers about the safety and 

effectiveness of investigational products, faster, with more certainty, and at lower 

costs. Specific examples of critical path efforts include: developing guidances and scientific workshops on ‘‘best practices’’, developing new animal or computer-based predictive models, developing new biochemical and genomic assays as biomarkers for 

safety and effectiveness, collaboration on the design of new clinical evaluation techniques, and facilitating multi-company studies of technologies which no one company could mount. FDA will identify and prioritize the most pressing product development problems and the areas that provide the greatest opportunities for rapid improvement and public health benefits across the three dimensions of the ‘‘critical 

path’’—safety assessment, evaluation of medical utility, and product industrialization and will facilitate collaborative research in these areas. 

Question. A consumer group has expressed the opinion that the FDA should approve only drugs which show concrete advantages to drugs currently on the market. 

What is your response to that suggestion? 

Answer. Our present and future mission remains constant: to ensure that drug 

products available to the public are safe and effective. If the drug is effective and 

we are convinced its health benefits outweigh its risks, we approve it for sale. Statutory requirements dictate that we review products submitted to us requesting approval. From a medical perspective, it is desirable for physicians and consumers to 

have a variety of drug treatment choices. Not all people can tolerate a specific drug. 

Not all drugs have the intended affect in every person. From an economic perspective, it is also useful to have a market featuring a variety of products so that prices 

are competitive. 

SEAFOOD INSPECTION/GAO REPORT

Question. The General Accounting Office recently issued a report on the FDA’s imported seafood safety program. Basically, GAO found that although the FDA has 

made some progress in the number of foreign firms being inspected and the number 

of seafood products being tested at U.S. ports of entry, there is more work to be 

done. Among other things, GAO recommends that the FDA work with NOAA to 

have NOAA employees provide various services under their Seafood Inspection Program. Have you reviewed this GAO report? Do you agree with their observations? 

What steps has the FDA taken to work with NOAA in this regard? 

Answer. FDA reviewed the GAO report and provided a lengthy comment to the 

GAO on this particular recommendation. The comment was published in the Appendices to the report. In summary, FDA noted that it has a long and collegial working 

relationship with the seafood inspection program within the National Marine Fisheries Service (NMFS) and that the two agencies will be working together to find better ways of integrating their programs. Potential areas of integration were de-
242 

scribed, including the use of NOAA laboratory capacity to carry out analyses of seafood samples that FDA takes during the normal course of work; the commissioning 

of NMFS inspectors; the use of NMFS inspectors who might already be on site in 

distant locations; and the issuance by NMFS of European Health Certificates for a 

fee to U.S. industry that ships fish and fishery products to Europe. The latter would 

free up FDA resources that are now devoted to that activity. 

We have recently worked with NOAA Fisheries’ National Seafood Inspection Laboratory (NSIL) located in Pascagoula, MS and the NOAA Fisheries’ Northwest Fisheries Science Center in Seattle, WA to assess the use of NOAA laboratory capacity 

to carry out analyses of seafood samples that FDA takes during the normal course 

of our work, or during ‘‘crisis’’ situations. Specifically for chloramphenicol analysis, 

our discussions have resulted in FDA’s provisional approval (pending on site review) 

of these laboratory’s methods for sample submission, custody, routing, and accounting and documentation procedures necessary to maintain the regulatory chain of 

custody and tracking required for import collections. While FDA is not able to fund 

this initiative this fiscal year, we hope that we will be able to implement this proposal in the future. 

AGRICULTURAL PRODUCTS

Question. The White House Office of Science and Technology Policy, (OSTP) had 

recommended approximately 2 years ago (August 2, 2002) that various agencies— 

including the FDA—complete guidelines regarding the early safety assessment of 

agricultural products developed through biotechnology for food and feed use. To 

date, there is no evidence that the FDA has acknowledged this mandate nor made 

any progress towards finalizing a policy. The U.S. regulatory system currently imposes a zero tolerance on the presence of unapproved biotech-enhanced events in 

food and feed, regardless of the risk level. It does not recognize the realities of a 

biological system. This zero-tolerance’ policy exposes grain handlers, food processors 

and feed manufacturers to the risk that any trace amounts of biotech-enhanced 

events in general commodity crops that have not been approved for food and feed 

under the U.S. regulatory process could render such crops adulterated and subject 

to seizure under Federal law. Such a policy is inconsistent with other food purity 

standards which have established thresholds for trace amounts of unexpected materials. Without having a policy in place, the United States risks significant disruptions in global agricultural trade. What is the FDA doing to meet their obligations 

and will they be able to complete their work by year’s end? 

Answer. On August 2, 2002, OSTP announced proposed Federal actions to update 

field tests requirements for biotechnology derived plants and to establish early food 

safety assessments for new proteins produced by such plants. As part of this proposal, FDA announced that it would publish for comment draft guidance to address 

the possible intermittent, low level presence in food and feed of new non-pesticidal 

proteins from biotechnology-derived crops under development for food or feed use, 

but that have not gone through FDA’s pre-market consultation process. FDA is preparing draft guidance and expects to publish the draft guidance for comment this 

year. 

TRANSGENIC ANIMALS IN CVM

Question. The FDA has resources in place for regulation of transgenic animals in 

CVM. However, the agency has to date not provided any guidance to industry for 

the regulation of transgenic animals. What is the FDA doing to refine and clarify 

the regulatory process for transgenic animals, and when can we expect to see specific regulatory guidance published? 

Answer. It is true that CVM has not issued any general guidance to industry for 

the regulation of transgenic animals. Instead, CVM has worked with investigators 

one-on-one to ensure safe and efficient development of animal biotechnology products while an interagency group led by the White House Office of Science and Technology Policy (OSTP) develops a coordinated framework that is appropriate to animal biotechnology. 

In 1984, the Federal Government embarked on project to develop a Coordinated 

Framework for regulation of biotechnology products. The early efforts focused on 

plant biotechnology for agricultural purposes. The effort has resumed at various 

times as new categories of products became feasible. For example, in May 2000, the 

White House directed its Council on Environmental Quality, ‘‘CEQ’’, and Office of 

Science and Technology Policy to conduct an interagency assessment of Federal environmental regulations pertaining to agricultural which includes both plants and 

animals, biotechnology and, if appropriate, make recommendations to improve them. 
243 

Information is available on the internet at http://www.ostp.gov/html/ 

ceqlostplstudy1.pdf. 

The White House-directed interagency process continues with respect to animal 

biotechnology products. The OSTP has convened over the last year an interagency 

group—which was similar to the group convened in May 2000—with FDA, APHIS, 

EPA, and OMB, represented. The group is focusing on the application of the Coordinated Framework to the wide range of animal biotechnology products that have 

been developed since the framework was created in the 1980’s. There were very few 

examples of animal biotechnology products available to consider in the 1980’s and 

only a limited number in 2000. The discussions are continuing, using various product examples, and including listening sessions with various stakeholders. Ultimately, a seamless Federal oversight system for animal biotechnology products is 

expected. 

Both as part of this interagency process and separately, FDA has examined—and 

continues actively to consider—the many complex legal, scientific, and policy issues 

related to animal biotechnology. FDA has a variety of authorities potentially applicable to transgenic animals, including FDCA authorities over foods, food additives, 

and new animal drugs. In 2000, FDA commissioned the National Academy of 

Sciences/National Research Council Committee on Agricultural Biotechnology, 

Health, and Environment, (NAS) to identify and rank, where possible, potential 

risks associated with the introduction of animal biotechnology into commerce. FDA 

is using the resulting report recommendations, issued in the fall of 2002, as guidance in developing an action plan for the future. FDA is also preparing a risk assessment on animal clones and considering risk management measures that might 

be appropriate as a condition for marketing animal clones for use in the human food 

chain. 

FDA is also involved in considering issues relating to particular applications of 

animal biotechnology. In March 2003, FDA began investigating and contacting universities engaged in genetic engineering research to ensure that genetically engineered animals do not enter the food or animal feed—as rendered animals—supply. 

In May, FDA issued a letter to the Presidents of the Land Grant Universities and 

posted the letter for more general access on its website. Information on the ‘‘Letter 

from FDA to Land Grant University’’, from May 13, 2003, may be found on the 

internet at http://www.fda.gov/cvm/biotechnology/LandGrantLtr.htm. Roughly 2 

dozen organizations have responded to FDA’s outreach and identified multiple 

projects with transgenic animals. FDA is monitoring these and other projects as appropriate. 

FOOD SAFETY

Question. The Chicago Tribune recently published an article regarding the rising 

threat to the U.S. food supply. Many of the quoted experts used the word ‘‘scary’’ 

in describing our vulnerability. What strategy, if any, has the FDA adopted to 

counter intentional tampering with the U.S. food supply. An additional $65 million 

was requested in the fiscal year 2005 budget request for food defense. What exactly 

does the FDA plan to do with these funds? What outputs will these funds provide? 

Answer. FDA employs five food defense strategies: 

—Development of increased food security awareness among Federal, State, local, 

and tribal governments and the private sector by collecting, analyzing, and disseminating information and knowledge (awareness); 

—Development of capacity for identification of a specific threat or attack on the 

food supply (prevention); 

—Developing effective protection strategies to ‘‘shield’’ the food supply from terrorist threats (preparedness); 

—Developing a rapid, coordinated response capability to a terrorist attack (response); and, 

—Development of capacity for a rapid, coordinated recovery from a terrorist attack (recovery). 

FDA’s plan to protect the food supply will be executed on both the import and 

domestic fronts. 

The fiscal year 2005 requested increase of $65,000,000 for Counterterrorism food 

defense includes $35,000,000 (including eLEXNET) to establish the Food Emergency 

Response Network (FERN) for increasing lab testing capacity in the event of a 

threat to the food supply. Roughly $23,000,000 of FERN funds will be available to 

States for establishing food lab emergency response capabilities and $5,500,000 for 

infrastructure costs. The request also includes $15,000,000 to address a significant 

research need for ensuring that we have the capability of detecting or inactivating 

a broad range of agents that could pose serious threats to the food supply; 
244 

$7,000,000 to increase import and domestic inspections activities; $5,000,000 to coordinate with and establish connectivity of our existing food surveillance efforts to 

the Department of Homeland Security as part of the Administration’s bio-surveillance initiative; and $3,000,000 for the Emergency Operations Network project to 

upgrade our crisis/incident management capabilities in the event of a potential 

threat to the food supply. 

Funds requested for FERN would establish 15 State food emergency response 

labs, and will also provide an additional 25 labs connected to the eLEXNET, plus 

necessary infrastructure such as a national operations center to support participating labs. Research funds would ensure that we have the capability of detecting 

or inactivating a broad range of agents that could pose serious threats to the food 

supply. The funds for inspections would result in an additional 37,000 import field 

exams over the projected 60,000 projected level in fiscal year 2004 for a total of 

97,000 import field exams. It would also allow for increased surveillance of our food 

supply by funding an additional 750 domestic establishment inspections. Funds 

would also upgrade our Emergency Operations Center by investing in the Emergency Operations Network, and would increase coordination of our food surveillance 

efforts with the Department of Homeland Security. 

Question. Last year, the FDA joined with the U.S. Bureau of Customs and Border 

Protection to develop a program to protect the American public from food bioterrorist attacks. There were high hopes that as many as 420,000 manufacturing, processing, packing, and holding facilities, both in the United States and abroad, would 

quickly register under this program and provide advance notice of imports in order 

to expedite the entry process. According to press reports, only about half of those 

facilities have registered, and food shipments are still arriving without prior notice. 

Why haven’t all covered facilities complied with these requirements? What efforts 

have the FDA and the Customs Bureau undertaken to make sure that covered facilities register? It is estimated that 25,000 shipments of imported food arrive at 

U.S. ports of entry every day. Does the FDA have sufficient resources to adequately 

inspect these shipments? 

Answer. In the Registration Interim Final Rule (IFR), FDA estimated that about 

420,000 facilities would be covered by the requirements of the rule. In the Prior Notice IFR, FDA estimated that it would handle 25,000 prior notice submissions per 

day. To clarify the above question, FDA has not estimated that the approximately 

420,000 facilities estimated in the Registration IFR would necessarily provide prior 

notice to FDA. 

FDA is unsure why it has only received approximately 200,000 of the expected 

registrations to date. Because registration is a completely new requirement and covers so many food facilities, FDA believes many small facilities may still be unaware 

of the registration requirement. FDA continues to place a high emphasis on notifying as many affected entities as possible of the registration requirements through 

outreach. On April 1, 2004, FDA completed nine city domestic outreach meetings 

for small businesses and other stakeholders on the registration and prior notice 

IFRs. FDA’s international component of Phase II outreach has been conducted 

through the collaboration and cooperation of the Department of State through a foreign press conference, Voice of America video teleconference, and USDA’s Foreign 

Agricultural Service. Worldwide attache ́s disseminated the Registration and Prior 

Notice interim final rules, compliance policy guidance, and Questions and Answers. 

FDA, with Customs and Border Protection participation, is also conducting a series 

of four outreach meetings in Asia from April 21–29, 2004. FDA will continue to conduct outreach in order to notify affected entities of the registration requirement. 

In response to the question regarding whether FDA has sufficient resources to 

adequately inspect the estimated 25,000 daily shipments of imported food arriving 

at U.S. ports, FDA would like to clarify that the goal is not to physically inspect 

each shipment associated with a prior notice submission. However, it is important 

to note that these shipments are reviewed electronically to determine if the shipment meets identified criteria for physical examination or sampling and analysis or 

warrants other reviews by FDA personnel. This electronic screening allows FDA to 

concentrate its limited inspection resources on high-risk shipments while allowing 

low-risk shipments to proceed into commerce. 

Prior to receiving our prior notice authority, FDA already was receiving much of 

the entry information contained in the prior notice submission. However, FDA was 

not receiving the entry information in advance of the shipment arriving in the 

United States. With the new prior notice authority, FDA is receiving the entry information in advance of the shipment arriving in the United States (timeframe depends on mode of transportation), and thus, the Agency is better able to focus inspection resources on those shipments for which there is reason to believe they may 

pose a danger to the food supply. 
245 

MONOGRAPH DRUG APPROVAL SYSTEM

Question. The Senate Committee Report to accompany the fiscal year 2004 Agriculture appropriations bill discussed the interest in the establishment of a monograph system for prescription drug products. The FDA was asked to provide a report 

regarding the feasibility and cost of such a new monograph system for prescription 

drug products. What is the status of the FDA review of this proposal? If a monograph system is not the appropriate way to go, what efforts has the FDA undertaken to find a way to preserve health and safety while at the same time encourage 

competition, keep prescription drug prices low, and keep small businesses open? 

Answer. In 2003, the Senate Committee on Appropriations asked FDA to prepare 

a report regarding the feasibility and cost of a new monograph system for prescription drugs that have been marketed to a material extent or for a material time without pre-market approval. The agency is currently preparing that report. The report 

will analyze critical issues that would need to be addressed if FDA were to develop 

monographs for the approval of marketed prescription drugs. The report will evaluate the cost and feasibility of developing such a system. 

Question. The FDA just extended the comment period for consideration of a guidance document regarding enforcement priorities for older prescription drugs marketed outside of the current new drug approval system. In examining comments, 

will the FDA examine alternative approaches to the enforcement policy, such as a 

prescription drug monograph for these older prescription drugs? 

Answer. In October 2003, the Agency issued a draft Compliance Policy Guide 

(CPG) outlining FDA policies to encourage companies to sponsor unapproved drugs 

through the agency’s drug approval process. The draft CPG requests public comment and sets forth the agency’s enforcement approach, explaining that FDA will 

continue to give priority to enforcement actions involving three categories of unapproved drugs: Those that pose safety risks; those that lack evidence of effectiveness; 

and those that constitute health fraud. It also explains how the agency intends to 

address those situations in which a firm obtains FDA approval to sell a drug that 

other firms have long been selling without FDA approval. 

FDA received requests to reopen the comment period and has reopened the comment period until April 27, 2004. The Agency will carefully examine all comments, 

including comments relating to alternative approaches that are submitted on the 

matter. 

PRESCRIPTION DRUG ABUSE

Question. Mr. Crawford, last month the FDA joined with the Office of National 

Drug Control Policy, the DEA, and the Surgeon General in releasing the President’s 

National Drug Control Strategy. As noted in the ONDCP press release, this marks 

the first time that any Administration has included the issue of prescription drug 

abuse in this Strategy. What, exactly, is the FDA’s role in this effort? Will the FDA 

be able to fulfill this mission with existing funds and authorities? If not, were additional resources requested in the fiscal year 2005 budget? Does the FDA need additional statutory authorities? 

Answer. The strategy for reducing prescription drug abuse focuses on three core 

tactics: 

First, Business Outreach and Consumer Protection: FDA will work to ensure 

product labeling that clearly articulates conditions for safe and effective use of controlled substances so that commercial advertising fully discloses safety issues associated with the drug’s use. A specific example of this is labeling that properly identifies patients for whom these products are appropriate and that recommend a 

‘‘stepped care’’ approach to the treatment of chronic pain, in accordance with treatment guidelines. 

FDA will consider Risk Management Programs (RMPs). The Agency will evaluate 

the need for a RMP during the approval process for Schedule II opiate drug products. RMPs help ensure the safe prescribing and use of these drugs through identification of appropriate patients and monitoring for adverse outcomes. 

FDA in conjunction with the DEA and the White House Office of National Drug 

Control Policy (ONDCP) will work with physician organizations to encourage comprehensive patient assessment prior to prescription of opiate therapy. 

FDA and other Federal agencies are enlisting the support of responsible businesses affiliated with online commercial transactions. These legitimate businesses 

will be asked to alert law enforcement officials to suspicious or inappropriate activities related to these products. 

Second, Investigation and Enforcement: The Internet is one of the most popular 

sources of diverted prescription drugs. An increasing number of rogue pharmacies 

offer controlled substances and other prescriptions direct to consumers online. 
246 

FDA’s Office of Criminal Investigation (OCI) and DEA work together on criminal 

investigations involving the illegal sale, use, and diversion of controlled substances, 

including illegal sales over the Internet. Both FDA and DEA have utilized the full 

range of regulatory, administrative, and criminal investigative tools available, as 

well as engaged in extensive cooperative efforts with local law enforcement groups, 

to pursue cases involving controlled substances. 

FDA and U.S. Customs and Border Protection (CBP), with assistance from DEA, 

continue to conduct spot examinations of mail and courier shipments for foreign 

drugs to U.S. consumers to help FDA and CBP target, identify, and stop illegal and 

potentially unsafe drug from entering the United States from foreign countries via 

mail and common carriers. 

Finally, Protecting Safe and Effective Use of Medications: FDA will support DEA’s 

efforts with medical associations to identify existing best practices in physician 

training in the field of pain management. DEA and FDA plan to develop a mechanism to support the wider dissemination and completion of approved Continuing 

Medical Education (CME) courses for use of opioids that include information on the 

risk of abuse and addiction. 

FDA in conjunction with ONDCP and DEA will develop public service announcements that appear automatically during Internet drug searching to alert consumers 

to the potential danger and illegality of making direct purchases of controlled substances online. Currently, FDA, along with its sister agency, the Substance Abuse 

and Mental Health Services (SAMHSA), have jointly developed a public service announcement campaign to better educate consumers on the abuse of prescription pain 

killers. 

FDA did not request additional resources in the fiscal year 2005 budget in order 

to participate in the activities stated above. This initiative does not require additional regulatory authority. 

OBESITY

Question. In your prepared remarks you discuss the FDA Obesity Working Group 

whose recommendations were recently released as part of HHS Secretary Thompson’s overarching new national education campaign for combating obesity. What is 

the FDA role in these anti-obesity efforts? Which of your Centers is responsible for 

these efforts? What, specifically, is the FDA doing to make sure labels on food is 

correct, and that claims made about food are factual and science-based? What, if 

any, additional plans will be implemented in fiscal year 2005? 

Answer. In support of the President’s Healthier U.S. initiative, the DHHS established a complementary initiative, Steps to a Healthier United States, which emphasizes personal responsibility for the choices Americans make for healthy behaviors. 

One aspect of this initiative focuses on reducing the major health burden created 

by obesity and other chronic diseases. Following DHHS’ July 2003 Roundtable on 

Obesity and Nutrition, on August 11, 2003, FDA established an Obesity Working 

Group, or OWG, to prepare a report that outlines an action plan to cover critical 

dimensions of the obesity problem from FDA’s perspective and authorities. This report was released on March 12, 2004. 

There is no simple answer to the problem of obesity. Achieving success in reducing and avoiding obesity will occur only as a result of efforts over time by individuals as well as various sectors of our society. It should be noted, however, that most 

associations, agencies, and organizations believe that diet and physical activity 

should be addressed together in the fight against overweight and obesity. 

The OWG report provides a range of short and long-term recommendations to address the obesity epidemic with a focus on a ‘‘calories count’’ emphasis for FDA actions. These recommendations are based on sound science and address multiple facets of the obesity problem under FDA’s purview, including developing appropriate 

and effective consumer messages to aid consumers in making wiser dietary choices; 

establishing educational strategies and partnerships to support appropriate messages and teach people, particularly children, how to lead healthier lives through 

better nutrition; developing initiatives to improve the labeling of packaged foods 

with respect to caloric and other nutrition information; encouraging and enlisting 

restaurants in efforts to combat obesity and provide nutrition information to consumers, including information on calories, at the point-of-sale; developing new 

therapeutics for the treatment of obesity; designing and conducting effective research in the fight against obesity; and continuing to involve stakeholders in the 

process. 

Regarding food labeling, the OWG report contains several recommendations based 

on sound science. I will provide these recommendations for the record. 

[The information follows:] 
247 

Publish an advance notice of proposed rulemaking, or ANPRM, to seek comment 

on the following: 

—How to give more prominence to calories on the food label, for example, increasing the font size for calories, including a column in the Nutrition Facts panel 

of food labels for percent Daily Value for total calories, and eliminating the listing for calories from fat; 

—Whether to authorize health claims on certain foods that meet FDA’s definition 

of ‘‘reduced’’ or ‘‘low’’ calorie. An example of a health claim for a ‘‘reduced’’ or 

‘‘low’’ calorie food might be: ‘‘Diets low in calories may reduce the risk of obesity, 

which is associated with type 2 diabetes, heart disease, and certain cancers.’’ 

—Whether to require additional columns on the Nutrition Facts panel to list 

quantitative amounts and percent Daily Value of an entire package on those 

products and package sizes that can reasonably be consumed at one eating occasion—or declare quantitative amounts and percent Daily Value of the whole 

package as a single serving if it can reasonably be consumed at a single eating 

occasion; and, 

—Which, if any, reference amounts customarily consumed of food categories appear to have changed the most over the past decade and hence require updating. 

File and respond in a timely way to petitions the agency has received that ask 

FDA to define terms such as ‘‘low,’’ ‘‘reduced,’’ and ‘‘free’’ carbohydrate; and provide 

guidance for the use of the term ‘‘net’’ in relation to carbohydrate content of food— 

these petitions were filed on March 11, 2004. Encourage manufacturers to use dietary guidance statements, an example of which would be, ‘‘To manage your weight, 

balance the calories you eat with your physical activity.’’ 

Encourage manufacturers to take advantage of the flexibility in current regulations on serving sizes to label as a single-serving those food packages where the entire contents of the package can reasonably be consumed at a single eating occasion. 

Encourage manufacturers to use appropriate comparative labeling statements that 

make it easier for consumers to make healthy substitutions. 

We believe that if the report’s recommendations are implemented they will make 

a worthy contribution to confronting our Nation’s obesity epidemic and helping consumers’ lead healthier lives through better nutrition. 

We also believe that the regulatory scheme for claims in food labeling, whether 

health claims, nutrient content claims, or other types of claims, are science based, 

and we continue to consider modifications to our regulations to keep up with recent 

scientific developments. Some of the modifications FDA is currently considering are 

described above in the list of topics to be covered by the ANPRM the agency intends 

to issue. 

ALBUTEROL METERED-DOSE INHALERS

Question. As noted in the Senate Report last year, there are a number of organizations which support the removal of ozone-destroying CFC albuterol metered-dose 

inhalers from the market. The FDA has indicated in its regulatory plan that it intends to issue a rule on this matter. Proponents of this rule had expected a proposed 

rule by now. When can this Committee expect the FDA to issue a proposed rule to 

remove albuterol metered-dose inhalers from the U.S. market? Can you tell us at 

this time what you expect the effective date would be for that rule? When do you 

expect the FDA will issue a final rule? 

Answer. FDA is currently working on the CFC albuterol proposed rule and expects it to publish shortly. The rulemaking process prohibits FDA from describing 

the contents of the proposed rule, so the Agency cannot state the effective date of 

the rule at this time. FDA expects the final rule to publish in March 2005. 

BIOTECH-ENHANCED EVENTS IN FOOD AND FEED

Question. The U.S. regulatory system currently imposes a zero tolerance on the 

presence of unapproved biotech-enhanced events in food and feed, regardless of the 

risk level. It does not recognize the realities of a biological system. This zero-tolerance’ policy exposes grain handlers, food processors and feed manufacturers to the 

risk that any trace amounts of biotech-enhanced events in general commodity crops 

that have not been approved for food and feed under the U.S. regulatory process 

could render such crops adulterated and subject to seizure under Federal law. Such 

a policy is inconsistent with other food purity standards which have established 

thresholds for trace amounts of unexpected materials. Without having a policy in 

place, the United States risks significant disruptions in global agricultural trade. 

What is the FDA doing to meet their obligations and will they be able to complete 

their work by year’s end? 
248 

Answer. On August 2, 2002, OSTP announced proposed Federal actions to update 

field tests requirements for biotechnology derived plants and to establish early food 

safety assessments for new proteins produced by such plants. As part of this proposal, FDA announced that it would publish for comment draft guidance to address 

the possible intermittent, low level presence in food and feed of new non-pesticidal 

proteins from biotechnology-derived crops under development for food or feed use, 

but that have not gone through FDA’s pre-market consultation process. FDA is preparing draft guidance and expects to publish the draft guidance for comment this 

calendar year. 

GENERIC BIOLOGICALS

Question. In your testimony you stressed the importance of being ‘‘open-minded’’ 

about the science ‘‘as the science improves.’’ Can you assure the Subcommittee that 

the Agency will not adopt an approach that resurrects old science, and that the 

Agency intends to remain open minded as it evaluates application of the vast innovation in analytical tools to the development and evaluation of follow-on biologicals? 

Answer. We can assure the subcommittee that the Agency will not adopt an approach that resurrects or relies on outdated scientific techniques in the development 

and evaluation of follow-on biologics. Indeed, the Agency has been very proactive in 

striving to understand and embrace the latest technology used in the characterization of biotechnological products. For example, the Agency supports active research 

programs that utilize current technologies in addressing mission related research 

and in developing technologies that help address regulatory and scientific issues. 

These efforts are important to ensure that FDA scientists remain current with the 

latest advances in analytical techniques. Scientific staff also participates in scientific 

symposia and extensively interact with colleagues. Indeed, many of our scientific 

staff involved in the regulation of biotech products, are located on the NIH campus, 

which provides an enriched research environment utilizing advanced technology 

that is second to none. 

In June 2003, the Agency cosponsored, along with the International Association 

of Biologicals and the National Institute for Biological Standards and Control, a conference on the ‘‘State of the Art Analytical Methods for the Characterization of Biological Products and Assessment of Comparability’’. This meeting focused on what 

current analytical technologies can and cannot tell us about the physicochemical 

structure and function of biological therapeutics; 

The Agency’s scientists participate yearly in the annual Symposium on ‘‘Well 

Characterized Biotechnological Products’’ cosponsored by FDA and the California 

Separation Sciences Society. This symposium includes highly technical seminars, 

workshops, and poster sessions that introduce the latest analytical technologies for 

the evaluation of biotechnological products. These technologies are presented by the 

leading academic, Industrial (pharmaceutical and equipment vendors), and government scientists; 

The Agency’s scientists actively participate in many International conferences 

sponsored by biotech and pharmaceutical organizations (Bio, Pharma, and DIA) and 

other organizations that provide scientific, technological and regulatory information 

to the pharmaceutical industry. These conferences frequently present the application of the latest analytical methods for the characterization of protein and 

glycoproten therapeutics; 

The Agency also invites innovative scientists from academia and industry to 

present and discuss with FDA scientists the latest advances in analytical technology 

and the development of animal models that address some of the current limitations 

of physicochemical characterization of protein products. 

Regarding immune responses to biological therapeutics (immunogenicity), which 

can cause serious adverse events and limit product effectiveness, the agency cosponsored a meeting entitled ‘‘Immunogenicity of Therapeutic Biological Products’’ 

in October 2001, and has participated in numerous symposia on this topic in national meetings. Agency research scientists work with industry and academia in 

bringing to bear, on biological product development, informative animal models 

(transgenic, knockout, and knock-in) to more accurately predict the human immune 

response to various biotech products. 

Question. In your testimony you highlighted the extraordinary strides made over 

the past few years in developing instrumentation and other analytical tools that 

have vastly improved the ability to evaluate follow-on biologicals. Please identify for 

the Subcommittee the type of new analytical tools now available to industry and the 

Agency to conduct rigorous evaluations of follow-on biologics. 

Answer. Over the last several years there have been many advances in analytical 

tools that have improved the ability to evaluate follow-on Biologicals. 
249 

Electrospray, matrix assisted laser desorption (ES–MS), and fast atom bombardment mass spectrometry (MALDI–TOF) have been use in conjunction with advances 

in separation technologies (Reverse Phase-High Performance Liquid Chromatography (RP–HPLC), Ion Exchange Chromatography, Hydrophobic Interaction 

Chromatography, Affinity Chromatography, and Size Exclusion Chromatography) to 

identify protein and carbohydrate heterogeneities and are very powerful tools for 

characterizing variations in a protein that are typically present in a single product. 

Recent advances in mass spectrometry (time of flight, fourier transform) have 

greatly improved the resolving powers of the technology and now provide the capability to resolve to within a 1 Da mass accuracy, the mass of a protein. In conjunction with powerful deconvulution software, this technology allows for very accurate 

mass data and a more comprehensive assessment of the carbohydrate profiles. This 

technology has resulted in a new approach called ‘‘top down’’ that allows for the 

analysis of intact proteins. In contrast, the traditional approach analyzes protein 

fragments generated by digestion with proteases, making it difficult to provide assurance that minor modifications to the protein have been identified. 

Protein aggregates can compromise the quality of a product as it relates to its 

safety and efficacy and are thought to be the most important product characteristic 

in generating immune responses. Such aggregates have typically been analyzed by 

size exclusion chromatography (SEC), an analytical method with limitations that result in the detection of only a very narrow spectrum of aggregates that can form 

in a protein product. Technological advances in a number of other analytical methods such as sedimentation velocity obtained by analytical ultracentrifugation and 

field flow fractionation can detect a much wider spectrum of aggregates, many of 

which are not detected by SEC. 

Advances in gel electrophoresis primarily various forms of capillary electrophoresis, now provide excellent resolution between protein species which differ 

slightly in net charge and can be coupled to various detention methods (UV, fluorescence, MS) for enhanced product characterization. 

Surface plasmon resonance technology monitors molecular interaction in real time 

and allows for the accurate detection and quantification of the on and off rates (kinetic rate constants) of protein-to-protein interactions. This technology has been applied to the design of immunoassays used for the detection of host antibodies formed 

against biotechnology products and to the characterization of mAB product interactions with their therapeutic target. 

Advances in the understanding of signal transduction mechanisms for many protein products have provided for the development of more precise in vitro bioassays 

that monitor an early event in the biological function of a protein rather then a cellular response, such as cell growth, that is subject to greater variability in outcomes. 

Protein products are not rigid structures and frequently the ability to flex and 

change conformations is critical to a protein’s function. This property is difficult to 

detect by convention physicochemical techniques. However, advances in scanning 

probe microscopy particularly Atomic Force Microscopy (AFM), facilitate the mapping of biological samples to three-dimensional images and are capable of detecting 

multiple conformations. AFM-generated surface topology maps can portray in explicit detail the surface features of proteins and DNA. The application of this technology is broad and includes the study of protein and DNA structure, protein folding/unfolding, protein-to-protein interactions, protein-to-DNA interactions, enzyme 

catalysis and protein crystal growth. 

Dynamic light scattering and multi-angle light scattering (LS) are beginning to 

be used in conjunction with advances in separation systems such as field flow fractionation and size exclusion chromatography. LS can provide absolute molecular 

weight, root-mean square radius and hydrodynamic radius of individual species of 

product. 

Microcalorimetry allows one to assess the thermodynamic profile of a protein, 

which provides a measurement of the structural stability of the protein product or 

interactions with other proteins. The method can determine affinity constants, enthalpy, entropy, heat capacity, Gibbes free energy and the number of binding sites, 

parameters that help characterize proteins but have not been routinely employed in 

the biotech industry. 

Fluorescence spectroscopy has been useful in monitoring flexibility of proteins and 

conformational stability. 

Nuclear Magnetic Resonance Spectroscopy (NMR) has traditionally been used to 

identify small molecules and their structures are now being applied to solving the 

structure of much larger and more complex biological macromolecules. 

Question. Please outline for the Subcommittee the history of FDA’s regulation of 

biologicals, the range and volume of biological approvals issued by the Agency over 

the course of that history, and any other factors you consider relevant to FDA’s vast 
250 

scientific expertise that is being applied to development of the draft Guidance and 

that ultimately would be brought to bear in evaluating follow-on biologicals. 

Answer. The regulation of biologics began in the United States in 1902, when 

Congress passed the Virus, Serum and Antitoxin Act (also known as the Biologics 

Control Act of 1902 and as the Virus Toxin Law). This law was enacted following 

the deaths of ten children who had received injections of diphtheria antitoxin contaminated with tetanus. In 1901, there was a serious epidemic of diphtheria resulting in a great demand for the diphtheria antitoxin. At the time, there was no requirement for safety testing and none was performed, and the manufacturing process was not controlled properly. The tetanus contamination was traced to an infected horse whose serum was used in producing the antitoxin. 

The 1902 Act required biologics to be manufactured in a manner that assured 

safety, purity, and potency. Provisions of the Act included: 

—Establishment license requirements; 

—Product license requirements; 

—Labeling requirements; 

—Inspection requirements; 

—Suspension/revocation of licenses; and, 

—Penalties for violations. 

The responsibility for implementing this new law was given to the Hygienic Laboratory of the Public Heath Service (PHS). In 1903, PHS issued regulations that included requirements that inspections would be unannounced and licenses were to 

be issued and re-issued on the basis of an annual inspection. The 1902 Act was 

amended in 1944. One change included a requirement that a biological license could 

be issued only upon demonstration that the product and the establishment met 

standards to ensure the continued safety, purity and potency of such products. This 

evaluation was to be made during pre-licensure inspections. These provisions are 

codified in section 351 of the PHS Act (42 U.S.C. 262). Another change that occurred 

at this time was the focal point for administering the Act. This responsibility was 

given to the National Institute of Health’s National Microbiological Institute. 

Changes in responsibility for regulating biological products under the PHS Act occurred in the mid-1950 with the advent of polio vaccines. From 1955 to 1972, biologics were regulated within the National Institutes of Health (NIH), in the Division 

of Biologics Standards (DBS). In 1972, biologic regulation was transferred to the 

FDA’s Bureau of Biologics. 

After this transfer to the FDA began a merger of the regulatory requirements of 

the PHS Act and the Federal Food, Drug and Cosmetic (FD&C) Act (21 U.S.C.). Biologics were viewed as biological products under the PHS Act, and as drugs under 

the FD&C Act, subject to inspection under the Good Manufacturing Practices (GMP) 

regulations for drugs. The reagent manufacturers were also inspected under drug 

GMPs because there were no device regulations until 1976. Among the several 

changes that occurred, blood banks were required to register with the FDA and 

GMPs for blood and blood products were promulgated. Today one of the major responsibilities of FDA is to ensure the safety of the Nation’s blood supply. 

In 1982, the FDA merged the Bureau of Biologics and the Bureau of Drugs into 

the Center for Drugs and Biologics. After a subsequent reorganization the responsibility for biologics regulation was placed under the Center for Biologics Evaluation 

and Research (CBER). The responsibilities for regulating biological products has 

grown and become more complex from its beginning in 1902, when technologies for 

producing biological products were in their infancy and the primary role was vaccine 

regulation. Today the regulation of a wide variety of novel biological products and 

their use as therapeutics requires knowledge of new scientific developments and 

concepts of research in the relevant biological disciplines. The therapeutic biological 

products that the FDA regulates are on the leading edge of technology. Rapid scientific advances in biochemistry, molecular biology, cell biology, immunology, genetics, and information technology are transforming drug discovery and development, 

paving the way for unprecedented progress in developing new medicines to conquer 

disease. 

As a representative sample of the range and volume of biological products approved, we offer below the fiscal year 2003 approvals. CBER’s fiscal year 2003 major 

approvals include all approvals for original new BLAs (except those for blood banking), and other approvals for original biologic, drug, or device applications or supplements (e.g., for new/expanded indications, new routes of administration, new/improved tests, new dosage formulations and regimens). Although most of the Office 

of Therapeutics Research and Review’s applications were transferred to the Center 

for Drug Evaluation and Research on June 30, 2003, all major BLA approvals are 

included in this list for both centers. 

[The information follows:] 
251 

BIOLOGICS LICENSE APPLICATIONS 

Tradename/Proper Name Indication for Use Manufacturer 

Pegasys 

Peginterferon alfa-2a ............................................. Treatment of adults with chronic hepatitis C who have 

compensated liver disease 

and who have not been previously treated with 

interferon alfa.

Hoffmann-La Roche Inc. Nutley, 

NJ 

COBAS Ampliscreen HCV 

Hepatitis C Virus (Hepatitis C Virus/Polymerase 

Chain Reaction/Blood Cell Derived).

For the detection of HCV RNA, 

in human plasma.

Roche Molecular Systems, Inc. 

Pleasanton, CA 

Pediarix 

DTaP & Hepatitis B (Recombinant) & Inactivated 

Polio Virus Vaccine.

Combination vaccine for childhood immunization.GlaxoSmithKline Biologicals 

Rixensart, Belgium 

COBAS Ampliscreen HIV–1 

Human Immunodeficiency Virus Type 1 (HIV–1/ 

Polymerase Chain Reaction).

For detection of Human Immunodeficiency Virus (HIV–1) 

in human plasma using Polymerase Chain Reaction.

Roche Molecular Systems, Inc. 

Pleasanton, CA 

Aralast 

Alpha-Proteinase Inhibitor (Human) ...................... Chronic replacement therapy 

(augmentation) in patients 

having congenital deficiency 

of Alpha-1-Proteinase Inhibitors with clinically evident 

emphysema.

Alpha Therapeutic Corporation 

Los Angeles, CA 

HUMIRA 

Adalimumab ........................................................... Reducing signs and symptoms 

and inhibiting the progression of structural damage in 

adult patients with moderately to severely active 

rheumatoid arthritis who 

have had an inadequate response to one or more disease modifying 

antirheumatic drugs 

(DMARDs).

Abbott Laboratories Abbott 

Park, IL 

Amevive 

Alefacept ................................................................ Treatment of adult patients 

with moderate to severe 

chronic plaque psoriasis who 

are candidates for systemic 

therapy or phototherapy.

Biogen, Inc. Cambridge, MA 

Crosseal 

Fibrin Sealant (Human) ......................................... Adjunct to hemostasis during 

liver surgery.

OMRIX Biopharmaceuticals, Ltd. 

Fairfax, VA 

Peroxidase Conjugate ORTHO Antibody to HBsAG ELISA 

Test System 3 

Antibody to Hepatitis B Surface Antigen (Mouse 

Monoclonal) Enzyme-Linked Immunosorbent 

Assay (ELISA) (Antibody to HBsAg/Enzyme 

Immuno Assay (EIA), Version 3.0/Monoclonal).

Detection of hepatitis B surface 

antigen in human serum or 

plasma as a screening test 

and an aid in the diagnosis 

of potential hepatitis B infection.

Ortho-Clinical Diagnostics, Inc. 

Raritan, NJ 

Fabrazyme 

agalsidase beta ..................................................... For use in patients with Fabry 

disease to reduce 

globotriasylceramide (GL–3) 

deposition in capillary endothelium of the kidney and 

certain other cell types.

Genzyme Corporation Cambridge, MA 
252 

BIOLOGICS LICENSE APPLICATIONS—Continued 

Tradename/Proper Name Indication for Use Manufacturer 

Aldurazyme 

Laronidase .............................................................. For treatment of patients with 

Hurler and Hurler-Scheie 

forms of 

Mucopolysaccharidosis I 

(MPS I) and for patients with 

the Scheie form who have 

moderate to severe symptoms.

Biomarin Pharmaceutical, Inc. 

Novato, CA 

FluMist 

Influenza Virus Vaccine Live, Intranasal ............... For active immunization for the 

prevention of disease caused 

by influenza A and B viruses 

in healthy children and adolescents, 5–17 years of age, 

and healthy adults, 18–49 

years of age.

MedImmune Vaccines, Inc. 

Mountain View, CA 

XOLAIR 

Omalizumab ........................................................... For adults and adolescents (12 

years of age and above) with 

moderate to severe persistent asthma who have a 

positive skin test or in vitro 

reactivity to a perennial 

aeroallergen and whose 

symptoms are inadequately 

controlled with inhaled 

corticosteroids.

Genentech, Inc. South San 

Francisco, CA 

BEXXAR 

Tositumomab and Iodine I 131 Tositumomab ....... Treatment of patients with 

CD20 positive, follicular, 

non-Hodgkin’s lymphoma, 

with and without transformation, whose disease is 

refractory to Rituximab and 

has relapsed following 

chemotherapy.

Corixa Corporation Seattle, WA 

Zemaira 

Alpha-1-Proteinase Inhibitor (Human) ................... To use as chronic augmentation and maintenance therapy in individuals with 

Alpha-1-Antitrypsin Deficiency and evidence of emphysema.

Aventis Behring L.L.C. King of 

Prussia, PA 

Advate 

Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method.Indicated in hemophilia A 

(classical hemophilia) for 

the prevention and control of 

bleeding episodes, and in 

the perioperative management of patients with hemophilia A.

Baxter Healthcare Corporation 

Westlake Village, CA 

Genetic Systems HIV–1/HIV–2 Plus O EIA 

Human Immunodeficiency Virus Types 1 and 2 

(HIV–1 and HIV–2/Enzyme Immunoassay (EIA)/ 

Recombinant and Synthetic).

For detection of antibodies to 

human immunodeficiency 

types 1 and 2.

Bio-Rad Laboratories, Inc. Hercules, CA 

GAMUNEX 

Immune Globulin Intravenous (Human), 10 percent by Chromatography Process.Indicated in primary humoral 

immunodeficiency and idiopathic thrombocytopenic purpura.

Bayer Corporation Berkeley, CA 
253 

BIOLOGICS LICENSE SUPPLEMENTS (FOR NEW INDICATIONS, NEW ROUTES OF ADMINISTRATION, 

NEW DOSAGE FORMS, IMPROVED SAFETY) 

Tradename/Proper Name Indication for Use Manufacturer 

Prevnar 

Pneumococcal 7-valent Conjugate Vaccine (Diphtheria CRM197 Protein).New indication for the prevention of otitis media.Lederle Laboratories Division 

Pearl River, NY 

Avonex 

Interferon beta-1a .................................................. Package insert revised to include updated information 

regarding serum neutralizing 

antibodies.

Biogen, Inc. Cambridge, MA 

Pegasus 

Peginterferon alfa-2a ............................................. Combination therapy with 

Ribavirin, USP (COPEGUS), 

for the treatment of chronic 

Hepatitis C Virus infection in 

adults.

Hoffmann-La Roche Inc. Nutley, 

NJ 

Aranesp 

Darbepoetin alfa .................................................... Darbepoetin alfa Albumin 

(human) formulation in single dose prefilled syringes 

for six dosage strengths (60, 

100, 150, 200, 300 and 500 

micrograms).

Amgen, Inc. Thousand Oaks, CA 

Simulect 

Basiliximab ............................................................. Addition of new single dose 10 

mg strength of drug product.

Novartis Pharmaceuticals Corporation East Hanover, NJ 

Avonex 

Interferon beta-1a .................................................. Package insert revised to include safety and efficacy 

data from a study of patients who experienced a 

single clinical exacerbation 

of multiple sclerosis and to 

provide a Medication Guide.

Biogen, Inc. Cambridge, MA 

Betaseron 

Interferon beta-1b .................................................. To revise the Clinical Studies 

section to include data from 

two studies conducted in 

patients with secondary progressive multiple sclerosis 

(MS), also to update the Adverse Reactions and Warnings sections to include new 

safety information, and to 

provide a Medication Guide.

Chiron Corporation Emeryville, 

CA 

Remicade 

Infliximab ............................................................... For reducing the number of 

draining enterocutaneous 

and rectovaginal fistulas 

and maintaining fistula closure in patients with 

fistulizing Crohn’s disease.

Centocor, Inc. Malvern, PA 

Rebif 

Interferon beta-1a .................................................. Final pivotal study report that 

confirms the results of 48 

week data.

Serono, Inc. Rockland, MA 

Avonex 

Interferon beta-1a .................................................. HAS-free liquid formulation in a 

prefilled syringe as an alternate dosage form and to 

provide for a Medication 

Guide.

Biogen, Inc. Cambridge, MA 
254 

BIOLOGICS LICENSE SUPPLEMENTS (FOR NEW INDICATIONS, NEW ROUTES OF ADMINISTRATION, 

NEW DOSAGE FORMS, IMPROVED SAFETY)—Continued 

Tradename/Proper Name Indication for Use Manufacturer 

Dryvax 

Smallpox Vaccine, Dried, Calf Lymph Type ........... Active immunization against 

smallpox disease.

Wyeth Laboratories, Inc. Marietta, PA 

Dryvax 

Smallpox Vaccine, Dried, Calf Lymph Type ........... Include new safety information 

for the recent reports of cardiac events and updated 

storage period for the vaccine after reconstitution from 

15 days to 90 days.

Wyeth Laboratories, Inc. Marietta, PA 

Infanrix 

Diphtheria & Tetanus Toxoids & Acellular Pertussis Vaccine Adsorbed.To include in the indication a 

fifth dose at 4–6 years of 

age after 4 prior doses of 

Infanrix.

GlaxoSmithKline Biologicals 

Rixensart, Belgium 

Enbrel 1

Etanercept .............................................................. To expand the rheumatoid arthritis indication to include 

improving physical function.

Immunex Corporation Seattle, 

WA 

Enbrel 1

Etanercept .............................................................. For reducing signs and symptoms in patients with active 

ankylosing spondylitis.

Immunex Corporation Seattle, 

WA 

Enbrel 1

Etanercept .............................................................. To expand the indication to include inhibiting the progression of structural damage of 

active arthritis in patients 

with psoriatic arthritis.

Immunex Corporation Seattle, 

WA 

Kineret 1

Anakinra ................................................................. To expand the indication to include slowing the progression of structural damage in 

moderately to severely active 

rheumatoid arthritis, in patients 18 years of age or 

older who have failed one or 

more DMARDs.

Amgen, Inc. Thousand Oaks, CA 

Synagis 1

Palivizumab ............................................................ To expand the indication to include children with 

hemodynamically significant 

congenital heart disease.

MedImmune,Inc Gaithersburg, 

MD 

1 OTRR product applications transferred to CDER on 6–30–03. 

NEW DRUG APPLICATIONS 

Tradename/Proper Name Indication for Use Applicant 

TriCitrasol Anticoagulant Sodium Citrate Conc. 46.7 

percent Trisodium Citrate, 30 mL 

Anticoagulant Sodium Citrate Solution ................. triCitrasol, after dilution of a 

rouleaux agent, is an anticoagulant used in 

granulocytapheresis procedures.

Cytosol Laboratories, Inc. Braintree, MA 
255 

NEW DRUG APPLICATIONS—Continued 

Tradename/Proper Name Indication for Use Applicant 

Anticoagulant Citrate Dextrose Solution, Solution A, 

U.S.P., (ACD–A). 50 mL, PN 6053 

Anticoagulant Citrate Dextrose Solution (ACD) ..... To provide for the use of Anticoagulant Citrate Dextrose 

Solution, Solution A, U.S.P., 

(ACD–A) 50 mL for the 

extracorporeal processing of 

blood with Autologous PRP 

systems in production of 

platelet rich plasma (PRP) 

for in vitro use.

Cytosol Laboratories, Inc. Braintree, MA 

SUPPLEMENTAL NEW DRUG APPLICATIONS 

Tradename/Proper Name Indication for Use Applicant 

Abbokinase 

Urokinase ................................................................ Improvements in the manufacture and testing of the bulk 

drug substance and drug 

product, and withdrawal of 

the indication for coronary 

artery thrombosis indication 

(CAT) and the Open-Cath 

dosage strengths.

Abbott Laboratories Abbott 

Park, IL 

DEVICE APPLICATIONS 

Tradename Description and Indication for Device Applicant 

OraSure OraQuick Rapid HIV–1 Antibody Test For the detection of antibodies 

to HIV–1 in human fingerstick whole blood specimens.

OraSure Technologies Bethlehem, PA 

MedMira Rapid HIV Test For detection of HIV–1 and 

HIV–2 Antibodies.

MedMira labs Bayers Lake Halifax, Canada 

Ortho ProVue, Software Version: 2.10 Modular, Microprocessor-controlled instrument designed 

to automate in vitro 

immunohematological testing 

to human blood utilizing the 

ID MTS/Gel Technology.

Micro Typing Systems Inc. Pompano Beach, FL 

Vironostika HIV–1 Plus O Microelisa System For the qualitative detection of 

antibodies to Human Immunodeficiency Virus Type 1 

(HIV–1), including Group O, 

in human specimens collected as serum, plasma, or 

dried blood spots.

BioMerieux, Inc. Durham, NC 

DEVICE SUPPLEMENTS (FOR NEW INDICATIONS, IMPROVED SAFETY) 

Tradename Description and Indication for Device Applicant 

Calypte HIV–1 Urine EIA HIV–1 Urine EIA to include 

changes to the black box 

warning statement.

Calypte Biomedical Corporation 

Alameda, CA 
256 

QUESTIONS SUBMITTED BY SENATOR CHRISTOPHER S. BOND

NUTRITIONAL GUIDELINES

Question. There is a linear relationship between high transfatty acid and high 

saturated fat intake and chronic disease. We also know that the consumption of 

foods high in these two elements likely contribute to the statistics on obesity. Does 

FDA intend to draft guidelines or standards for the consumption of these fats? 

Answer. FDA issued on July 11, 2003 final rules to require that trans fatty acids 

be listed in mandatory nutrition labeling. Manufacturers must have this information in Nutrition Facts panels on all food packages entering interstate commence 

by January 1, 2006. On July 11, 2003, FDA also published an advance notice of proposed rulemaking (ANPRM) to solicit data and information that could be used to 

establish new nutrient content claims about trans fatty acids; to establish qualifying 

criteria for trans fat in current nutrient content and health claims; and to consider 

statements about trans fat, either alone or in combination with saturated fat and 

cholesterol to enhance consumers’ understanding about such cholesterol-raising 

lipids and how to use the information to make healthy food choices. The agency has 

reopened the comment period to this ANPRM to receive comment on the Institute 

of Medicine’s (IOM) December 2003 report on Dietary Reference Intakes in which 

the IOM included a suggested approach for establishing a daily value for trans fat. 

In addition, FDA has scheduled a Food Advisory Committee Nutrition Subcommittee meeting at the end of April 2004 to consider scientific questions related 

to saturated fat and trans fat that may help determine the agency’s course for food 

labeling of these fats. 

Question. Will FDA provide guidelines and or regulations to restaurants and other 

food manufacturers and—more importantly—provide them a roadmap to increasing 

the nutritional content and decrease saturated fat levels of their products? 

Answer. An important goal of the Nutrition Labeling and Education Act of 1990 

was to provide incentives to manufacturers to improve the nutritional composition 

of food products. Studies have shown that the implementing regulations, which required nutrition labeling on most packaged foods, resulted in a significant increase 

in the number of low- and reduced-fat products in the marketplace. We anticipate 

that the new labeling regulations requiring that trans fat be listed will have a similar effect, reducing total intake of trans fat. In fact, since publication of the final 

rule requiring the listing of trans fat, several food manufacturers and at least one 

major fast food restaurant chain have announced that they are changing the type 

of fats used in order to reduce levels of trans fats. 

Question. Does FDA intend to provide guidelines and or regulations on the characteristics of healthy oils’ that can be used in most food manufacturing to improve 

overall health and nutrition of those foods? 

Answer. By requiring the saturated and trans fat content to be declared in Nutrition Facts panels on most packaged foods, FDA is providing an incentive for manufacturers to reduce the levels of those fats whose consumption is associated with increased levels of LDL-cholesterol. 

Question. Does FDA have this authority? 

Answer. Manufacturers may choose between different food ingredients to use in 

their food products, provided that such ingredients are safe for such use under the 

Federal Food, Drug, and Cosmetic Act (the Act). FDA has authority, under section 

403(q) of the Act, to require nutrition labeling on packaged food products. Restaurant foods are exempt unless they make a nutrition claim. 

Question. How will FDA ensure that as they move forward with trans-fat labeling 

that saturated fats will not come back into the diet? 

Answer. Nutrition labeling will indicate the levels of both saturated fat and trans 

fat in most packaged foods. Consumer education programs will encourage consumers 

to look at both types of fats and to consider the combined total amount in making 

purchasing decisions. 

QUESTIONS SUBMITTED BY SENATOR HERB KOHL

OBESITY

Question. Dr. Crawford, both USDA and FDA have recently announced new efforts to combat the increasing problem of obesity. FDA announced the ‘‘Calories 

Count’’ program, and USDA has money in several programs, including WIC, to help 

battle this problem. However, for all of the government’s efforts, all of the money 

being put into this effort pales in comparison to the food industry’s billions of dollars 

worth of advertising. How can the government successfully get its message out 
257 

when, at first glance, its efforts appear to be dwarfed by the food industry? How 

do your agencies compete with that? 

Answer. In support of the President’s Healthier U.S. initiative, the DHHS established a complementary initiative, Steps to a Healthier U.S., which emphasizes personal responsibility for the choices Americans make for healthy behaviors. One aspect of this initiative focuses on reducing the major health burden created by obesity 

and other chronic diseases. Following DHHS’ July 2003 Roundtable on Obesity and 

Nutrition, on August 11, 2003, FDA established an Obesity Working Group, or 

OWG, to prepare a report that outlines an action plan to cover critical dimensions 

of the obesity problem from FDA’s perspective and authorities. This report was released on March 12, 2004. 

There is no simple answer to the problem of obesity. Achieving success in reducing and avoiding obesity will occur only as a result of efforts over time by individuals as well as various sectors of our society. It should be noted, however, that most 

associations, agencies, and organizations believe that diet and physical activity 

should be addressed together in the fight against overweight and obesity. 

The OWG report provides a range of short and long-term recommendations to address the obesity epidemic with a focus on a ‘‘calories count’’ emphasis for FDA actions. These recommendations are based on sound science and address multiple facets of the obesity problem under FDA’s purview, including developing appropriate 

and effective consumer messages to aid consumers in making wiser dietary choices; 

establishing educational strategies and partnerships to support appropriate messages and teach people, particularly children, how to lead healthier lives through 

better nutrition; developing initiatives to improve the labeling of packaged foods 

with respect to caloric and other nutrition information; encouraging and enlisting 

restaurants in efforts to combat obesity and provide nutrition information to consumers, including information on calories, at the point-of-sale; developing new 

therapeutics for the treatment of obesity; designing and conducting effective research in the fight against obesity; and continuing to involve stakeholders in the 

process. 

Regarding food labeling, the OWG report contains several recommendations based 

on sound science. I will provide these recommendations for the record. 

[The information follows:] 

Publish an advance notice of proposed rulemaking, or ANPRM, to seek comment 

on the following: 

—How to give more prominence to calories on the food label, for example, increasing the font size for calories, including a column in the Nutrition Facts panel 

of food labels for percent Daily Value for total calories, and eliminating the listing for calories from fat; 

—Whether to authorize health claims on certain foods that meet FDA’s definition 

of ‘‘reduced’’ or ‘‘low’’ calorie. An example of a health claim for a ‘‘reduced’’ or 

‘‘low’’ calorie food might be: ‘‘Diets low in calories may reduce the risk of obesity, 

which is associated with type 2 diabetes, heart disease, and certain cancers.’’ 

—Whether to require additional columns on the Nutrition Facts panel to list 

quantitative amounts and percent Daily Value of an entire package on those 

products and package sizes that can reasonably be consumed at one eating occasion—or declare quantitative amounts and percent Daily Value of the whole 

package as a single serving if it can reasonably be consumed at a single eating 

occasion; and, 

—Which, if any, reference amounts customarily consumed of food categories appear to have changed the most over the past decade and hence require updating. 

In addition, FDA will file and respond in a timely way to petitions the agency has 

received that ask FDA to define terms such as ‘‘low,’’ ‘‘reduced,’’ and ‘‘free’’ carbohydrate; and provide guidance for the use of the term ‘‘net’’ in relation to carbohydrate content of food—these petitions were filed on March 11, 2004. 

FDA will also encourage manufacturers to use dietary guidance statements, an 

example of which would be, ‘‘To manage your weight, balance the calories you eat 

with your physical activity.’’ In addition, the Agency will encourage manufacturers 

to take advantage of the flexibility in current regulations on serving sizes to label 

as a single-serving those food packages where the entire contents of the package can 

reasonably be consumed at a single eating occasion and encourage manufacturers 

to use appropriate comparative labeling statements that make it easier for consumers to make healthy substitutions. 

FDA believes that if the report’s recommendations are implemented they will 

make a worthy contribution to confronting the Nation’s obesity epidemic and helping consumers’ lead healthier lives through better nutrition. 
258 

FDA also believes that the regulatory scheme for claims in food labeling, whether 

health claims, nutrient content claims, or other types of claims, are science based, 

and we continue to consider modifications to our regulations to keep up with recent 

scientific developments. A benefit of standardized, science-based terminology, as 

with other terms that FDA has defined that consumers may use to make healthbased dietary choices—e.g., terminology concerning fat content-, is that it allows 

consumers to compare across products and it encourages manufacturers to compete 

based on the nutritional value of the food. However, FDA does not regulate television and other media marketing of food products. Some of the modifications FDA 

is currently considering are described above in the list of topics to be covered by 

the ANPRM the agency intends to issue. 

With respect to conveying the report’s messages to the public, FDA believes that 

all parties, including the packaged food industry, restaurants, academia, and other 

private and public sector organizations in addition to government agencies at all levels, have an essential role to play. On April 22, 2004, FDA’s Science Board focused 

on specific recommendations from the OWG report. These recommendations call on 

FDA to work through a third-party facilitator to engage all involved stakeholders 

in a dialogue on how best to construct and convey obesity messages in the restaurant setting and in the area of pediatric obesity education. 

This approach is one example of how the Agency intends, by means of public and 

private partnerships, to leverage its ability to convey appropriate messages on obesity to the public with the goal of changing behavior and ultimately reversing obesity trends in the United States. 

IMPORT INSPECTIONS

Question. Dr. Crawford, the FDA budget this year includes a $7 million increase 

to fund 97,000 food import examinations. This is a big increase in inspections over 

any previous year—still, however, less than one percent of all of the food imported 

into this country will be inspected. How would you respond to charges that you still 

aren’t inspecting nearly enough imported food, especially in light of events during 

the past year where bad food has gotten in and people have died? How do we ensure 

consumers that their food is indeed safe? 

Answer. FDA is appreciative of the additional funding we have received for the 

inspection of domestic firms and for inspections of imported foods. FDA believes it 

is more effective to focus our resources in a risk-based manner than to focus simply 

on increasing the percentage of imported food shipments that are physically inspected. It is important to note that every shipment of FDA-regulated food which 

is entered through Customs and Border Protection as a consumption entry is electronically reviewed by FDA’s Operational and Administrative System for Import 

Support to determine if it meets identified criteria for further evaluation by FDA 

reviewers and physical examination and/or sampling and analysis or refusal. This 

electronic screening allows FDA to concentrate its limited inspection resources on 

high-risk shipments while allowing low-risk shipments to proceed into commerce. 

Due to constantly changing environments of operation, e.g., counterterrorism and 

BSE, our domestic inspection and import strategy cannot be defined in terms of a 

percentage of coverage through inspections, physical examinations and sample analyses. It needs to be a flexible blend of the use of people, technology, information and 

partnerships to help protect Americans from unsafe imported products. Accordingly, 

the Agency is developing and using strategies for mitigating risks prior to importation through partnerships and initiatives based on best practices and other science 

based factors relevant to the import life cycle, i.e., from foreign manufacturer to the 

U.S. consumer. Recently this principle has been applied in the ‘‘Canadian Facility 

Voluntary Best Management Practices for Expediting Shipments of Canadian 

Grains, Oilseeds and Products to the United States’’ implemented February 24, 

2004, and designed to mitigate the potential of mammalian protein prohibited from 

being fed to cattle or other ruminants under BSE-prevention regulations promulgated by CFIA and FDA. 

Another piece of the long term solution to a higher level of confidence in the security and safety of food products lies in information technology that will merge information on products and producers with intelligence on anticipated risks to target 

products for physical and laboratory examination or refusal. This strategy would 

rely on data integrity activities that reduce the opportunity for products to be incorrectly identified at ports. It would also rely on cooperation from producers so that 

FDA can identify sources that are unlikely to need physical testing. However, even 

with such targeting, improvements are limited by the available methodologies for 

assessing threat agents and our ability to predict which tests ought to be used. 
259 

We are ramping up our food inspections, but we recognize that we also need to 

inspect smarter, not just inspect more. That is why FDA is making significant investments in technology and information resources such as the development of the 

Mission Accomplishment and Regulatory Compliance Services System, MARCS. 

MARCS is a comprehensive redesign and reengineering of two core mission critical 

systems at FDA: FACTS and the Operational and Administrative System for Import 

Support, OASIS. OASIS supports the review and decision making process of products for which entry is sought into the United States. We are using funds to work 

to further improve targeting and using force multipliers such as IT. 

FDA also has a proof of concept project, called ‘‘Predict,’’ with New Mexico State 

University under a Department of Defense contract which is being designed to enhance agency capability to rapidly assess and identify import entries based on risk 

using relevant information from various sources including regulated industry, trade, 

other Federal, State, and local entities, and foreign industry and governments. This 

project, if successful, will greatly enhance FDA’s capability to be smarter in directing field activities on products of greater risk to public health and safety. The proof 

of concept project is projected to be completed in the Fall of 2004. The relentless 

growth in the volume of domestic as well as imported food products, which are increasingly in ‘‘ready for consumer sale packaging.’’ Food imports are now growing 

at 19 percent per year. FDA needs to use all the potential tools available to improve 

its efficiency in food security and safety coverage. 

In addition, FDA has several strategic initiatives to enhance safety. One of these 

is ‘‘Agency Initiatives to Improve Coverage,’’ which includes the creation of the 

Southwest Import District to better coordinate import activities on the southern border. Another is reciprocal FDA and U.S. Customs and Border Protection training to 

improve product integrity of goods offered for import and increase enforcement actions by Customs to deter willful violations of U.S. laws and regulations. While foreign inspections and border operations provide some assurance that imported foods 

are safe, the agency continues to work to foster international agreements and harmonize regulatory systems. For instance, we actively participate in the Canada/U.S./ 

Mexico Compliance Information Group, which shares information on regulatory systems and the regulatory compliance status of international firms to protect and promote human health. 

It is very important that American consumers trust the safety of the food supply. 

FDA has made fundamental changes in how we implement our mission of protecting 

the food supply, so that all Americans can have confidence that their food has been 

handled under secure conditions that provide assurance of its safety. 

FDA FOIA POLICIES

Question. Dr. Crawford, my office has been working with a non-profit patient advocacy group, the TMJ Association, in their efforts to have two FOIA requests that 

are well over a year old responded to. Their original FOIA request was made on 

November 1, 2002 (request number 02017071), more than 17 months ago, and the 

subsequent request was made on March 25, 2003 (request number 03004361). They 

have not yet received the information requested, and have been unable to get a date 

commitment by FDA as to when the information will be provided. It is my understanding that they have been informed that FOIA requests are severely backlogged, 

and the FDA has no idea when they will be able to process their request. What is 

the current backlog for FOIA requests? 

Answer. As of April 28, 2004, FDA has 19,369 pending FOIA requests—17,555 

have been pending more than 20 days and 1,814 have been pending 20 days or less. 

The Denver District Office is responsible for responding to the two requests from 

the TMJ Association. As of April 28, 2004, Denver District Office has 369 pending 

FOIA requests—357 requests have been pending more than 20 days, and 12 requests have been pending 20 days or less. 

Question. How many FDA staff are responsible for handling these requests? Is 

this their sole responsibility, or do they have other responsibilities as well? 

Answer. For fiscal year 2003 the total number of personnel responsible for processing FOIA requests was 91 FTE, 75 full time employees, and 16 FTE work years 

representing personnel with part-time FOIA duties in addition to other responsibilities. 

Question. Does FDA need additional staff or resources in order to process these 

requests on a timely basis? 

Answer. In some agency components FOIA is a collateral duty. For example, in 

most FDA field offices, Compliance Officers whose primary responsibilities are related to the Agency’s regulatory enforcement activities also perform FOIA duties as 
260 

permitted by time and regulatory workload. Additional staff devoted to FOIA could 

shorten the amount of time for processing requests. 

Question. What do you believe is a reasonable length of time for a group to wait 

for an information request to be processed and responded to? 

Answer. Requests are processed by the agency component that maintains the requested records. There are a number of factors that must be considered in order to 

predict a reasonable amount of time for a request to be processed. Those factors include the volume of requests received by the component, the complexity of requests 

received, the amount of time required to search for records, the amount of time require to review the records to determine whether information is releasable under 

FOIA, and the resources available to process requests. 

Question. What is the average length of time it takes to process a FOIA request? 

Can you please explain the severe delay in processing this specific one, which has 

taken over 2 years and apparently has no end in sight? Can you please provide me 

a timeframe within which the FDA will respond to these two particular FOIA requests? 

Answer. Under the Electronic Freedom of Act Amendments of 1996, agencies are 

permitted to establish multiple tracks for processing FOIA requests based on the 

complexity of the requests and the amount of work and time required to process requests. Some FDA components have established multiple processing tracks. Requests are processed on a first in, first out basis within each track. The median 

number of days to process requests in the simple processing track is 19 days. The 

median number of days to process requests in the complex processing track, for 

more complicated requests, is 363 days. For requests that are not processed in multiple processing tracks, the median number of days to process is 44 days. 

Due to a heavy load of regulatory cases in the Denver District Office that must 

be handled by the Compliance Officers in addition to staff shortages, FOIA work in 

the Denver District is being performed by one individual on a part-time basis. This 

has resulted in a significant backlog of FOIA requests. The Denver District Office 

expects to fill request 02–17071 from the TMJ Association in six months, and request 03–4361 in one month. 

Question. What additional efforts can this group undertake in order to speed up 

their request? 

Answer. The Denver District Office expects to fill request 02–17071 from the TMJ 

Association in 6 months, and request 03–4361 in one month. 

In addition, the Denver District is reviewing and evaluating its FOIA workload 

and will develop a strategy aimed at reducing the backlog of FOIA requests. 

Question. What is the FDA’s policy on charging for FOIA requests made by nonprofit patient advocacy groups? 

Answer. The FOIA sets forth criteria that agencies must follow with respect to 

charging for processing FOIA requests. Non-profit organizations are considered Category III requesters. Such requesters receive 100 pages of duplication and 2 hours 

of search at no charge. If the number of pages exceed 100 and/or if the amount of 

search time exceeds 2 hours, Category III requesters are charged based on the FOIA 

fee schedule of the Department of Health and Human Services. The fee for duplication is $.10 per page, and the fee for search is based on the grade level of the individual who processes the request. I will be happy to provide the current grade rates 

for the record. 

[The information follows:] 

Current Grade Rates 

GS–1 through 8—$18.00 per hour 

GS–9 through 14—$36.00 per hour 

GS–15 and above—$64.00 per hour 

In addition, requesters may make a request for waiver or reduction of fees if their 

request meets the following criteria: disclosure of the information is in the public 

interest because it is likely to contribute significantly to public understanding of the 

operations or activities of the Government; and, disclosure is not primarily in the 

commercial interest of the requester. 

IMPLICIT PRE-EMPTION

Question. Adverse reactions to prescription drugs and other medicines take the 

lives of more than 100,000 Americans each year, and millions more are seriously 

injured. For many years, state tort laws have enabled some victims to receive compensation for their injuries. It has been brought to my attention that the Food and 

Drug Administration (FDA) has stepped in to protect drug companies from liability 

in some of these lawsuits, potentially robbing individuals of their only means of 

compensation. FDA’s actions are even more troubling when you consider that these 
261 

1FDA also periodically becomes involved, through the Department of Justice, in cases involving preemption of state-law requirements under the medical device provisions of the FDCA, 

which include an express preemption provision, 21 U.S.C. 360k(a). 2Primary jurisdiction allows a court to refer a matter to an administrative agency for an initial determination where the matter involves technical questions of fact and policy within the 

agency’s jurisdiction. See, e.g., Israel v. Baxter Labs., Inc., 466 F.2d 272, 283 (D.C. Cir. 1972); 

see also 21 CFR 10.60. 3Statement of Interest of the United States; Preliminary Statement, Bernhardt v. Pfizer, Inc., 

Case No. 00 Civ. 4042 (LMM) (S.D.N.Y. filed Nov. 13, 2000). 

lawsuits have other important purposes, such as deterring future bad behavior and 

providing the American public with access to important health and safety information. How many times has the FDA interfered in lawsuits, arguing that implicit preemption prohibits a plaintiff from receiving compensation for their injuries? In how 

many of these cases has a court held that the plaintiff’s tort claim was implicitly 

pre-empted by Federal law? 

Answer. In the past several years, the Department of Justice (DOJ) has represented the United States in four cases involving state-law challenges to the adequacy of FDA-approved risk information disseminated for FDA-approved new 

drugs.1 In each case, DOJ contended that the state-law claim was preempted by 

Federal law. In addition, in some cases, DOJ argued that the state-law claim was 

not properly before the court by operation of the doctrine of primary jurisdiction.2

The legal basis for preemption in these cases is FDA’s careful control over drug 

safety, effectiveness, and labeling according to the agency’s comprehensive authority 

under the FDCA and FDA implementing regulations. If state authorities, including 

judges and juries applying state law, were permitted to reach conclusions about the 

safety and effectiveness information disseminated with respect to drugs for which 

FDA has already made a series of regulatory determinations based on its considerable institutional expertise and statutory mandate, the Federal system for regulation of drugs would be disrupted. I will be happy to include information on the four 

cases for the record. 

[The information follows:] 

Bernhardt 

In 2000, two individual plaintiffs filed product liability actions in a New York 

court against Pfizer, Inc., seeking a court order requiring the company to send emergency notices to users of the prescription antihypertensive drug CARDURA 

(doxazosin mesylate) and their physicians. The notices would have described the results of a study by a component of the National Institutes of Health (NIH) that, the 

plaintiffs alleged, demonstrated that Cardura was less effective in preventing heart 

failure than a widely used diuretic. FDA had not invoked its authority to send ‘‘Dear 

Doctor’’ letters or otherwise disseminate information regarding a drug that the 

agency has determined creates an ‘‘imminent danger to health or gross deception 

of the consumer.’’ (21 U.S.C. 375(b).) The plaintiffs, nevertheless, filed a lawsuit 

under state common law seeking relief that, if awarded, would have pressured the 

sponsor to disseminate risk information that FDA itself had not disseminated pursuant to its statutory authority. 

FDA’s views were submitted to the Federal district court in the form of a Statement of Interest.3 The Statement relied on the doctrine of primary jurisdiction. The 

Statement also took the position that the plaintiffs’ request for a court order requiring the dissemination of information about NIH study results to users and prescribers of CARDURA was impliedly preempted. According to the Statement, the 

court order ‘‘would frustrate the FDA’s ability effectively to regulate prescription 

drugs by having the Court substitute its judgment for the FDA’s scientific expertise.’’ The Statement also noted that, if the court granted the requested order, a direct conflict would be created between the information required to be disseminated 

by the court and the information required to be disseminated by FDA under the 

FDCA (in the form of the FDA-approved labeling). 

The Statement contended that state law could not provide a basis for requiring 

a drug manufacturer to issue drug information that FDA had authority to, but did 

not, require. Importantly, the submission did not argue that the state-law claim was 

preempted because FDA had reached a determination that directly conflicted with 

the plaintiff’s view. Nor did it assert that FDA had specifically determined that the 

information on the NIH study requested by the plaintiffs was unsubstantiated, 

false, or misleading. In this sense, the Statement of Interest in Bernhardt was the 

most aggressive, from a legal perspective, than the three subsequent DOJ submissions on FDA’s behalf in preemption cases made during the present Administration. 

The United States District Court for the Southern District of New York accepted 

the primary jurisdiction argument made on FDA’s behalf. (Bernhardt v. Pfizer, Inc., 
262 

4Letter from Robert D. McCallum, Jr., Ass’t Attorney General, et al., to Frederick K. Ohlrich, 

Supreme Court Clerk/Administrator, Dowhal v. SmithKline Beecham Consumer Healthcare LP, 

et al., Case No. S–109306 (Cal. filed Sept. 12, 2002); Amicus Curiae Brief of the United States 

of America in Support of Defendants/Respondents SmithKline Beecham Consumer Healthcare 

LP, et al., Dowhal v. SmithKline Beecham, Case No. A094460 (Cal. Ct. App. filed Mar. 22, 2002); 

Amicus Curiae Brief of the United States of America in Support of Defendants/Appellants 

SmithKline Beecham Consumer Healthcare LP, et al., Dowhal v. SmithKline Beecham, Case No. 

S109306 (Cal. filed July 31, 2003). 

2000 U.S. Dist. LEXIS 16963, *9 (whether the additional warnings sought by the 

plaintiffs were appropriate ‘‘is a decision that has been squarely placed within the 

FDA’s informed expert discretion’’).) It did not address the preemption issue. The 

case was voluntarily dismissed on April 22, 2003. 

Dowhal 

In 1998, an individual plaintiff in California asked that State’s attorney general 

to initiate an enforcement action against SmithKline Beecham and other firms marketing OTC nicotine replacement therapy products in California. (These products 

are marketed pursuant to an approved new drug application.) The plaintiff contended that the FDA-approved warnings for the defendants’ products did not meet 

the requirements of a state statute called the Safe Drinking Water and Toxic Enforcement Act (Cal. Health & Safety Code § 25249.5 et seq.), also known as Proposition 65. From 1996 through 2001, FDA had repeatedly advised the defendants that 

they could be liable under the FDCA for selling misbranded products if they deviated from the FDA-approved warning labeling for their products. FDA also advised 

the state attorney general in writing in 1998 that the defendants’ warning in the 

labeling clearly and accurately identified the risks associated with the products and, 

therefore, met FDA requirements under the FDCA. After receiving the letter, the 

attorney general declined to initiate enforcement action. 

Nevertheless, in 1999, the individual plaintiff initiated a lawsuit of his own in 

California state court under Proposition 65’s ‘‘bounty-hunter’’ provision, which empowers individuals to file enforcement actions under that statute on behalf of the 

people of the State of California. The lawsuit asked the court to award civil money 

penalties and restitution, and to issue an injunction requiring the defendants to disseminate warnings for their products that differed from the warnings required by 

FDA. In 2000, the plaintiff filed a citizen petition with FDA requesting that the 

agency require the defendants to change their warnings to reflect the language 

sought by the plaintiff in the lawsuit. FDA rejected the proposed language, determining that it lacked sufficient support in scientific evidence and presented a risk 

of mischaracterizing the risk-benefit profile of the products in a way that threatened 

the public health. Although the trial court found for the defendant, the California 

Court of Appeal rejected the defendant’s contention that the plaintiff’s claim was 

preempted under the FDCA, and allowed the lawsuit to proceed. (Dowhal v. SmithKline Beecham Consumer Healthcare, 2002 Cal. App. LEXIS 4384 (Cal. Ct. 

App. 2002), argued, Case No. S–109306 (Cal. Feb. 9, 2004).) 

FDA’s views were presented to the Court of Appeal of California in an amicus curiae (‘‘friend of the court’’) brief and to the Supreme Court of California in a letter 

brief and an amicus brief.4 All three documents explained that the warning language sought by the plaintiffs had been specifically considered and rejected by FDA 

as scientifically unsubstantiated and misleading. Including the language would, 

therefore, misbrand those products and cause the defendants to violate the FDCA. 

The documents explained, further, that principles of conflict preemption applied to 

the plaintiffs’ claim because it was impossible for defendants to comply with both 

Federal and State law and because the state law posed an obstacle to the accomplishment of the full purposes and objectives of the FDCA. 

The California Court of Appeal rejected the preemption argument. (Dowhal v. 

SmithKline Beecham Consumer Healthcare, 2002 Cal. App. LEXIS 4384,... 16– 

17 (Cal. Ct. App. 2002) (reversing trial court decision granting summary judgment 

for defendants on preemption grounds).) On April 15, 2004, the California Supreme 

Court reversed the appeals court decision, finding a direct conflict between FDA requirements and the state-law warning requirement advocated by the plaintiff. 

(Dowhal v. SmithKline Beecham Consumer Healthcare, 2004 Cal. LEXIS 3040.) 

Motus 

Also in 2000, an individual plaintiff sued Pfizer in a California court alleging, 

among other things, that the company had failed to fulfill its state common law duty 

to warn against the risk of suicide the plaintiff alleged was presented by ZOLOFT 

(sertraline HCl), an FDA-approved drug in the selective serotonin reuptake inhibitor 

(SSRI) class indicated to treat depression (among other things). On numerous occa-
263 

5 Amicus Brief for the United States in Support of the Defendant-Appellee and Cross-Appellant, and in Favor of Reversal of the District Court’s Order Denying Partial Summary Judgment 

to Defendant-Appellee and Cross-Appellant, Motus v. Pfizer, Case Nos. 02–55372 & 02–55498 

(9th Cir. filed Sept. 3, 2002). 6Statement of Interest of the United States of America, In re PAXIL Litigation, Case No. CV 

01–07937 MRP (CWx) (C.D. Cal. filed August 20, 2002); Brief of the United States of America, 

In re PAXIL Litigation, Case No. CV 01–07937 MRP (CWx) (C.D. Cal. filed Sept. 4, 2002). 

sions, FDA had specifically considered and rejected such language for SSRIs as scientifically unsupportable and inconsistent with FDA determinations as to the safety 

and effectiveness of the products. 

The United States District Court for the Central District of California (to which 

the case had been removed on the ground of diversity) rejected the defendant’s preemption argument, allowing the lawsuit to proceed. (Motus v. Pfizer Inc., 127 F. 

Supp. 2d 1085 (C.D. Cal. 2000).) The court later granted the defendant’s motion for 

summary judgment on non-preemption grounds (196 F. Supp. 2d 984, 986 (C.D. Cal. 

2001)), and the plaintiff appealed. DOJ submitted an amicus curiae brief to the 

United States Court of Appeals for the Ninth Circuit on FDA’s behalf.5 The brief’s 

arguments were essentially the same as the arguments advanced in Bernhardt. In 

contrast to the situation in Bernhardt, however, in Motus, FDA had specifically considered, and rejected, the language requested by the plaintiff under state law. The 

appeals court affirmed the trial court’s decision earlier this year (2004 U.S. App. 

LEXIS 1944 (9th Cir. February 9, 2004)). 

In re PAXIL 

In 2001, individuals filed suit in a California court on behalf of past or current 

users of PAXIL (paroxetine HCl) against the drug’s manufacturer, GlaxoSmithKline 

(GSK), alleging that the company’s direct-to-consumer (DTC) broadcast advertisements for the drug failed adequately to warn about the consequences of discontinuing the drug. In reviewing the new drug application for the drug, FDA had 

found no evidence that it was habit-forming and did not require GSK to address 

that risk in FDA-approved labeling. FDA did, however, require GSK to include in 

labeling statements regarding discontinuation syndrome, and the labeling consequently recommends that doctors gradually reduce dosages and monitor patients 

for syndrome symptoms. FDA reviewed proposed DTC advertisements GSK had submitted for Paxil that said that the drug was not habit-forming. The agency at no 

time determined that this statement was misleading. In August 2002, notwithstanding FDA’s determination, the court issued a preliminary injunction prohibiting 

GSK from running DTC advertisements stating that Paxil is not habit-forming. (In 

re Paxil Litigation, 2002 U.S. Dist. LEXIS 16221 (C.D. Cal. Aug. 16, 2002).) 

On reconsideration, the court declared that the preliminary injunction challenged 

only ‘‘FDA’s... determination that the public is not likely to equate the words 

‘not habit forming’ as used in direct[-]to[-]consumer advertisements with no withdrawal symptoms.’’ According to the court, ‘‘The question of how members of the 

general public are likely to interpret (or misinterpret) a statement is within one of 

the courts’ core competencies.’’ Declaring itself ‘‘unwilling to blindly accept FDA’s ultimate determination here,’’ the court rejected the defendants’ preemption and primary jurisdiction arguments. It nevertheless denied the injunction on the ground 

that the plaintiff was not likely to succeed in demonstrating that ‘‘non-habit forming’’ statement in the advertisement is misleading. Thus, although the court ultimately declined to award the injunctive relief sought by the plaintiff, it continued 

to distinguish between FDA’s determinations as to the adequacy of drug warnings 

under Federal law, and its own view of warnings adequacy under state common law. 

(In re Paxil Litigation, 2002 U.S. Dist. LEXIS 24621 (C.D. Cal. Oct. 16, 2002).) 

DOJ submitted to the court a Statement of Interest and a brief asserting preemption.6 The Statement of Interest contended that a court order requiring GSK to remove the ‘‘non-habit-forming’’ claim from its advertisements for Paxil would be inconsistent with FDA’s determination that the company’s advertisements were proper and that Paxil is not, in fact, ‘‘habit-forming.’’ The brief contended that the court 

should find the plaintiff’s state-law request for a court order preempted because it 

poses an obstacle to achievement of the full objectives of Congress ‘‘by attempting 

to substitute th[e] Court’s judgment for FDA’s scientific expertise.’’ As the brief 

pointed out, FDA had specifically reviewed the advertisements, made suggestions 

concerning the proper manner of presenting information relating to whether Paxil 

is ‘‘habit-forming,’’ and, in the exercise of its scientific and medical expertise, found 

the advertisements acceptable. The brief also included a primary jurisdiction argument. The court reversed its earlier award of an injunction prohibiting the manufacturer from running advertisements that had been reviewed and approved by FDA, 
264 

7 In December 2003 (296 F. Supp. 2d 1374), the litigation, consisting of twelve action in eleven 

Federal judicial districts, was centralized for pretrial proceedings in the United States District 

Court for the Central District of California. 

but the reversal was based on a ground other than preemption. (In re Paxil Litigation, 2002 U.S. Dist. LEXIS 24621 (C.D. Cal. 2002).) 7

Conclusion 

As these cases illustrate, courts entertaining lawsuits filed under state law do not 

always defer to FDA on matters that Congress has placed squarely within the agency’s authority. In FDA regulatory areas characterized by comprehensive regulation 

and requiring a careful and expert evaluation of scientific data and public health 

issues, state coregulation can stand as an obstacle to or directly conflict with the 

agency’s administration of its statutory mandate. Preemption is the constitutionally 

prescribed mechanism for resolving these conflicts. 

The practice of citing preemption and primary jurisdiction under the FDCA in litigation in which the United States is not a party is well-established and substantially predates the current Administration. DOJ and FDA participation in these 

cases is unusual. In the current Administration, DOJ has participated in private 

state-law actions on FDA’s behalf only following a judicial finding that the action 

should proceed, and only to address a state-law finding that, left undisturbed, would 

undermine FDA’s execution of its statutory mission or directly conflict with Federal 

law. Responsibility for making final decisions whether to make submissions in private lawsuits, on preemption, primary jurisdiction, or any other issue, rests with the 

Department of Justice—not FDA itself. 

Question. These arguments conflict with long-standing FDA policy. The law appears to contradict what the FDA has argued. What motivated FDA to change its 

policy? 

Answer. The Government’s participation in cases arising under state-law and presenting preemption issues is consistent with past FDA practice and with the pertinent law. 

The principal enabling statute of the Food and Drug Administration is the Federal Food, Drug, and Cosmetic Act, FDCA. Under this statute, FDA has broad authority to protect the public health by ensuring that foods are safe, wholesome, sanitary, and properly labeled, and that drugs and medical products are safe and effective. (See 21 U.S.C. § 393(b)(2)(A)–(C).) By operation of the Supremacy Clause of the 

United States Constitution (U.S. Const. Art. VI, clause 2), the FDCA nullifies conflicting requirements established by the States in legislation, regulations, or common law. (See Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 211 (1824) (Marshall, C.J.).) 

In the past, FDA has addressed conflicting state requirements in the context of 

rulemaking. In 1982, for example, FDA promulgated regulations requiring tamperresistant packaging for over-the-counter drugs. In the preamble accompanying the 

regulations, FDA stated its intention that the regulations preempt any state or local 

requirements that were ‘‘not identical to... [the rule] in all respects.’’ (47 FR 

50442, 50447; Nov. 5, 1982.) Similarly, in 1986, FDA issued regulations requiring 

aspirin manufacturers to include in labeling a warning against use in treating 

chicken pox or flu symptoms in children due to the risk of Reye’s Syndrome. In the 

accompanying preamble, FDA said the regulations preempted ‘‘State and local packaging requirements that are not identical to it with respect to OTC aspirin-containing products for human use.’’ (51 FR 8180, 8181; Mar. 7, 1986.) In 1994, FDA 

amended 21 CFR 20.63 to preempt state requirements for the disclosure of adverse 

event-related information treated as confidential under FDA regulations. (59 FR 

3944; Jan. 27, 1994.) 

In addition, for many years, conflicting state requirements have been addressed 

by FDA through case-by-case participation in selected lawsuits to which the 

United States has not been a party. Because FDA lacks independent litigating authority, this 

participation has been by the Department of Justice (DOJ) on FDA’s behalf. The practice of addressing conflicting state requirements through participation in litigation dates back many 

years. For example, DOJ participated on FDA’s behalf in favor of preemption in both Jones v. 

Rath Packing Company, 430 U.S. 519 (1977), and Grocery Manufacturers of America, Inc. v. 

Gerace, 755 F.2d 993 (2d Cir. 1985). In addition, as discussed in our response to the previous 

question on preemption, FDA has recently participated in several cases involving state-law requirements for the communication of risk information for prescription drugs. Of note, the first— 

and most aggressive, from a legal perspective—of these submissions occurred during the previous Administration—Bernhardt case included in materials for the record. 
265 

NARMS

Question. What is the total amount of funding for NARMS, and from what account does it come? 

Answer. The total amount of funding for NARMS in fiscal year 2004 is $7.634 million. This funding is located in the Salaries and Expenses, or S&E, account. 

Question. How much is FDA giving to USDA and CDC in fiscal year 2005? How 

does that compare to fiscal year 2004? Please describe what factors are used to determine the division of funds. 

Answer. At this time, FDA has not determined the exact funding for CDC and 

USDA for NARMS for fiscal year 2005 but plans to make decisions by Fall 2004. 

In fiscal year 2004, FDA funding on NARMS will be reduced due to governmentwide rescissions. In fiscal year 2004, FDA provided funds of approximately $1.6 million to USDA and $2 million to CDC. It is important to point out that a large portion of the funds provided to CDC is given to the states for the collection, isolation 

and identification of bacterial isolates, which are then shipped to CDC and the Food 

and Drug Administration’s Center for Veterinary Medicine—NARMS retail arm—for 

susceptibility testing. In determining the funds provided to CDC and USDA, we 

analyze the entire NARMS program, including the retail food arm of NARMS, and 

strive to fill in data gaps and avoid duplication of organisms to be tested. 

Question. How much NARMS money is currently being spent in foreign countries, 

specifically Mexico? How is this money being used? 

Answer. FDA is not spending any current year NARMS funding in Mexico or 

other foreign countries. 

Question. Does USDA or CDC spend any of their NARMS money in foreign countries? 

Answer. In fiscal year 2004 FDA is providing USDA and CDC, $1.6 million and 

$2 million respectively. FDA does not keep detailed records of USDA and CDC funding for NARMS. 

COUNTERFEIT DRUGS

Question. In February, FDA released a report on combating counterfeit drugs. 

Several new technologies were mentioned that could be used to this effect, including 

Radiofrequency Identification tagging, color shifting inks, and holograms. Specifically regarding color shifting inks, which I understand are currently available, has 

FDA taken any action, or do you have any plans to pursue this option? 

Answer. It is true that color shifting ink technology is currently available for use 

on drug packaging and labeling. However, we heard uniformly from all stakeholders 

that this technology is expensive and requires significant investment of resources 

and time prior to implementation. Due to the wide variety of products, packaging, 

and labeling on the market, we heard from manufacturers, wholesalers, and retailers that the decision to use color shifting inks, or any other authentication technology, should be made by the manufacturer after a manufacturer initiated product 

risk assessment. Without such an analysis, use of color-shifting ink, or other authentication technology, could lead to an unnecessary increase in the cost of drugs 

to consumers. For example, we heard that color-shifting ink could be appropriate for 

use on a very expensive, high volume brand name drug product that is likely to be 

counterfeited, but not on a generic or low volume drug product that is less likely 

to be counterfeited. 

Based on our discussions with manufacturers, we estimate that it would take a 

minimum of six to twelve months to implement a technology such as color shifting 

ink from the time a decision is made to use the authentication technology on the 

packaging and/or labeling of a drug product. It could take longer if the technology, 

e.g., color-shifting ink, is used on the product itself because safety studies might 

have to be performed to ensure that the technology, e.g., the ink, does not affect 

the safety or stability of the product. 

ANIMAL DRUG COMPOUNDING

Question. Dr. Crawford, on February 10, I submitted a letter to Dr. McClellan regarding FDA’s new Compliance Policy Guidelines, issued July 14, 2003, regarding 

animal drug compounding. I received a response from FDA on March 31st, and I 

thank you for that. However, I do have a few more questions in light of the response. 

First, the letter stated that FDA issued the CPG for immediate implementation 

because of the ‘‘urgent need to explain how it intended to exercise its enforcement 

discretion regarding compounded drugs for animal use in light of Thompson v. Western States Medical Center.’’ However, this case dealt only with compounding in 
266 

human drugs, not animal drugs. How does this create an urgent need to deal with 

animal drugs? 

Answer. After the Western States decision, FDA revised its enforcement policy on 

pharmacy compounding of human drugs. FDA was concerned that without updated 

guidance regarding compounding of animal drugs, the public would remain uncertain about whether and how FDA would change its enforcement policy with respect 

to compounded animal drugs. In addition, agency staff would lack clear guidance on 

enforcement matters. 

As FDA stated in its letter, although prior public comment was not sought in this 

case, pursuant to the good guidance practices regulations the public was invited to 

comment on the CPG when it was issued and may comment on it at any time (68 

FR 41591 (July 14, 2003)). FDA has been reviewing those comments and will revise 

the guidance as appropriate upon completion of our review. 

Question. Second, the response states that two Federal appeals court decisions 

have held that ‘‘the Federal Drug & Cosmetic Act does not permit veterinarians to 

compound unapproved finished drugs from bulk substances, unless the finished drug 

is not a new animal drug. These cases support FDA’s position that new animal 

drugs that are compounded from bulk substances are adulterated under the FD&C 

Act and may be subject to regulatory action.’’ I have been informed that the cases 

cited deal only with veterinarians compounding drugs, not pharmacists. Why do you 

limit pharmacists as well as veterinarians? Is this supported by any congressionallyenacted statutory authority, legislative history or case law? 

Answer. The principle established by the courts applies equally to compounding 

by pharmacists and veterinarians. 

Veterinary medicine has not traditionally utilized the services of compounding 

pharmacies to the extent that they have been utilized within human medicine. The 

increasing activities and presence of compounding pharmacies in veterinary medicine is a relatively recent development. 

The Federal Food Drug and Cosmetic Act, or ‘‘the Act’’, and its implementing regulations do not exempt veterinarians or pharmacists from the approval requirements in the new animal drug provisions of the Act, 21 U.S.C. Section 360b. In the 

absence of an approved new animal drug application, the compounding of a new animal drug from any unapproved drug or from bulk drug substances results in an 

adulterated new animal drug within the meaning of section 21 U.S.C. Section 

351(a)(5). The compounding of a new animal drug from an approved human or animal drug also results in an adulterated new animal drug within the meaning of 21 

U.S.C. Section 351(a)(5), unless the conditions set forth in 21 CFR 530.13(b) relating 

to extralable use are met. 

FDA is concerned about veterinarians and pharmacists that are engaged in manufacturing and distributing unapproved new animal drugs in a manner that is clearly 

outside the bounds of traditional pharmacy practice and that violates the Act—such 

as compounding that is intended to circumvent the drug approval process and provide for the mass marketing of products that have been produced with little or no 

quality control or manufacturing standards to ensure the purity, potency, and stability of the product. 

Pharmacists and veterinarians who engage in activities analogous to manufacturing and distributing drugs for use in animals may be held to the same provisions 

of the Act as manufacturers. 

Question. Finally, the final paragraph of the FDA response states ‘‘Accordingly, 

the regulations that implement AMDUCA provide that extralabel use by 

compounding applies only to compounding of a product from approved drugs, and 

that nothing in the regulations is to be construed as permitting compounding from 

bulk drugs.’’ Is there in the agency’s view anything in AMDUCA’s regulations or the 

Act that is to be construed as not permitting compounding from bulk substances? 

Answer. As previously noted, under the Federal Food, Drug and Cosmetic Act, in 

the absence of an approved new animal drug application, the compounding of a new 

animal drug from a bulk substance results in a new animal drug that is adulterated 

as a matter of law. This has been FDA’s longstanding position, which is supported 

by two Federal appeals court decisions, United States v. Algon Chemical Inc., 879 

F.2d 1154 (3d Cir. 1989) and United States v. 9/1 Kg. Containers, 854 F.2d 173 (7th 

Cir. 1988). 
267 

QUESTIONS SUBMITTED BY SENATOR BYRON L. DORGAN

DRUG REIMPORTATION

Question. In Canada and the European Union, all drugs sold in those countries 

must meet the safety requirements of those countries. Given that, why is the FDA 

opposed to legalizing the importation of drugs that stayed within their systems? In 

what areas does the FDA believe that the Canadian or European drug regulatory 

systems are inferior to its own? Please provide specific examples. 

Answer. We have concerns about medicines purchased outside of the United 

States because they are typically not FDA-approved and they have been manufactured, processed, shipped, and/or held outside the reach of the domestic Federal and 

State oversight systems intended to ensure that all drugs are safe and effective for 

their intended uses. The Medicare Prescription Drug, Improvement and Modernization Act of 2003, directed the Secretary of Health and Human Services to conduct 

a study on the importation of drugs. The Conference Report detailed the information 

to be included in the study. The information you have requested as to assurances 

of the safety of imported drugs from Canada and the European Union is information 

requested as part of the study. We have been actively involved in collecting, analyzing and assessing information, including the safety of such products, the economic implications, the cost of implementation, and expect to provide a comprehensive study to Congress before or by the due date. 

Question. How much funding and new personnel do you estimate that the FDA 

needs in order to implement a safe system of drug importation? [In 2000, FDA estimated that it would need $23 million for the first year of implementation.] What 

specific additional authorities does the FDA feel it needs to ‘‘police imports’’? 

Answer. FDA made several cost estimates during consideration of the MEDS Act 

in 2000 and during consideration of other importation legislation. In 2000, FDA estimated that implementation of the MEDS Act would cost $21 million in each of the 

first 2 years following passage of the legislation, as the agency drafted implementing 

regulations. Other figures were provided in direct response to particular inquiries. 

It should be noted that the figures previously calculated were specific to the different legislation and programs reviewed and include limitations on the types of importations. For the MEDS Act, if the program was fully implemented, the cost estimates rose to more than $100 million per year. The information you have requested 

as to what additional authorities FDA needs to ‘‘police imports’’ is information that 

is being assessed as part of the Medicare Section 1122 study. 

Question. The drug importation provision in the new Medicare law (Section 1121) 

gives the HHS Secretary the authority to write regulations that ‘‘contain any additional provisions determined by the Secretary to be appropriate as a safeguard to 

protect the public health or as a means to facilitate the importation of prescription 

drugs.’’ Is this not enough additional authority to allow FDA to police imports? 

Answer. This information will also be assessed as part of the Medicare study, as 

noted above. 

Question. Recently, edible bean shipments were stopped by at the U.S. border 

from Canada because the beans were contaminated with the chemical ‘‘Ronilan,’’ 

which is banned from use on edible beans in the United States. I come to find out 

that according to the Food and Drug Administration, less than one-half of 1 percent 

of the edible beans imported into the United States are inspected. North Dakota is 

the number one State in dry edible bean production in the country. My farmers 

have a vested interest in seeing that their industry is protected the importation of 

contaminated edible beans. What will the FDA do to increase inspections to insure 

that our edible bean industry is protected? 

Answer. Based on sampling conducted and residues found, FDA does not believe 

that additional testing/sampling beyond what is currently planned is warranted. 

The common violations involve a pesticide use on a food for which no United States 

tolerance has been established for that particular food although that pesticide has 

been registered with EPA and has a tolerance established on other foods. If new information becomes available indicating a compliance problem, whether from FDA 

sampling or other valid sampling, the FDA will consider increasing the priority for 

pesticide testing for dried edible beans. 

QUESTIONS SUBMITTED BY SENATOR DIANNE FEINSTEIN

LARIUM (MEFLOQUINE)

Question. Mefloquine is an anti-malarial product that is approved and prescribed 

in the United States but is used by consumers overseas to prevent or treat malaria 
268 

1This raw count from AERS probably contains some duplicate cases, as well as cases resulting 

from literature articles and studies. 2The categorization by source includes a large number of cases with null values. In addition, 

more than one source can be indicated for a given case (for example, both ‘‘health professional’’ 

and ‘‘literature’’). 

infections. There have been many reports in the press about mefloquine’s potentially 

dangerous side effects and FDA issued a press release describing these side effects. 

With most of the consumers of mefloquine using the product abroad how can we be 

certain that the reporting of adverse events experienced overseas is occurring sufficient for adequate assessments of risk and benefit during the post-marketing period? 

Answer. Adverse event reporting is voluntary for consumers and health care providers. Health care providers or consumers may report to the drug manufacturer 

(who is required to forward the report to FDA under 21CFR 314.80) or directly to 

FDA. The reports received are then entered into the AERS database, which is used 

to evaluate the adverse events associated with a particular drug in the aggregate. 

This data is used to identify potential drug safety concerns, on which FDA can either take immediate action, or study further in some way. In the case of mefloquine 

hydrochloride, the response to your next question demonstrates that we are receiving reports of serious adverse events, even though the drug is primarily used while 

patients are overseas. 

Question. How many and what types of adverse events are being reported? Who 

is submitting the reports, the consumer experiencing the adverse event or the practitioner? Given the serious nature and potential for long term side effects is there 

a registry or follow-up of consumers of this product, either during use or after finishing use of the product? 

Answer. As of April 13, 2004, the FDA’s Adverse Event Reporting System (AERS) 

post marketing database contains 2,786 cases with Lariam® (mefloquine hydrochloride) as a suspect drug. Case reports have been received since Lariam® was approved in 1989 and continue to come to the Agency at a rate of more than 100 per 

year. For example, AERS has received 139 posts marketing adverse event cases1 associated with Lariam® since April 1, 2003. As with most drugs, many types of adverse events are reported for Lariam®. However, the largest number of reports is 

for neuropsychiatric events; of the 2,786 Lariam® cases in AERS, 1,821 contain at 

least one event categorized as neurological and/or psychiatric in nature. Seven of the 

ten events most frequently reported for Lariam® (see below) are neuropsychiatric 

in nature: 

Dizziness 381 cases; 1 Headache 235; Anxiety 360; Fever 196; Depression 303; 

Hallucination 179; Insomnia 268; Diarrhea 169; Nausea 238; Abnormal dreams 148. 

The Lariam® labeling (package insert) was recently updated to include stronger 

warnings about neuropsychiatric events. In addition, an official Medication Guide 

discussing neuropsychiatric and other adverse events, and describing malaria 

chemoprevention, is required by law to be given to every patient to whom Lariam® 

is dispensed. 

Lariam® reports are being submitted from multiple sources. According to AERS, 

of the 2,786 reported cases, 512 cases were reported by consumers and 1,540 by 

health professionals.2

Although most Lariam® adverse events occur while the users are traveling, more 

than 1,500 of the 2,786 Lariam® cases were reported from the United States. This 

indicates that travelers are notifying their health practitioners, Roche Pharmaceuticals, and/or the FDA directly of adverse events associated with Lariam® upon 

their return to this country. 

There is no registry for follow-up of Lariam® adverse events. It should be noted 

that post-market reporting is only one component of FDA’s adverse event monitoring. Controlled comparative trials give us the most reliable data, and there are 

many such trials in the published literature. In addition, there are publications describing active surveys, which provide information on very large numbers of patients 

in a relatively controlled manner. 

Question. DOD has begun an investigation into psychiatric adverse events in soldiers and plans a study of mefloquine. DOD has stated that it has not included in 

its assessments several incidents in soldiers who have taken mefloquine or soldiers 

who do not demonstrate blood levels of the drug. FDA’s News Release of July 9, 

2003 states that ‘‘Sometimes these psychiatric adverse events may persist even after 

stopping the medication.’’ What is being done by FDA to investigate the incidents 

of suicides in soldiers while on or returning from deployment? 

Answer. As a general matter, FDA takes numerous steps to improve product and 

patient safety and reduce medical errors. Suicides in the military are not inves-
269 

tigated by FDA and would fall presumably within the purview of DOD. Frequent 

discussion between DOD and FDA has occurred related to antimalarial prophylaxis, 

and DOD has not communicated concerns regarding soldier suicides and the use of 

Lariam®. Since Lariam® was approved in 1989, AERS has identified 17 cases of 

suicide worldwide, associated with Lariam® use. These cases are reviewed on an ongoing basis. Many of the cases lack sufficient evidence to conclude that the suicide 

was related to Lariam®. The relationship between suicide and Lariam® is not conclusive since many of the cases involve previous psychiatric disease or other confounding factors. Only five of the reported cases occurred in U.S. residents, and 

none of them were soldiers. One, however, was a former Marine who had taken 

Lariam® while serving in Somalia, more than 6 years before his eventual suicide. 

Suicides have also been reported with other antimalarial agents including 

chloroquine and malarone. 

Current labeling of Lariam® includes the following warning: Mefloquine may 

cause psychiatric symptoms in a number of patients, ranging from anxiety, paranoia, and depression to hallucinations and psychotic behavior. On occasions, these 

symptoms have been reported to continue long after mefloquine has been stopped. 

Rare cases of suicidal ideation and suicide have been reported though no relationship to drug administration has been confirmed. To minimize the chances of these 

adverse events, mefloquine should not be taken for prophylaxis in patients with active depression or with a recent history of depression, generalized anxiety disorder, 

psychosis, or schizophrenia or other major psychiatric disorders. Lariam should be 

used with caution in patients with a previous history of depression. During prophylactic use, if psychiatric symptoms such as acute anxiety, depression, restlessness 

or confusion occur, these may be considered prodromal to a more serious event. In 

these cases, the drug must be discontinued and an alternative medication should 

be substituted. 

A Medication Guide was developed that communicates these issues to the patient. 

EMERGENCY CONTRACEPTION

Question. There are reports in the press that decisions about OTC approval of 

Plan B contraception are being made differently than decisions about other products, made outside the Center, at the Commissioner level or above. Could you explain if this is true, if FDA is politicizing the approval process and why this is the 

case? Why is the Plan B OTC approval being handled differently from other products? 

Answer. The review and decision-making for the Plan B application is not being 

made differently than other applications. The review is occurring within the FDA’s 

Center for Drug Evaluation and Research. FDA will have signatory authority of the 

application. The Center commonly involves the Office of the Commissioner in prominent regulatory decisions. 

Question. Given that advisory committee members voted unanimously that Plan 

B Emergency contraception was safe under OTC conditions of use and that studies 

investigating the OTC instructions, including contraindications, side effects and precautions were well understood by users of the product and that there was low abuse 

and misuse potential, why has the decision to approve OTC use of Plan B emergency contraception been delayed? When does FDA plan to make a decision on OTC 

use of Plan B emergency contraception? 

Answer. Since the December 2003 joint meeting of two FDA advisory committees, 

the sponsors of the supplemental new drug application (NDA) submitted additional 

information to FDA in support of their application to change Plan B from a prescription to an over-the-counter product. This additional information was extensive 

enough to qualify as a major amendment to the NDA. Under the terms of the 

PDUFA, major amendments such as this automatically trigger a 90-day extension 

of the original PDUFA deadline. The PDUFA extension will permit the FDA to complete its review of the application, including additional data on adolescent use that 

was submitted by Barr and WCC in support of the application. The new PDUFA 

deadline is May 21st. Such extensions are required so that FDA staff has adequate 

time to review the additional medical and scientific evidence. FDA’s final decision 

will be based on sound science and in full compliance with the applicable laws and 

regulations, while taking into consideration the recommendations of these advisory 

committees. 

Question. Plan B, levonorgestrel, has been proven most effective when taken within 24 hours of coitus. Retaining prescription status of this drug impedes the ability 

of consumers to use the product when it is most effective. If FDA does not anticipate 

approving Plan B emergency contraception for OTC status, please explain the rationale, when the product has been identified as safe and effective and eligible for 
270 

transfer to OTC status under the 1951 Durham-Humphrey Amendment to the Food 

Drug and Cosmetic Act, that this change in status was not approved? 

Answer. FDA is still reviewing the application, so therefore we are unable to answer this question until the review is complete and a decision has been made based 

on this review. 

Question. Some questions were raised by groups against the approval of Plan B 

as an OTC product, that use of an OTC emergency contraceptive may promote 

promiscuity in teens. Studies indicated that this was not the case. Is this still an 

issue for the FDA? 

Answer. FDA is still reviewing the application, so therefore we are unable to answer this question until the review is complete and a decision has been made that 

is based on the safety and efficacy in an OTC setting, which includes comprehension 

of the label and usage of the product. 

QUESTIONS SUBMITTED BY SENATOR RICHARD J. DURBIN

DIETARY SUPPLEMENTS

Question. Do you agree it would be easier for the FDA to remove unsafe dietary 

supplements from the market if supplement manufacturers were required to submit 

serious adverse event reports your agency? 

Answer. Adverse event reports are one way that FDA may become aware of a potential safety problem. 

In evaluating the safety of dietary supplements containing a particular dietary ingredient, we consider evidence from a variety of sources, including: (1) the wellknown, scientifically established pharmacology of the ingredient or its constituents; 

(2) peer-reviewed scientific literature on the effects of the dietary ingredient or its 

constituents; and (3) adverse events reported to have occurred following consumption of dietary supplements containing the dietary ingredient or its constituents. 

Therefore, a conclusion that a particular dietary supplement or dietary ingredient 

should be removed from the market will still rest upon a determination that the 

available scientific information supports a finding that is adulterated. 

Question. How do you respond to the IOM’s conclusion in their recent dietary supplement report that ‘‘a core issue that constrains the development and utility of a 

scientifically based framework for evaluating the safety of dietary supplements is 

the lack of data readily available for evaluation? Without amendment to DSHEA by 

Congress, the FDA is not empowered to require the submission to the agency of 

such key information as adverse events.’’ 

Answer. In evaluating the safety of dietary supplements, FDA relies on all available information including, the well-known, scientifically established pharmacology 

of an ingredient or its constituents, peer-reviewed scientific literature on the effects 

of the dietary ingredient or its constituents, and adverse events reports. Certainly, 

FDA welcomes the submission of any safety-related information that a firm may 

have, and such information may facilitate FDA’s evaluation of the potential hazards 

of a dietary ingredient. 

Such information often does not resolve the safety questions about an ingredient, 

however, that is because the major limitation to establishing that a particular dietary ingredient or dietary supplement presents a significant or unreasonable risk is 

the relatively incomplete scientific information about the pharmacology and effects 

of many dietary ingredients rather than lack of FDA access to the information a 

firm may have assembled. 

Amending DSHEA to provide FDA access to a firm’s safety information would not 

resolve the basic issue that in many cases there is inadequate information to understand the risk, if any, that a particular dietary ingredient may present to consumers. FDA believes that actions to facilitate the conduce of scientific studies of 

the composition, pharmacology, and effects of dietary ingredients would be useful in 

generating the data that the IOM believes is necessary to develop a scientifically 

based framework for evaluating the safety of dietary supplements. 

Question. The definitions of ‘‘unreasonable risk’’ used by FDA in the ephedra rule 

and the IOM in their report require that only a likelihood of future risk be shown, 

which would allow the FDA to take supplements that are harmful off the market 

faster. Do you agree? 

Answer. Yes. As FDA stated in the ephedra rule, ‘‘unreasonable risk’’ does not require a showing that a dietary supplement has caused actual harm to specific individuals, only that scientific evidence supports the existence of risk. 

Question. I am concerned that the FDA does not have the proper tools, systems, 

and resources to promptly implement the new ‘‘unreasonable risk’’ standard for die-
271 

tary supplements in future situations. For example, the agency’s interpretation of 

the ‘‘unreasonable risk’’ standard relies in part on an evaluation of the benefits (or 

lack of benefits) of a particular supplement. What mechanisms, if any, does FDA 

have in place to evaluate the benefits of dietary supplements? 

Answer. In evaluating the benefits of dietary supplements, FDA reviews published 

studies and other relevant sources of scientific information. Collaboration with academic centers such as the National Center for Natural Products Research (NCNPR), 

Federal partners such as the National Institutes of Health and the National Center 

for Toxicological Research, and our consumer and industry stakeholders is important in developing a comprehensive risk-benefit evaluation of dietary supplement 

products. We believe that efforts to strengthen our relationship with scientific centers that emphasize primarily efficacy research is the best approach to ensure that 

such information is available, when needed, for safety evaluations under the ‘‘unreasonable risk’’ standard. Further, it is important to recognize that in circumstances 

in which there is clear and persuasive evidence of a substance’s risks but information on its benefits is incomplete or absent there is no barrier to FDA action. Under 

the risk-benefit analysis that FDA described in the ephedra rulemaking, having efficacy data is not a prerequisite for acting against unsafe dietary supplements; that 

is, if there is adequate evidence that a product presents a known or reasonably 

known or reasonably likely risk but there is no data sufficient to show that the 

product has known or reasonably likely benefits, FDA can take action against the 

product based on unreasonable risk. 

Question. Commissioner McClellan promised enforcement action against bitter orange and usnic acid in the wake of the ephedra decision. Yet, all the agency has 

done so far is to reiterate its warnings to the public that these supplements pose 

hazards. Is the lack of efficacy information for these substances hindering prompt 

FDA regulatory action? 

Answer. In a speech at the University of Mississippi in January, Dr. McClellan 

indicated that FDA might ‘‘take a closer look’’ at the safety of other dietary supplements, specifically naming some ephedra substitutes, such as bitter orange (citrus 

aurantium) as well as usnic acid. FDA is actively engaged in coordinating research 

on bitter orange. 

At the present time, FDA is examining the available scientific information to determine what safety concerns, if any, may be associated with the use of dietary supplements containing bitter orange and usnic acid. Although FDA cannot predict 

ahead of time what the findings of this review will be, FDA can assure you that 

if the evidence establishes that the use of these ingredients in dietary supplements 

presents an unreasonable risk of injury or illness, FDA will take action to address 

those risks. In the interim, the Agency feels it is important to keep consumers informed of safety concerns about these substances so that they may make informed 

decisions about whether or not to use dietary supplements containing them. 

Question. The May 2004 edition of Consumer Reports Magazine contains a list of 

12 dietary supplement ingredients they recommend consumers stay away from. One 

of the ingredients is andostenedione, and anabolic steroid, which has already been 

banned. Will you commit to a full scientific safety review of eleven remaining substances listed by Consumer Reports? 

Answer. We continually monitor the marketplace and the scientific literature to 

identify dietary supplements and dietary ingredients that may present safety concerns. The potential risks presented by different dietary ingredients vary widely. 

Depending on the specific facts surrounding the characteristics and use of each substance and the risks it may present, FDA will make every attempt to allocate resources to address those that present the most significant public health concerns. 

As part of on-going dietary supplement marketplace monitoring efforts, FDA will 

critically examine the list of substances identified by Consumer Reports Magazine 

and consider the safety risks that they present and what action by FDA may be 

warranted. 

SUBCOMMITTEE RECESS

Senator BURNS. Dr. Crawford, I did not have a question for you. 

We can get together offline, sir. 

Mr. Bost, nice to see all of you here today, and again, thanks for 

your good work. I think you all are to be commended. That is not 

to say that we should let our guard down because we know that 

we still have—any time that you deal in this area of food and food 

safety and especially for our consumers. They come first. I think 
272 

the industry is of a mindset they want to do the right thing but 

make sure it is the right thing to do, that we just do not give some 

cosmetic look at it and not address the real problems. 

Thank you for coming. These hearings are closed. 

[Whereupon, at 2:21 p.m., Thursday, April 1, the subcommittee 

was recessed, to reconvene subject to the call of the Chair.] 
(273) 

AGRICULTURE, RURAL DEVELOPMENT, AND 

RELATED AGENCIES APPROPRIATIONS FOR 

FISCAL YEAR 2005 

WEDNESDAY, APRIL 7, 2004 

U.S. SENATE, 

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, 

Washington, DC. 

The subcommittee met at 3:33 p.m., in room SD–192, Dirksen 

Senate Office Building, Hon. Robert F. Bennett (chairman) presiding. 

Present: Senators Bennett, Kohl, and Harkin. 

DEPARTMENT OF AGRICULTURE 

STATEMENTS OF: 

KEITH COLLINS, CHIEF ECONOMIST 

J.B. PENN, UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL SERVICES 

MARK REY, UNDER SECRETARY FOR NATURAL RESOURCES AND 

ENVIRONMENT 

GILBERT G. GONZALEZ, ACTING UNDER SECRETARY FOR RURAL 

DEVELOPMENT 

JOSEPH J. JEN, UNDER SECRETARY FOR RESEARCH, EDUCATION 

AND ECONOMICS 

OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

Senator BENNETT. The Subcommittee will come to order. 

Last week, we had a budget hearing with a number of Under 

Secretaries of the Department of Agriculture which was very informative, and this week, we are going to continue with the rest 

of the Under Secretaries as well as the Chief Economist. We welcome you all, thank you for your service, thank you for your willingness to work in a situation that sometimes is stimulating and 

exciting and rewarding and sometimes makes you the target of the 

slings and arrows of outrageous constituents or Congressmen, and 

we are trying not to do that here today. 

Since this will be the last hearing you will appear at in this Administration in this capacity, I want to take the occasion to thank 

each of you for your willingness to serve your country in this way. 

We look forward to hearing your testimony. Senator Kohl is tied up 

in another hearing and will be joining us as quickly as he can but 

has indicated that he would be comfortable with our proceeding 

with the testimony without him and will be brought up to date on 

what we have to say. 
274 

So we will hear from the following witnesses in the following 

order: Keith Collins, who is the Chief Economist at USDA; J.B. 

Penn, who is the Under Secretary for Farm and Foreign Agricultural Services; Mark E. Rey, who is the Under Secretary for Natural Resources and Environment; Gilbert Gonzalez, who is acting 

as Under Secretary for Rural Development; and then Joseph Jen, 

who is the Under Secretary for Research, Education and Economics. 

I remember our previous conversations in last year’s hearing 

with some pleasure and look forward to what each of you has to 

say here today. So, Dr. Collins, we will begin with you, and welcome to the Subcommittee. 

STATEMENT OF KEITH COLLINS

Dr. COLLINS. Thank you very much, Mr. Chairman, and thanks 

for the chance to start this hearing by providing a brief overview 

on the economic situation in agriculture, which I think will help set 

at least part of the context for the comments of our mission area 

leaders who will follow mine. 

U.S. AGRICULTURAL ECONOMY

The U.S. agricultural economy is showing remarkable strength 

after several years of weakness. Last week, you may know that we 

released the index of prices received by farmers for the month of 

March, and that was the highest price ever received for farmers for 

any month since we started keeping records in 1910. And that 

price occurred despite generally good harvests in 2003 and diseasecaused disruptions in livestock and poultry trade. 

Consequently, as we look forward to this year, we expect that 

farm income will have another reasonably strong year. The improvement in agriculture is a result of some transitory factors on 

the supply side, such as last year’s poor grain crops in Europe and 

in the former Soviet Union, but several demand factors, I think, 

will persist. First, we predict farm exports at $59 billion this year, 

and that nearly equals the all-time record high. And had it not 

been for the finding of BSE and the lost beef exports, total U.S. agricultural exports surely would have been or would be an all-time 

record by several billion dollars. The improving world economy, the 

weaker dollar and China’s growing net imports are all factors. 

The second factor is domestic demand, which is very strong. If 

you consider sales by grocery stores and restaurants for the month 

of February, the most recent data, they were up 6 percent year 

over year. And for some foods such as meat and poultry, dietary 

changes seem clearly to be affecting demand trends. 

A third factor is the industrial uses of agricultural products are 

growing; in particular, ethanol production reached another record 

in January. 

If you look at the supply side, USDA’s Planting Intention Survey 

released last week gives some indication of how farmers might respond to this year’s tight markets compared with last year. Producers said they plan to plant 8 percent more rice, 7 percent more 

cotton, 3 percent more soybeans but about the same level of corn. 

The wheat area, however, will be down because of poor fall weather 

and better prospects for these other crops. 
275 

With average weather, we could have record high corn and soybean crops this year, good cotton and rice crops, but wheat would 

be down over 10 percent from last year’s record high yield. But 

even with large U.S. production in prospect, and even with a rebound in production overseas, world markets are likely to remain 

firm. World grain demand is expected to exceed production for the 

fifth consecutive year this year. So by the end of this summer, we 

expect the grain stocks, global grain stocks as a percent of use, will 

be the lowest since 1981 for rice, the lowest since 1972 for wheat, 

and the lowest ever recorded for coarse grains. And stocks are also 

low for cotton and soybeans as well. 

Regarding animal agriculture, U.S. production of meat and poultry was down last year, and we think it will be flat this year. So 

if you combine that with stronger consumer demand, livestock 

prices remain above historical levels despite the discovery of BSE 

and the outbreaks of avian influenza in the United States. And we 

had stable milk production last year; we expect stable milk production this year, and with strong demand for dairy products, that has 

resulted in surging milk prices. 

With these kinds of markets, farm cash receipts are expected to 

be a record high $215 billion this year; however, with higher spending on energy-based inputs this year as well as lower government 

payments and the reduction in cattle revenue due to the BSE finding, net cash farm income is going to decline from the record high 

2003 level, but it would still equal the average of the last 2 years. 

This reduction in earnings from farm sources will have a small 

effect on the majority of households that operate residential and intermediate-sized farms, because their incomes are mostly derived 

off the farm. The incomes of households that run commercial-sized 

operations will be somewhat lower in 2004, although their average 

incomes will remain well above the average of nonfarm households. 

PREPARED STATEMENT

With another sound income year in prospect, farm land values 

will likely rise again, which would continue the improvement in the 

farm sector balance sheet that we saw in 2003. Finally, consumers 

will continue to have abundant and affordable food, although with 

the strong farm prices I mentioned, retail food prices are expected 

to be up 3 to 3.5 percent this year compared with 2.2 percent in 

2003 as dairy products, poultry and fats and oils prices increase. 

That completes my statement, Mr. Chairman. 

[The statement follows:] 

PREPARED STATEMENT OF KEITH COLLINS

Mr. Chairman and members of the Committee, I appreciate the opportunity to appear at this hearing to discuss the current situation and outlook for U.S. agriculture. The agricultural economy continues to show improvement after several 

years of low prices. Farm prices for major crops have reached levels unseen in several years and livestock prices generally remain well above levels of 2 years ago, 

despite the sharp reduction in beef exports following the discovery of a cow in Washington with Bovine Spongiform Encephalopathy (BSE) in December of last year. 

While cash receipts are expected to register another strong gain in 2004, rising 

prices for energy-related inputs and higher feed costs along with sharply lower government payments will likely cause net cash farm income to decline from last year’s 

record, although it would equal the average of the past 2 years. Despite a pull back 
276 

in farm income, cash flow and balance sheet prospects suggest the farm economy 

will remain on a solid footing in 2004. 

Outlook for United States and World Economies and the Implications for Agriculture 

After several years of a weak and variable global economy that constrained the 

demand for U.S. agricultural products, the U.S. economy and the world economy 

had a very positive year in 2003. Both the U.S. economy and the world economy 

are poised to experience another sound and prosperous year ahead, which will bolster the demand of U.S. agricultural products domestically and abroad. 

In 2003, we saw the U.S. economy grow 3.2 percent. Expansionary fiscal policy 

resulting from the budget deficit and the Jobs and Growth Act of 2001; the lowest 

interest rates since the 1950’s leading to rising consumer confidence and spending; 

and, during the second half of the year, increasing business fixed investment all 

boosted growth. With these factors all in place again in 2004, combined with an expectation of even stronger business investment, a depreciating dollar, few signs of 

inflation and stronger foreign economic growth, macroeconomic forecasters foresee 

U.S. Gross Domestic Product (GDP) growth of 4.5 to 5 percent. 

The improving domestic demand base may be seen in the demand for food, which 

also drives demand for animal feed. Monthly retail sales of grocery stores, food and 

beverage stores and food service establishments are usually higher than sales a year 

earlier. The U.S. economic slowdown in 2002 noticeably slowed sales. As the U.S. 

economic recovery took hold in 2003, sales moved up nicely and strong sales are 

again likely for 2004. Sales in February were 6 percent above a year earlier. 

In addition to rising food demand, domestic industrial demand for farm products 

is also increasing. As an example, monthly ethanol production is setting new record 

highs almost every month. In 2004, spurred by phase-outs of Methyl Tertiary Butyl 

Ether (MTBE) in California, New York and Connecticut, U.S. ethanol production 

from corn should reach 3.25 billion gallons and account for over 1.1 billion bushels 

of corn use. 

Foreign GDP is projected to grow about 3 percent this year, after averaging less 

than 2 percent annually over the past 3 years. Japan is finally growing, and Asia 

and Latin America are expected to propel developing country growth to the highest 

rate in 4 years. With the European economies lagging, foreign economic growth likely will not push over the 3 percent rate, which has often been a level associated 

with an upward surge in U.S. agricultural exports. 

Although the dollar remains relatively strong, it has depreciated against the euro, 

Canadian dollar and the yen. On a weighted-average basis, against the currencies 

of our major markets, the dollar has fallen steadily since early 2002. A further drop 

is anticipated in 2004 reflecting the trade deficit and the continuation of low real 

interest rates in the United States. 

U.S. agricultural exports are forecast to reach $59 billion in fiscal year 2004, up 

$2.5 billion from the previous year. This forecast is $0.5 billion below USDA’s forecast published prior to the finding of a cow with BSE at the end of last year. The 

new export forecast reflects, in part, the assumption that the markets that are now 

closed to U.S. beef exports will remain closed in 2004. This is not a forecast of what 

foreign countries will do. It simply reflects our standard forecasting procedure to assume the policies of foreign countries remain in place until they are changed. 

At $59 billion, U.S. farm exports would experience the 5th consecutive annual increase since hitting the cyclical low of $49 billion in fiscal year 1999, following the 

onset of the Asian currency crisis. A strengthening world economy, the declining 

value of the dollar, low global commodity stocks, and expanding U.S. crop acreage 

will all support export growth in 2004. During the first three months of fiscal year 

2004, U.S. agricultural exports were up $3 billion over a year earlier. Also notable 

is the upward trend we are beginning to see in bulk exports, which, since 1980, 

have been experiencing a long, slow downward trend. 

United States meat exports experienced explosive growth in the 1990s but have 

faced slower growth over the past few years due to animal diseases and policy-driven import limitations in some countries. The United States finding of BSE has resulted in the closing of over 80 percent of U.S. export markets for beef and related 

products, and U.S. poultry exports are expected to be flat in fiscal year 2004, as outbreaks of Avian Influenza in several States has resulted in a number of countries 

placing restrictions on poultry imports from the United States. However, this, 

stronger global incomes, and restrictions on poultry trade due to outbreaks of Avian 

Influenza abroad are expected to create additional export opportunities for pork. 

Outlook for Major Crops 

For major crops, the supply-demand balances are favorable for strong markets 

again in 2004, even with normal yields and a rebound in global production. With 
277 

relatively low world and U.S. stocks going into the 2004/2005 marketing year, crop 

prices could move higher if adverse weather lowers production prospects over the 

coming months. 

In 2003/2004, total use is generally exceeding total supplies of major crops, leading to higher prices and reduced world and United States carryover. Wheat is an 

exception, as a sharp increase in U.S. production is expected to lead to a slight increase in United States carryover. However, world wheat stocks are expected to decline from 166 million tons at the end of the 2002/2003 marketing year to 125 million tons at the end of the 2003/2004 marketing year. At the end of this marketing 

year, world stocks of coarse grains are forecast to be 44 million tons lower than 1 

year ago, world stocks of oilseeds are forecast to fall from 43 million tons to 40 million tons and world cotton stocks are projected to decline from 36 to 32 million bales. 

For wheat, plantings in 2003 increased by 1.2 million acres to 61.7 million acres. 

Reflecting the increase in acreage and a record yield, U.S. wheat production rose 

from 1.6 billion bushels in 2002 to 2.3 billion bushels in 2003. Total wheat supplies 

increased by 430 million bushels, as lower beginning stocks partially offset the increase in production. Despite the sharp increase in wheat production and total supplies, U.S. wheat carryover is forecast to increase by only 53 million bushels, as increases in domestic use and exports are expected to absorb nearly all of the increase 

in domestic supplies. U.S. wheat exports are forecast to increase by nearly 300 million bushels to 1.15 billion bushels in 2003/2004. In 2003/2004, U.S. wheat exports 

expanded to fill production shortfalls created by a 38-million-ton drop in foreign 

wheat production. For the current marketing year, the farm price of wheat is projected to average $3.30–$3.40 per bushel compared with last season’s $3.56 per 

bushel. 

U.S. rice acreage was off 7 percent in 2003, as rice producers responded to two 

consecutive years of very weak prices and returns. The decline in acreage and reduced beginning stocks lowered total supplies from 265 million cwt in 2002/2003 to 

241 million cwt in 2003/2004. Ending stocks at the end of the current market year 

are forecast at 23 million cwt, down from 27 million cwt at the end of the 2002/ 

2003 marketing year. The farm price of rice is forecast to average $7.45–$7.75 per 

cwt this marketing year, compared with $4.49 per cwt during the 2002/03. 

In 2003, the corn crop was a record 10.1 billion bushels, causing total corn supplies to increase from 10.6 billion bushels in 2002/2003 to 11.2 billion bushels this 

season. Despite the increase in total supplies, carryover stocks are projected to decline from 1.1 billion bushels at the end of the 2002/2003 marketing year to 0.9 billion bushels at the end of the current marketing year. U.S. corn exports are forecast 

to increase to 2.0 billion bushels, up 0.4 billion bushels in 2002/2003, as reduced 

foreign supplies have increased export opportunities. Domestic use is also up this 

marketing year, reflecting increase feed and industrial use. This marketing year the 

farm price of corn is projected to average $2.35–$2.55 per bushel, compared with 

$2.32 per bushel last season. 

Hot, dry weather during pollination reduced soybean production to 2.4 billion 

bushels in 2003, and total soybean supplies fell from 3.0 billion bushels in 2002/ 

2003 to 2.6 billion bushels in 2003/2004. The drop in soybean supplies has boosted 

U.S. farm prices and is lowering domestic use, exports and carryover stocks. U.S. 

carryover stocks are projected to fall to 125 million bushels, which would be the lowest carryover in 27 years. In recent weeks the Brazilian crop potential has been reduced, and that putting further demand pressure on the limited U.S. supplies, driving up recent cash prices to over $10.00 per bushel, the highest in over 15 years. 

Reflecting the expected decline in carryover stocks, the farm price of soybeans is 

projected to increase from last season’s average of $5.53 per bushel to $7.15–$7.55 

per bushel this marketing year. 

In 2003, the United States produced 18.2 million bales of cotton, compared with 

17.2 million bales in 2002. Lower supplies coupled with increased exports have lowered projected carryover and pushed prices higher this season. Increased exports to 

China are projected to boost U.S. exports of cotton to a record-high 13.8 million 

bales, up 1.9 million from last season’s 11.9 million. Carryover stocks at the end of 

this season are projected to fall to 3.6 million bales, the lowest in 8 years. During 

the first 6 months of the current marketing year, cotton prices have averaged 62.8 

cents per pound, compared with last season’s average of 44.5 cents per pound. 

As we look to the 2004-crop spring planting season, prices for corn, rice, soybeans 

and cotton will be the highest at planting time since 1998. Despite this, USDA’s survey of spring planting intentions of producers that was taken in early March 2004, 

showed little prospective change in total acreage of principal crops. One reason is 

that fall seedings of winter wheat, combined with intended spring wheat planted 

area, indicate a 3.6-percent decline in total wheat planted area for the 2004 crop, 

compared with the 2003 crop. The survey indicated strong prices are expected to 
278 

lead to record high soybean planted area of 75.4 million acres, up nearly 3 percent. 

Producers indicated little change in corn planted area, nearly a 7-percent increase 

in cotton area and an 8-percent increase in rice planted area. These acreages and 

trend yields would result in record high corn and soybean crops of 10.2 billion and 

2.97 billion bushels, respectively, a cotton crop of 18.0 million bales, about the same 

as last year, and a rice crop of 218 million cwt, near last year’s level. The wheat 

crop would be about 11 percent below 2003’s level, which had a record-high yield. 

These production levels could cause corn farm prices to rise again for the 2004/ 

2005 crop as demand remains at or above production, soybean prices to decline 

somewhat under some stock rebuilding, and wheat prices to remain about the same 

as this season, as foreign production rebounds, assuming trend yields. While we 

should expect production rebounds in 2004/2005 from poor weather in Europe, the 

former Soviet Union (SU) and Brazil, there are several reasons to think global markets will remain robust. First, there is a very strong foundation under global grain 

demand. For the 2003/2004 crop years, global grain demand is expected to exceed 

global grain production for the 5th consecutive year. 

Second, this gap means that by the end of the summer, global grain stocks as a 

percent of use will be at the lowest level since 1972 for wheat, 1981 for rice and 

the lowest on record for coarse grains. Stocks are also low compared with history 

for soybeans and cotton. With low stocks and the improving global economy, it is 

likely that even with a return to normal yields in the key producing countries, crop 

stocks will remain low and prices firm for most major commodities. 

A third factor has been China’s production and trade changes. After emphasizing 

self-sufficiency in the early 1990s and building large grain stocks, China has sharply 

reduced their grain surpluses. China’s role as a U.S. competitor in grain markets 

declined in 2003 and could drop further in 2004. In addition, their growing oilseed 

crushing and textile export industries have resulted in soaring soybean and cotton 

imports. China is likely to continue to be a positive factor for U.S. agriculture in 

2004/2005. USDA forecasts U.S. farm exports to China in fiscal year 2004 of $5.4 

billion, imports from China of $1.4 billion, for a trade surplus of $4 billion. 

United States producers will continue to face significant competition from a host 

of foreign producers. For example, Brazil has increased its soybean planted area by 

25 million acres since the mid 1990s. They have also increased production of beef, 

broilers, corn, cotton and pork by 25 to 75 percent since the late 1990s. Summing 

up the soybean exports of Brazil and Argentina, the coarse grain exports of China 

and the former SU, and the wheat exports of India and the former SU provides an 

indication of the recent increase in competition facing U.S. crop producers. Exports 

from these countries grew from less than 10 million tons in 1994 to about 85 million 

in 2002—from 2 percent of world grain and soybean trade to 25 percent. This 

growth limited U.S. exports and market prices. However, in 2003, exports from 

these competitors has fallen back following lower production in the former SU, 

China and India, helping to boost U.S. exports and farm prices. 

Horticultural markets have become an important contributor to farm income for 

all size producers. For 2003, cash receipts from fruits, vegetables and greenhouse 

and nursery crops are forecast to be $45.3 billion, up 2 percent from last year and 

17 percent over 1998. In 2004, we look for larger crops of citrus and processing vegetables while prices for deciduous fruits are strong on tight world supplies. With average weather, farm receipts for fresh vegetables are expected to decline as prices 

retreat from the strong levels of the past couple of years. Exports for fiscal year 

2004 are forecast at $12.8 billion, up substantially from last year’s $11.9 billion. 

Outlook for Livestock, Poultry and Dairy 

Reduced supplies of red meat and nearly stable production of poultry and milk 

combined with increasing demand led to higher livestock and milk prices in 2003. 

The livestock sector was poised for another boom year in 2004, as red meat production continued its cyclical decline and milk production continued to lag. While the 

discovery in Washington of BSE in late December has severely reduced beef exports 

and outbreaks of Avian Influenza have lowered poultry exports, livestock prices continue to remain well above 2 year ago levels and market fundamentals generally 

remain quite strong. Higher feed costs could also lower returns in 2004, especially 

if feed grain and soybean yields fall below trend. 

Beef supplies became progressively tighter throughout 2003 and markets were 

forced to adjust to these tight supplies by rationing product. Production for the year 

was down about 3 percent, with fourth-quarter production down 12 percent. Beef 

prices rose through mid-October and sharply higher prices encouraged cattle feeders 

to market cattle ahead of schedule. Fewer of these lighter weight animals graded 

Choice and Prime. Monthly fed cattle prices peaked in October at $105.50 per cwt, 

up nearly 62 percent from a year earlier. Over the entire year, the price of choice 
279 

steers averaged a record $84.69 per cwt in 2003, compared with $67.04 per cwt one 

year earlier. 

Strong demand for meat protein by consumers; the improving global economy; the 

improving restaurant and hotel business, which uses higher-valued meat cuts such 

as Choice beef; and Japan’s consumer recovery after its BSE issues, combined with 

a steadily declining U.S. cattle inventory, all pointed toward another year of recordhigh cattle prices in 2004. With the finding of BSE and subsequent loss in beef exports, which are currently projected to decline by 83 percent in 2004, more beef will 

have to be consumed in the U.S. market, and that means a decline in prices must 

occur to absorb the higher domestic supplies. USDA has reduced its 2004 fed cattle 

price projection from $87.50 per cwt before BSE to its current forecast of $76.50 per 

cwt, down 13 percent. Despite the projected drop, fed cattle prices would still be the 

second highest on record. 

The fed cattle price forecast assumes that the countries that have bans on the importation of U.S. beef will continue to do so throughout 2004. This is an assumption 

for forecast purposes and reflects the current policies of importing countries, which 

could change over the coming months. Mexico recently announced they are lifting 

the ban on boneless U.S. beef from animals under 30 months and, over the next 

several months, additional restrictions could be lifted allowing for increased exports 

that would lend further support to cattle prices in 2004. 

In 2003, pork production increased 1.6 percent to a record 20 billion pounds. Hog 

imports from Canada climbed to more than 7.4 million head last year, up 30 percent 

from a year earlier. Two-thirds of these imported hogs were feeder pigs destined for 

finishing operations in the Midwest. Despite the increase in pork supplies, the price 

of slaughter hogs averaged $39.45 per cwt in 2003, up from $34.92 in 2002, as tight 

supplies of beef boosted the demand for pork. 

Pork production is expected to reach a record 20.3 billion pounds in 2004, an increase of 1.3 percent. During the first quarter, hog prices averaged about 20 percent 

above a year ago, while pork production ran 3 percent ahead of last year. Consumer 

interest in high protein diets, relatively high prices for substitute animal proteins, 

and strong Asian demand for U.S. pork products are the major factors contributing 

to the increase in hog prices. For the entire year, the price of slaughter hogs is forecast to average about $1 per cwt higher than last year. 

In 2004, U.S. pork exports are forecast to increase 6 percent to 1.8 billion pounds, 

which follows nearly a 7 percent increase in 2003. Major factors supporting the increase in pork exports are the lower valued U.S. dollar, global economic growth, and 

disease-related foreign market closures to beef and poultry. 

In 2003, broiler production increased 1.6 percent to 32.7 billion pounds. The production increase reflected higher average weight at slaughter as total broiler slaughter declined slightly. Relatively small growth in broiler production, higher prices for 

competing meat products and an improving domestic economy pushed broiler prices 

well above year-earlier levels. In 2003, whole-bird broiler prices averaged 62 cents 

per pound, up from 55.6 cents per pound in 2002. 

Strong United States demand for chicken is expected to lead to record high broiler 

prices in 2004, despite a 3.6-percent increase in production and little growth in exports. In 2003, broiler exports grew 2.6 percent and were expected to grow 7 percent 

in 2004 prior to the outbreaks of Avian Influenza in Delaware, New Jersey, Pennsylvania, Texas and Maryland. These outbreaks led several countries to restrict the importation of all U.S. poultry, causing USDA to lower its poultry export forecast. It 

is likely that the countries currently banning all U.S. poultry shipments will eventually allow exports of U.S. poultry from selected States, provided there are no further 

outbreaks. The timetable for this regionalization process will vary from country to 

country. For example, Mexico recently announced that it would allow broiler shipments from selected States. 

In 2003, milk production increased by just 0.1 percent, as cow numbers fell by 

0.6 percent and milk production per cow rose by 0.8 percent. Factors contributing 

to the sluggish growth in milk production per cow included low milk prices relative 

to concentrate feed prices, tight supplies of good quality hay, an unusually large 

share of first-calf heifers, and somewhat conservative use of recombinant bovine 

somatotropin (rBST). Low milk prices, especially during the first half of 2003, probably made producers leery of using rBST on below-average producing cows. 

Milk cow numbers declined rapidly during the last three quarters of 2003. During 

the first quarter, the number of milk cows averaged 0.3 percent above a year earlier 

but averaged 1.4 percent below a year earlier during the final three quarters of 

2003. Tightening milk supplies caused milk prices to average $13.80 per cwt during 

the second half of 2003, compared with $11.22 per cwt during the first half of 2003. 

For the entire year, the all-milk price averaged $12.51 per cwt in 2003, up from 

$12.19 per cwt in 2002. 
280 

The Commodity Credit Corporation (CCC) continues to purchase large quantities 

of nonfat dry milk under the price support program, and during most of 2003, made 

payments to producers under the Milk Income Loss Contract (MILC) program. In 

2003, the CCC purchased 670 million pounds of nonfat dry milk, down slightly from 

the 680 million pounds purchased last year. In 2003, the payment rate under the 

MILC program averaged $1.09 per cwt. 

Milk production is expected to be about unchanged in 2004, as cow numbers continue to decline and the expansion in milk production per cow continues to be below 

trend. Monsanto has announced that it will accept no new rBST customers in 2004 

and that established users will be allowed only half their normal purchases. Stagnant production combined with stronger demand for dairy products is expected to 

lead to much higher milk prices in 2004. The all-milk price is projected to average 

$14.30 per cwt in 2004, which would be the fifth highest on record. Still, USDA will 

probably again purchase in excess of 500 million pounds of nonfat dry milk, as that 

market continues in surplus. 

Outlook for Farm Income 

For major commodities, the current USDA published forecasts for the 2003/2004 

marketing year for crops and the 2004 calendar year for livestock are all well above 

the previous 5-year average farm prices. The only commodity showing a decline is 

hogs. 

With trend production and a continuing close balance between supply and demand 

in most crop markets, we forecast the value of crop production will be record high 

in 2004. Also, despite the adverse effects of BSE and Avian Influenza on U.S. beef 

and poultry exports, the value of livestock and poultry production is expected to exceed $100 billion for only the third time in history. The drop in cattle and calf receipts, somewhat higher production expenses and lower government payments will 

reduce farm income from 2003’s record high of $63 billion in 2002. Net cash farm 

income is forecast at about $56 billion, down 11 percent from 2003. However, this 

income level would be the same as the average of the past two years. 

An indicator of the underlying fundamental strength of commodity markets is 

farm income excluding government payments. In 2000, net cash farm income excluding government payments hit a cyclical low of $34 billion. This year, net cash farm 

income excluding government payments, is forecast at over $45 billion, up 35 percent since 2000. As markets have strengthened, payments based on prices have declined, so that more of net cash income is now coming from market sales. Government payments in 2004 are forecast at $10.3 billion, down from more than $17 billion in 2003, and the lowest level since 1997. 

Farm production expenses are expected to register another gain in 2004. In 2003, 

total farm production expenses increased $11 billion to $204 billion. Higher prices 

for feed and feeder livestock accounted for about one-third and higher prices for energy-related inputs comprised about 40 percent of the increase in production expenses in 2003. In 2004, total production expenses are forecast to reach a record 

$207.5 billion, as prices of a variety of farm inputs are projected to register gains. 

The reduction in earnings from farm sources will have a small effect across the 

majority of households that operate residential and intermediate size farms, as their 

incomes are derived mostly off the farm. The incomes of households that run commercial-size operations will be lower in 2004, yet their average incomes will likely 

remain well above the average incomes of other farm households and all U.S. households. 

With another sound income year in prospect, farmland values may rise 3.5 percent in 2004, compared with 4 percent annual gains in the 1990s and 5 percent in 

recent years. This increase would continue the improvement in the farm sector balance sheet that we saw in 2003. While this is a positive economic picture for U.S. 

production agriculture in 2004, risks to the outlook include potential consequences 

of continued production growth in Brazil and other emerging competitors, tight oil 

supplies and high prices for energy-related inputs, the closure of export markets due 

to animal diseases and, as always, the weather here and abroad. 

That completes my statement, and I will be happy to respond to any questions. 
281 

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

STATEMENT OF J.B. PENN

Dr. PENN. Thank you, Mr. Chairman. 

It is a pleasure to be with you again this year and to present the 

budget for the Farm and Foreign Agricultural Services mission 

area of the Department. If you will recall, this mission area is com-
282 

prised of the Farm Service Agency, the Risk Management Agency, 

and the Foreign Agricultural Service. 

I understand that you have already had an opportunity to review 

my prepared statement, so I will be very brief in my opening remarks. 

Senator BENNETT. All of the prepared statements will be printed 

in the record. 

Dr. PENN. Thank you. 

Let me begin by mentioning the role of the Farm and Foreign Ag 

Services mission area within the entire Department. Our agencies 

provide a broad array of services that are the foundation for 

USDA’s efforts to ensure the continued economic health and vitality of American agriculture. During the past year, the FFAS agencies continued to be heavily involved in these activities. We continued implementation of the far-reaching and complex 2002 Farm 

Bill and the supplemental emergency disaster assistance that was 

included in the 2003 Omnibus Appropriations Act. 

We maintained our strong commitment to keeping the Federal 

Crop Insurance Program a vital component of the overall safety net 

for our Nation’s farmers and ranchers. The Risk Management 

Agency is currently renegotiating the Standard Reinsurance Agreement for delivering the risk management products through private 

companies. At the same time, we have actively supported the very 

ambitious trade agenda that will reduce trade barriers and open 

new markets overseas, and we have expanded our efforts to keep 

existing markets open. 

For the past three and a half months, we have been working very 

hard to reopen the markets that were closed due to the BSE and 

avian influenza incidents. The budget proposals that we are discussing today fully support continuation of these activities. 

FARM SERVICE AGENCY

I would first turn to the Farm Service Agency. This is our key 

agency for delivering farm assistance. This agency is located in 

about 2,400 offices throughout the country, and it is the one that 

farmers and ranchers deal with most frequently. The budget that 

we are proposing places a priority on maintaining FSA’s ability to 

provide efficient, responsive services to our producers. It provides 

$1.3 billion for FSA salaries and expenses, which will support 

about 6,000 Federal staff years and approximately 10,300 county 

non-Federal staff years. The budget also provides an additional 100 

Federal staff years to improve service to farm credit borrowers in 

our service centers. 

Implementing new technology is absolutely critical to our continued efficiency gains and to providing increasingly better services in 

the future. This includes new automation tools and the geospatial 

information system, GIS. The budget for the Office of the Chief Information Officer includes an $18 million increase that will provide 

for essential investments in the capability of FSA and the other 

service center agencies to improve services. 

RISK MANAGEMENT AGENCY

Turning now to the Risk Management Agency, the Federal Crop 

Insurance Program plays a very key role in helping producers man-
283 

age their risk. The 2005 budget requests an appropriation of such 

sums as may be necessary for the mandatory costs of the program, 

and this will provide the necessary resources to meet program expenses at whatever level of coverage producers choose to purchase. 

The budget provides $92 million for RMA salaries and expenses. 

That is an increase of $21 million over 2004, and this net increase 

includes additional funding for information technology, increased 

staff years to improve monitoring of the insurance companies, and 

pay costs. About $16 million of the $21 million increase is for new 

information technology for RMA. The core information technology 

systems that RMA now uses are over 15 years old, and that is very 

ancient by IT standards. Over that time, the size and scope of the 

crop insurance program has increased dramatically, dramatically 

placing incredible strain on this aging system. So about $7 million 

of this increase will provide for the development of a new IT system, and $9 million will be for IT infrastructure improvements. 

FOREIGN AGRICULTURAL SERVICE

And finally, Mr. Chairman, turning to the Foreign Agricultural 

Service and our international activities, the importance of trade for 

American agriculture cannot be overstated, as Dr. Collins indicated 

in his remarks. If we are to ensure continued income growth for 

our producers, we must expand market opportunities overseas. 

Now, our budget proposals provide a program level of $148 million for FAS activities in 2005. That is an increase of $12 million 

over 2004. These increases include funding to meet higher overseas 

operating costs and improved telecommunications systems at FAS 

overseas offices. And as we have noted before, FAS carries out its 

activities through a network of 80 overseas offices and the headquarters here in Washington. 

Recent significant declines in the value of the dollar coupled with 

overseas inflation and rising wage rates have led to sharply higher 

costs that must be accommodated if FAS is to maintain its overseas 

presence. That presence is vital for FAS to represent the interests 

of American agriculture on a global basis and implement the Department’s trade promotion programs effectively. 

Funding is also included for an FAS global computing environment initiative to modernize the agency’s information technology 

systems. There is an urgent need for this additional funding. Our 

current systems are outdated; they have proven to be outdated, and 

they are inhibiting the ability of the agency to communicate effectively between Washington and the foreign posts. 

Also, this ancient system does not allow participation in the new 

e-government initiatives with other U.S. trade agencies that are designed to provide more efficient services to the public and help bolster our trade expansion efforts. So this proposed initiative would 

allow FAS to modernize its IT systems and improve its services to 

agricultural producers, exporters, and the various market development organizations. 

And I want to mention in closing, Mr. Chairman, that the United 

States continues to be a leader in global food aid efforts. We provide over one half of all of the food assistance that is provided in 

the world. That commitment is demonstrated by the fact that Pub-
284 

lic Law 480 program, the Food for Peace program, will observe its 

50th anniversary in July of this year. 

Now, our 2005 budget proposal supports a program level of over 

$1.5 billion for U.S. foreign food assistance activities. This includes 

$1.3 billion for Public Law 480 credit and donation programs. The 

newest of the food assistance activities is the McGovern-Dole International Food for Education and Child Nutrition Program. This 

program was successfully implemented in 2003. We had projects in 

21 countries that fed 2.3 million women and children. The budget 

provides for a request of $75 million for the program, which is an 

increase of 50 percent over 2004. 

PREPARED STATEMENTS

So in closing, Mr. Chairman, I would note that we think that 

these are very modest and very positive budget proposals that ensure we can continue to provide service to our producers. We appreciate the support of this Committee for our mission area in the 

past, and we look forward to working with you in the future on behalf of the agricultural sector. 

Thank you, sir. 

[The statements follow:] 

PREPARED STATEMENT OF J.B. PENN

Mr. Chairman and Members of the Committee, I am pleased to appear before you 

this afternoon to present the 2005 budget and program proposals for the Farm and 

Foreign Agricultural Services (FFAS) mission area of the Department of Agriculture 

(USDA). The FFAS mission area is comprised of three agencies: the Farm Service 

Agency; Risk Management Agency; and Foreign Agricultural Service. 

Statements by the Administrators of the FFAS agencies, which provide details on 

their budget and program proposals for 2005, have already been submitted to the 

Committee. My statement will summarize those proposals, after which I will be 

pleased to respond to any questions you may have. 

Mr. Chairman, one of the five primary goals in the Department’s strategic plan 

is to ‘‘enhance economic opportunities for American agricultural producers.’’ The programs and services of the FFAS mission area are at the heart of the Department’s 

efforts to achieve that goal. Through the wide range of services provided by our 

agencies—price and income supports, farm credit assistance, risk management tools, 

conservation assistance, and trade expansion and export promotion programs—we 

provide the foundation for ensuring the future economic health and vitality of American agriculture. 

This past year, the FFAS agencies and programs were challenged by a number 

of significant developments to which they responded effectively. They continued to 

implement the far reaching and complex Farm Security and Rural Investment Act 

of 2002 (2002 Farm Bill), and they implemented the supplemental emergency disaster assistance provisions of the 2003 omnibus appropriations act. At the same 

time, the workload associated with our trade negotiation and enforcement responsibilities has continued to grow, and 2004 will be a critical year for negotiations 

aimed at further reducing trade barriers and opening new markets overseas, as well 

as reestablishing export markets following the recent incidents of bovine spongiform 

encephalopathy (BSE) and avian influenza. 

The 2005 budget proposals we are discussing today fully support continuation of 

these activities and ensure our continued efforts on behalf of America’s agricultural 

producers. In particular, the budget supports the operations of the domestic commodity and income support, conservation, trade, and related programs provided by 

the Farm Bill. It fully funds our risk management and crop insurance activities. It 

supports the Administration’s export expansion goals by providing a program level 

of over $6 billion for the Department’s international activities and programs. Also, 

it provides for the continued delivery of a large and complex set of farm and related 

assistance programs, while improving management and the delivery of those programs. 
285 

Farm Service Agency 

The Farm Service Agency (FSA) is our key agency for delivering farm assistance. 

It is the agency that the majority of farmers and ranchers interact with most frequently. Producers rely on FSA to access farm programs such as direct and countercyclical payments, commodity marketing assistance loans, loan deficiency payments, 

farm ownership and operating loans, disaster assistance, and certain conservation 

programs such as the Conservation Reserve Program (CRP). Because FSA is the primary delivery agency for most of the major farm assistance programs, the budget 

places a priority on maintaining and enhancing FSA’s ability to provide efficient, responsive services to our producers. 

Farm Program Delivery 

The 2002 Farm Bill required the FSA to undertake a massive task of implementing a complex set of new farm programs within a short time period. FSA has 

successfully put these programs in place in less than 2 years since the Bill was enacted. Nearly two million producers were signed up quickly under the new direct 

and countercyclical payments program. Several billion dollars of direct and countercyclical payments have been paid out; a new Milk Income Loss Contract program 

was implemented and over $1.8 billion has been paid so far to eligible producers; 

and the peanut program has been radically transformed and $1.2 billion of peanut 

quota buyout payments have been made. At the same time as these and other new 

programs were being implemented, FSA successfully programmed over $3 billion in 

disaster assistance required by the Agricultural Assistance Act of 2003. These programs and improving markets combined to provide the Nation’s farmers with a 

record level of net cash income in 2003. 

The massive workload associated with implementing these programs over the past 

2 years is now moderating. As a consequence, FSA has begun to reduce the number 

of temporary, non-Federal county office staff years from the roughly 3,000 staff 

years in 2003, to about 1,000 staff years provided for in the 2005 budget. The proposed 2005 level for FSA salaries and expenses of $1.3 billion will support about 

6,000 Federal staff years and nearly 10,300 county non-Federal staff years, including the 1,000 temporary staff years. Permanent non-Federal staffing will remain 

near the levels of 2003 and 2004 to accommodate the essential ongoing workload 

of the agency. The budget also will provide an additional 100 Federal staff years 

to improve service to farm credit borrowers in our Service Centers. 

High priority is being placed on enhancing services to FSA’s clientele by improving agency operations and expanding diversity of the customer base and staff. Improvements in operations based on new automation tools and Geospatial Information Systems (GIS) are coming on line and promise increasingly better services in 

the future. The budget for the Office of the Chief Information Office includes an $18 

million increase for Service Center Modernization that will provide for essential investments in the capability for FSA and the other Service Center agencies to improve services to producers. 

FSA has already utilized newly modernized systems for a recent sign-up for the 

CRP to reduce costs and improve timeliness. Work is underway to continue modernization improvements in other program areas, including farm loan servicing. 

Conservation 

The 2002 Farm Bill provided for significant growth in the Department’s conservation programs. The CRP, which is funded by the Commodity Credit Corporation 

(CCC) and administered by FSA, was among the programs that expanded. A general 

sign-up in 2003 added nearly 2 million acres to the CRP. Also, 430,000 acres were 

added under continuous and Farmable Wetlands Program (FWP) sign-ups. 

The 2005 budget assumes a general sign-up in 2004 of about 800,000 acres, and 

none in 2005. In addition, about 450,000 acres are projected to be enrolled under 

continuous sign-up and the Conservation Reserve Enhancement Program (CREP) in 

each of 2004 and 2005. The FWP is estimated to be expanded by about 50,000 acres 

in each of 2004 and 2005. In total, CRP is projected to increase gradually from 34.1 

million acres at the end of 2003 to 39.2 million acres by 2008. 

Commodity Credit Corporation 

Domestic farm commodity price and income support programs are financed 

through the CCC, a Government corporation for which FSA provides operating personnel. The CCC also provides funding for conservation programs including the CRP 

and certain programs administered by the Natural Resources Conservation Service. 

In addition, CCC funds many of the export programs administered by the Foreign 

Agricultural Service. 
286 

CCC net expenditures were $17.4 billion in 2003. This level is expected to decline 

to an estimated $14.8 billion in 2004, and then increase slightly to $15.0 billion in 

2005. However, these estimates are sensitive to changing supply and demand conditions for the supported farm commodities and may change as we move forward. 

Annual appropriations acts authorize CCC to replenish its borrowing authority as 

needed from the Treasury up to the amount of realized losses at the end of this preceding year. 

Farm Loan Programs 

FSA plays a critical role for our Nation’s agricultural producers by providing a 

variety of direct loans and loan guarantees to farm families who would otherwise 

be unable to obtain the credit they need to continue their farming operations. By 

law, a substantial portion of the direct loan funds are reserved each year for assistance to beginning, limited resource, and socially disadvantaged farmers and ranchers. For 2005, 70 percent of direct farm ownership loans are reserved for beginning 

farmers, and 20 percent are reserved for socially disadvantaged borrowers, who may 

also be beginning farmers. 

The 2005 budget includes funding for about $937 million in direct loans and $2.9 

billion in guarantees. In recent years, the Department has used its authority to shift 

funding from guaranteed operating loans to meet excess demand in the direct loan 

programs. The levels requested for 2005 reflect those shifts and are expected to reflect actual program demand more accurately. The overall increase in loan levels is 

reflective of generally stable to lower subsidy rates for the farm loan programs, 

which make those programs less expensive to operate. We believe the proposed loan 

levels will be sufficient to meet the demand in 2005. 

The 2005 budget maintains funding of $2 million for the Indian Land Acquisition 

program. For the Boll Weevil Eradication loan program, the budget requests $60 

million, a reduction of $40 million from 2004. This reduction is due to the successful 

completion of eradication efforts in several areas. The amount requested is expected 

to provide full funding for those eradication programs operating in 2005. For emergency disaster loans, the budget requests $25 million. No additional funding was requested for emergency loans in 2004 due to carryover funding from 2003. About 

$191 million is currently available for use in 2004, and a portion of that is likely 

to carry over into 2005. The combined request and anticipated carryover are expected to provide sufficient credit in 2005 to producers whose farming operations 

have been damaged by natural disasters. 

RISK MANAGEMENT AGENCY

The Federal crop insurance program represents one of the strongest safety net 

programs available to our Nation’s agricultural producers. It reflects the principles 

contained in the Department’s Food and Agricultural Policy report of 2001 by providing risk management tools that are compatible with international trade commitments, creates products and services that are market driven, harnesses the 

strengths of both the public and private sectors, and reflects the diversity of the agricultural sector. 

In 2003, the crop insurance program provided about $41 billion in protection on 

over 218 million acres, which is about one million acres more than were insured in 

2002. Our current projection is that indemnity payments to producers on their 2003 

crops will be about $3.3 billion which is about $800 million less than in 2002. 

The crop insurance program has seen a significant shift in business over the past 

several years—producers have chosen to buy up to higher levels of coverage as a 

result of increased premium subsidies provided in the Agricultural Risk Protection 

Act of 2000 (ARPA). The number of policies, acres, liability, and premium all increased more than 40 percent for coverage levels 70 percent and higher. 

Our current projection for 2005 shows a modest decrease in participation. This 

projection is based on USDA’s latest estimates of planted acreage and expected market prices for the major agricultural crops, and assumes that producer participation 

remains essentially the same as it was in 2003. 

The 2005 budget requests an appropriation of ‘‘such sums as may be necessary’’ 

as mandatory spending for all costs associated with the program, except for Federal 

salaries and expenses. This level of funding will provide the necessary resources to 

meet program expenses at whatever level of coverage producers choose to purchase. 

For salaries and expenses of the Risk Management Agency (RMA), $92 million in 

discretionary spending is proposed, an increase of $21 million above the 2004 level 

of $71 million. This net increase includes additional funding for information technology (IT), increased staff years to improve monitoring of the insurance companies, 

and pay costs. 
287 

Nearly every RMA function or activity is in some part dependent on IT. All of 

their databases, internal controls, payments to producers and companies are tied to 

IT. All of RMA’s rates, prices, products, training and financial activity also depend 

on this technology. 

Because RMA core IT systems are 15 years old, they no longer meet the minimum 

requirements mandated by the Department for security, architecture, and e-Government initiatives. In addition, ARPA funds that were earmarked for data mining and 

other compliance activities will be depleted at the end of this fiscal year, and there 

are no alternative funding sources available. 

ARPA mandated and funded a substantial increase in the number and reach of 

risk management tools for America’s producers and the RMA is meeting the challenge. Approximately 80 new risk management tools are in various stages of development and deployment. However, RMA’s ability to maintain the integrity and effectiveness of the critical systems that support the growing portfolio of risk management tools that serve America’s agricultural producers is being threatened due to 

an aging IT system. Unless the situation is corrected, RMA will be required to make 

some difficult resource choices that will unavoidably and negatively affect its ability 

to support safe and effective development, deployment and regulation of these important risk management tools. 

Several major changes have also occurred over that time in the way producers 

protect their operations from losses. In 1994, there were no plans of insurance which 

offered protection against changes in market prices. Today, over 50 percent of the 

covered acreage has revenue protection, and nearly 62 percent of the premium collected is for revenue based protection. In addition, ARPA authorized the development of insurance products to protect livestock. Because livestock production occurs 

year-round, these products must be priced and sold in a different manner than traditional crop insurance. The advent of new types of insurance, not contemplated 

when the IT system was designed, has placed tremendous strain on the aging system. 

ARPA also instituted new data reconciliation, data mining and other anti-fraud, 

waste and abuse activities that require the data to be used in a variety of new ways. 

The current IT system was not designed to handle these types of data operations. 

Consequently, the data must be stored in multiple databases which increases data 

storage costs and processing times and increases the risk of data errors. 

The development of the new IT system will result in some additional up-front 

costs to the Government. Until the new system is fully operational, we will be required to finance both the developmental costs as well as the increasingly expensive 

maintenance costs of the legacy system. However, once the new system is operational, the legacy system will be eliminated and a substantial reduction in maintenance costs is projected. 

Finally, I would note that this budget for the RMA includes a request for 30 additional staff years. The additional staff will provide needed support in employing advanced technology-based methods to detect and prosecute fraud, waste and abuse; 

following up on referrals from FSA, OIG and the public; making recommendations 

for formal fraud investigations to OIG; and supporting OIG and U.S. Attorneys’ offices on fraud cases. They also will address outstanding OIG and GAO recommendations to improve oversight and internal controls over insurance providers; monitor 

and manage contractual agreements and partnerships with the public and private 

business sectors; and support the review and evaluation by the FCIC Board of Directors of the increasing number of new private product submissions received each 

year. All of these activities result in savings to the program far in excess of their 

cost through enhanced program oversight and avoidance, detection and remediation 

of program fraud, waste and abuse. 

FOREIGN AGRICULTURAL SERVICE

Trade is critically important for American agriculture, and the Department’s work 

to expand overseas markets and promote trade is one the primary means we have 

to enhance economic opportunities for our farmers and ranchers. With gains in productive capacity continuing to outpace growth in demand here at home, the economic growth and future prosperity of America’s farmers and ranchers will depend 

heavily upon our continued success in reducing trade barriers and expanding exports. 

The Department’s efforts to expand trade are carried out on multiple fronts. At 

the center of these activities is the negotiation of trade agreements that will reduce 

barriers and improve access to overseas markets. We continue our efforts to reach 

a new agreement through the World Trade Organization (WTO) that will provide 

for further, significant liberalization of global agricultural trade. Although the 
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Cancun Ministerial was a missed opportunity, the benefits of a successful negotiation for all trading partners remain clear and, on that basis, we continue our efforts 

to advance the negotiating process. Negotiations on agriculture resumed last month, 

and we are hopeful that a Ministerial meeting to set the stage for a conclusion to 

the negotiations can be held by the end of this year. Our objectives for the negotiations remain the elimination of export subsidies, improvement in market access 

through substantial reductions in tariffs, and reduction in trade-distorting domestic 

support. 

Regional and bilateral trade agreements also provide an important avenue for 

opening new markets, and the Department is an important participant in the ambitious agenda that has been established for negotiating such agreements. Recently, 

the United States concluded successful negotiations for a Central American Free 

Trade Area that will create new opportunities in this nearby and growing market 

of over 35 million consumers. Negotiations also have been concluded recently with 

Australia and Morocco. Other negotiations currently underway will establish the 

Free Trade Area of the Americas and an agreement with the Southern African Customs Union. Negotiations expected to begin later this year will involve the Andean 

countries, as well as bilateral agreements with Bahrain, Panama, and Thailand. 

While these important efforts to negotiate market-opening agreements move forward, we also are increasing our activities to monitor compliance with existing 

agreements and ensure that U.S. trade rights are protected. During the past year, 

we have worked to solve a significant number of trade problems, including China’s 

implementation of its WTO accession commitments on tariff-rate quota administration and export subsidy obligations, and Mexico’s implementation of the provisions 

of the North American Free Trade Agreement. 

At the same time, we are addressing other technical barriers to trade that arise 

because the adoption of non-science based standards and resistance to the adoption 

of new technologies, such as biotechnology. In this regard, we were encouraged by 

China’s announcement in February that it had completed its regulatory review and 

issued permanent safety certificates for Roundup Ready soybeans, as well as for two 

corn and two cotton products. This is extremely positive news as China is now the 

leading foreign customer for U.S. soybeans and cotton. 

At present, we are confronted with the challenge of reopening foreign markets 

that have been closed due to the discovery of the one case of BSE and the recent 

outbreaks of avian influenza in the United States. We understand the critical importance of reopening these markets as soon as possible, and we have committed, and 

will continue to commit, the resources and energy necessary to resolve these situations and resume normal trade. With that as our goal, we were very pleased with 

last month’s announcement by Mexico of the reopening of their border to U.S. beef 

products. 

FAS Salaries and Expenses 

The Foreign Agricultural Service (FAS) is the lead agency for the Department’s 

international activities and is at the forefront of our efforts to expand and preserve 

overseas markets. Through its network of 80 overseas offices and its headquarters 

staff here in Washington, FAS carries out a wide variety of activities that contribute 

to the goal of expanding overseas market opportunities. 

Our budget proposals provide a program level of $148 million for FAS activities 

in 2005. This is an increase above the 2004 level of nearly $12 million and is designed to ensure the agency’s continued ability to conduct its activities effectively 

and provide important services to U.S. agriculture. 

The proposed increase includes funding to meet higher overseas operating costs 

and improve telecommunications systems at FAS’ overseas offices. FAS is unique as 

a USDA agency because a sizeable component of the agency’s operational costs are 

vulnerable to macroeconomic developments beyond its control. Recent significant declines in the value of the dollar, coupled with overseas inflation and rising wage 

rates, have led to sharply higher costs that must be accommodated if FAS is to 

maintain its overseas presence. That presence is critical for FAS to represent the 

interests of American agriculture on a global basis, for its continued reporting and 

analysis of agricultural developments around the world, and for effective implementation of USDA’s trade promotion and market development programs. 

Funding also is included for an FAS Global Computing Environment initiative to 

modernize the agency’s information technology systems and applications. There is 

an urgent need for additional funding because the current systems are outdated, 

have proven to be unreliable, and are inhibiting our ability to communicate effectively between Washington, D.C. and foreign posts. They also do not allow participation in e-Government initiatives with other U.S. trade agencies that are designed 

to provide more efficient services to the public and help bolster U.S. trade expansion 
289 

efforts. The proposed initiative will allow FAS to modernize and restructure its IT 

systems, and improve the services it provides to U.S. agricultural producers, exporters, and market development organizations. 

Finally, the budget also provides increased funding for FAS to meet the higher 

pay costs in 2005. 

Export Promotion and Market Development Programs 

FAS administers the Department’s export promotion and market development 

programs which play a key role in our efforts to assist American producers and exporters to take advantage of new market opportunities, including those created 

through market-opening trade agreements. 

The largest of these programs are the CCC export credit guarantees, which help 

to ensure that credit is available to finance commercial exports of U.S. agricultural 

products. As overseas markets for U.S. agricultural products continue to improve, 

that improvement will be reflected in export sales facilitated under the guarantee 

programs. For 2005, the budget projects a program level of $4.5 billion for the guarantee programs, an increase of just over $250 million above the current estimate 

for 2004. 

For the Department’s market development programs, including the Market Access 

Program and Foreign Market Development Cooperator Program, the budget provides funding of $173 million, unchanged from this year’s level. The budget also includes $53 million for the Dairy Export Incentive Program and $28 million for the 

Export Enhancement Program. 

Trade Adjustment Assistance for Farmers 

For the newly implemented Trade Adjustment Assistance (TAA) for Farmers Program, the budget includes a program level of $90 million, as authorized by the 

Trade Act of 2002. The TAA program provides assistance to producers of raw agricultural commodities who have suffered lower prices due to import competition, and 

to fisherman who compete with imported aquaculture producers. In order to qualify 

for assistance, the price received by producers of a specified commodity during the 

most recent marketing year must be less than 80 percent of the national average 

price during the previous 5 marketing years. Also, a determination must be made 

that increases in imports of like or competitive products ‘‘contributed importantly’’ 

to the decline in prices. 

Since the program was implemented last August, 12 petitions for assistance have 

been approved involving five different products—wild blueberries, salmon, shrimp, 

catfish, and lychee fruit. Once a petition is approved, producers have 90 days to 

apply for benefits. Eligible producers receive technical assistance and cash benefits 

of up to $10,000 per producer. We expect to begin making the first payments under 

the program within the next several months once the producer application periods 

have closed. 

International Food Assistance 

The efficiency and productivity of our producers allows the United States to be 

a leader in global food aid efforts, and the United States continues to provide over 

one-half of the world food assistance. The commitment of the United States to these 

activities is demonstrated by the fact that the Public Law 480 program, our primary 

vehicle for providing food assistance overseas, will observe its 50th anniversary in 

July of this year. 

The 2005 budget supports a program level of over $1.5 billion for U.S. foreign food 

assistance activities. This includes $1.3 billion for the Public Law 480 Title I credit 

and Title II donation programs, which is expected to support the export of 3.2 million metric tons of commodity assistance. 

The newest of our food assistance activities is the McGovern-Dole International 

Food for Education and Child Nutrition Program, which was authorized in the 2002 

Farm Bill. FAS successfully implemented the program in 2003, and projects were 

approved in 21 countries where nearly 2.3 million women and children will benefit. 

Beginning in 2004, the Farm Bill requires the McGovern-Dole program to be funded 

through discretionary appropriations, and the 2004 Omnibus Appropriations Act 

provides a program level of $50 million for the program. The 2005 budget requests 

that program funding be increased by 50 percent to $75 million. 

In addition, the budget includes an estimated program level of $149 million for 

the CCC-funded Food for Progress program. This is expected to support 400,000 

metric tons of assistance consistent the authorizing statute. The budget also assumes that donations of nonfat dry milk with continue under the authority of section 416(b) of the Agricultural Act of 1949. The total value of the commodity assistance and associated costs is projected to be $147 million. 
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That concludes my statement, Mr. Chairman. I would be pleased to answer any 

questions that you and other Members of the Committee may have. Thank you. 

PREPARED STATEMENT OF JAMES R. LITTLE, ADMINISTRATOR, FARM SERVICE AGENCY

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity 

to present the fiscal year 2005 budget for the Farm Service Agency (FSA). Since we 

met last year, I am pleased to report that FSA successfully completed its implementation of the most complicated farm bill ever—the Farm Security and Rural Investment Act of 2002 (Farm Bill)—as well as the 2003 ad hoc disaster bill—the Disaster 

Assistance Act of 2003 (Disaster Bill). We signed up nearly 2 million producers in 

one of the most complex yet quickly implemented signups ever conducted and also 

began and completed the multi-faceted and extremely complicated Disaster Bill. In 

total, we have paid out over $19 billion—$11.1 billion in direct and countercyclical 

payments, over $1 billion in benefits to the livestock industry, over $1.8 billion in 

Milk Income Loss Contract payments, $1.2 billion in peanut quota buyout payments, 

and $2.4 billion in disaster assistance. These and other programs contributed significantly to record farm income in 2003. 

For the first time since 1997, FSA is not absorbed in simultaneously implementing multiple provisions of either ad hoc disaster legislation or a new farm bill, 

and our employees deserve considerable recognition for a job well done. As we look 

forward to fiscal year 2005 and beyond, we are taking stock and directing our attention to enhancing customer service. We have begun a number of projects and initiatives designed to achieve substantial and systemic improvements that will position 

us for more rapid implementation of the next farm bill or any ad hoc provisions that 

might come our way. Our fiscal year 2005 budget request supports these initiatives. 

Before discussing specifics of the budget, however, I would like to briefly highlight 

some of the efforts we already have under way which will be bolstered by our fiscal 

year 2005 request. 

With the ultimate goal of better serving our customers, FSA is focusing on four 

areas, all coupled with the President’s Management Agenda: Budget and Performance Integration, eGovernment, Human Capital, and improving Financial Performance. 

Budget and Performance Integration 

FSA is overhauling its existing 5-year Strategic Plan to create a much more effective tool for telling our story—the results FSA will deliver to the American public. 

The new plan will be used to guide the way we carry out our mission. The plan 

will better support and link to our budget in how we identify and justify the financial, personnel, and other resources necessary to best deliver our programs and 

measure results. For the fiscal year 2005 Budget process, we worked with OMB to 

identify four of FSA’s programs—Commodity Credit Corporation (CCC) Direct Payments, CCC Marketing Loans, Guaranteed Farm Loans, and Bioenergy—to take 

part in OMB’s Program Assessment Rating Tool (PART) evaluation process. On a 

rating scale ranging from a lowest of ‘‘Ineffective’’ to the highest of ‘‘Effective,’’ the 

PART reviews rated CCC Marketing Loans and Guaranteed Farm Loan programs 

as ‘‘Moderately Effective’’ and our CCC Direct Payments and Bioenergy programs 

as ‘‘Adequate.’’ These ratings indicate that we have to improve our integration of 

budget and performance to better demonstrate results. For example, the guaranteed 

farm loan PART evaluation found that while the program serves a clear need, improvements in performance measurement are needed to more fully understand program impact and the effectiveness of targeted assistance. As a result, FSA is conducting a performance-focused review of its loan portfolio, which could lead to development of additional measures of efficiency and effectiveness. 

To make FSA a more results-focused and customer-driven agency, we are refining 

our key goals designed to improve agency mission effectiveness; identifying workable strategies for accomplishing the goals; and establishing quantifiable measures, 

so we can effectively and convincingly gauge our progress. Through a process that 

started last fall, we expect by this summer to have a new 5-year Strategic Plan with 

a set of credible measures that will be used to support and justify FSA’s fiscal year 

2006 Budget and beyond. 

eGovernment 

Most of the FSA information technology systems used to implement the Farm Bill 

and Disaster Bill are COBOL-based and date back to the 1980’s, and some of the 

processes we used date back as many as 40 or 50 years. Through several years of 

effort, FSA has already begun migrating these legacy systems under the Service 

Center Common Computing Environment initiative. For example, our Geospatial In-
291 

formation System (GIS) initiative is progressing well. Currently, we have about 50 

percent of counties digitized and expect to have the entire Nation completed in fiscal 

year 2005. GIS technology will be the cornerstone of all future FSA system architecture, which I will speak to in a moment. Also, last year, we completely redesigned 

the way we conducted the Conservation Reserve Program general signup held in 

May and June. By applying new automation tools, utilizing GIS tools where available, and linking with Natural Resources Conservation Service databases, we were 

able to reduce: 

—signup-related technical assistance needs for an estimated savings of $11.2 million. 

—the number of Environmental Benefits Index data entries by 90 percent and the 

time spent on each offer by 60–70 percent. In offices with GIS, additional time 

was saved by outlining eligible acreage boundaries and calculating acreage by 

soil map unit symbol. The calculation of field boundaries saved producers approximately $160 thousand in measurement service fees. 

—the error rate and validation and cleanup processes by about 80 percent. 

—the time between the end of signup and the completion of data for offer acceptance decision making by about 30 percent, from 10 weeks to 7 weeks. 

Last fall, we also purchased a new Farm Business Plan (FBP) that will completely 

change the way we interact with our credit customers, analyze and evaluate farm 

loan requests, and provide farm business planning and credit risk analysis for our 

farmers and ranchers. This new system, which will significantly improve our overall 

ability to provide improved customer service for our most needy customers, will be 

phased in Nationwide over the course of the spring and summer and will require 

a major training effort that begins the first week in April. 

As we continue to migrate all of our legacy systems, we are undergoing a selfevaluation and are engaged in a range of business process reengineering (BPR) initiatives to improve the way we operate in the 21st century, using GIS as the cornerstone. Throughout the agency, program managers are examining innovative ways to 

improve their processes and reduce duplication of effort through automation, webbased systems, and collaboration. 

While BPR generally revolves around automation improvements, we are looking 

at processes. The Internet has created great opportunities to identify better ways 

to deliver services on-line, giving our farmers and ranchers more time to be in the 

field and less time in our Service Center offices. For example, our Electronic Loan 

Deficiency Payment (LDP) process will allow producers to apply for LDP’s on-line 

from their home or place of business and receive their payments through electronic 

funds transfer. This year, FSA is conducting a top-to-bottom review of all of its business processes to ensure the services we deliver are the most effective and customercentered, utilizing today’s technology. 

Financial Management 

In fiscal year 2003, CCC received, for the second year in a row, an unqualified 

audit opinion on its financial statements. We continue to improve our financial performance by developing system improvements and establishing controls that will not 

only maintain the clean opinion, but also resolve management control weaknesses 

identified through the annual financial audit process and other internal and external reviews. We are also aggressively addressing erroneous payments to ensure controls are in place to improve the financial integrity of all of FSA’s program delivery 

and payment processes. 

Human Capital 

Last year we aligned our human capital plan to support our strategic plan and 

the accomplishment of our programmatic goals. One of the major tasks included a 

basic analysis of our workforce. That analysis revealed that over the next 5 years, 

we are facing the potential of losing 34 percent of our workforce—a little over 5,100 

employees, many in leadership positions—due to retirements alone. Targeted investments and corrective measures must be implemented in the coming years to replace 

the skills, talents, and historical knowledge of departing employees. The results of 

our workforce analysis now drive the major human capital initiatives under way in 

leadership development, talent management, and performance management. 

For leadership development, we have implemented several management training 

programs and are developing others, including leadership succession programs. To 

ensure that our current and future employees have the right talent or skills, especially in mission critical occupations, we have re-tooled existing training programs 

and have begun to develop programs to sustain a better learning environment. In 

terms of managing talent, our new 5-year recruitment strategy calls for annual 

plans that target specific occupations, improvements in hiring processes and flexi-
292 

bilities, and steps to become an employer of choice. And, to ensure a results-driven 

performance workforce, we have launched a performance culture initiative to address specific areas where our managers can more effectively manage people and 

drive continuous improvement. In addition, we have begun aligning management 

performance plans to the agency’s mission, goals and outcomes. This effort will cascade into the workforce over time. We are also enhancing our efforts to hold employees accountable for results and differentiate among levels of performance to improve 

overall program delivery. 

In conjunction with our Human Capital Plan, FSA is committed to equal employment opportunity in our workforce. Where minorities are underrepresented among 

our ranks, FSA is engaging in some aggressive initiatives to address this deficiency. 

We are utilizing regional recruitment teams that will: 

—capitalize on our recruitment flexibilities by ensuring that managers are well 

versed in appointment authorities such as the Career Intern Program and the 

Student Career Experience Program. 

—locate a diversity of quality candidates by working with institutions of higher 

education that serve minority populations; the National Society for Minorities 

in Agriculture and Natural Resources and Related Sciences (MANRRS), which 

is dedicated to educating minorities about career opportunities in agriculture; 

and various minority professional organizations representing more experienced 

workers to fill higher level positions. 

—advertise career opportunities through magazines, news publications, and 

websites targeted to the relevant minority audiences. 

Achieving a workforce that reflects the population it serves is not only the right 

thing to do in principle, it will improve FSA’s reputation and foster an increased 

sense of trust that will enhance customer relations. 

Civil Rights and Outreach 

Equal access to agency programs is fundamental to customer service. Where problems of disparate treatment exist, our civil rights staff is working to meet the issue 

head on. We have conducted reviews in 11 States that had not been reviewed in 

the last few years. In eight of those States a corrective action plan is in place to 

address the problems discovered. We are continuing to monitor the remaining three, 

and we are determined to hold senior management in those States accountable for 

providing the leadership needed to eliminate problems of discrimination. FSA remains dedicated to ensuring that all employees, regardless of level, are held accountable for superior customer service, effective communications, and providing all 

participants equal access to all FSA programs. 

We have established an Office of Minority and Socially Disadvantaged Farmer Assistance to work with minority and socially disadvantaged farmers who have concerns and questions about loan applications they have filed in their Service Centers. 

Through a national toll-free telephone help line, we answer producer inquiries about 

loan programs and other FSA programs. 

To rectify instances where certain producer populations are underserved, our outreach staff is working to increase participation of minorities in FSA programs. The 

staff utilizes a network of State outreach coordinators and works in conjunction with 

community-based organizations, non-profit groups, educational institutions that 

serve minorities, and USDA’s Cooperative State Research, Education, and Extension 

Service to reach small farm operators in local communities. 

Some of our activities for 2004 include continued participation in the highly successful American Indian Credit Outreach Initiative, refining our translation of FSA 

program forms into Spanish, and reaching out to underserved groups by participating in conferences such as the NAACP National Convention, the Hmong National 

Conference, the Asian Pacific American Federal Career Advancement Summit, and 

the National Hispanic Farmers and Ranchers Conference. 

BUDGET REQUESTS

Turning now to the specifics of the 2005 Budget, I would like to highlight our proposals for the commodity and conservation programs funded by the Commodity 

Credit Corporation the (CCC); farm loan programs of the Agricultural Credit Insurance Fund; our other appropriated programs; and administrative support. 

COMMODITY CREDIT CORPORATION

Domestic farm commodity price and income support programs are administered 

by FSA and financed through the CCC, a government corporation for which FSA 

provides operating personnel. Commodity support operations for corn, barley, oats, 

grain sorghum, wheat and wheat products, soybeans, minor oilseed crops, upland 
293 

cotton and extra long staple cotton, rice, tobacco, milk and milk products, honey, 

peanuts, pulse crops, sugar, wool and mohair are facilitated primarily through 

loans, payment programs, and purchase programs. 

The 2002 Farm Bill authorizes CCC to transfer funds to various agencies for authorized programs in fiscal years 2002 through 2007. It is anticipated that in fiscal 

year 2004, $1.7 billion will be transferred to other agencies. 

The CCC is also the source of funding for the Conservation Reserve Program 

(CRP) administered by FSA, as well as many of the conservation programs administered by the Natural Resources Conservation Service. In addition, CCC funds many 

of the export programs administered by the Foreign Agricultural Service. 

Program Outlays 

The fiscal year 2005 budget estimates largely reflect supply and demand assumptions for the 2004 crop, based on November 2003 data. CCC net expenditures for 

fiscal year 2005 are estimated at $15.0 billion, up about $0.2 billion from $14.8 billion in fiscal year 2004. 

This small net increase in projected expenditures is attributable to increases for 

the counter-cyclical and loan deficiency payment programs, as well as the Noninsured Assistance Program and CRP, all of which are mostly offset by decreases 

in other programs. 

Reimbursement for Realized Losses 

CCC is authorized to replenish its borrowing authority, as needed, through annual appropriations up-to-the amount of realized losses recorded in CCC’s financial 

statements at the end of the preceding fiscal year. For fiscal year 2003 losses, CCC 

was reimbursed $22.9 billion. 

Conservation Reserve Program 

The Conservation Reserve Program (CRP), administered by FSA, is currently 

USDA’s largest conservation/environmental program. It is designed to cost-effectively assist farm owners and operators in conserving and improving soil, water, air, 

and wildlife resources by converting highly erodible and other environmentally sensitive acreage, normally devoted to the production of agricultural commodities, to a 

long-term resource-conserving cover. CRP participants enroll acreage for 10 to 15 

years in exchange for annual rental payments as well as cost-share assistance and 

technical assistance to install approved conservation practices. The 2002 Farm Bill 

increased enrollment under this program from 36.4 million acres up to 39.2 million 

acres. 

The 2003 general signup I mentioned earlier brought nearly 2 million acres into 

the CRP. Also in 2003, under continuous and Farmable Wetlands Program (FWP) 

signups, a combined total of 430,000 acres was enrolled. We issued incentive payments totaling approximately $104 million under continuous signup, Conservation 

Reserve Enhancement Program (CREP), and FWP under the incentives program 

that began in May 2000 to boost participation. 

The fiscal year 2005 budget assumes general signups in fiscal years 2004 and 

2006 to enroll approximately 800,000 acres and 2.5 million acres, respectively. No 

general signup is expected in 2005. However, in each of fiscal years 2004 and 2005, 

we anticipate enrolling 450,000 acres under continuous signup and the CREP. 

About 50,000 acres are estimated to be enrolled in the FWP in fiscal years 2004 

and 2005. 

Overall, CRP enrollment is assumed to gradually increase from 34.1 million acres 

at the end of fiscal year 2003 to 39.2 million acres by fiscal year 2008, and to remain 

at 39.2 million acres through fiscal year 2014, maintaining a reserve sufficient to 

provide for enrollment of 4.2 million acres in continuous signup and CREP. 

FARM LOAN PROGRAMS

The loan programs funded through the Agricultural Credit Insurance Fund provide a variety of loans and loan guarantees to farm families who would otherwise 

be unable to obtain the credit they need to continue their farming operations. 

The fiscal year 2005 Budget proposes a total program level of about $3.8 billion. 

Of this total, approximately $0.9 billion is requested for direct loans and nearly $2.9 

billion for guaranteed loans offered in cooperation with private lenders. These levels 

should be sufficient to provide adequate funding for our most needy farmers and 

ranchers throughout the year. 

For direct farm ownership loans we are requesting a loan level of $200 million. 

The proposed program level would enable FSA to extend credit to about 1,700 small 

and beginning farmers to purchase or maintain a family farm. In accordance with 

legislative authorities, FSA has established annual county-by-county participation 
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targets for members of socially disadvantaged groups based on demographic data. 

Also, 70 percent of direct farm ownership loans are reserved for beginning farmers, 

and historically about 35 percent are made at a reduced interest rate to limited resource borrowers, who may also be beginning farmers. Recently, however, the reduced-rate provisions have not been utilized since regular interest rates are lower 

than the reduced rates provided by law. For direct farm operating loans we are requesting a program level of $650 million to provide nearly 14,000 loans to family 

farmers. 

For guaranteed farm ownership loans in fiscal year 2005, we are requesting a loan level of $1.4 billion. This program level will provide about 4,800 farmers the 

opportunity to acquire their own farm or to preserve an existing one. One critical 

use of guaranteed farm ownership loans is to allow real estate equity to be used 

to restructure short-term debt into more favorable long-term rates. For guaranteed 

farm operating loans we propose an fiscal year 2005 program level of approximately 

$1.5 billion to assist over 8,000 producers in financing their farming operations. 

This program enables private lenders to extend credit to farm customers who otherwise would not qualify for commercial loans and ultimately be forced to seek direct 

loans from FSA. 

We are particularly proud of all of our loan programs. As a matter of fact, since 

fiscal year 2000, our direct and guaranteed loans to minorities and women have increased every year. And in fiscal year 2003, there was an increase in direct loans 

to each minority group and we set a record for guaranteed farm ownership loans. In addition, our budget proposes program levels of $2 million for Indian tribal land acquisition loans and $60 million for boll weevil eradication loans. For emergency disaster loans, our budget proposes program levels of $25 million to provide 

sufficient credit to producers whose farming operations have been damaged by natural disasters. 

OTHER APPROPRIATED PROGRAMS

State Mediation Grants 

State Mediation Grants assist States in developing programs to deal with disputes 

involving a variety of agricultural issues including distressed farm loans, wetland 

determinations, conservation compliance, pesticides, and others. Operated primarily 

by State universities or departments of agriculture, the program provides neutral 

mediators to assist producers—primarily small farmers—in resolving disputes before they culminate in litigation or bankruptcy. States with certified mediation programs may request grants of up to 70 percent of the cost of operating their programs. Authority for State Mediation Grants expires at the end of fiscal year 2005. 

The Department plans to propose extending the program through fiscal year 2010. 

For fiscal year 2004, grants have been issued to 30 States. With the requested $4 million for fiscal year 2005, we anticipate that between 30 and 33 States will 

receive mediation grants. 

Emergency Conservation Program 

Since it is impossible to predict natural disasters, it is difficult to forecast an appropriate funding level for the Emergency Conservation Program. No funding was 

provided for the program in 2002 or 2003; however, it continued to operate throughout the two fiscal years using unobligated funds carried forward together with recoveries of unused funds previously allocated to the States. For fiscal year 2004, the Consolidated Appropriations Act provides $11.9 million 

for use in southern California only. Emergency cost-sharing for the nationwide program has continued into 2004 through recoveries from the States. As of March 26, 

we have issued allocations totaling about $8.1 million. No other funding is currently 

available to provide assistance nationally to producers who have suffered losses due 

to natural disasters. Unfunded pending requests from producers for damage from 

ice storms, drought, tornadoes, hurricane and other natural disasters total about 

$63.5 million. The fiscal year 2005 President’s Budget does not request funding for 

this program. 

Dairy Indemnity Program 

The Dairy Indemnity Program (DIP) compensates dairy farmers and manufacturers who, through no fault of their own, suffer income losses on milk or milk products 

removed from commercial markets due to residues of certain chemicals or other 

toxic substances. Payees are required to reimburse the Government if they recover 

their losses through other sources, such as litigation. As of March 26, we have paid 

fiscal year 2004 DIP claims totaling $309,000 in 12 States. 

The fiscal year 2005 appropriation request of $100 thousand, together with unobligated carryover funds expected to be available at the end of fiscal year 2004, would 
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cover a higher than normal, but not catastrophic, level of claims. Extended through 

2007 by the 2002 Farm Bill, DIP is a potentially important element in the financial 

safety net for dairy producers in the event of a serious contamination incident. 

Tree Assistance Program 

The Tree Assistance Program (TAP) provides financial assistance to qualifying orchardists to replace eligible trees, bushes, and vines damaged by natural disasters. 

No TAP outlays were made during fiscal year 2003. The fiscal year 1998 program 

expired at the end of fiscal year 2003, and all unobligated funds were returned to 

Treasury. The fiscal year 1999 program will expire at the end of fiscal year 2004. 

The Consolidated Appropriations Act, 2004, provides $12.4 million in appropriated 

funding for southern California. Separate legislative provisions have also made 

available CCC funding of $5 million for New York and $9.7 million for Michigan. 

No funding is requested for fiscal year 2005. 

ADMINISTRATIVE SUPPORT

The costs of administering all FSA activities are funded by a consolidated Salaries 

and Expenses account. The account comprises direct appropriations, transfers from 

loan programs under credit reform procedures, user fees, and advances and reimbursements from various sources. 

The fiscal year 2005 Budget requests $1.3 billion from appropriated sources including credit reform transfers. The request reflects decreases in non-Federal county 

staff-years and operating expenses, as well as increases in pay-related costs to sustain essential program delivery. 

The fiscal year 2005 request reflects a ceiling of 6,017 Federal staff years and 

10,284 non-Federal staff years. Temporary non-Federal county staff years will be reduced to 1,000—from the fiscal year 2004 level of 2,067—due to completion of initial 

farm bill implementation and disaster activities. Permanent non-Federal county 

staff years are estimated to remain at the 2004 level. 

Federal staff years will increase by 100 to enhance farm loan servicing in the 

field. The additional staff will be assigned to high volume county offices throughout 

the country. We anticipate that the additional staff will bring about decreased loanprocessing times, improve servicing of existing loans, and help avert increases in direct loan delinquency and loss rates. The additional employees will also help meet 

the needs of minority applicants, who often require considerable technical assistance 

from FSA staff to complete financial documents and formulate business plans. The 

resources to furnish this assistance are critical in supporting FSA’s outreach effort. 

Before closing I would like to note that support of FSA’s modernization effort is 

provided through the Department’s Common Computing Environment account. 

Funding made available to FSA under this account will provide needed telecommunications improvements and permit us to continue implementation of the 

GIS, which is so crucial to rapid and accurate program delivery. 

Mr. Chairman, this concludes my statement. I will be happy to answer your questions and those of the other Subcommittee Members. 

PREPARED STATEMENT OF A. ELLEN TERPSTRA, ADMINISTRATOR, FOREIGN

AGRICULTURAL SERVICE

Mr. Chairman, members of the Subcommittee, I appreciate the opportunity to review the work of the Foreign Agricultural Service (FAS) and to present the President’s budget request for FAS programs for fiscal year 2005. Our budget request reflects several initiatives needed to ensure FAS’ continued ability to accomplish its 

mission and provide service to U.S. agriculture. 

Last year, FAS had much to celebrate—its 50th anniversary as an agency, implementation of the new McGovern-Dole International Food for Education and Child 

Nutrition Program, the Secretary’s successful Ministerial Conference and Expo on 

Agricultural Science and Technology, a recovery in U.S. agricultural exports, and 

the conclusion of negotiations on a historic free trade agreement (FTA) with Central 

American countries. This year, FAS also has much to highlight—a near record export forecast, the 50th anniversary of Public Law 480, the conclusion of negotiations 

for free trade agreements with Australia and Morocco, and the anticipated conclusion of negotiations for a Free Trade Area of the Americas (FTAA) and FTAs with 

the Dominican Republic and five Southern African countries. 

These events demonstrate FAS’ commitment to fulfilling its mission of expanding 

and maintaining export opportunities for U.S. agricultural, fish, and forest products 

and helping to alleviate world hunger and food insecurity. The agency’s mission is 
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critical to U.S. farmers as our agriculture sector is twice as dependent on exports 

as the rest of the U.S. economy. 

Last fiscal year, U.S. agricultural exports reached $56.2 billion, an increase of 

nearly $3 billion over 2002. USDA predicts near-record U.S. agricultural exports of 

$59 billion in fiscal year 2004, more than 5 percent above exports in 2003 and nearly equal to the record $59.8 billion set in fiscal year 1996. The Western Hemisphere 

remains the largest regional market for U.S. agricultural products, with exports projected at $22.6 billion. Canada is now the largest U.S. agricultural export market, 

with sales to Canada forecast at $9.9 billion. Exports of corn, wheat, soybeans, and 

horticultural products are expected to increase over fiscal year 2003. 

While the anticipated recovery in exports is good news for U.S. farmers and exporters, the U.S. beef and cattle industry lost export markets in late 2003 since a 

single case of Bovine Spongiform Encephalopathy (BSE) or mad cow disease was 

discovered in Washington state. More than 70 U.S. trade partners closed their markets to U.S. beef, cattle, sheep, and goats, and other products. Since late December, 

FAS has worked tirelessly to inform our trade partners about the steps we are taking to investigate the situation and the additional safeguards we have implemented. 

We have been successful in keeping a portion of the Canadian and Philippine markets open to U.S. beef and had productive discussions with Mexican officials, as evidenced by Mexico reopening its market to U.S. beef products earlier this month. We 

are working with our Canadian and Mexican counterparts to enhance and coordinate a consistent North American response to the animal health and trade issues 

that BSE raises. We have dispatched high-level officials and technical teams from 

USDA and the Food and Drug Administration to Japan, South Korea, Hong Kong, 

and the Philippines and have hosted technical teams from Japan and Mexico here. 

We will continue such efforts to exchange information in the hope of eventually resuming trade. 

Here in Washington and at U.S. embassies abroad FAS staff continues to inform 

foreign governments of actions taken and to reassure them of the safety of our beef. 

Our efforts to restore our foreign markets continue to be our top priority, and we 

urge our trading partners to resume trade based on sound scientific principles. 

An additional wrinkle was added to the U.S. broiler export outlook when an outbreak of Low Pathogenic Avian Influenza (LPAI) was reported in several U.S. States 

in early February, followed by the confirmation of a Highly Pathogenic Avian Influenza (HPAI) case in Texas on February 23. U.S. trading partners immediately imposed bans on imports of U.S. chicken and turkey meat. The HPAI case was the 

first one in the United States in 20 years and it may keep us out of some of our 

larger markets for several months because this version of the disease is recognized 

internationally as highly contagious and import restrictions may be valid as long as 

they are limited to the state of Texas. 

FAS Program Activities 

Last year, we continued to use our long-standing export programs vigorously and 

have implemented new initiatives mandated in the Farm Security and Rural Investment Act of 2002 (2002 Farm Act). 

The 2002 Farm Act established the Technical Assistance for Specialty Crops program and authorizes $2 million in Commodity Credit Corporation (CCC) funds for 

each fiscal year from 2002 to 2007. Last year, we allocated $2 million to 19 entities 

for projects to help address unique barriers that prohibit or threaten the export of 

U.S. specialty crops. 

The Farm Act also increased funding for the Market Access Program. For fiscal 

year 2003, we allocated $110 million to 65 trade organizations to promote their 

products overseas. The Farm Act also increased funds for the Foreign Market Development Program, and FAS approved marketing plans totaling $38.0 million for 23 

trade organizations for fiscal year 2003. 

The Emerging Markets Program is authorized at $10 million each year and provides funds for technical assistance activities that will increase market access for 

U.S. commodities and products in emerging markets. A total of 75 projects were approved for fiscal year 2003. The Quality Samples Program provides funds so U.S. 

organizations can provide commodity samples to foreign buyers to help educate 

them about the characteristics and qualities of U.S. agricultural products. FAS allocated more than $1.7 million in fiscal year 2003 to 21 organizations under this program. 

The GSM–102 short-term export credit guarantee program facilitated sales of 

more than $2.5 billion in U.S. agricultural products last year to 12 countries and 

five regions. At the same time, U.S. exporters continue to discover the benefits of 

the Supplier Credit Guarantee Program. We issued $670 million in credit guaran-
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tees under this program in 2003, a more than 33-percent increase over last year, 

demonstrating increased awareness of the usefulness of this program. 

With the aid of the Dairy Export Incentive Program, U.S. exporters sold more 

than 86,000 tons of dairy products in fiscal year 2003. The CCC awarded more than 

$31 million in bonuses to help U.S. dairy exporters meet prevailing world prices and 

develop foreign markets, primarily in Asia and Latin America. 

The 2002 Trade Act established a new program, which is being administered by 

FAS—Trade Adjustment Assistance (TAA) for Farmers. Under this program, USDA 

provides technical assistance and cash benefits to eligible U.S. producers of agricultural commodities if increased imports have contributed to a specific price decline 

over five preceding market years. Last fiscal year, we got the program up and running and began accepting petitions for evaluation of eligibility for the program. 

Trade Adjustment Assistance petitions for 12 producer groups have been approved: 

catfish producers in 18 states; shrimp producers in Alabama, Arizona, Florida (the 

2nd Florida petition), Georgia, North Carolina, South Carolina, and Texas; wild 

blueberry producers in Maine; salmon fishermen in Alaska and Washington; and 

fresh lychee producers in Florida. 

On the trade policy front, we are working to open, expand, and maintain markets 

for U.S. agriculture. We are actively pursuing what U.S. Trade Representative 

(USTR) Robert Zoellick has called the competition for liberalization by seeking trade 

agreements in multilateral, regional, and bilateral contexts. 

Although the outcome of the World Trade Organization (WTO) negotiations in 

Cancun last September was a lost opportunity, the United States has not given up 

its efforts to achieve an international agreement that will liberalize agricultural 

trade. The United States and many other countries remain committed to eliminating trade distorting subsidies and tariffs, but we must do so together. The 

Cancun meetings resulted in a text that establishes a good basis for continuing negotiations. We will continue to work with all players, including countries that raised 

objections in Cancun, to seek common ground. 

In the meantime, we are pressing ahead with efforts to reach regional and bilateral trade agreements. 

In September, the President signed legislation to implement FTAs with Chile and 

Singapore. In December, we concluded negotiations on a historic and comprehensive 

Central American Free Trade Agreement (CAFTA) with El Salvador, Honduras, 

Guatemala, and Nicaragua. This agreement will strip away barriers to trade, eliminate tariffs, open markets, and promote investment, economic growth, and opportunity. Costa Rica joined CAFTA in January. 

While pursuing new negotiations, we have begun to see the benefits of earlier 

agreements. For example, on January 1, 2004, the United States, Canada, and Mexico celebrated the tenth anniversary of the implementation of the North American 

Free Trade Agreement (NAFTA). This groundbreaking agreement made North 

America the world’s largest free trade area. The success of the agreement for agriculture has been quite remarkable. Since 1994, Canada and Mexico have been our 

two top agricultural growth markets in the world—by a wide margin. Exports to 

Canada rose by about $3.1 billion over those years, while sales to Mexico rose about 

$2.7 billion. U.S. exports to the rest of the world rose by only $1.1 billion. In 2002, 

U.S. consumer-oriented products made up the lion’s share of all U.S. agricultural 

exports to Canada (70 percent) and Mexico (39 percent). Demand in both Canada 

and Mexico continues to look promising. Real economic growth in Canada is projected at roughly 3 to 3.5 percent a year over the next 10 years, while the Mexican 

economy is expected to grow by 4 to 4.5 percent a year. As incomes grow, food demand will likely follow, making NAFTA beneficial to U.S. agricultural exporters for 

years to come. 

As with all trade agreements, however, progress is not always straightforward. 

FAS monitors and enforces trade agreements to ensure that the benefits gained 

through long, hard negotiations are realized. Last year, our monitoring of the Uruguay Round Agreement on Agriculture and the Sanitary and Phytosanitary Agreement preserved an estimated $1.6 billion in U.S. trade. We continue to work to ensure that China adheres to its WTO accession commitments to change its tariff-rate 

quota system. In 2003, China purchased U.S. cotton and soybean oil exports of $330 

million and $48 million, respectively. We also worked to help win a WTO case 

against Japan’s unscientific import restrictions on U.S. apples, thus saving a potential $30-million market; and are working to preserve almost $400 million in U.S. 

exports of animal by-products to the European Union (EU). 

In addition, we helped resolve Russia’s technical issues related to poultry plant 

inspections, thus saving a market worth more than $300 million and restored access 

for U.S. dry beans to Mexico, resulting in the resumption of trade valued at $60 

million last year. 
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July 10, 2004, marks the 50th anniversary of Public Law (Public Law) 480, the 

Agricultural Trade Development and Assistance Act of 1954. This landmark program is the U.S. Government’s primary vehicle to meet humanitarian food needs; 

it also helps to spur economic and agricultural growth in developing countries, leading to expanded trade. 

Last year, we used this program to ship commodities from the United States to 

needy people around the world. Under numerous programs, FAS programmed nearly 575,000 metric tons of food assistance in fiscal year 2003 under Public Law 480, 

Title I credit agreements and Title I—funded Food for Progress donations. These 

products, valued at $122 million, went to 15 countries. The U.S. Agency for International Development (USAID), which manages the Title II program of Public Law 

480, provided about 3.7 million metric tons (grain equivalent basis) of food to needy 

people. 

Also last year, FAS launched the McGovern-Dole International Food for Education 

and Child Nutrition Program allowing us to build on the success of the Global Food 

for Education (GFE) pilot program, which began in fiscal year 2001. It is designed 

to both encourage education and deliver food to improve nutrition for preschoolers, 

school children, mothers, and infants in impoverished regions. The 2002 Farm Act 

authorized the program through fiscal year 2007, providing $100 million in CCC 

funding for fiscal year 2003. Under fiscal year 2003 programming, Food for Education donations were announced for 21 countries, totaling 131,000 metric tons valued at about $42 million. 

In addition to these food assistance programs, last year FAS employees were deployed to Afghanistan and Iraq to help rebuild those countries’ agricultural sectors. 

The reconstruction challenges in these two countries are enormous, the security and 

logistical challenges tremendous, and the obstacles to progress great. However, we 

are committed, along with USAID, the Department of State (DOS), and the Department of Defense, to do all that we can in the reconstruction effort. 

In Afghanistan, we provided technical guidance to help establish an Afghan Conservation Corps. This corps will provide jobs to thousands of unemployed Afghans, 

putting them to work to grow and plant trees, collect and conserve water, and stop 

soil erosion. FAS led the Department’s assistance efforts for the corps, sending three 

technical teams on short-term assignments last year. In addition, FAS placed three 

USDA staff employees in provincial reconstruction teams, with the goal of placing 

a total of eight, to work in rural agricultural areas rehabilitating Afghanistan’s agricultural sector. 

In Iraq, USDA is playing a key role in the United States’ overall efforts to create 

a democratic, market driven economy. With DOS and USAID, USDA is assessing 

food needs and providing expertise on restoring water, agriculture, forestry, and 

rangelands. Rebuilding Iraq’s agricultural infrastructure continues to be a major 

priority. To that end, USDA continues to work on the revitalization of Iraq’s agriculture ministry and is working with other U.S. Government agencies on reconstruction and development priorities, looking forward to commercial trade with Iraq. In 

recognition of Iraq’s many needs, FAS sent a U.S. agricultural officer there in February 2004 to work as a senior advisor for food trade issues in the Ministry of 

Trade. This comes at a critical time, when Iraq begins to take more responsibility 

for its important agricultural and trade programs. 

Last year, the United States committed a total of $478 million for food assistance 

to Iraq, shipping a total of 255,320 tons of U.S. commodities including wheat, flour, 

rice, soybean oil, nonfat dry milk, and pulses (Great Northern beans, chickpeas, and 

black-eyed peas) under Public Law 480, Title II and Section 416(b) of the Agricultural Act of 1949. 

Another example of our continuing efforts to help countries help themselves was 

Secretary Veneman’s historic Ministerial Conference and Expo on Agricultural 

Science and Technology last June. The conference focused on how science and technology and a supportive policy environment can drive agricultural productivity and 

economic growth to alleviate world hunger and poverty. 

About 1,000 participants attended including 119 ministers of agriculture, science 

and technology, health, environment, and commerce. It was one of the largest, most 

diverse gatherings of decision-makers from around the world to address global hunger. One-hundred seventeen countries were represented. Other attendees came from 

the private sector, academia, research institutes, foundations, and non-governmental 

and international organizations. 

The Ministerial provided an extraordinary opportunity for dialogue, knowledge 

sharing, and the creation of partnerships. It sparked tremendous enthusiasm among 

ministers and other developing-country representatives for science and technology 

to deliver solutions. 
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Given the tremendous energy the event generated, many ministers from developing countries have agreed to partner with USDA to keep the momentum going 

in finding technology- and policy-based solutions to global food insecurity. For example, ministers from Africa and Latin America offered to host follow-up conferences 

for their regions. A Central American regional conference will be held in Costa Rica 

in May in partnership with the Inter-American Institute for Cooperation on Agriculture (IICA). A regional conference for West Africa will take place this summer 

in Ouagadougou, Burkina Faso. Other conferences and follow-up activities are 

planned throughout the coming years. 

As we work to organize and conduct follow-up activities, we are building invaluable relationships with developing countries that will help us work together in the 

future to resolve trade disputes and prepare developing countries for global trade. 

Our longstanding training program, the Cochran Fellowship Program was used to 

introduce 853 Cochran Fellows from 82 countries to U.S. products and policies in 

2003. These Fellows met with U.S. agribusiness; attended trade shows, policy, and 

food safety seminars; and received technical training related to market development. 

The Cochran Fellowship Program provides USDA with a unique opportunity to educate foreign government and private sector representatives not only about U.S. 

products, but also about U.S. regulations and policies on critical issues such as food 

safety and biotechnology. 

During Secretary Veneman’s visit to Afghanistan in November, she announced the 

first Cochran Fellowship Program with Afghanistan to provide short-term, U.S.- 

based training for eight Afghan women to study agricultural finance. They will 

learn about business plans, financial management, farmers’ cooperatives, and microcredit programs to promote food security and income-generating small businesses. 

We also collaborated with a diverse group of U.S. institutions in research partnerships with more than 50 countries to promote food security and trade. These research and exchange activities made practical use of biotechnology and other scientific techniques to help solve critical problems affecting food, agriculture, fisheries, 

forestry, and the environment. Activities also were conducted to evaluate the food, 

nutritional, and water needs of vulnerable populations in rural and urban areas to 

help expand the livelihoods of small and limited-resource farmers, ranchers, and 

communities. 

In the end, the technical assistance that we provide will help build the institutions needed for developing countries to attract investment and grow their economies. When our efforts are successful, our food and agricultural producers will benefit by access to more and better markets. 

Challenges Ahead 

Faced with continued growth in our agricultural productivity, intense competition, 

and continued aggressive spending on market promotion by our competitors, we 

must redouble our efforts to improve the outlook for U.S. agricultural exports. I 

would like to discuss our top priorities for the year. 

Continuing Trade Liberalization for Agriculture 

At the top of our list is moving forward in multilateral, regional, and bilateral 

trade negotiations on agriculture. Although getting the WTO negotiations restarted 

and on a positive path will not be easy, we must resume the long journey toward 

worldwide multilateral trade liberalization. 

The Doha Round will not likely meet its deadline of having an agreement completed by January 2005. However, all countries have much to gain from successful 

reform of the international trading system, and we must continue our efforts to resolve the issues that stalled the talks in Cancun. 

In January, Ambassador Zoellick sent a letter to his counterparts in the WTO 

suggesting a ‘‘common sense’’ approach to advance the negotiations in 2004. Ambassador Zoellick recommended that the negotiations focus on core market access topics 

of agriculture, goods, and services. 

In the area of agriculture, the letter suggests that WTO members agree to eliminate export subsidies by a date certain, agree to substantially decrease and harmonize levels of trade-distorting domestic support, and provide a substantial increase in market access opportunities. The letter notes that the United States 

stands by its 2002 proposal to eliminate all trade distorting subsidies and barriers 

to market access. 

To hammer home the points he made in his letter, Ambassador Zoellick traveled 

extensively at the end of February, meeting with more than 30 countries in Asia, 

Africa, and Europe. He also attended the Cairns Group meeting, which gave him 

a good opportunity to talk with many Latin American countries. In addition, Secretary Veneman had a very fruitful meeting with EU Commissioner Franz Fischler 
300 

during which she pressed for the resumption of the Doha Agenda talks. The response to Ambassador Zoellick’s proposal has been very positive, and most countries 

appear to be genuinely interested in moving the negotiations forward. Serious, substantive discussions will resume in Geneva next week. We are optimistic that we 

will have a framework in place by July and possibly a Ministerial conference by the 

end of the year. 

In addition, we will continue to press ahead with our efforts to reach regional and 

bilateral trade agreements. During the last year, we implemented FTAs with Chile 

and Singapore and concluded negotiations with Central America. Earlier this year, 

we concluded free trade talks with Australia and Morocco. We also hope to bring 

the Dominican Republic into the CAFTA agreement, and we will continue to work 

towards establishing an FTA with the Southern African Customs Union—which includes the countries of Botswana, Lesotho, Namibia, South Africa, and Swaziland. 

We have recently launched negotiations with Bahrain and will soon begin discussions with Panama, Colombia, and Peru. 

Another major trade initiative is the FTAA. Launched in 1998, these negotiations 

could establish a free trade zone, covering 800 million people in 34 countries that 

stretch from the Arctic Circle to Tierra del Fuego. These negotiations have proven 

to be quite challenging because of the large number of participants, each with its 

own interests and external relationships. An important breakthrough was made at 

the Miami Ministerial meeting in November at which trade ministers established 

a new framework that will allow countries with greater ambition for trade liberalization to pursue those goals with like-minded partners within the FTAA, while ensuring that all participants will be covered by a common set of rights and obligations. Concluding these negotiations on schedule will be a challenge, but it can be 

done as long as we all remain committed to regional integration as a tool to stimulate economic growth in the hemisphere. 

We will continue to work with the countries that would like to join the WTO, such 

as Russia and Saudi Arabia. Although increasing the number of members in the 

WTO is a high priority, we will continue to insist that these accessions be made on 

commercially viable terms that provide trade and investment opportunities for U.S. 

agriculture. And when membership in the WTO is achieved, we must continue to 

monitor aggressively those countries’ compliance with their commitments. We must 

ensure that acceding countries implement trade policies and regulations that are 

fully consistent with WTO rules and obligations. 

The effort to keep markets open in the face of unscientific or artificial trade barriers is inherent in the FAS mission. This is perhaps our most important task, yet 

it is the least visible. It is a measure of our success that so many issues are resolved 

so quickly, with so little public awareness. Virtually every day, our overseas and 

Washington staff work as a team on a variety of concerns—first to prevent crises 

from developing and then to resolve thorny issues should they arise. They coordinate efforts with a number of USDA agencies, as well as with private sector companies and associations. FAS’ overseas officers work continuously to prevent trade 

problems from occurring or to resolve them as soon as they crop up. 

Every year, these activities preserve millions of dollars in trade that potentially 

could have been lost by countries imposing new barriers. Some problems may be resolved quickly with a phone call or a meeting; others are more complex, and involve 

multiple U.S. agencies. Our priority this year is reopening our major export markets 

for U.S. beef and poultry exports. As a result of the single BSE case in Washington 

state, most U.S. export markets have banned our cattle, beef, and beef product exports, including rendered products, pet foods, and cattle genetics. At the same time, 

most U.S. export markets have banned or partially banned U.S. poultry and poultry 

exports because of outbreaks of LPAI. 

Another priority is how we deal with the issues surrounding products produced 

through biotechnology. The increasing number of countries around the world that 

are issuing regulations relating to products of biotechnology present a particular 

challenge, both for our infrastructure and for our food and agricultural exports. We 

are using every available forum to ensure countries adopt science-based policies in 

this area. 

To focus our efforts, FAS formed a new office last year to work with a myriad 

of public and private, domestic and international organizations on a broad array of 

biotech issues. Activities this year include working to ensure that the Cartagena 

Protocol on Biosafety does not disrupt grain trade; participating in the third annual 

Asia Pacific Economic Cooperation policy dialogue on biotechnology; working with 

USTR on the U.S. case against the EU’s moratorium on biotech products; and a host 

of other issues and activities too long to mention. 

As you see, we will be working on many fronts to continue to improve export opportunities for the American food and agriculture sector, but we cannot do it alone. 
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Strengthening Market Development Partnerships and Programs 

The challenges we face in multilateral, regional, and bilateral trade negotiations 

make it imperative that we work closely with our foreign market development cooperators to strengthen our partnership and keep the lines of communication open. 

This will help us become an even more potent force in improving the competitive 

position of U.S. agriculture in the global marketplace. 

We will continue to use our export assistance programs—Emerging Markets Program, Market Access Program, Quality Samples Program, Technical Assistance for 

Specialty Crops program, and Foreign Market Development Cooperator Program— 

to open and maintain export opportunities for U.S. farmers and exporters. 

We are working on a Global Broad-Based Initiative (GBI) to better utilize our 

marketing resources. GBI will allow FAS cooperator groups to address a broad 

range of issues that may be regional in scope. Under the GBI process, proposals for 

program funding from cooperator groups in concert with input from our overseas 

posts will address key priorities, such as market access and unfair competition; biotechnology, sanitary and phytosanitary issues, and food safety; best growth markets; 

high-value products; capacity building; and food security and trade financing. 

Proposals that cut across multiple product or industry lines—as well as multiple 

markets—will have greater impact than those that focus on one product or one market. Under GBI, FAS and cooperators have a unique opportunity to address common 

strategic challenges and opportunities. 

We will continue to encourage U.S. exporters to develop and refine their marketing strategies, look to new market opportunities, and fully use all the FAS tools 

at their disposal. 

Building Trade Capacity 

Hand-in-hand with our negotiating efforts are our activities to help developing 

countries participate more fully in the trade arena. Our trade-capacity building efforts are aimed at helping countries take part in negotiations, implement agreements, and connect trade liberalization to a program for reform and growth. We will 

work closely with USTR and USAID in this effort. 

If we are to achieve success in the negotiating process, we must engage the developing world in the creation and implementation of appropriate trading rules and 

guidelines. This will take time, but it will be worth the investment. These countries 

represent our future growth markets. We must address the concerns of developing 

countries, a requirement made evident in Cancun. Without their support, there will 

be no new multilateral agreement. 

FAS provides technical expertise to enhance developing countries’ abilities to engage in two-way trade. FAS recruits expertise from USDA agencies, universities, 

and the private sector. We have been particularly active in providing information 

about science-based animal and plant health and food safety rules and systems. We 

also are working with countries to help them build information systems that provide 

accurate agricultural production, trade, and price data. Providing technical advice 

on cold storage, handling, and transportation systems facilitates two-way trade in 

high-value, perishable foods. By helping countries understand the advantages of 

using efficient biotechnology tools, we help lower costs and improve the quality of 

farm products. 

Throughout the year, we will use all our available tools—the Cochran Fellowship 

Program, the Emerging Markets Program, and our involvement in international organizations such as IICA—to educate and assist countries seeking to reform and improve their economies so they can participate in the world marketplace. 

Ensuring World Food Security 

During the past 2 years, the U.S. contribution of global food aid has reached about 

60 percent of total world aid, and we remain committed to these efforts that address 

world food insecurity and help to alleviate hunger, malnutrition, and poverty. 

During 2004, we will be working closely with the World Food Program and our 

private voluntary organization partners to ensure that the new McGovern-Dole 

International Food for Education and Child Nutrition program builds on the success 

achieved by the Global Food for Education Initiative. USDA will donate approximately 66,000 metric tons of commodities to provide nutritious school meals to 

school and pre-school children, as well as nutritional assistance to mothers and infants. In addition, we estimate that the United States will be able to distribute 

about 3.8 million metric tons of commodities through Public Law 480, Food for 

Progress, and other programs in fiscal year 2004. 

But we know food aid is not the only tool to achieve world food security. Developing countries must strengthen their agricultural policies and institutions and increase their investments in agricultural productivity if they are to find their way 
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out of the seemingly endless cycle of hunger, poverty, and economic stagnation. Agricultural science and technology transfer and extension along with supportive policy and regulatory frameworks are critical. 

Budget Request 

Mr. Chairman, our fiscal year 2005 budget proposes a funding level of $147.6 million for FAS and 1,005 staff years. This represents an increase of $11.9 million 

above the fiscal year 2004 level and supports several initiatives needed to ensure 

the agency’s continued ability to conduct its activities and provide services to U.S. 

agriculture. 

The budget proposes an increase of $4.8 million for support of FAS overseas offices. The FAS network of 80 overseas offices covering over 130 countries is vulnerable to the vagaries of macro-economic events that are beyond the agency’s control. 

The significantly weakened U.S. dollar and higher International Cooperative Administrative Support Services (ICASS) payments to DOS have caused overseas operating costs to increase sharply. Specifically, these increases include: 

—$2.0 million to replenish the Buying Power Maintenance Account (BPMA). FAS 

has the authority to carry over up to $2.0 million in exchange rate gains from 

current year appropriations in a BPMA to offset future exchange rate losses. 

The account was fully funded at the end of fiscal year 2002, but was depleted 

by the end of fiscal year 2003 due to the weakness of the dollar. Continued 

weakness of the dollar implies that future exchange rate gains are unlikely. 

—$1.76 million to fund higher payments to DOS. DOS provides overseas administrative support for U.S. foreign affairs agencies through ICASS. FAS has no administrative staff overseas, and thus relies entirely on DOS/ICASS for this support. Based on current cost growth trends, we are estimating that our ICASS 

assessment will increase by about 10 percent or $1,104,000. Additionally, for security reasons, and as a precondition to moving into the new embassy in Beijing, all agencies are required to purchase new furniture through DOS. DOS 

has assessed individual agency charges on a per-capita basis; the FAS assessment is $655,000. 

—$581,000 to fund mandatory costs of participating in the Capital Security Cost 

Sharing Program. Beginning in fiscal year 2005, DOS will implement a program 

through which all agencies with an overseas presence in U.S. diplomatic facilities will pay a proportionate share for accelerated construction of new, secure, 

safe, and functional diplomatic facilities. These costs will be allocated annually 

based on the number of authorized positions. This plan is designed to generate 

a total of $17.5 billion to fund 150 new facilities over a 14-year period. The FAS 

assessment starts at $3.6 million in fiscal year 2005; however, $3 million of this 

amount will be offset though a credit for overseas rental costs currently incurred by FAS. The FAS assessment is estimated to increase annually in roughly $3-million increments until fiscal year 2009, at which time the annual assessed level will total an estimated $15 million. This level is assumed to remain 

constant for the following 9 years. 

—$490,000 for the costs of overseas telecommunications improvements. This increase will allow for the upgrade from 9.6 KBPS to 128 KBPS on the State Department’s Diplomatic Telecommunications Service (DTS) communication lines 

where DTS is the only option. 

A crosscutting departmental priority is expanding our eGov capability. Secretary 

Veneman recently announced that USDA would focus on eGovernment initiatives 

this year. This multi-faceted initiative will change the way we in FAS communicate 

with each other, with the rest of government, and most importantly, with the customers we serve here and around the world. In this regard, the budget proposes an 

increase of $5.3 million to implement an FAS Global Computing Environment initiative. The 4-year initiative will modernize FAS information technology systems and 

applications to ensure compliance with eGovernment objectives and standards for 

Federal agencies. Under the Global Computing Environment initiative, FAS will 

modernize existing systems, restructure its agricultural production and trade databases, and improve the timeliness and efficiency of its reporting systems. The FAS 

information technology system is aging and in danger of failing. As examples: 

—Of the 35 servers currently providing e-mail and network services for FAS, 25 

are 5 or more years old, operating well beyond their normal life cycle. 

—Over 2/3’s of FAS desktop PC’s (about 900) are already 5-years old and are only 

running at one-third the current industry standard operating speed. (800 mh 

vs. 2.4 gh) 

—More than half of the agency’s mission-critical information systems—which are 

of highest interest to USDA customers—are more than 7 years old. 
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Our goal is to improve the services provided to U.S. agricultural producers and 

exporters by electronically sharing information, providing FAS program interfaces 

in real time, with no delays, and in easy to manipulate formats. 

As our information systems are modernized, FAS will move aggressively to integrate its information systems with those in Federal and State agencies involved in 

similar lines of business, i.e., international commerce and trade, international development, trade-capacity building, food aid, trade negotiations, and participation in 

international organizations. 

This will include integration with other USDA agencies through USDA.gov, which 

will provide the Department’s customers with the ability to customize the information they receive from the Department through a personalized web portal. FAS will 

also need to integrate with DOS’ information management system for communications within U.S. embassies and between embassies and Washington. This will give 

USDA officials access to internal government communications and policy papers on 

relevant issues such as agricultural trade, food aid, and biotechnology. Finally, the budget includes an increase of $1.8 million to cover higher personnel 

compensation costs associated with the anticipated fiscal year 2005 pay raise and 

efforts to recognize employee performance. Pay cost increases are non-discretionary 

and must be funded. Absorption of these costs in fiscal year 2005 would primarily 

come from reductions in agency personnel levels, which would significantly affect 

FAS’ ability to contribute to USDA’s strategic goal of enhancing economic opportunities for agricultural producers. 

Export Programs 

Mr. Chairman, the fiscal year 2005 budget includes over $6 billion for programs 

administered by FAS that are designed to promote U.S. agricultural exports, develop long-term markets overseas, and foster economic growth in developing countries. 

Export Credit Guarantee Programs 

The budget includes a projected overall program level of $4.5 billion for export 

credit guarantees in fiscal year 2005. 

Under these programs, the CCC provides payment guarantees for the commercial 

financing of U.S. agricultural exports. As in previous years, the budget estimates 

reflect actual levels of sales expected to be registered under the programs and include: 

—$3.4 billion for the GSM–102 short-term guarantees; 

—$5.0 million for the GSM–103 intermediate-term guarantees; 

—$1.1 billion for Supplier Credit guarantees, and 

—$10.0 million for Facility Financing guarantees. 

Market Development Programs 

Funded by CCC, FAS administers a number of programs that promote the development, maintenance, and expansion of commercial export markets for U.S. agricultural commodities and products. For fiscal year 2005, the CCC estimates include a 

total of $173.0 million for the market development programs, unchanged from fiscal 

year 2004 these include: 

—$125.0 million for the Market Access Program; 

—$34.5 million for the Foreign Market Development Cooperator Program; 

—$10.0 million for the Emerging Markets Program; 

—$2.5 million for the Quality Samples Program; and 

—$2.0 million for the Technical Assistance for Specialty Crops Program. 

International Food Assistance 

The fiscal year 2005 budget continues the worldwide leadership of the United 

States in providing international food aid. The fiscal year 2005 request for foreign 

food assistance totals more than $1.5 billion including $1.3 billion for Public Law 

480 to provide approximately 3.2 million metric tons of commodity assistance. For 

Title I, the budget provides for a program level of $123.0 million, which will support 

approximately 500,000 metric tons of commodity assistance. For Title II donations, 

the budget provides for a program level of $1.185 billion, which is expected to support 2.7 million metric tons of commodity donations 

—$149 million for CCC-funded Food for Progress. This level is expected to meet 

the minimum level of 400,000 metric tons established in the 2002 Farm Bill; 

—$147 million for Section 416(b) donations. Under this authority, surplus commodities that are acquired by CCC in the normal course of its domestic support 

operations are available for donation. For fiscal year 2005, current CCC baseline estimates project the availability of surplus nonfat dry milk that can be 

made available for programming under section 416(b) authority; and 
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—$75.0 million for the McGovern-Dole International Food for Education and Child 

Nutrition Program. This represents an increase of $25 million over the fiscal 

year 2004 appropriation and will assist an estimated 1.9 million participants. 

Export Subsidy Programs 

FAS administers two export subsidy programs through which payments are made 

to exporters of U.S. agricultural commodities to enable them to be price competitive 

in overseas markets where competitor countries are subsidizing sales. These include: 

—$28 million for the Export Enhancement Program (EEP). World supply and demand conditions have limited EEP programming in recent years and, as such, 

the fiscal year 2005 budget assumes a continuation of EEP at the fiscal year 

2004 level. However, the 2002 Farm Bill does include the maximum annual 

EEP program level of $478.0 million allowable under Uruguay Round commitments that could be utilized should market conditions warrant. 

—$53 million for the Dairy Export Incentive Program (DEIP), $31 million above the current fiscal year 2004 estimate of $22 million. This estimate reflects the 

level of subsidy currently required to facilitate exports sales consistent with projected United States and world market conditions and can change during the 

programming year as market conditions warrant. 

Trade Adjustment Assistance for Farmers 

Under the Trade Act of 2002, the TAA authorizes USDA to make payments up to $90.0 million annually to eligible producer groups when the current year’s price 

of an eligible agricultural commodity is less than 80 percent of the national average 

price for the 5 marketing years preceding the most recent marketing year, and the 

Secretary determines that imports have contributed importantly to the decline in 

price. As of the beginning of March, petitions from eight producer groups had been 

certified as eligible for TAA and an additional 10 petitions were under review to determine eligibility. Payments under the program will begin later this year once the 

benefit application period has closed. 

This concludes my statement, Mr. Chairman. I will be glad to answer any questions. 

PREPARED STATEMENT OF ROSS J. DAVIDSON, JR., ADMINISTRATOR, RISK

MANAGEMENT AGENCY

Mr. Chairman and members of the Subcommittee, I am pleased to present the fiscal year 2005 budget for the Risk Management Agency (RMA). RMA continues to 

make rapid progress in meeting its legislative mandates to provide an actuarially 

sound crop insurance program to America’s agricultural producers. Crop insurance 

is USDA’s principal means of helping farmers survive a crop loss. In 2005, the program is expected to provide producers with more than $42 billion in protection on 

approximately 220 million acres through about 1.2 million policies. 

To improve service to our customers and stakeholders, in 2003, we began an evaluation of crop insurance business processes to integrate performance and create 

higher productivity, and to achieve key performance goals. To hear first-hand the 

challenges affecting producers in the crop insurance program, we have conducted 

listening sessions with producers and grower groups throughout the United States; 

over 26 listening sessions have been held to date. It is no coincidence that the top 

concerns expressed by our customers and stakeholders have become the foundation 

of our key performance objectives in support of the Agency’s mission. These objectives are: (1) Provide widely available and effective risk management solutions; (2) 

Provide a fair and effective delivery system; (3) Ensure customers and stakeholders 

are well-informed; (4) Maintain program integrity; and (5) Provide excellent service. 

To effectively address the concerns and challenges within the crop insurance program, RMA’s total fiscal year 2005 budget request is $3.09 billion. The funding level 

proposed for the Federal Crop Insurance Corporation (FCIC) Fund is $3,000,443,000 

and for the Administrative and Operating Expenses, the request is $91,582,000. 

FCIC Fund 

The fiscal year 2005 budget proposes that ‘‘such sums as may be necessary’’ be 

appropriated to the FCIC Fund. This ensures the program is fully funded to meet 

producers’ needs. The current estimate of funding requirements is based on USDA’s 

latest projections of planted acreage and expected market prices. The budget request 

includes $2.1 billion for Premium Subsidy, $782.4 million for Delivery Expenses, 

and $77.3 million for mandated Agricultural Risk Protection Act of 2000 (ARPA) activities. 
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Administrative and Operating Expenses (A&O) 

RMA’s fiscal year 2005 request of $91.6 million for Administrative and Operating Expenses represents an increase of about $20.6 million from fiscal year 2004. This 

budget supports increases for information technology (IT) initiatives of $15.5 million. 

These IT funds are targeted toward the infrastructure improvements and enhancement of the corporate operating systems necessary to support growth in the 

program as new products are developed and existing products are improved and offered for sale. Due to the rapid growth in the program, it has been difficult to maintain adequate funding for RMA’s information technology system. The Agency’s IT 

infrastructure supports the crop insurance program’s business operations at the national and local levels, provides risk management products to producers nationwide 

and is the basis for payments to private companies reinsured by the FCIC. RMA 

is using system and database designs originally developed in 1994. There have been 

few hardware and software upgrades and business process analysis and re-engineering of the entire business delivery system are needed to support current and future 

program growth. The IT systems do not meet the minimum requirements mandated 

by the USDA Office of the Chief Information Officer due to advanced age and architecture. Without adequate funding of the IT requirements, the Agency will not be 

able to safely sustain additional changes required by new product development or 

changes in existing products. Future program expansion will increase the risk of 

system failure and possible inability to handle day-to-day processing of applications 

and indemnity payments. Also, included in the total request is $1.0 million to expand the monitoring and 

evaluation of reinsured companies. RMA is requesting funds to establish a systematic process of monitoring, evaluating, and auditing, on an annual basis, the performance of the product delivery system. These funds will be used to support insurance company expense audits, performance management audits and reinsurance 

portfolio evaluations to ensure internal and management controls are a basic part 

of reinsured companies’ business operations. To support an increase of 30 staff years, $3.0 million is requested to raise RMA’s 

employment ceiling from 568 to 598. Funding for additional staff years is necessary 

to strengthen the safety net for agricultural producers through sound risk management programs. The fiscal year 2005 budget request includes five additional staff 

years for the Research and Development Offices, to provide necessary support to 

evaluate, monitor and manage contractual agreements and partnerships with public 

and private business sectors. The additional staff years will aid in the review and 

evaluation of the increasing number of new private product submissions received by 

the Agency each year. They will also provide oversight of privately contracted product development needed to fulfill ARPA mandates that RMA provide risk management tools for producers of specialty crops, livestock, forage pasture, hay and other 

underserved commodities, areas and producers. 

To support the increased workload for the Compliance function, a request for 15 

staff years is included. The additional staff years will provide the Compliance function the necessary support to address outstanding OIG and GAO recommendations 

to improve oversight and internal controls over insurance providers. In response to 

several OIG audit reports, RMA needs to establish a systematic process of auditing 

insurance providers to detect and correct vulnerabilities to proactively prevent improper payment of indemnities. RMA’s studies suggest that additional resources in 

this area would provide a minimum of $4 in reduced fraud cost for every dollar 

spent. The additional staffing will provide the necessary oversight to ensure taxpayers’ funds are expended as intended. 

In addition, 10 staff years are requested for the Insurance Services Offices, to implement good farming practice determinations, and to adequately evaluate claims 

based on questionable farming practices. ARPA requires RMA to establish a process 

to reconsider determinations of goods farming practices. The Regional Offices of Insurance Services are in a unique position by virtue of their education in production 

agriculture, agronomy and related fields, and knowledge of local crops and growing 

conditions to effectively carry out the important function of determining good farming practices. RMA data indicate that approved insurance providers rarely assess 

uninsured causes of loss against a producer for failure to follow good farming practices. With approved insurance providers operating in an environment of risk sharing, there is a tremendous need for support and incentives for tightening loss adjustment, particularly in the good farming practices area to ensure that payments 

for losses is consistent with the requirements of Federal Crop Insurance Act. For 

example in crop year 2002, of approximately 1.25 million policies earning premium, 

about .03 percent were assessed uninsured causes of loss. This small percentage appears to be inconsistent with data uncovered through various oversight activities. 
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Based on 2002 indemnities of over $4 billion, if RMA determinations and reconsiderations of good farming practices had prevented only 3 percent of indemnities from 

being paid improperly, the resulting savings would be an estimated $121 million. 

Lastly, an increase of $1.1 million is requested for pay cost. These funds are necessary to maintain required staffing to carry out RMA’s mission and mandated requirements. 

The fiscal year 2005 budget request supports the President’s Management Initiatives and is aligned with the Agency’s five performance objectives. 

Provide Widely Available and Effective Risk Management Solutions.—The FCIC 

Board of Directors (Board) will continue its work to maintain an aggressive agenda 

focused on addressing producer’s issues and challenges in the crop insurance program. This agenda increases participation in the program, ensures outreach to small 

and limited resource farmers, expands programs where appropriate, affirms program compliance and integrity, and ensures equity in risk sharing. 

The Board is focusing on the overall FCIC portfolio of insurance products, with 

new strategies to provide the greatest amount of protection. We are actively working 

with the private sector to find new and better ways to provide risk protection for 

forage, rangeland, and pasture and to address the long term production declines 

that result from extended drought in many areas. Priority also is directed towards 

identifying opportunities to expand participation in current crop insurance programs 

in areas with below average participation. 

In addition, many of the new product development contracts, authorized by Section 508(h) of the Federal Corp Insurance Act, are coming to fruition. The Board 

will review these private product submissions and decide on the appropriateness of 

pilot testing the products. 

Beginning February of 2002, RMA initiated a series of listening sessions throughout the United States to gather market feedback on issues and concerns that affect 

the agricultural community. From this initiative, 26 listening sessions have been organized by the Regional Offices in various locations. The focus of the meetings was 

to obtain feedback from farmers on what is working well in our program, factors 

that impact product acceptance and market penetration, what program issues need 

to be addressed, and whether products were meeting the needs of the agricultural 

sector. To gather the widest possible representation, we focused on inviting the various regional Grower Associations and agricultural interest groups, both private and 

governmental. The feedback from the listening sessions identified a broad theme of 

issues such as requests to expand products such as Adjusted Gross Revenue (AGR/ 

AGR-Lite) and Crop Revenue Coverage (CRC), simplify prevent planting regulations, and extend crop dates. In addition, irrigation issues and the knowledge and 

training of insurance agents were topics of discussion. 

RMA is already engaged in working toward solutions to resolve many of the issues 

identified at these listening sessions and, is evaluating the feasibility of many others with the legal limitations and parameters established in statute to operating an 

actuarially sound insurance program. In addition, the FCIC Board of Directors commissioned a Product Portfolio Review to assist in evaluating and developing a strategic product development plan. Our initial plan growing out of that review focuses 

on identifying and pursuing opportunities to more comprehensively provide risk coverage and other risk management solutions for producers, regions, commodities and 

risks. It gives priority to the development of new insurance products and other risk 

management solutions to fill identified gaps, including coverage for livestock, forage, 

rangeland, long-term drought and specialty crops; and simplifies and improves the 

effectiveness of revenue and other insurance products that will meet the needs of 

the agriculture sector. 

Provide a Fair and Effective Delivery System.—RMA relies on private sector insurance companies to deliver and service risk management tools to producers. The financial agreement that compensates insurers for their service and established 

standards for performance is the Standard Reinsurance Agreement (SRA). The current agreement has been in effect since 1998 and needs to be updated to reflect the 

changing nature and scope of the program as well as recent development of the delivery system. 

ARPA gave RMA the authority to renegotiate the current SRA once during the 

2001 through 2005 reinsurance years. On December 31, 2003, RMA provided the required notice of cancellation of the current agreement effective July 1, 2004 and its 

intent to renegotiate the agreement for the 2005 reinsurance year, which begins on 

July 1, 2004. On December 30, 2003, RMA issued the draft of the proposed SRA 

to insurance providers. The first round of negotiations with insurance providers has 

been completed. A range of issues was identified and a second draft of the SRA addressing those issues is near completion for review and negotiation with the compa-
307 

nies. We are working with all insurers to have a new and equitable SRA in place 

by the 2005 reinsurance year. 

Through this private sector delivery system, in crop year 2003, RMA provided approximately $41 billion of protection to farmers, and expects indemnity payments 

for crop year losses of approximately $3.3 billion. The participation rate for major 

program crops was approximately 82 percent. An important part of the delivery system is having effective and useable products. RMA continues to efficiently evaluate 

risk management products, review and approve private sector products to be reinsured by the FCIC, to promote new risk management strategies, and ensure effective delivery of these products to agricultural producers. RMA’s education, outreach, 

and non-insurance risk management assistance initiatives, delivered through the 

public and private sector organizations, further contribute to the producer’s ability, 

skill and willingness to access and effectively use RMA’s growing portfolio of risk 

management tools to protect their financial stability. 

Under the Agricultural Management Assistance Program (AMA), Section 524(b) 

of the Federal Crop Insurance Act, financial assistance is authorized for producers 

in 15 ‘‘Targeted’’ States. Under this authority, and in response to the need to improve crop insurance delivery and acceptance in these States, for fiscal year 2003 

RMA offered a cost-share program for producers purchasing AGR, AGR-Lite, and 

spring policies with sales closing dates on or after February 21, 2003. The States 

in which this program was offered were: Connecticut, Delaware, Maine, Maryland, 

Massachusetts, New Hampshire, New York, New Jersey, Nevada, Pennsylvania, 

Rhode Island, Utah, Vermont, West Virginia, and Wyoming. The primary goal of the 

program was to enable producers to buy-up to higher levels of insurance coverage, 

and to provide an incentive for new producers to purchase insurance. To meet this 

objective, RMA paid a portion of the producer premium remaining after the normal 

USDA subsidy was applied. Moreover, to encourage buy-up, RMA paid a higher percentage of this premium for higher levels of coverage. USDA has received many 

positive letters from producers, producer groups and insurance agents in many 

States who are pleased with the program. RMA recently announced the availability 

of financial assistance for crop year 2004 spring crops for the same States, consistent with new statutory requirements for the application of these funds. 

In early 2004, RMA approved Occidental Fire & Casualty (OFC) and its Managing 

General Agent, Crop1 to sell and service crop insurance under a premium reduction 

plan as allowed by Federal statute, and in accordance with standards and procedures established and approved by the FCIC Board. The States for which OFC was 

approved are: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Texas (State approval pending), and 

Wisconsin. OFC is required to offer Premium Discount Plan (PDP) on FCIC insurance covering all crops in these States. Farmers who purchase crop insurance under 

OFC’s Premium Discount Plan (PDP) will receive a discount on their portion of the 

insurance premium of up to 10 percent or more depending on the level of coverage 

they purchase. The discount (equal to 3.5 percent of the total unsubsidized premium) results from OFC passing along the cost savings generated by its cost efficient approach to delivering crop insurance. 

We continue to work with the private sector to improve producers’ ease of access 

to and awareness of risk management products; increase the emphasis on improving 

service coverage for underserved producers and regions; and expand the ability to 

reach underserved producers, areas and commodities through traditional channels 

and developing technologies. 

Ensure Customers and Stakeholders are Well-Informed.—RMA has implemented 

an extensive national outreach and education program, including several initiatives 

to increase awareness and service to small and limited resource farmers and ranchers and other underserved groups and areas. 

In 2003, RMA sponsored the second national outreach conference titled: Survival 

Strategies for Small and Limited Resource Farmers and Ranchers, in San Diego, 

California. Public and private professionals, who provide agricultural services to underserved groups, were the targeted audience. Over 300 professionals representing 

45 States, 22 universities and three foreign countries convened at this conference 

to share ideas and develop strategies to benefit the underserved communities. During 2004, regional and local workshops will be customized in several regions to deliver proven survival strategies directly to producers. RMA is also partnering with 

community-based organizations, 1890, 1994, 1862 land grant colleges and universities, and Hispanic Serving Institutions (HSIs) to provide program technical assistance and risk management education on managing farming risks associated with 

the many legal, production, marketing, human resources and labor aspects of farm 

operation. RMA funded 49 outreach projects in fiscal year 2003 totaling $4 million 
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to provide outreach and assistance to women, small and limited resource farmers 

and ranchers. 

During fiscal year 2003, our education program focused on underserved States, 

specialty crop producers, and grants through the Cooperative State Research, Education, and Extension Service. RMA Regional Offices held 833 outreach and educational meetings during 2003, which attracted 42,020 participants. 

In June 2003, RMA announced a Request for Applications for two programs. The 

first was to establish cooperative education agreements in States that have been 

historically underserved with respect to crop insurance. As a result of this announcement, 15 cooperative agreements were established totaling $4.5 million. 

These agreements were executed with State departments of agriculture, universities, and non-profit organizations to deliver crop insurance education to producers 

in Connecticut, Delaware, Maine, Pennsylvania, Rhode Island, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York, Utah, Vermont, West Virginia, and Wyoming. Specifically, these cooperative agreements will: expand the 

amount of risk management information available; promote risk management education opportunities; inform agribusiness leaders of increased emphasis on risk 

management; and deliver training on risk management to producers with an emphasis on reaching small farms. 

The second program was for commodity partnership agreements to reach producers of specialty crops. A total of 35 commodity partnership agreements were established at a cost of $4.6 million. These agreements were executed with State departments of agriculture, universities, grower groups, and non-profit organizations 

in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, 

Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Multi-state Area 1 (NV, UT, WY), Multi-state Area 2 

(ME, NH, VT, CT, RI, MA, NY), Multi-state Area 3 (PA, NJ, DE, MD, WV), Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, 

South Dakota, Tennessee, Texas, Virginia, Washington, and Wisconsin. These agreements will reach specialty crop producers with broad risk management education. 

In addition, efforts were continued with the Future Farmers of America organization to educate and encourage youths’ participation in agriculture. 

Maintain Program Integrity.—Our Compliance function workload has increased 

substantially due to the expansion of the Crop Insurance Program and the implementation of ARPA. In order to deal with the increased referral activity and to fulfill the responsibilities of data reconciliation with Farm Service Agency (FSA), RMA 

has sought to manage the increase in workload by emphasizing the use of data mining, remote sensing, Geospatial Information technologies and other computer-based 

resources. During the 12-month period from January 2002 through December 2002, 

RMA projects more than $125 million was saved by deterring or preventing potentially fraudulent claims through data mining and other related activities. Similar 

savings were realized for 2003 as we expanded data mining capabilities. 

In 2004, we continue to develop data management and integration tools to effectively evaluate, track, and improve program compliance, integrity and to reduce the 

potential for erroneous payments. The need for the authority to regulate certain insurance provider business activities associated with the Federal Crop Insurance 

Program and the ability to perform timely and effective reviews of insurance providers became apparent in 2002 with the failure of the American Growers Insurance 

Company. The fiscal year 2005 budget request includes $1.0 million for monitoring 

and evaluating the reinsured companies. Improving RMA’s ability to monitor the reinsured companies will provide the means to perform the necessary analysis and 

pursue any needed corrective actions to reduce the likelihood and cost of future failures. 

Recent progress in the Compliance area has been concentrated on the missioncritical tasks of evaluating and improving new processes established to prevent and 

deter waste, fraud and abuses. In addition, extensive progress has been made in 

building and adapting RMA’s compliance investigation caseload reporting, tracking, 

and feedback systems to meet the requirements that were mandated by ARPA. 

RMA, the FSA, the Office of Inspector General, U.S. Attorneys’ offices throughout 

the Nation, and the insurance providers continue to work together to improve program compliance and integrity of the Federal crop insurance program by: fine tuning the RMA/FSA data reconciliation and matching process; evaluating and amending the procedures for referring potential crop insurance errors or abuse between 

FSA and RMA; creating an anti-fraud and distance learning training package to 

complete the requirements of ARPA; and detecting, prosecuting and sanctioning perpetrators of crop insurance fraud. We also have dedicated additional efforts to integrating data mining analysis into all Agency functions to assist in proactive preemption of fraud through effective underwriting and product design; exploring ways to 
309 

expedite increasing sanctions requests; and establishing a fraud investigation case 

management and issue tracking system. 

During fiscal year 2003, RMA published ARPA mandated revisions to the Common Crop Insurance Policy, also known as the Basic Provisions. RMA proposed 

many changes to the Basic Provisions, including changes mandated by ARPA or requested by OIG, as well as changes related to program integrity and administrative 

issues. Due to the large number of comments received, and in order to implement 

the changes mandated by ARPA for the 2004 crop year, RMA chose to implement 

the proposed changes in two separate regulations. 

The first final rule was published in the Federal Register on June 25, 2003. It 

contained all of the proposed changes mandated by ARPA and a change requested 

by OIG for an earlier notice of loss for prevented planting. 

RMA is finalizing the second final rule that addresses all of the proposed changes 

that were not contained in the first final rule. RMA expects publication of this final 

rule in time to implement for the 2005 crop year, provided all departmental and 

other necessary concurrences can be obtained. 

American Growers Insurance Corporation 

In addition to accomplishing APRA mandated compliance regulations, RMA has 

maintained program integrity despite the fallout of the largest policy issuing company in the Federal crop insurance program. On November 22, 2002, L. Tim Wagner, Director of the Nebraska Department of Insurance, placed American Growers 

Insurance Company under supervision by issuing an Order of Supervision and List 

of Requirements to Abate Supervision and Notice of Hearing. RMA immediately, 

thereafter, entered into a memorandum of understanding with the State of Nebraska to insure that the interests of the government and the policyholders were 

protected. 

Senior RMA officials were placed on site with the State appointed rehabilitator 

to keep focus on the priorities. Despite an enormous claims caseload caused by the 

drought of 2002, the policyholders were paid in a timely manner. Only a handful 

of claims are pending, which is typical at this juncture for any operating company. 

The policies of American Growers (Am Ag) were also successfully transferred to 

other reinsured companies ensuring that coverage remained in force for the 2003 

crop year. This seamless transfer has provided confidence to all our customers, within the Federal crop insurance program, that their interest will be protected. 

And, I am happy to say, the interests of the taxpayers also have been protected. 

RMA’s onsite presence and supervision of the claims processing has resulted in cost 

avoidance of several millions dollars. RMA continues to work with the State of Nebraska to bring finality to our work on Am Ag. 

Provide Excellent Service.—RMA continues to pursue initiatives to make higher 

levels of crop insurance protection more affordable and useful to producers, provide 

better protection to farmers experiencing multi-year losses, expand risk management education opportunities, fund and oversee development of new risk management products and improve program integrity. 

RMA’s product portfolio includes coverage for 362 different commodities in over 

3,060 counties covering all 50 States, and Puerto Rico. RMA will conduct regular 

market assessments to establish a baseline for customer satisfaction and to measure 

progress in achieving key elements of customer service to ensure the needs of our 

customers are being addressed. Also, we plan to address the needs and changes to 

products, programs and processes to improve service to customers as identified from 

our listening sessions and RMA’s product portfolio evaluation. 

PROGRAM HIGHLIGHTS

Now, I would like to conclude with an update on some of our key products and 

initiatives: 

Livestock Insurance Plans 

The FCIC approved two pilot insurance programs for Iowa swine producers to protect them from declines in hog prices. The new programs, which began in 2002, were 

authorized under the provisions of Section 132 of the Agricultural Risk Protection 

Act of 2000 (ARPA). Until ARPA, federally backed insurance plans providing livestock protection were prohibited by law. The livestock insurance programs provide 

livestock producers with risk management tools for reducing their price risks. Livestock revenue represents about one-half of the total farm cash receipts. 

The two programs approved are: The Livestock Gross Margin (LGM) pilot, submitted by Iowa Agricultural Insurance Innovations, and the Livestock Risk Protection (LRP) pilot for Swine submitted by the American Agri-Business Insurance Company. The LGM pilot provides coverage to swine producers from price risks for 6 
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months and up to 15,000 hogs per period. The product protects the gross margin 

between the value of the hogs and the cost of corn and soybean meal. Prices are 

based on hog futures contracts and feed futures contracts. LGM protects producers 

if feed costs increase and/or hog prices decline, and depends on the coverage level 

selected by the producer. Coverage levels range from 85–100 percent. 

The LRP pilot protects producers against a decline in hog prices. Swine can be 

insured for 90, 120, 150, or 180 days, and up to a total of 32,000 animals per year. 

Unlike traditional crop insurance policies, which have a single sales closing date 

each year, LRP is priced daily and available for sale continuously throughout the 

year. The LRP policy protects producers against declining hog prices if the price 

index specified in the policy drops below the producer’s selected coverage price. Coverage levels range from approximately 70–95 percent of the daily hog prices. LRP 

Swine and LGM Swine have been available to producers for over a year and have 

protected over 60,000 head of swine in Iowa. Both products are available from private insurance agents. The length of the pilot programs will be determined by farmer participation, and the financial performance of the programs. In crop year 2003, 

the FCIC Board did not approve any requests for expansion of the LRP Swine. Consideration for expansion is deferred until testing is completed and the program demonstrates that the premium rates are actuarially sufficient, the interests of the producers are protected, and that there are no adverse affects on program integrity. 

LRP was expanded to fed and feeder cattle for the 2003 crop year. LRP Fed Cattle 

protects producers in Illinois, Iowa, and Nebraska. LRP Feeder Cattle protects producers in Colorado, Iowa, Kansas, Nebraska, Nevada, Oklahoma, South Dakota, 

Texas, Utah and Wyoming. Both products use similar methodology to LRP Swine 

and protect producers against a decline in cattle prices. 

Livestock Risk Program (LRP) and Livestock Gross Margin (LGM) Suspensions 

Upon the discovery of Bovine Spongiform Encephalopathy (BSE) in the State of 

Washington, RMA determined it was prudent to suspend the sales of LRP cattle 

policies to new policyholders. When originally developed, the LRP premium structure was based on the relatively stable futures market prices, which existed prior 

to the discovery of BSE in Washington State. However, the discovery of BSE destabilized the futures market resulting in large price swings and increased the probability that a producer would receive an indemnity. The crop insurance program is 

statutorily required to operate on an actuarially sound basis. The volatility present 

in the market after the discovery of BSE caused the product to no longer be actuarially sound. Current policyholders are not affected by the suspension of sales. The 

FCIC Board believes RMA acted quickly and responsibly to protect the integrity of 

the crop insurance program. At present, RMA is actively evaluating the rating 

structure and other design components of the program that may be affected by the 

BSE development. Sales will be restored when it is determined by the FCIC Board 

that the LRP is operating an actuarially sound manner and will serve the best interests of the producers. 

On December 17, 2003, the FCIC Board discontinued new sales of the LGM 

Swine. The Board determined LGM Swine presented excess risk for the FCIC. Coverage price is determined two weeks prior to sales closing. Because LGM coverage 

prices are determined using the Chicago Mercantile Exchange and the Chicago 

Board of Trade, insureds may speculate as price on either exchange drops (hogs) or 

rises (corn and soybeans meal) and purchase LGM; RMA refers to this phenomena 

as stale pricing. While this strategy is sound, (buy low, sell high) for speculative 

purposes, LGM is a risk management tool and reinsured by FCIC; this strategy is 

not appropriate for insurance purposes. As directed by the Board, RMA will work 

with the submitter of the LGM to address the concerns regarding the program for 

subsequent insurance periods. Current policyholders of this plan of insurance are 

not affected by the discontinuance. 

Forage and Rangeland 

We recently solicited private sector participation in proposing and developing new 

products and changes to existing products and programs involving pasture, rangeland, forage and hay that are vital to livestock producers. The agency is providing 

$3 million in funding for these projects, and may provide more depending on the 

number and quality of submissions that meet program objectives. 

Declining Yield 

For most FCIC insurance plans, an individual insured’s yield guarantee (approved 

actual production history (APH) yield) is principally based on a simple average of 

4 to 10 years of actual yields. Producers and others have argued that insureds are 

underserved when guarantees decline following successive years of poor growing 

conditions. The reduction in guarantee adversely affects the viability of future crop 
311 

insurance coverage and discourages continued participation in the program. RMA’s 

goal is to contract for: (1) research and development of new and innovative approaches to mitigating declines in yield guarantees following successive years of low 

yield, or provide improvements to existing procedures; and/or (2) research and development of new and innovative procedures for determination of approved APH yields. 

Through this approach, RMA will seek proposals for new or modified approaches to 

establishing approved APH yields that are less subject to decreases during successive years of low yields as compared to current procedures; and that are equitable 

across insureds with differing average yields; and broadly applicable to all crops and 

regions; affordable to insureds; feasible and cost-effective for RMA and reinsured 

companies; and is actuarially sound. 

Extend Drought Coverage 

RMA is constantly evaluating the impact of consecutive years of drought or other 

natural disasters on declining yields, which affect available coverage, on producers 

in those States affected. RMA has held meetings in drought stricken States to explain RMA policy and has published a fact sheet regarding prevented planting provisions in FCIC insurance policies and to assist producers, insurance agents, and 

reinsured companies in understanding how that coverage addresses some of the 

challenges of drought. Prevented planting coverage is generally straightforward on 

its face, but it becomes very complex when applied to specific planting situations. 

RMA has sought producer and insurer input on this issue in a series of prevented 

planting forums held in 2003. Recommendations from these sessions are being evaluated for possible inclusion in a proposed rule that will make constructive changes 

in the program. RMA is also preparing to seek private sector assistance in evaluating possible product modifications or new products to address declining yield experience caused by extended drought. 

Adjusted Gross Revenue-Lite 

The FCIC approved the Adjusted Gross Revenue-Lite (AGR-Lite) insurance plan 

in late 2002 and began sales for 2003. This product was also submitted to FCIC 

through Section 508(h) of the Act and was authorized by ARPA. AGR-Lite is available in most of Pennsylvania and covers whole farm revenue up to $100,000, including revenue from animals and animal products. AGR-Lite covers the adjusted gross 

revenue from the whole farm based on 5 years of tax forms and a farm plan. AGRLite was expanded for the 2004 crop year to include selected counties of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, 

New York, Rhode Island, Vermont, and West Virginia. Program changes were approved that will increase participation, qualify producers for higher coverage levels, 

increase insurable adjusted gross revenues, and allow for expansion of farms, beginning with the 2004 crop year. 

Pilot Programs 

Currently, RMA has 31 pilot programs. The pilot programs are: Adjusted Gross 

Revenue (AGR/AGR-Lite), Apple Pilot Quality Option, avocado APH, avocado revenue, avocado/mango tree, cabbage, cherry, citrus dollar (navel oranges only), Coverage Enhancement Option, crambe, cultivated clams, cultivated wild rice, Florida 

fruit trees, forage seed, fresh market snap beans, Income Protection Plan of Insurance (IP), livestock (swine) gross margin, livestock risk protection (swine/cattle), 

mint, mustard, Onion Pilot Stage Removal Option, pecans, processing chile peppers, 

processing cucumbers, rangeland GRP, raspberry/blackberry, strawberries, sweet potatoes, and winter squash/pumpkins. 

The FCIC Board of Directors approved the expansion of the millet pilot program 

and conversion from a pilot program to permanent status for the 2003 crop year. 

The Board also approved expansion of the pecan-revenue pilot program to be offered 

in eighty-two counties for the 2003 crop year and subsequently approved the program to permanent status for the 2004 crop year. Additionally, the Board approved 

conversion of the blueberry pilot program to permanent status effective beginning 

the 2004 crop year. 

Revenue Insurance 

Revenue insurance programs include Group Revenue Insurance Policy (GRIP), Adjusted Gross Revenue (AGR), Crop Revenue Coverage (CRC), Revenue Assurance 

(RA), and Income Protection (IP). Under CRC, RA, and IP revenue insurance programs, indemnities are triggered by low revenues for an individual producer (caused 

either by low yields, or low prices, or both). Under AGR, indemnities are triggered 

by low revenue for an entire farm’s operations, based on the producer’s Schedule F 

Federal tax forms. Under GRIP contracts, indemnity payments are triggered by low 

county-wide crop revenues. Two of these alternatives, CRC and RA, allow producers 
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the option of insuring separate areas of land either under separate insurance contracts or under the same insurance contract. Each of these alternate contracts requires that producers establish an approved Actual Production History (APH) yield 

for the crop to be insured. 

Effective for the 2003 crop year, changes to CRC and RA-High Price Option (HPO) 

rating methodologies were implemented for corn and soybeans to respond to dissimilar rates being charged for similar coverage protection. RMA is currently evaluating the feasibility of merging CRC, RA and IP into a master product with several 

options. This will reduce market confusion over these separate but similar products 

and should significantly reduce administrative costs associated with their sales, 

service and administration. 

Research and Development 

During fiscal year 2003, over $24 million was obligated and approximately 45 contracts and partnership agreements were awarded to further program goals for expanding and improving risk management opportunities for producers. Examples include a contract to review RMA’s product portfolio, fifteen research and development 

partnership agreements such as Organic Price Index, development of a Forage and 

Rangeland Decision Support System and a number of other program research, development, and evaluation projects to expand and improve the risk management 

tools for American producers. 

CONCLUSION

RMA provides agricultural producers with the opportunity to achieve financial 

stability through effective risk management tools. RMA strives to foster, at reasonable cost, an environment of financial stability, safety, and confidence, enabling the 

American agricultural producer to manage the perils associated with nature and 

markets. The private sector crop insurance industry markets, delivers, and services 

many USDA risk management products. RMA also provides the educational opportunities to help producers choose and employ effective risk management tools. RMA 

works with the Farm Service Agency, Commodity Futures Trading commission, and 

other private and public organizations to provide producers with an effective safety 

net. 

I ask that you approve this budget to enable RMA to continue providing an actuarially sound crop insurance program to America’s agricultural producers. Thank 

you, 

Mr. Chairman and members of this committee. This concludes my statement. I 

will be happy to respond to any questions. 

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

STATEMENT OF MARK REY

Mr. REY. Good afternoon, Mr. Chairman. 

Our prepared statement for the record highlights our funding request for fiscal year 2005, and in the interest of time, I will not go 

into great detail except to assure you that we are continuing to 

work diligently in accountability and results measurement for the 

funds provided by Congress. I am proud of the strong efforts that 

NRCS continues to make their programs more accessible to farmers, ranchers and the general public. 

CONSERVATION SECURITY PROGRAM

What I would like to do in the short time available today is focus 

my remarks on our continuing efforts to implement the Conservation Security Program as provided for in the fiscal year 2004 budget and as requested in the fiscal year 2005 request. The Department is moving forward aggressively to implement the program, 

and we are enthusiastic about the prospects of the Conservation 

Security Program and look forward to making it available in farms 

and ranches across America. 

The proposed rule was published for public comment on January 

2, 2004, with a comment period that closed in the beginning of 
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March. The response from the public was extraordinary, with 

14,010 comments plus one seed order and a misdirected check responding to a fundraising request from a group that was opposing 

the regulation. You will be happy to know that the seed order was 

returned, and the check was forwarded to the appropriate party. 

Mr. REY. In addition to the comments we received, the agency 

conducted 10 national listening sessions around the country and 

many individual sessions in States on the proposed rule. Our staff 

has worked diligently to assemble the docket of comments and assure that each comment will receive fair consideration and review. 

We have made the comments available for public viewing and copying down in the Department of Agriculture. And while we are not 

in a position today to debate the contents of the proposed rule, I 

would like to put the contents of the proposed rule in a broad perspective in terms of our approach and rationale in discussing three 

areas which were highlighted in the comments that we received. 

The first is the budgetary aspects of the CSP program. When the 

President signed the 2002 Farm Bill into law, the Conservation Security Program was estimated to cost $2 billion over 10 years. Just 

as a matter of perspective, this would be 400 times the amount 

originally authorized for the Wildlife Habitat Incentive Program 

and 571 times greater than the original funding for the Farm and 

Ranch Lands Protection Program. 

So as envisioned, it was a significant program. Congress has seen 

fit to amend the program three times since signing of the Farm Bill 

in the last 21 months; that would be an amendment on the average 

of every 7 months, making program implementation a somewhat 

difficult task as some of the direction was changed as we went. 

Under the most recent revised law, the Congress expected an expenditure of less than $7 billion on the program over a 10-year period, with a cap of only $41.4 million for fiscal year 2004. 

Through the work of the NRCS, we have been able to design the 

program in a way that provides funding obligations in a fashion 

similar to the way that the Conservation Reserve Program obligations are structured. For example, the President’s budget request 

of $209 million for CSP in fiscal year 2005 will represent about a 

$2 billion total in funding provided for farmers and ranchers as the 

contracts signed in 2005 play out. If unchanged by either us or the 

Congress, the proposed CSP would provide more than $13 billion 

in CSP assistance to farmers and ranchers over 7 years, which is 

an amount greater than proponents of an open-ended program 

have been discussing. 

A WATERSHED APPROACH TO CSP

A second area of considerable discussion in the public comments 

is our proposed approach to focusing on priority watersheds. Even 

though we have been able to maximize funding obligations, the dollars available will not even begin to satiate the immediate demand 

for the program. There is a potential applicant pool of 700,000 producers to sign up for CSP. The CSP statute, the Farm Bill language, prohibits ranking applications but would instead mandate 

that all applicants be accepted into the program and potentially receive a payment. 
314 

Given the $41 million available for this fiscal year, and of course, 

unknown amounts for fiscal year 2005 and beyond, we have proposed a program that is flexible enough to match funding available 

for any given fiscal year by making the program available in watersheds and emphasizing enrollment categories. Our approach also 

deals with the constraint placed in statute on technical assistance 

at a maximum of 15 percent of the expended CSP funding. 

It is clear that we have proposed the best course of action in designing a staged program that can be expanded based upon available funding, and what you see in the map before you is a map of 

all of the watershed units in the United States. As the program is 

drafted now, it will start in the first year by identifying priority 

watersheds, the criteria for which will be published for public review shortly. 

If and as funding expands, more watersheds can be made available, and using the watershed-based approach, the program could 

be theoretically expanded to the entirety of the land area of the 

United States. So it is a staged program that can be made into— 

is intended to be made into—a national program commensurate 

with whatever funding support that this Congress and subsequent 

Congresses provide. 

CSP BASE PAYMENT

A third area which enjoyed considerable discussion in the comments regards the way the CSP base payment is structured under 

the proposed rule. In order to ensure defensible environmental results for the program, we have proposed placing increased emphasis on increased conservation. That is to say those farmers and 

ranchers who agree to do more, get more in the way of financial 

support from the program. 

It is our goal to design a program that is easy to understand for 

farmers, ranchers and those implementing the program. We also 

want to make sure that the program produces demonstrable conservation results that will show the American taxpayer the value 

of good conservation on working agricultural lands so that this program can be expanded and developed into the base program to affect working conservation in the future. 

PREPARED STATEMENTS

As I mentioned, our next step is to undertake a thorough review 

and consideration of comments from the public. It will be this input 

that assists us in finalizing the program design. The task will be 

massive, but we have dedicated appropriate staff expertise to tackle the job. Our goal is to publish a final rule with a sign-up period 

occurring in fiscal year 2004. USDA is ready to deliver the program 

to the public and begin to see results. 

We consider CSP to be a brand new day for conservation policy. 

With that, I would be happy to respond to your questions at the 

appropriate time. 

[The statements follow:] 

PREPARED STATEMENT OF MARK REY

Mr. Chairman and Members of the Committee, I am pleased to appear before you 

today to present the fiscal year 2005 budget and program proposals for the Natural 
315 

Resources Conservation Service (NRCS) of the Department of Agriculture (USDA). 

I am grateful to the Chairman and members of this body for its ongoing support 

of private lands conservation and the protection of soil, water, and other natural resources. 

Performance and Results 

Mr. Chairman, before I highlight our funding request for fiscal year 2005, let me 

assure you that we are continuing to work diligently in accountability and results 

measurement for the funds provided by Congress. I am proud of the strong efforts 

that NRCS has made on performance and making NRCS more accessible to farmers, 

ranchers and the general public. I believe we are offering value and accountability 

to both American taxpayers and to Congress. Our performance management system 

was recently featured in two publications that focus on government management 

and accountability. 

In past testimony before this Subcommittee, I have discussed the excellent score 

that NRCS received in a measure of customer satisfaction for conservation assistance. This year, I am proud to report that NRCS was ranked as one of the best 

places to work in the Federal Government, including the highest score for a natural 

resource agency. The scores in the report were derived from the Office of Personnel 

Management’s government-wide 2002 Federal Human Capital Survey. Also, this 

year we have worked hard on the Program Assessment Rating Tool (PART) to 

evaluate and improve our performance measures with a focus on outcomes and results. As we move forward this fiscal year, and into fiscal year 2005, we will continue to improve operations and accountability systems so that we may best serve 

our customers and protect and improve natural resources. 

As you know, the NRCS is proposing a reorganization to improve its operational, 

technology support, and resource assessment functions to strengthen our ability to 

help America’s farmers and ranchers reach their conservation goals and offer them 

the latest science-based technologies. We look forward to continue working with you 

to move forward with implementation. 

Looking Ahead 

The 2002 Farm Bill contained many new conservation programs designed to protect and enhance the environment. The Department continues to focus efforts on implementing the conservation programs in the Farm Bill. The 2005 President’s budget request in the conservation area recognizes the importance of this task, as well 

as the need to continue to support underlying programs to address the full range 

of conservation issues at the national, State, local and farm levels. 

The 2005 budget request for NRCS includes $908 million in appropriated funding, and $1.86 billion in mandatory CCC funding for the Farm Bill conservation programs, including $1 billion for the Environmental Quality Incentives Program. The 

appropriation request includes $604 million for Conservation Technical Assistance, 

the base program that supports the Department’s conservation partnership with 

State and local entities and the conservation planning needed to successfully implement farm bill programs. 

The 2005 budget for NRCS will also enable the agency to maintain support for 

important ongoing activities such as addressing the problems associated with runoff 

from animal feeding operations and providing specialized technical assistance to 

land users on grazing lands. 

Another element in the NRCS account structure is a Farm Bill Technical Assistance Account that will fund all technical assistance costs associated with the implementation of two Farm Bill conservation programs—the Conservation Reserve Program and the Wetlands Reserve Program. In 2005, this new appropriation account 

is requested at $92 million. 

Technical Assistance 

Technical assistance funding for conservation programs has been the subject of 

ongoing discussion for several years and a topic of interest to this Subcommittee. 

We appreciate Congress taking steps to deal with the long-standing problem of technical assistance for Farm Bill conservation programs in the Consolidated Appropriations Act, 2003. The long term solution to the technical assistance issue is proposed 

in fiscal year 2005 with the establishment of a new Farm Bill Technical Assistance 

account for CRP and WRP and dedicating resources for this purpose. This will allow 

the agency to provide more financial assistance to farmers and ranchers in the other 

mandatory farm bill programs. 

Conservation Operations (CO).—The 2005 budget proposes $710 million for CO 

which includes $582 million for Conservation Technical Assistance (CTA) and $21.5 

million for technical assistance targeted specifically for the Grazing Lands Conservation Initiative. This will continue the agency’s activities that support locally 
316 

led, voluntary conservation through the unique partnership that has been developed 

over the years with each conservation district. This partnership provides the foundation on which the Department addresses many of the Nation’s critical natural resource issues such as maintaining agricultural productivity and water quality and 

leverages additional investment from non-Federal sources. The CTA budget will enable NRCS to maintain funding for ongoing high priority work. 

Mr. Chairman, I believe that NRCS can continue and build upon this level of excellence, if they are provided the support and the resources as provided in the President’s budget request. 

Given the challenges presented in the Farm Bill, I suggest the following highest 

priority areas of emphasis: 

—Provide adequate support for Conservation Reserve and Wetlands Reserve programs implementation through a separate Technical Assistance discretionary 

account. 

—Further leverage assistance through our conservation partners and the new 

Technical Service Provider system. These new sources of technical assistance 

will complement our existing delivery system. 

—Provide the support in the President’s budget for Conservation Operations, with 

an emphasis on developing technical tools and streamlining efforts to gain efficiencies where possible. 

Conservation Security Program 

Mr. Chairman, I also want to take a few moments to highlight our work on the 

Conservation Security Program (CSP). A keystone of the 2002 Farm Bill conservation title, the CSP has the potential to revolutionize the way we approach conservation assistance. We have been working hard to design a program that is farmer 

friendly, provides demonstrable environmental benefits, and matches the funding 

available to operate the program. 

There has been a lot of discussion here on Capitol Hill, and around farm production and conservation organizations about the amount of resources available for the 

program. Needless to say, this has been a moving target for those of us attempting 

to develop a program under ever-changing funding scenarios. At the time the President signed the Conservation Security Program into law, there was a Congressional 

Budget Office (CBO) estimate of $2 billion over ten years attached to the CSP. As 

such, our Department began implementation discussions with that funding figure in 

mind. 

Subsequently, the Omnibus Appropriations Act of 2003 (Public Law 108–7) transformed the CSP into a capped entitlement at $3.773 billion over a 10-year period 

between fiscal year 2003–2013. This change in statute led to further revisions of the 

CBO score. Most recently, the Omnibus Appropriations Bill for fiscal year 2004 

(Public Law 108–199) contains language that once again has impacted the funding 

authority for the Conservation Security Program. The fiscal year 2004 Omnibus removed the $3.773 Billion funding limitation for the program over 10 years, while 

establishing funding for the CSP at $41.443 million for fiscal year 2004. 

Another challenge that the Department faced was how to implement CSP with a 

statutory cap on the amount NRCS could spend to pay for technical assistance. Language in the 2002 Farm Bill limits technical assistance spending to 15 percent. This 

statutory cap on technical assistance has driven NRCS to develop innovative information technology tools and technical assistance management techniques to help 

the agency implement CSP as widely, efficiently, and effectively as possible. 

We have attempted to meet these challenges in the CSP proposed rule, by designing a program that is flexible enough to match whatever funding that Congress 

might approve for the program. The President’s budget request will provide assistance to a large number of producers across the country. The budget’s proposal of 

$209 million represents the amount of assistance the Department will provide in 

one year to approximately 15,000 producers on millions of acres of crop and grazing 

land. We are proud of what we are accomplishing, and are looking forward to making CSP available to producers this year. 

Mr. Chairman, in summary, we all know that we are trying to plan for the future 

under an atmosphere of increasingly austere budgets and with a multitude of unknowns on the domestic and international fronts. But I believe that the Administration’s fiscal year 2005 request reflects sound policy and provides stability to the vital 

mission of conservation on private lands. The budget request reflects sound business 

management practices and the best way to utilize valuable conservation dollars as 

we look forward to the future. 

I thank Members of the Subcommittee for the opportunity to appear, and would 

be happy to respond to any questions that Members might have. 
317 

PREPARED STATEMENT OF BRUCE I. KNIGHT, CHIEF, NATURAL RESOURCES

CONSERVATION SERVICE

Thank you for the opportunity to appear before you today to discuss our fiscal 

year 2005 budget request. 

Last year, I focused much of my remarks on implementation of the Farm Bill and 

the challenges that we faced in carrying out that legislation. I am very proud of the 

performance of our agency in getting the work done. To date, NRCS has published 

rules for nine major programs, with the Conservation Security Program proposed 

rule comment period recently completed and the receipt of over 12,000 letters we 

are currently analyzing. In addition, we have three new rules soon to be released 

as well. 

We challenged NRCS staff throughout the Nation in fiscal year 2003. And when 

the year drew to a close it was clear that our field staff had answered the call. 

Roughly $2.3 billion in discretionary and mandatory conservation dollars successfully reached farmers, ranchers and other customers. This represents a half-billion 

dollar increase over last year. In turn, the streamlining and efficiencies NRCS has 

gained meant that even more conservation funding could be utilized for financial assistance to producers. But beyond the successes measured in terms of funds, the 

work NRCS completed this year will have a lasting impact on the nation’s land, 

water, and air resources for generations to come. Along with the Farm Service 

Agency, NRCS successfully deployed the Grassland Reserve Program, with more 

than $1.7 billion in potential projects offered up by producers. All of these milestones were realized while the agency was developing and utilizing a nationwide 

cadre of technical service providers, and continuing to strive toward even greater 

efficiencies and organizational improvements. NRCS staff has worked tirelessly to 

meet the demands and opportunities presented by the Farm Bill legislation and we 

are proud of their accomplishments. 

These accomplishments have also come within the context of the challenges that 

we face on funding for technical assistance. As you are aware, the current situation 

has necessitated that we utilize funding from various Farm Bill program accounts 

to support other conservation programs including the Wetlands Reserve Program 

and Conservation Reserve Program. The President’s budget request proposes to address that issue by establishing a discretionary account for technical assistance for 

CRP and WRP. 

Our focus remains to provide excellent service to our customers, and I am very 

proud of what we accomplished. Last year, NRCS and our partners: 

—Provided technical assistance on over 32.5 million acres of working farm and 

ranch land to reduce erosion, sedimentation and nutrient runoff, enhance water 

quality, restore and create wetlands, and improve and establish wildlife habitat; 

—Developed and applied more than 8,000 comprehensive nutrient management 

plans; 

—Served nearly 3.8 million customers around the country; 

—Completed or updated soil survey mapping on 22.5 million acres; 

—Logged over a million hours of Earth Team volunteer time for the second year 

in a row; 

—Executed over 30,000 Environmental Quality Incentives Program contracts with 

more than $483 million in financial assistance provided to producers; 

—Funded more than 500 easements in the Farm and Ranch Lands Protection 

Program, protecting 119,000 acres of prime farmland; 

—Funded over 2,100 Wildlife Habitat Incentives Program contracts; and, 

—Helped land managers create, restore or enhance 334,000 acres of wetlands; 

—Helped local sponsors complete construction of 60 flood protection structures. 

Mr. Chairman, I also want to take a moment to highlight important work in 

Western states that NRCS has undertaken surrounding to the Sage Grouse habitat 

and population. NRCS is actively reviewing the 11 primary habitat states (WA, CA, 

UT, CO, ND, SD, OR, NV, ID, WY, and MT). Private lands comprise 30 percent of 

the total acreage where existing habitat populations occur and this agency plays a 

critical role in the conservation of existing habitat through the Farm and Ranchland 

Protection, Wildlife Habitat Incentives Program (WHIP) and the Environmental 

Quality Incentives Program (EQIP) Program (FRPP) as well as our general conservation technical assistance. NRCS staff are currently reviewing all existing 

projects that have a primary or secondary benefit to sage grouse as well as quantifying the total acres and total dollars in support of this species. Some states are 

also giving more program focus for sage grouse projects under the EQIP program 

and the NRCS state technical committee. 

As we move forward in fiscal year 2005, there are many challenges and opportunities ahead, with NRCS playing a central role in meeting the Administration’s con-
318 

servation objectives. We will look to you to build upon the fine accomplishments 

achieved this year to reach an even brighter future. 

Increasing Third-Party Technical Assistance 

With the historic increase in conservation funding made available by the 2002 

Farm Bill, NRCS will look to non-Federal partners and private technical service providers to supply the technical assistance needed to plan and oversee the installation 

of conservation practices. I am proud to report that, as of the beginning of February 

2004, NRCS has over 1,500 individuals certified as TSPs, with 1,100 more individuals pending. In terms of businesses, NRCS has certified 130, with over 200 more 

applications in process. In fiscal year 2003, NRCS set aside $20 million for utilization of TSPs, with that funding quickly utilized across the nation. For fiscal year 

2004, we are goaling a figure of $40 million for TSPs. We are excited about the prospect of TSP expertise continuing to complement our ongoing work. 

Streamlining and Cost Savings 

In 2003, NRCS devoted considerable effort to streamline our operations, becoming 

leaner and more efficient in delivering our core work. Last year, NRCS: 

—Updated nearly 70 conservation technical standards; 

—Deployed the NRCS Electronic Field Office Technical Guide; 

—Streamlined program delivery, resulting in reduced costs without compromising 

quality; 

—Worked closely with FSA to implement Conservation Reserve Program technical 

assistance cost savings that resulted in an additional $38 million in allocations 

to Environmental Quality Incentives Program, Wildlife Habitat Incentives Program, Grassland Reserve Program and the Wetlands Reserve Program; 

—Developed new software called PROTRACTS to speed up and keep up with the 

processing of the large increase in farm bill program contracts to allow more 

time and dollars to be directed toward planning and applying conservation on 

the land; and 

—Transitioned from an offset to a direct charge method of accounting to be better 

able to identify and control costs. 

In 2005, we will continue working on many fronts. We will continue streamlining 

and getting more efficient in working with our partners as well. 

DISCRETIONARY FUNDING

The President’s fiscal year 2005 Budget request for NRCS reflects our ever-changing environment by providing resources for the ongoing mission of NRCS and ensuring that new opportunities can be realized. 

Conservation Operations 

The President’s fiscal year 2005 Budget request for Conservation Operations proposes a funding level of $710 million which includes $604 million for Conservation 

Technical Assistance (CTA). The CTA budget will enable NRCS to maintain funding 

for ongoing high priority work. 

High priority ongoing work that will be maintained includes addressing water pollution associated with animal agriculture. In addition to regular technical assistance 

support provided to grazing land customers, the budget proposes to provide funding 

for the Grazing Land Conservation Initiative (GLCI) at $21.5 million in 2005 which 

is included in the $604 million for CTA. The GLCI is a private coalition of producer 

groups and environmental organizations that supports voluntary technical assistance to private grazing land owners and managers. 

The Conservation Operations account funds the basic activities that make effective conservation of soil and water possible. It funds the assistance NRCS provides 

to conservation districts, enabling people at the local level to assess their needs, consider their options, and develop plans to conserve and use their resources. Conservation Operations supports the site-specific technical assistance NRCS provides to individual landowners to help them develop and implement plans that are tailored to 

their individual goals. It also includes developing and implementing the technology 

and standards that are used by everyone managing private lands natural resources. 

It includes our Soil Survey and Snow Survey Programs and other natural resources 

inventories, which provide the basic information about soil and water resources that 

is needed to use these resources wisely. 

We have made great strides in developing an effective accountability system with 

the support of Congress. This accountability system has allowed us to accurately 

track our accomplishments and costs. 
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Farm Bill Technical Assistance 

As I described earlier in my statement, technical assistance funding for farm bill 

programs continues to be a challenge as we look ahead to fiscal year 2005. Fully 

funding technical assistance for the Farm Bill programs is essential to ensure the 

environmental benefits that are expected from the significant increase in conservation spending. The 2005 Budget proposes to establish a Farm Bill Technical Assistance (FBTA) account at a level of $92 million and would provide technical assistance 

funding for two of the 2002 Farm Bill conservation programs, the Conservation Reserve Program and the Wetlands Reserve Program. 

This new account will be used to develop contracts, design, and oversee the installation of conservation practices and maximize the amount of dollars available to 

help farmers and ranchers install on-the-ground conservation projects. Establishing 

a technical assistance account for these two programs will also increase the financial assistance dollars available to carry out other Farm Bill programs. 

Watershed and Flood Prevention Operations.—The 2005 Budget proposes funding 

for the Public Law 566 Watershed Program, but requests no funding for the Emergency Watershed Protection program. With emergency spending being so difficult to 

predict from year to year, the budget proposes instead to direct available resources 

to those projects that are underway and for which Federal support is critical to their 

successful implementation. The fiscal year 2005 budget proposes $40,173,000 for 

this program. 

Watershed Surveys and Planning.—NRCS works with local sponsoring organizations to develop plans on watersheds dealing with water quality, flooding, water and 

land management, and sedimentation problems. These plans then form the basis for 

installing needed improvements. The Agency also works cooperatively with State 

and local governments to develop river basin surveys and floodplain management 

studies to help identify water and related land resource problems and evaluate alternative solutions. The 2005 Budget requests $5.1 million to ensure that this important work is continued. 

Watershed Rehabilitation Program.—One of the agency’s strategic goals is to reduce risks from drought and flooding to protect community health and safety. A key 

tool in meeting this goal is providing financial and technical assistance to communities to implement high priority watershed rehabilitation projects to address dam 

safety. The budget proposes $10.1 million to continue the work begun in 2002. 

Resource Conservation and Development (RC&D).—The purpose of the RC&D program is to encourage and improve the capability of State and local units of government and local nonprofit organizations in rural areas to plan, develop, and carry out 

programs for resource conservation. NRCS also helps coordinate available Federal, 

State, and local programs that blend natural resource use with local economic and 

social values. The 2005 Budget proposes a level of $50.7 million which will support 

the 375 RC&D areas now authorized. 

FARM BILL AUTHORIZED PROGRAMS

Environmental Quality Incentives Program (EQIP).—The purpose of EQIP is to 

provide flexible technical and financial assistance to landowners that face serious 

natural resources challenges that impact soil, water, and related natural resources, 

including grazing lands, wetlands, and wildlife habitat management. We have seen 

that producer demand continues to far outpace the available funding for EQIP. At 

the end of January 2003, we published revised resource concerns and program rules 

for EQIP resulting from the changes enacted in the new Farm Bill. We believe that 

the increased program flexibility and improved program features will continue to 

make EQIP one of the most popular and effective conservation efforts Federal Government-wide. The budget proposes a level of $1 billion for EQIP. Mr. Chairman, 

I would also note that NRCS recently announced nearly $20 million in EQIP assistance to support salinity control in the Colorado River Bain. 

Wetlands Reserve Program (WRP).—WRP is a voluntary program in which landowners are paid to retire cropland from agricultural production if those lands are 

restored to wetlands and protected, in most cases, with a long-term or permanent 

easement. Landowners receive fair market value for the land and are provided with 

cost-share assistance to cover the restoration expenses. The 2002 Farm Bill increased the program enrollment cap to 2,275,000 acres. In fiscal year 2003, the administration apportioned a total of 213,280 acres for the year. The fiscal year 2005 

Budget request estimates that about 200,000 acres will be enrolled in 2005, an appropriate level to keep us on schedule to meet the total acreage authorization provided in the Farm Bill. 

Grassland Reserve Program (GRP).—The 2002 Farm Bill authorized the GRP to 

assist landowners in restoring and protecting grassland by enrolling up to 2 million 
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acres under easement or long term rental agreements. The program participant 

would also enroll in a restoration agreement to restore the functions and values of 

the grassland. The 2002 Farm Bill authorized $254 million for implementation of 

this program during the period 2003–2007. The fiscal year 2005 Budget proposes 

funding GRP at $84 million. 

Conservation Security Program (CSP).—CSP, as authorized by the 2002 Farm 

Bill, is a voluntary program that provides financial and technical assistance for the 

conservation, protection, and improvement of natural resources on Tribal and private working lands. The program provides payments for producers who practice 

good stewardship on their agricultural lands and incentives for those who want to 

do more. While NRCS is currently in the rule making process, this program will 

round out the portfolio of conservation programs. The fiscal year 2005 Budget proposes funding the CSP at $209.4 million and would enroll nearly 12,000 contracts. 

Although the cap of 15 percent on technical assistance funding established in statute continues to be a serious obstacle, through the hard work of the Administration 

in designing a flexible program, the President’s budget request of $209 million will 

result in nearly $1.7 billion in obligations. 

Wildlife Habitat Incentives Program (WHIP).—WHIP is a voluntary program that 

provides cost-sharing for landowners to apply an array of wildlife practices to develop habitats that will support upland wildlife, wetland wildlife, threatened and 

endangered species, fisheries, and other types of wildlife. The budget proposes a 

funding level for WHIP of $60 million. 

Farm and Ranch Lands Protection Program (FRPP).—Through FRPP, the Federal 

Government establishes partnerships with State, local, or tribal government entities 

or nonprofit organizations to share the costs of acquiring conservation easements or 

other interests to limit conversion of agricultural lands to non-agricultural uses. 

FRPP acquires perpetual conservation easements on a voluntary basis on lands with 

prime, unique, or other productive soil that presents the most social, economic, and 

environmental benefits. FRPP provides matching funds of no more than 50 percent 

of the purchase price for the acquired easements. The budget proposes a level of 

$125 million for FRPP in fiscal year 2005. 

Conclusion 

As we look ahead, it is clear that the challenge before us will require dedication 

of all available resources—the skills and expertise of the NRCS staff, the contributions of volunteers, and continued collaboration with partners. Conservation Districts, Resource Conservation and Development Councils, State and local agencies, 

and other valuable partners continue to make immeasurable contributions to the 

conservation movement. In fiscal year 2003, these organizations contributed over $1 

billion to NRCS programs. It is this partnership at the local level that makes a real 

difference to farmers and ranchers. And as we move forward, we will accelerate the 

use of third-party sources of technical assistance as well. We recognize that the 

workload posed by future demand for conservation will far outstrip our capacity to 

deliver, and seek to complement our resources with an appropriate system of qualified expertise. 

But it will take a single-minded focus and resolve if we are to be successful. I am 

proud of the tenacity that our people exhibit day in and day out as they go about 

the work of getting conservation on the ground. I believe that we will be successful. 

But it will require the continued collaboration of all of us, especially Members of 

this Subcommittee because available resources will ultimately determine whether 

our people have the tools to get the job done. I look forward to working with you 

as we move ahead in this endeavor. 

This concludes my statement. I will be glad to answer any questions that Members of the Subcommittee might have. 

Senator BENNETT. Thank you very much. Mr. Gonzalez. 

STATEMENT OF GILBERT G. GONZALEZ

Mr. GONZALEZ. Good afternoon, Mr. Chairman. 

Mr. Chairman, thank you for the opportunity to come before you 

to discuss the fiscal year 2005 appropriation for Rural Development. I would like to submit for the record my written testimony 

and share a few highlights and indicate my focus on helping individuals, families and organizations within rural communities. 

We are all aware of the priorities of the war on terror, homeland 

security, and deficit reduction. I am committed to leveraging the 
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precious USDA Rural Development assets to create economic opportunity and improve the quality of life of rural America. Since 

the beginning of the Bush Administration, USDA Rural Development has provided over $37 billion in investment financing and has 

assisted with the creation or saving of over 500,000 jobs. We have 

expanded our investment from $9.6 billion in 2000 to $13 billion 

this past year. 

USDA Rural Development is one of the few Federal agencies that 

can essentially build a rural community from the ground up 

through its investment in infrastructure, housing and business programs. However, that is not always enough. I want to leverage the 

resources that you have provided to work with all agencies, organizations and the private sector in an effort to bring more economic 

opportunity to rural America. 

RURAL DEVELOPMENT ACCOMPLISHMENTS

I have implemented a major marketing effort to improve customer service while expanding our outreach to underserved and 

qualified individuals and organizations. I am putting especial emphasis on our efforts to increase minority participation in all of our 

programs. We talk a lot about numbers, but Rural Development is 

really about people: people who want to find better jobs, people who 

want better schools and hospitals, people who want to own a home 

and give their sons and daughters that first room of their own. 

I had the opportunity last April to meet with Matt and Riley 

Reed of Payson, Utah. They had been married 2 years and had one 

little girl with another baby on the way and no hope for qualifying 

for a home loan for several years. Matt was an electrician with little construction experience. Under the direction of a construction 

supervisor, the Reed family started building their own home in 

September of 2000. They moved into their new house in June of 

2001. 

Imagine the pride these families must have felt when they 

walked into their home for the very first time. We are pleased to 

announce that the number of contracts offered under the self-help 

program almost doubled from 2002 to 2004. 

Through our utility programs, we invested nearly $18 billion in 

the past 3 years for technology, water, wastewater treatment, and 

electric infrastructure through loans and grants. These investments 

have benefitted 2.7 million people in rural areas, providing nearly 

2,000 rural educational facilities with expanded access to telecommunications technologies and over 800 health care institutions 

with enhanced medical care. 

We have helped numerous rural communities through valueadded grant awards. One interesting project is the United Wisconsin Grain Producers, which received a $450,000 grant for working capital startup costs for a 40 million gallon annual capacity 

corn ethanol production facility to be built in Freesden, Wisconsin. 

In total, there were 184 value-added grants, totaling nearly $29 

million, helping stimulate economic opportunity and create jobs in 

rural America. In support of these local investment efforts, I am 

working towards the implementation of two key business programs: 

The Rural Business Investment Program and the Low Documentation Business and Industry Guarantee Program. Both will bring 
322 

much-needed capital to rural communities to support the development of small businesses and to support the President’s efforts to 

create jobs across rural areas. 

These two programs, along with our ongoing efforts to support 

value-added agriculture and the development of renewable energy 

will increase the opportunities for communities to thrive and to 

compete domestically and globally. 

PREPARED STATEMENTS

In summary, I would like to thank the members of this Subcommittee and you, Mr. Chairman, for the continued support to 

USDA Rural Development and the many important programs that 

we administer. 

Mr. Chairman, that concludes my remarks. 

[The statements follow:] 

PREPARED STATEMENT OF GILBERT G. GONZALES

Mr. Chairman, Members of the Committee, it is a pleasure to present to you the 

President’s fiscal year 2005 Budget request for USDA, Rural Development. 

This is my first opportunity to appear before you as Acting Under Secretary of 

Agriculture for Rural Development. I am honored to serve in this position, and to 

have the opportunity to work with you to carry out Rural Development’s fundamental mission to increase economic opportunity and improve the quality of life in 

rural America. 

Everyday, we bring people and resources together. 

As Secretary Veneman recently testified, a primary component in USDA’s efforts 

to better serve rural Americans is through greater customer service and efficiency 

in the delivery of our programs. At Rural Development we are seeking to accomplish 

these objectives through better marketing of our programs to qualified applicants 

and through developing a consistent structure of operation that lends itself to better 

customer service and improved outreach. 

I believe that given the opportunity, Americans will create strength through investments in their own economic future. And I believe it is our role at Rural Development to support these efforts in ways that will maximize the benefits of rural 

economies. 

With the assistance of this subcommittee, the Bush Administration has established a proud legacy of accomplishments in rural areas. 

The Bush Administration has committed over $37 billion in rural development investments in the last 3 years to support rural Americans’ pursuit of economic opportunities and an improved quality of life. 

Rural Development delivers over 40 different loan, loan guarantee, and grant programs enhancing business development, cooperative development, housing, community facilities, water supply, waste disposal, electric power, and telecommunications, 

including distance learning and telemedicine. Rural Development staff also provide 

technical assistance to rural families, and business and community leaders to ensure the success of those projects. In addition to loan-making responsibilities, Rural 

Development is responsible for the servicing and collection of a loan portfolio that 

exceeds $86 billion. 

Rural Development is the only Federal organization that can essentially build a 

town from the ground up through investments in infrastructure, homeownership 

and job creation through business development programs. We help rural Americans 

achieve their part of the American Dream. 

To further support these efforts, we are working to build a collaborative group of 

Federal agencies that will act to strategically put Federal resources in place to serve 

as a catalyst for private investment. Partners in this effort include: Rural Development; Housing and Urban Development (HUD); the Small Business Administration; 

the Economic Development Administration; and the National Credit Union Association. In addition, we are working to increase the ability of faith-based organizations 

that partner with Rural Development to also support rural communities and their 

economic development efforts. 

Successful economic development in rural areas is driven by local strategies where 

communities take ownership and focus on developing leadership, technology, entrepreneurship, and higher education opportunities. 
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This new direction of collaborative effort follows the model the President established with the successful minority homeownership initiative he unveiled 2 years 

ago. This initiative is yielding tangible positive results and creating achievements 

we all take pride in. 

RESPONSIBILITIES

Rural Development provides rural individuals, communities, businesses, associations, and other organizations with financial and technical assistance needed to increase economic opportunities and improve the quality of life in rural America. This 

financial and technical assistance may be provided solely by Rural Development or 

in collaboration with other public and private organizations promoting development 

in rural areas. 

VISION

To achieve our dual mission of creating greater economic opportunities and improving the quality of life for rural citizens, we understand the need to structure 

the delivery of Rural Development programs so that those who are most qualified 

receive investment assistance. Reaching maximum efficiency and utilization also requires that Rural Development do a better job of outreach and education on the programs that are available. Last year, during our testimony before this Committee, 

we stated that the marketing of Rural Development programs is a critical component in better serving rural areas. Today, we have embarked upon an aggressive 

outreach and marketing effort focused on the programs receiving appropriations 

rather than on the names of individual agencies receiving the appropriations. This 

effort is a key priority and we believe it will help ensure greater utilization of program investment dollars by those who are most qualified. 

Over the last 3 years (fiscal year 2001-fiscal year 2003) with your assistance 

Rural Development has delivered over $37 billion in loans and grants to rural Americans. Through this infusion of infrastructure investment and local area income 

stimulus, many rural areas are primed to attract an increase in private sector investment. We expect to see these Federal investments returned many times over in 

the form of new private ventures, with their associated multiplier effects on household incomes and local quality of life. 

Other primary goals include: 

Homeownership.—The bedrock of this Administration’s commitment to rural 

America is homeownership and you are key to fulfilling this commitment. A safe, 

secure home is the foundation for the family unit and owning a home is the oldest 

and best form of building equity. I am proud of the fact that Rural Development 

has invested over $10.2 billion in the last 3 years in single family housing, which 

supports the President’s minority homeownership goal. 

Entrepreneurship.—I believe there are two key economic drivers for building competitiveness in rural communities. One is our ability to grasp and utilize the power 

of technology. The Internet, and the technology that has flowed from it, has resulted 

in the free flow of capital and easy access to knowledge across borders. It has made 

it possible for competition to develop and build production and value-added systems. 

The second economic driver is supporting the growth of small businesses in rural 

communities. 

That is why we are focusing our energies on implementing a new low-documentation Business & Industry guarantee loan program, implementing the Rural Business Investment Program, underwriting broadband loans, and employing other new 

economic development tools to make the most of these key economic drivers. 

RURAL DEVELOPMENT BUDGET REQUEST

The President’s commitment to rural America remains strong, and our request 

will support a total program level of $11.6 billion in loans and grants. This program 

level is very close to the fiscal year 2004 budget request, in spite of elevated priorities in other areas and the increased interest costs of our credit programs. 

I will now discuss the requests for specific Rural Development programs. 

RURAL UTILITY PROGRAMS

Through the Rural Utilities Service, USDA Rural Development provides financing 

for electric, telecommunications, and water and waste disposal services that are essential for economic development in rural areas. The utilities program requests a 

total loan level of $4.9 billion, which is comprised of $2.6 billion for electric loan 

programs, $495 million for rural telecommunication loans, $25 million for Distance 

Learning and Telemedicine grants, $331 million in loans for broadband trans-
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mission, over $1 billion for direct and guaranteed Water and Waste Disposal loans, 

$346 million for Water and Waste Disposal Grants, and $3.5 million for Solid Waste 

Management Grants. 

The Rural Telephone Bank (RTB) was established in 1972 to provide a supplemental source of credit to help establish rural telephone companies. This has proved 

to be remarkably successful, and efforts have been underway to privatize the bank. 

In 1996, the RTB began repurchasing Class ‘‘A’’ stock from the Federal Government, 

thereby beginning the process of transformation from a Federally funded organization to a fully privatized banking institution. The fiscal year 2005 budget reflects 

the Administration’s commitment to a fully privatized RTB that does not require 

Federal funds to finance the loans it makes. 

I would like to underscore two points in our Rural Utilities budget request. With 

the broadband program, we are building on over $2 billion in mandatory and discretionary loan funding that was provided over the last 2 years. To date, approximately 

90 applications totaling $1.1 billion have been received and are in the review pipeline. Of those received, $134 million in loans have been approved. Due to the 

uniqueness of this new program, from evaluating the pricing mechanism and everadvancing technology component, to the ongoing subsidy debate associated with the 

prerequisite level of equity requirements, and the built-in commercial nature of the 

lending competition associated with this program, review of the applications has not 

been as swift as we would have hoped. However, we do believe that careful deliberation of these elements is required if we are to ensure the credit worthiness and 

soundness of the loans we make, especially since many of these companies are startups. This Administration is firmly committed to developing rural technology infrastructure and we are working hard to meet the expectations of the Congress and 

the public. For fiscal year 2005, we are requesting $9.9 million in discretionary 

budget authority, which will sustain an additional $331 million of loans. This level 

of funding, coupled with the remaining balances from prior years, will provide 

ample support for the continued expansion of broadband services in rural areas. 

Second, we are able to support the funding of water and wastewater infrastructure through heavier reliance on loans rather than grants due to more affordable 

interest rates which allow rural communities to assume a greater portion of the infrastructure debt. 

RURAL BUSINESS-COOPERATIVE PROGRAMS

Since 2001, USDA Rural Development has provided over $3.3 billion for rural 

business development in the form of loans, grants and technical assistance. 

The Rural Development business and cooperative program budget request for fiscal year 2005 is about $738 million, the bulk of which is comprised of $600 million 

for the Business & Industry loan guarantee program. 

As I stated earlier in my testimony, creating economic opportunities is a primary 

pillar supporting the Rural Development mission. One of my priorities, which I have 

personally been working to implement, is the Rural Business Investment Program, 

authorized in the 2002 Farm Bill. This program is being developed in partnership 

with the Small Business Administration and is critical to economic growth in rural 

areas. Further, we are working to create a low-documentation version of the business and industry guarantee loan program that has less reliance on paperwork and 

more flexibility in providing smaller loan amounts to help more smaller businesses 

access much needed capital. 

We are requesting $40 million for the Rural Business Enterprise Grant program, 

$3 million for the Rural Business Opportunity Grant program, over $34 million for 

the Intermediary Relending Program, $25 million for Rural Economic Development 

loans, $5.5 million for Rural Cooperative Development grants, $10.8 million in discretionary budget authority for renewable energy loans and grants, and $15.5 million of discretionary funding for the Value-Added grant program. 

The $10.8 million of discretionary budget authority for renewable energy loans 

and grants will assist in fulfilling the President’s Energy Policy that encourages a 

clean and diverse portfolio of domestic energy supplies to meet future energy demands. In addition to helping diversify our energy portfolio, the development of renewable energy supplies will be environmentally friendly and assist in stimulating 

the national rural economy through the jobs created and additional incomes to farmers, ranchers, and rural small businesses. The allocation of this budget authority 

among direct loans, guaranteed loans, and grants is not determined at this time. 

Once the subsidy rates for the loan programs are finalized we will determine the 

distribution of loans and grants. This is important for rural communities and our 

country’s ability to rely less on imported energy. I am committed to this program 

and the benefits it holds for America. 
325 

Rural Development has administered the value-added grant program since its inception as a pilot in fiscal year 2001. Over that time, we have concentrated on improving outreach to assist in stimulating the most effective projects, and improving 

the application review process to ensure an empirically based, evenhanded review. 

We instituted a contract effort with highly educated and experienced academicians 

to make certain the scoring was unbiased. Geographic dispersion was not included 

as an evaluation criterion. However, I am concerned that the distribution of the latest awards does not reflect the breadth of innovative talent that I know is spread 

across rural America. I am instituting a review of our outreach and technical assistance provisions, to determine if improvements are needed in Rural Development’s 

assistance to potential applicants. I have also initiated a review of project results. 

We would like to identify the characteristics of successful projects, and what benefits are accruing to rural areas. 

As we stated during our testimony last year, one of our top priorities is to review 

the current cooperative service delivery structure. I am committed to completing 

this review and ensuring that we have a program that not only meets the current 

cooperative needs, but also focuses on helping new generations of cooperatives develop structures that will increase bottom lined profitability and allow them to be 

more competitive in domestic and global markets. 

RURAL HOUSING PROGRAMS

The budget request for USDA Rural Development’s housing programs totals $5.3 

billion in loan and grant funds. This funding commitment will improve housing conditions in rural areas, and continue to promote homeownership opportunities for minority populations. In support of the President’s homeownership initiative, Rural 

Development’s goal is to increase minority participation in housing programs by 10 

percent over the next few years. 

The request for single-family direct and guaranteed homeownership loans exceeds 

$3.8 billion, which will assist almost 42,800 households, who are unable to obtain 

credit elsewhere. 

The housing program request maintains the program level for housing repair 

loans and grants, $35 million for housing repair loans and almost $32 million for 

housing repair grants, which will be used to improve 10,000 existing single-family 

houses, mostly occupied by low-income elderly residents. 

This budget maintains Rural Development’s commitment to focus on repair, rehabilitation, and preservation of multi-family housing projects. We have placed a very 

high priority on completing review and development of a comprehensive strategy for 

delivering this important program. I am committed to seeing this review completed 

as quickly as possible. Additionally, we are working to complete the promulgation 

of revised multi-family housing regulations that we believe will increase program efficiency. We are proposing a multi-family housing request of $60 million for direct 

loans, $100 million for guaranteed loans, $42 million for farm labor housing loans, 

$17 million for farm labor housing grants, and $592 million in rental assistance. 

Rural Development has an existing multi-family housing portfolio of $12 billion that 

includes 17,800 projects. Many of these projects are 20 years old or older, and face 

rehabilitation needs. In the face of the demands for repair/rehabilitation and preservation of existing projects, and our ongoing study of program alternatives, we are 

deferring requesting new construction funding this year. I would add, however, that 

we are working with the secondary market to increase utilization of the guaranteed 

loan program, for which the Administration has requested $100 million for new construction needs. 

This budget sustains the farm labor-housing program at an aggregate level of $59 

million—$42 million of loans and $17 million of grants. Maintaining this level is 

necessary to support agriculture’s need for dependable labor to harvest the abundance produced by rural farms, and provide housing to the poorest housed workers 

of any sector in the economy. 

Rental Assistance payments are used to reduce the rent in multi-family and farm 

labor housing projects to no more than 30 percent of the income of very low-income 

occupants (typically female heads of households and the elderly, with annual incomes averaging about $8,000). The budget includes $592 million for Rental Assistance, which will be delivered through 4-year agreements. This level of funding will 

provide rental assistance to over 42,000 households, most of which would be used 

for renewing expiring contracts in existing projects. With the fiscal year 2004 reduction in contract term to 4 years, the appropriations act allows Rural Development 

to utilize unliquidated balances at the end of that contract term for many other eligible multi-family housing purposes. For the history of this program, unliquidated 

balances remained with the contract, and continued to be expended on that contract 
326 

until exhausted. This budget reflects a return to that arrangement. We are concerned that providing this extra program flexibility to Rural Development may, in 

fact, reduce the confidence of future Section 515 participants that necessary Rental 

Assistance will be provided in the future. 

The Community Facilities request totals $527 million, including $300 million for 

direct loans, $210 million for guaranteed loans, and $17 million for grants. A portion 

of the direct loan program will be directed to homeland security health and safety 

issues in rural areas. Community facilities programs finance rural health facilities, 

childcare facilities, fire and safety facilities, jails, education facilities, and almost 

any other type of essential community facility needed in rural America. We intend 

to target $100 million to homeland security uses, such as first responders. 

ADMINISTRATIVE EXPENSES

Delivering these programs to the remote, isolated, and low-income areas of rural 

America requires administrative expenses sufficient to the task. From fiscal year 

1996 through fiscal year 2003 Rural Development’s annual delivered program level 

increased by 89 percent. Over that same period Rural Development’s Salaries and 

Expenses appropriation increased only 16 percent. Rural Development has the staff 

and the dispersed distribution mechanism to reach the ambitious program targets 

outlined above, but adequate administrative support must be made available. 

With an outstanding loan portfolio exceeding $86 billion, fiduciary responsibilities 

mandate that Rural Development maintain adequately trained staff, employ state 

of the art automated financial systems, and monitor borrowers’ activities and loan 

security to ensure protection of the public’s financial interests. Limited S&E funding 

could jeopardize our ability to provide adequate underwriting and loan servicing to 

safeguard the public’s interests. 

For 2005, the budget proposes a total of $665.6 million for Rural Development 

S&E, or an increase of $38.9 million over fiscal year 2004. Of this increase, $11.6 

million will fund pay costs and related expenses; and $13 million is for increasing 

Departmental charges (Greenbook and Working Capital Fund increases) and funding to continue to support the move of St. Louis staff to the Goodfellow facility. An 

additional $14 million will support Information Technology (IT) needs, including 

data warehousing, continued expansion and upgrading of systems supporting the 

multi-family housing program, enhancement of the Rural Utilities Loan Servicing 

system to meet rural utilities program needs, e-Gov requirements, and IT security 

needs. 

Mr. Chairman and Members of the Committee, this concludes my formal statement. We would be glad to answer any questions you may have. Thank you for the 

opportunity to appear before you to discuss the Rural Development budget request. 

PREPARED STATEMENT OF HILDA GAY LEGG, ADMINISTRATOR, RURAL UTILITIES

SERVICE

Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to 

present the President’s fiscal year 2005 budget for the USDA Rural Development, 

rural utilities program. We appreciate the work and support you and other members 

of this subcommittee have provided for a strong, dependable infrastructure in the 

rural United States. 

All aspects of a rural society are work together to make a strong Nation. Safe, 

affordable, modern utility infrastructure is an investment in economic competitiveness and serves as a fundamental building block of economic development. Changes 

in the landscape of rural America, along with developments in technology, and 

changes in the market structure are combined with an aging utility infrastructure. 

These changes are occurring in the electric, telecommunications, and water sectors. 

Without the help of USDA Rural Development rural utilities program, rural citizens 

face monumental challenges in participating in today’s economy and improving their 

quality of life. 

The $42 billion rural utilities program loan portfolio includes investments in approximately 2,000 electric and telecommunications systems and 7,500 small community and rural water and waste disposal systems serving rural communities. This 

local and Federal partnership is an ongoing success story. Eighty percent of the Nation’s landmass continues to be rural, encompassing 25 percent of the population. 

In a recovering economy, this infrastructure investment spurs economic growth, creates jobs, and improves the quality of life in rural America. 
327 

ELECTRIC PROGRAM

The rural utilities program budget proposes $5 million in budget authority (BA) 

to support a program level of $2.6 billion. This includes $3.6 million in BA for a 

hardship program level of $120 million, over $1 million in BA for a $100 million 

program level for direct municipal rates loans, $700 million program level for the 

direct Treasury rate loans, $60 thousand BA for $100 million program level for 

guaranteed electric loans, and $1.6 billion for Federal Financing Bank (FFB) direct 

loans. The Treasury loans are made at the cost of money to the Federal Government; therefore the FFB loans do not require BA. Because Congress has provided 

very generous loan levels over the past 3 years, we have been able to eliminate most 

of the backlog in loan applications; and we feel the President’s budget level will 

meet the demand during fiscal year 2005. 

To meet the demands of economic growth across our Nation, the need for transmission lines to deliver electric power where it is needed is placing new demands 

on cooperatives providing transmission service. To protect the quality of our environment while meeting growing power generation needs, the costs of maintaining 

and building power generation capacity is ever growing. We are seeing requests for 

large loan generation loans for the first time in almost 15 years. 

ADVANCED TELECOMMUNICATIONS IN RURAL AMERICA

No aspect of the rural utilities infrastructure faces more changes than the area 

of telecommunications. Congress, with the leadership of this Committee, has shown 

great confidence in the rural utilities program Telecommunications Program’s ability to empower rural America with the most modern telecommunication tools to participate in today’s global, digital economy. Job growth, economic development, and 

continued quality of life in rural America is directly tied to access to today’s highspeed telecommunications. 

I would like to take this opportunity to tell you where we stand with our 

Broadband Program in terms of (1) program delivery; (2) our drive to balance fiduciary responsibility with mission delivery; (3) our expertise in administering a very 

complex lending program; and (4) the administration’s continued support for the deployment of Nation-wide broadband service. 

The Broadband loan program is distinctive from all other lending programs within 

the agency’s portfolio. Nearly half of the applicants are ‘‘start-up’’ companies with 

little, if any, history of doing business in this industry. In addition, two distinctly 

different characteristics are at play—competition (rather than a monopolistic environment) and multi-state businesses (rather than a single cooperative or independent company serving a single rural community). Very few of the applications 

are designed to serve a single rural community or even a small grouping of geographically close rural communities. Most are applications requesting to serve 50, 

75, or in excess of 100 rural communities in multiple states. In these multiple community applications, the vast majority of the communities already have broadband 

service available in some of the proposed service area; in some instances, from more 

than one provider. Therefore, to determine financial feasibility, the agency must determine what portion, if any, of a competitive market the applicant will be able to 

penetrate. As you can imagine, these factors contribute to increased review and 

processing efforts. 

I am pleased to report that, as of today, the agency has made 12 loans totaling 

$134 million which will serve 215 communities with more than 670,000 rural citizens. The agency has also completed its review of every application received in this 

program. It should be noted that nearly 70 percent of those applications were received within a one-month timeframe between mid-July and mid-August of 2003. 

Our country is facing challenging domestic spending decisions. In order to balance 

fiduciary responsibility with mission delivery, USDA is focusing on ‘‘quality loans’’ 

that produce exponential benefits through reduced subsidy rates and greater lending 

levels and that strengthen not only rural economies, but our national economy and 

its role in the global economic system. A failed business plan translates not only 

into loss of taxpayer investment, but deprives millions of citizens living in rural 

communities of the technology needed to attract new businesses, create jobs, and deliver quality education and health care services. 

Building on USDA’s experience and local presence in serving rural communities, 

we bring a unique lending expertise that includes the tools necessary to examine, 

and provide solutions for, the financial and the technical challenges facing entities 

dedicated to serving rural America. This model has resulted in a lending agency 

with unprecedented success in our other programs and we are dedicated to bringing 

that same level of success to this program. 
328 

From the beginning, the President has recognized the importance of broadband 

technology to our rural communities. The President stated, ‘‘we must bring the 

promise of broadband technology to millions of Americans and broadband technology 

is going to be incredibly important for us to stay on the cutting edge of innovation 

here in America.’’ The Bush Administration has been unwavering in its support for 

this and other programs that will revitalize and strengthen our rural communities. 

Let me assure you that we are on track, we remain focused, and we will complete 

our mission. We must continue to balance fiduciary responsibility with mission delivery everyday. Our unique lending expertise—the marriage of financial and technical analysis—helps to maximize the success rate of borrowers’ business models. 

And we will strive to do our part for rural America in fulfilling the President’s 

promise of bringing broadband service to millions of citizens. Making bad loans 

helps no one, making successful loans helps everyone. 

TELECOMMUNICATIONS BUDGET

This year’s budget proposes approximately $35 million in budget authority for an 

overall broadband and distance learning and telemedicine telecommunications program level of $356 million. The fiscal year 2005 budget proposes a broadband loan 

program level of approximately $331 million. This level of funding, coupled with the 

remaining balances from prior years, will provide ample support for the continued 

expansion of broadband services in rural areas. Included in the broadband loans request is approximately $36 million in direct 4 percent loans, $255 million in direct 

Treasury Rate Loans, and $40 million in guaranteed loans. 

In the regular telecommunications program, the fiscal year 2005 budget proposes 

a program level of $495 million. Included is $145 million in direct 5 percent loans, 

$250 million in direct treasury rate Loans, and $100 million in Federal Financing 

Bank (FFB) direct loans guaranteed by the rural utilities program. All of this is 

driven by $100 thousand in budget authority. 

The budget also reflects the Administration’s commitment to privatize the Rural 

Telephone Bank and does not request any budget authority or loan level for fiscal 

year 2005. 

Distance learning and telemedicine (DLT) technologies are having a profound impact on the lives of rural residents by assisting rural schools and learning centers 

in taking advantage of the information age and enabling rural hospitals and health 

care centers to have access to quality medical services only found in large hospitals. 

The distance learning and telemedicine program pulls together the best of Federal 

assistance and local leadership. 

The DLT grants are budgeted at $25 million, the same as Congress appropriated 

for fiscal year 2004. The Budget proposes to zero out the loan program, simply because loan repayment is out of reach for most applicants, which are schools and hospitals. Even with increased marketing efforts over the past 2 years, less than $21 

million in loans were made in fiscal year 2003. 

WATER AND ENVIRONMENTAL PROGRAMS

The water and environmental programs provide two of the most basic of infrastructure needs for rural citizens which are clean, safe, and affordable drinking 

water and ecologically sound waste disposal. The Centers for Disease Control and 

Prevention in Atlanta, Georgia, reports there are still over 1,000 deaths each year 

from water borne diseases. 

The budget request seeks approximately $439 million in budget authority for a 

program level of $1.4 billion in water and waste disposal loans and grants. The program consists of $90 million in budget authority to support $1 billion in direct loans 

and $75 million in loan guarantees and nearly $346 million in water and waste disposal grants. In addition, the budget requests $3.5 million in solid waste management grants. 

SUMMARY

Rural utility infrastructure programs are interwoven in the fabric of USDA Rural 

Development programs. They are utilized to provide clean and safe water; modernize communications; create reliable electric power so that businesses can develop 

and homes can have lighting and heating, as well as open up access to information 

from the rest of the world. 
329 

PREPARED STATEMENT OF ARTHUR A. GARCIA, ADMINISTRATOR, RURAL HOUSING

SERVICE

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

testify on the proposed fiscal year 2005 budget for the USDA Rural Development, 

rural housing program. As an integral part of Rural Development, rural housing 

program assists rural communities in many fundamental ways. We provide a variety of both single and multi-family housing options to residents of rural communities. We also help to fund medical facilities, local government buildings, childcare 

centers, and other essential community facilities. 

Rural Development programs are delivered through a network of 47 state offices 

and approximately 800 local offices. In addition, approximately 2,000 guaranteed 

lenders participate in the guaranteed single-family housing (SFH) program. 

The proposed budget for rural housing program in fiscal year 2005 supports a pro- gram level of approximately $5.3 billion in loans, grants and technical assistance. 

The fiscal year 2005 budget for the rural housing program maintains the Administration’s strong commitment to addressing the needs of rural America, including the 

needs of minority homeownership. We believe that our efforts, combined with the 

best of both the nonprofit and private sectors, will ensure that this budget makes 

a tremendous difference in rural communities. Let me share with you how we plan 

to continue improving the lives of rural residents under the President’s fiscal year 

2005 budget proposal for our rural housing programs. 

SINGLE FAMILY HOUSING PROGRAMS

The single-family homeownership programs provide several opportunities for rural 

Americans with very low-to moderate-incomes to obtain homes of their own. Of the 

$3.8 billion in program level requested for the SFH programs in fiscal year 2005, 

$2.5 billion will be available as loan guarantees of private sector loans. An additional $225 million in loan guarantees will be used to refinance more affordable 

loans for rural families. 

The 2005 budget reflects an increase in the fee on new SFH guaranteed loans 

from 1.5 to 1.75 percent. To offset this increase, the proposed legislation will not 

only allow the loan amount to exceed 100 percent of approved value by the amount 

of the fee. This proposal will help ensure that families with limited resources are 

not prevented from participating in the program. 

Our commitment to serving those most in need in rural areas through our direct 

homeownership program remains strong. The fiscal year 2005 budget includes $1.1 

billion in loans to create housing opportunities for low and very low-income families. 

SELF-HELP TECHNICAL ASSISTANCE AND OTHER SINGLE FAMILY HOUSING PROGRAMS

The fiscal year 2005 proposed budget requests $76.7 million in budget authority 

to make over $120 million in program level funding available to assist up to 12,000 

families with incomes below 50 percent of the area median income. This includes 

$35 million in program level for home repair loan funds for 5,800 very low-income 

families and $31.5 million for grants to assist approximately 6,000 elderly homeowners. The fiscal year 2005 proposed budget for SFH programs also includes $34 

million to support the Section 523 mutual and self-help technical assistance grant 

program, $5 million in loan level for each of two site loan programs, and $10 million 

in loan level for sales of acquired properties, and $1 million for supervisory and 

technical assistance grants. 

MULTI-FAMILY HOUSING PROGRAMS

The Multi-Family Housing (MFH) budget preserves Rural Development’s commitment to maintaining the availability of affordable housing for the many rural Americans who rent their homes. 

With a total request of $822.5 million program level, of this amount $592 million 

would be used for rental assistance payments. The majority of these funds will be 

used to renew more than 42,000 4-year RA contracts. Most of the remainder will 

be used to provide new rental assistance contract for farm labor housing programs. 

We estimate using $60 million for MFH direct loans to provide much needed repairs 

or rehabilitation to approximately 3,400 units of the 17,800 rental properties in the 

portfolio. These apartments provide decent, safe, sanitary, and affordable residences 

for more than 450,000 tenant households. 

The budget request will fund $100 million in guaranteed loans that may be used 

for new construction. In addition, the request funds $42 million in loans and $17 

million in grants for the Section 514/516 Farm Labor Housing program, $1.5 million 

in loans for MFH credit sales, and $10 million for housing preservation grants. 
330 

Under the President’s fiscal year 2005 budget, MFH guarantee loans will enable 

2,500 rental units to be built. In the farm labor-housing program, about 3,000 units 

will be built or repaired. Both programs provide year-round homes to migrant and 

farm workers. 

COMMUNITY PROGRAMS

The Community Facilities budget will enable rural housing program to provide essential community facilities, such as educational facilities, fire, rescue and public 

safety facilities, health care facilities, and childcare centers in rural areas and towns 

of up to 20,000 in population. The total requested program level of $527 million includes $300 million for direct loans, $210 million for loan guarantees, and $17 million for grants. In fiscal year 2003, we assisted 83 communities by investing over $66 million in educational and cultural facilities, over $54 million in public safety facilities in 359 

rural communities, and over $162 million in health care facilities in 124 rural communities. Funding for these types of facilities totaled $282 million. The remaining 

balance was used for other essential community facilities. 

In partnership with local governments, state governments, and Federally-recognized Indian Tribes, the fiscal year 2005 Community Facilities budget will support 

more than 375 new or improved public safety facilities, 140 new and improved 

health care facilities, and approximately 100 new and improved educational facilities. 

PROGRAM HIGHLIGHTS & INITIATIVES

I am pleased to provide you with an update on several highlights from our major 

programs, as well as key initiatives being undertaken. 

SINGLE FAMILY HOUSING UPDATE

SECTION 523 MUTUAL AND SELF-HELP HOUSING

Funding for our mutual and self-help housing technical assistance (TA) program increased significantly in the 1990s from $13 million per year to $35 million per 

year. I am proud to report that fiscal year 2003 was the best year ever for our mutual and self-help housing program. A total of $40 million was awarded in contracts 

and two-year grants to conduct self-help housing programs or assist sponsor groups. 

The demand for TA funding continues to grow rapidly. There were 46 ‘‘pre-development’’ grants awarded in fiscal year 2002–03, including many first-time sponsors 

and groups in states with no self-help housing programs. Pre-development funds 

may be used for market analysis, determining feasibility of potential sites and applicants, and as seed money to develop a full-fledged application. Groups in the predevelopment phase typically need 6 to 12 months before they are ready to apply for 

full funding. We expect a considerable portion of these groups to seek full funding 

in fiscal year 2005. 

SECTION 502 GUARANTEED PROGRAM

Demand for our section 502 guaranteed program continues to be strong based 

upon: 

—Aggressive outreach and customer service by Rural Development staff; 

—Growing recognition and acceptance of the program by the mortgage industry 

as an outstanding loan product for lower income rural families. The program 

requires no down payment and no monthly mortgage insurance premiums; 

—Historic low interest rates, which coupled with a Rural Development guarantee, 

have helped moderate income families achieve homeownership; 

—Rural Development’s commitment to reducing barriers to homeownership, especially for lower-income and minority families; 

—Redirecting low-income families who can afford current low interest rates from 

our Direct homeownership program to our Guaranteed program; 

—The Secretary’s Five-Star Commitment to increase homeownership, including 

minority homeownership. 

We developed an Automated Underwriting System (AUS), which will allow lenders to input customer application data and determine immediately whether the 

Agency will issue a commitment. This system should be fully operational by next 

summer. Our Centralized Servicing Center in St. Louis, Missouri will soon begin centralizing loss claims submitted by lenders under our guarantee SFH program. This 

process is currently being done in State Offices. Centralization will improve efficiency, consistency, and provide better management data to program officials. 
331 

USDA’S FIVE STAR COMMITMENT TO INCREASE MINORITY HOMEOWNERSHIP

The rural housing program is committed to increasing homeownership for all 

Americans, including minorities. Approximately 13 percent of rural America is comprised of minorities. We are pleased to report that over 20 percent of our housing 

resources reach minority families. Several of our programs, most notably our mutual 

and self-help housing program, serve over 50 percent minorities. In response to the 

President’s minority homeownership goals, USDA is committed to increasing its success. In October 2002, USDA issued a Five Star Commitment to expand homeownership opportunities for all Americans. We believe this plan will also expand minority 

homeownership by 10 percent by 2010. Our Five Star Commitment includes the following: 

—Doubling the number of self-help participants by 2010; 

—Increasing participation by minority lenders through outreach; 

—Lowering fees to reduce barriers to minority homeownership; 

—Promoting credit counseling and homeownership education; and 

—Monitoring lending activities to expand minority homeownership opportunities. 

Since announcing the Five-Star Commitment, USDA has: 

—Awarded a total of $40 million in self-help housing grants in fiscal year 2003, 

which was the best year ever for the program. Demand for funding continues 

to grow. There were 46 ‘‘pre-development’’ grants awarded in fiscal year 2002– 

2003, including many first-time sponsors and groups in states with no self-help 

programs. 

—Entered into a memorandum of agreement with the Federal Deposit Insurance 

Corporation (FDIC) to promote and utilize their ‘‘Money Smart’’ training program. FDIC assisted us by providing training to all of our State Offices on delivery of this valuable financial literacy program. 

—Lowered the fee for the guaranteed SFH loan program from 2 percent to 1.5 

percent for purchase loans and 0.5 percent for refinance transactions. This 

change, coupled with record low interest rates, has increased demand for the 

program. Although the Administration’s fiscal year 2005 budget proposes a 

small increase in the fee (25 basis points), this is coupled with proposed legislation that will allow the Agency to include the entire fee in the loan. This small 

increase (less than $500 per loan) will help reduce government outlays and the 

accompanying legislative proposal ensures that families will not be adversely 

impacted. 

—Obtained commitment from Rural Development State Offices to increase the 

number of American homeowners, including minority homeowners, served 

through our direct and guaranteed programs. All states have developed individual plans to increase homeownership levels for all Americans, including minority homeownership, and to expand the availability of the self-help program. 

We met our overall objectives for fiscal year 2003 and are on target for fiscal 

year 2004. 

MULTI-FAMILY UPDATE

COMPREHENSIVE PROGRAM ASSESSMENT

We are addressing concerns about our aging portfolio of multi-family housing 

properties through a Comprehensive Program Assessment (CPA). The CPA was designed to evaluate the multi-family housing programs from several perspectives, including program delivery, organizational structure, effectiveness of programs and alternative financing tools, and a comprehensive analysis of the Section 515 properties 

in our portfolio. 

We selected a statistically random sample of properties from the portfolio (333 of 

17,800 or about 2 percent) and they are being evaluated for: 

—Assessment of a property’s physical condition; 

—Assessment of a property’s financial health; 

—Assessment of a property’s position in the real estate rental market; 

—Determination of continuing need for this rental housing; 

—Assessment of needed capital improvements and cost; 

—Assessment of future capital reserves needs; 

—Analysis of prepayment potential and; 

—Analysis of prepayment incentive costs to retain properties and use restrictions. 

From this assessment and analysis, we will develop a model to apply to all portfolio properties. It will tell us the cost of capital needs, the current funds available 

in reserve accounts, and where revitalization efforts should be concentrated. 

The CPA review is on schedule. All sample properties were inspected last year. 

We expect a report on the physical and market analyses by this spring. 
332 

The CPA is also evaluating the organizational structure of the MFH division and 

determining better ways of delivering our loan programs. Through discussions with 

stakeholders and HUD, the CPA will determine the best organizational method to 

address prepayment issues. The evaluations are being done by our contractor, ICF 

Consulting, in concert with Rural Development senior management and our MFH 

Advisory Board, consisting of National and State Office staff. As the comprehensive 

program assessment concludes, we will present results and recommendations to the 

Subcommittee. 

RENTAL ASSISTANCE

During the past year, the Agency undertook an initiative to automate the forecasting of the cost of renewals of Rental Assistance (RA) contracts. This automated 

system uses actual operating and rental data from each MFH property that receives 

RA and predicts the cost of RA needed for these very low and low-income tenants. 

The automation initiative started in March 2003 and is currently being tested. We 

expect the forecasting tool to be available by March of fiscal year 2004. 

In other efforts to improve internal controls, we plan to add several staff members 

to the RA program and to develop an internal operating manual. This month, the 

Department will undertake a Management Control Review of the Section 521 Rental 

Assistance program, which entails auditing the performance of State Offices in program and funds delivery, and in compliance with program and National Office policy 

requirements. 

We will continue our efforts to more efficiently deliver RA. Last year, we reported 

on outstanding unliquidated obligations from prior years’ RA contracts. The majority 

of the unliquidated obligations come from RA contracts entered into between 1978 

and 1982. These contracts were vastly overestimated at the time by a methodology 

that incorporated the lowest social security payment, a 25 percent tenant contribution (since increased to 30 percent), and double-digit inflation. Additionally, over 50 

percent of these contracts are concentrated in areas that continue to experience low 

rents, low tenant incomes, and out migration of the population. These factors combined to yield an extremely low rate of RA usage. In the end, the funds for those 

contracts between 1978 and 1982 have lasted much longer than originally planned. 

The funds remain in the form of unliquidated obligations on our books, and will continue to be drawn on until they have been exhausted. For those units, this alleviates 

having to renew the contract until they have exhausted all funds. 

The removal of the 20-year time frame for projections coupled with an improved 

and automated forecasting methodology over the last 4–5 years has contributed to 

better accuracy in providing just the right amount of RA to last through the term 

of the contract. We believe that only a very small amount of the fiscal year 2005 

funds, if any, will last longer than 4 years. Administratively, continuation of the 

original purpose of these funds is the most efficient way to handle any of these 

small and unanticipated surpluses. 

Concerning the unliquidated obligations for the old 20-year contracts, last year, 

the House Financial Services Committee—Oversight and Investigations Subcommittee asked us to investigate using these outstanding balances. When a rental 

assistance agreement is terminated because the project owner no longer needs units 

that are receiving RA or by means of a loan payoff or foreclosure, the unexpended 

funds are applied to other units in the MFH program. However, our Office of the 

General Counsel has advised that we do not have the authority to recapture obligated, but unexpended RA funds associated with a still active RA agreement. Even 

if we had that specific authority, there would be substantial litigative risks that affected project owners would be able to successfully bring breach of contract action 

against rural housing program under the agreement and the ability to use these 

funds would be the same as if the funds were appropriated from the General Fund. 

PROPOSED RULE 3560

Proposed Rule 3560 consolidates 13 regulations and a number of administrative 

notices affecting Sections 514, 515, 516, and 521 MFH programs. RHS received 

3,000 comments on the proposed rule. We have completed our review and consideration of these comments and are working on drafting the final rule. 

SECTION 538 GUARANTEED RURAL RENTAL HOUSING PROGRAM

Currently, the Section 538 Loan Guarantee Program has 16 properties containing 

1,111 units that are built and occupied. There are 26 properties containing 1,345 

units under construction and another 65 properties containing 3,610 units with the 

funds obligated. Also, there are applications representing 32 projects containing 

2,569 units awaiting approval. 
333 

In the built and occupied units, the average monthly rent is $481. This translates 

to a median income of about 17 percent of area median income. We also have Section 8 vouchers in about 10 percent of the units to serve low and very-low income 

residents. 

This program can be combined with several other funding sources, such as, Low 

Income Housing Tax Credits; HOME; and Federal Home Loan Bank Affordable 

Housing Program funds to provide affordable housing to rural residents presently 

not assisted. 

MFH AUTOMATION INITIATIVES

In addition to the automation of RA forecasting, rural housing program has continued to improve its management information systems. The Agency is developing 

a data warehouse for both its SFH and MFH loans, which will dramatically improve 

our reporting capabilities. The data warehouse is now functional and continues to 

be populated with data from several existing databases. 

Phase 4 of the Multi-Family Information System (MFIS), scheduled for implementation in May 2004, will provide for electronic debiting and crediting of borrowers’ 

accounts, thereby eliminating funds handling in area offices. Phase 4 will also provide the public with a website to locate all the MFH properties, with pictures, property information, contact information, and links to property or management company websites. 

Another automation improvement is the Management Agent Interactive Network 

Connection, which allows property managers to transmit tenant and property data 

to RHS via the Internet. This data goes directly into the MFIS database and the 

data warehouse. This web-based system is now being used voluntarily, and is scheduled to become mandatory this summer with the publication of the MFH Final Rule 

3560. 

PREPAYMENT

The efforts to preserve the Section 515 multifamily portfolio are a top priority of 

the rural housing program. These efforts are needed because of the increasing age 

of the portfolio and the need for existing owners to seek viable exit strategies. However, exceptional efforts are needed by existing owners, potential purchasers, nonrural housing program housing financiers, and rural housing program to make these 

efforts work. At stake is an irreplaceable affordable housing option in rural America 

that addresses a critical need for rural residents with few housing alternatives. 

Owners wishing to sell their Section 515 properties or their ownership interests 

in a borrower entity may do so at any time. If the property is sold to another owner 

who will keep their project in the program, we may make resources available or 

agree to allow third-party resources to be used to compensate the seller for its equity and make repairs to the buildings. If the owner seeks to sell the property to 

another owner outside the section 515 program, we offer incentives to the owners 

to stay in the program or provide a 100 percent equity loan to sell it to a non-profit 

or public body. 

Key factors that affect many owners when selling their property is the effect of 

exit taxes and expectations for equity. We continue to work with owners to develop 

realistic exit strategies within the limited resources available to affordable housing 

providers. 

In our efforts to preserve the portfolio, a ‘‘revitalization tool kit’’ is being developed that will enable us to offer several alternatives to rural housing program borrowers in financing, debt write-off and subordination, third party financing, and 

transfer approvals. Rural housing program is currently working to accelerate the 

loan approval process at the state level by reducing the number of exceptions and 

waivers, and streamlining the overall transfer approval process. 

We are continuing to work with lenders and nonprofits to leverage our subsidy 

dollars to the maximum extent. For example, we partnered with Fannie Mae to preserve a 44-unit apartment complex in Saranac Lake, NY by subordinating our debt. 

We eliminated underwriting duplication and established processes going forward 

that would permit acceptance of underwriting, appraisals, inspections, and reserve 

account requirements between partners. This is our first joint effort and it will establish a precedent that we intend to use with other partners in preserving the portfolio. 

We continue to work with industry partners to develop options for the preservation of the portfolio. Completion of the comprehensive program assessment and implementation of recommendations to improve program efficiency will enable us to 

better utilize existing resources such as Fannie Mae, HUD, the Federal Home Loan 

Bank Board, and others. 
334 

RURAL PARTNERS

In our programming for fiscal year 2005, we are stretching the rural housing programs’ resources and its ability to serve the housing needs of rural America through 

increased cooperation with the Department of Housing and Urban Development 

(HUD) and other partners. We are committed to working with these partners to leverage resources for rural communities. For example, we expect to adopt HUD’s 

TOTAL scorecard for single-family loans. This cooperation between USDA and HUD 

will save time and money in system development. 

In our multi-family housing program, HUD has been extremely helpful in sharing 

data on their own rural portfolio. We were able to access this information to use 

in developing comparable properties to those in our section 515 portfolio for our 

comprehensive property assessment. Additionally, we have approximately 1,700 

properties with a rural housing program mortgage and project-based Section 8 from 

HUD. On these properties, we have an established agreement with HUD that the 

rural housing program will review and approve operating budgets and rent increases. This eliminates duplicative work and ensures better consistency. In addition, last June USDA and HUD entered into a Memorandum of Agreement committing our mutual efforts and resources to improving the quality of life in the Southwest Border Region. USDA and HUD have also formed an Interagency Task Force 

that now includes other federal agencies to better direct limited resources to the region, address jurisdictional issues, and further enhance our collaborative efforts. 

CONCLUSION

Mr. Chairman and members of the Committee, we thank you for your support, 

and with your continued support, Rural Development looks forward to improving 

the quality of life in rural America by providing housing opportunities and building 

competitive, active rural communities. 

We recognize that we cannot address the homeownership and rural community 

facilities issues alone, and will continue to identify and work with partners who 

have joined with the President to improve the lives of rural residents. We will continue to reach out to and partner with lenders, the many non-profit organizations, 

as well as federal, state, local, and Indian Tribal governments to meet the housing 

and community needs of low-income families and individuals in rural America. 

PREPARED STATEMENT OF JOHN ROSSO, ADMINISTRATOR, RURAL BUSINESS- COOPERATIVE SERVICE

Mr. Chairman and Members of the Subcommittee, I am pleased to appear before 

you today to present the Administration’s fiscal year 2005 budget for Rural Development’s rural business and cooperative programs. 

Mr. Chairman, the programs and services of Rural Development, in partnership 

with other public and private sector businesses, continue to improve the economic 

climate of rural areas through the creation or preservation of sustainable business 

opportunities and jobs. Rural Development continues to invest in rural America, especially in under-served rural areas and populations. Rural Development programs 

help close the gap in opportunity for these under-served rural areas and populations, moving them toward improved economic growth by providing capital, technology and technical assistance. The budget requests $738 million for Rural Business-Cooperative Service programs. 

COOPERATIVE SERVICES

The functions of our cooperative programs are authorized under both the Cooperative Marketing Act of 1926, and the Agricultural Marketing Act of 1946. Our programs serve as the focal point of national activity to help farmers and other rural 

residents help themselves by providing the necessary advice and assistance. We endeavor to enhance the quality of life for rural Americans by encouraging the use 

of cooperatively owned business as a self-help tool in the marketplace. Our programs of research, technical assistance, education and information, statistics, and 

assistance in starting new cooperatives are designed to establish viable business entities that help individual farm operators and other rural residents retain access to 

markets and sources of supplies and services in a sector that is becoming rapidly 

vertically coordinated and industrialized. Cooperatives are a means for helping to 

ensure that rural people are treated more fairly in the marketplace by providing 

structural strength in dealings with buyers and suppliers. 

Some of our State Office technical assistance efforts involve non-agricultural cooperative development. For example, in Wisconsin, our cooperative development spe-
335 

cialist was instrumental in developing an effective home health-care cooperative 

called Cooperative Care. Cooperative Care is a group of home and personal care providers in rural Wisconsin that joined forces with county officials, community leaders, 

a Federal agency, a technical college, and a community action agency. Together they 

organized a worker-owned cooperative where the members have a voice and share 

profits. This program addresses growing concerns about the care of elderly and disabled individuals and provides an efficient alternative to nursing home care. 

RURAL COOPERATIVE DEVELOPMENT GRANT PROGRAM

For the Rural Cooperative Development Grant (RCDG) Program, the fiscal year 

2005 budget requests $21 million. Of this amount, up to $1.5 million would be used 

for projects focusing on assistance to small, minority producers through their cooperative businesses. This program, along with our other Rural Cooperative Development grants, complements our national and state office technical assistance efforts 

by encouraging the establishment of centers for cooperative development. The centers provide expertise for conducting feasibility analysis, outreach, and other forms 

of technical assistance for new and existing cooperatives. 

One example is the Family Farm Opportunity Center in Missouri. The Center has 

helped form, through feasibility and market analysis, the Gateway Beef Cooperative, the Southwest Missouri Natural Dairy, and the Osage Independent Pork Producers. Several other cooperatives are receiving assistance from the Center, most involving the processing and marketing of value-added agricultural products. Among 

others, the Center targets Missouri counties with the highest percentage of poverty 

and unemployment. 

We are requesting $500,000 for cooperative research agreements to encourage research on critical issues vital to the development and sustainability of cooperatives 

as a means of improving the quality of life in America’s rural communities. These 

will address the need for a solid information base on which to render judgments on 

critical cooperative operational and organizational issues, such as alternative ways 

of sourcing equity capital from within and outside the cooperative. 

The Farm Bill formalized the value-added grant program. Over the past 3 years, 

478 grants have been awarded for approximately $86 million. This program has four 

components including Value-Added Producer Grants (VAPG), Agriculture Innovation 

Centers (AIC), Agricultural Marketing Resource Center (AgMRC), and university research on the impact of value-added projects. Eligibility for this grant program was 

greatly expanded in the Farm Bill and the program encourages applications for 

grants less than the $500,000 maximum allowed to provide benefits to as many producers as possible. 

For fiscal year 2005, the budget requests $15.5 million for the value-added grant 

program. This amount will provide funding for the VAPG and the AgMRC. Funding 

is not needed in fiscal year 2005 for the AIC program or university research on the 

impact of value-added projects. 

One example of a successful VAPG venture is the Pacific Coast Producers cooperative of Lodi, California. This cooperative used grant funds to pay for the production 

and marketing of single-serving fruit bowls under the private labels of U.S. retailers. Initially, the cooperative produced single-serving fruit bowls for a national food 

company under that company’s label. The company canceled the contract and began 

purchasing these items from a foreign company. Pacific Coast Producers viewed this 

lost contract as an opportunity to capture the emerging market in private label fruit 

bowls. They have since shipped fruit bowls to 40 customers under 32 different store 

brands. Those 40 customers have ordered 2 million cases using over 70 tons of fruit. 

The cooperative has plans to add at least 10 more retail chains to its customer list 

over the next year. 

Another example is Missouri Food and Fiber (MOFF), the first new generation 

Identity-Preserved (IP) marketing cooperative organized across an entire State. 

MOFF delivers the highest quality soybeans, rice, corn, wheat, grain sorghum, and 

cotton to worldwide locations. It specializes in identifying the customer’s product 

needs, matching input seed stock with premium growing environments and managing the IP product during planting, growing, harvesting, storing, transporting, 

processing, and distributing to the customer’s global locations. While MOFF has 

been extremely successful in the premium IP business, the farmer-owned company 

is seeking entrance into one of the world’s most exclusive and profitable agricultural 

markets: super-premium, identity-preserved, food-grade tofu beans for the Asian 

market. MOFF recently received a grant award of approximately $82,000 from 

USDA Rural Development that will allow it to enter this lucrative market. 
336 

BUSINESS AND INDUSTRY GUARANTEED LOAN PROGRAM

For the Business and Industry (B&I) Program, the fiscal year 2005 budget includes $30.2 million in budget authority to support $600 million in guaranteed 

loans. We estimate that the funding requested for fiscal year 2005 would create or 

save about 15,020 jobs and provide financial assistance to 367 businesses. We anticipate continued strong demand for this program. 

The B&I program allows lenders to better meet the needs of rural businesses. 

Through the lender’s reduced exposure on guaranteed loans, they are able to meet 

the needs of more businesses at rates and terms the businesses can afford. B&I 

guaranteed loans may also be used by individual farmers to purchase cooperative 

stock in a start-up or existing cooperative established for value-added processing. 

I would like to share a story to illustrate how this program, partnering with a 

local lender, allowed a locally owned and operated ethanol producing business in 

rural Wisconsin to expand, providing security for 35 existing jobs and creating 4 

new jobs. ACE Ethanol, LLC received a $10 million B&I Loan guarantee that was 

used in conjunction with other funding to refinance existing debt and expand the 

capacity of the ethanol plant to 30 million gallons per year. This expanded plant 

will purchase 1.5 million bushels of corn from the local market and in effect increase 

the price of local corn by $0.20 per bushel. This plant provides an alternate market 

for the corn that historically has been marketed for the declining livestock operations. 

INTERMEDIARY RELENDING PROGRAM

The fiscal year 2005 budget also includes $15.9 million in budget authority to support $34.2 million in loans under the Intermediary Relending Program (IRP). We 

estimate the proposed level of funding will create or save about 26,175 jobs over the 

30-year loan term. 

Participation by other private credit funding sources is encouraged in the IRP program, since this program requires the intermediary to provide, at a minimum, 25 

percent in matching funds. The demand for this program continues to be strong. To 

illustrate the benefits IRP provides to rural America, I would like to share with you 

a success story from rural Louisiana. The Coordinating and Development Corporation (CDC) of Shreveport, Louisiana was awarded a $750,000 IRP Loan. Rural Development funds were used to recapitalize a revolving loan fund to be administered 

by CDC. CDC is a non-profit, private corporation that was organized in 1954 to administer a wide range of Federal, State, and loan development programs and initiatives. CDC’s coverage area includes Bienville, Bossier, Caddo, Claiborne, DeSoto, 

Lincoln, Natchitoches, Red River, Sabine, and Webster Parishes in northeast Louisiana as well as peripheral counties in northeast Texas and southwest Arkansas. 

CDC’s coverage area includes a special emphasis parish (Lincoln Parish) in the 

Lower Mississippi Delta Development Initiative and Persistent Poverty Area (Claiborne, DeSoto, Lincoln, Natchitoches, Red River, and Sabine Parishes). In addition, 

businesses and residents in this area experienced devastating agriculture losses due 

to Hurricane Isadore and Hurricane Lili in September and October of 2002. 

As a result of Rural Development funding, CDC was able to provide low-interest 

loan funds to area businesses—in turn growing, sustaining, and expanding businesses throughout their coverage area. Because of Rural Development funding, CDC 

was able to provide critical financial resources to area businesses resulting in 26 

jobs created and 205 jobs saved. 

RURAL BUSINESS ENTERPRISE GRANT PROGRAM

For the Rural Business Enterprise Grant (RBEG) program, the fiscal year 2005 

budget includes $40 million. We anticipate that this level of funding will create or 

save about 17,200 jobs and impact over 7,900 businesses. The demand for this grant 

program continues to be strong. The purpose of this program is to assist small and 

emerging businesses. It is estimated that for each dollar of investment of an RBEG, 

another $2.40 in private capital is generated. 

Among the many eligible grant purposes under this program is the renovation of 

existing facilities by the grantee to support small and emerging business development in rural areas. I would like to share with you an example of how these funds 

are being used to support small and emerging business opportunities in rural Idaho. 

A $59,752 RBEG was awarded to the NEZ Perce Tribe in Lapwai to fund a study 

on the feasibility of oil seed production as a substantial alternate crop for farming 

operations in North Central Idaho. Farmers in this highly productive dryland-farming region have demonstrated the land’s capacity to grow a range of oil seed crops. 

The study will determine if it would be feasible to produce and process these crops 
337 

into value added products such as bio-diesel, meal, edible oil, etc. If the results of 

this study are favorable, this would provide stabilization to the regions farming operations while creating employment opportunities. 

RURAL ECONOMIC DEVELOPMENT LOAN AND GRANT PROGRAMS

The fiscal year 2005 budget includes $25 million in Rural Economic Development 

Loans (REDL) and $4 million in Rural Economic Development Grants (REDG). This 

program represents a unique partnership, since it directly involves the rural electric 

and telecommunications borrowers in community and economic development 

projects. It provides zero-interest loans and grants to intermediaries, who invest the 

funds locally. In fiscal year 2003, each dollar invested through these programs attracted an estimated $6.00 in other capital. 

The return on our equity investment in rural America is strong. Two examples 

demonstrate the impact of REDL and REDG. In Missouri, the REDG program has 

been utilized by the Intercounty Electric Cooperative to provide improved health 

care and fire protection to rural residents by using a $200,000 REDG grant to provide a portion of the financial assistance needed by the Salem Memorial District 

Hospital to relocate and expand the emergency room and the Raymondville Fire Department to construct a new fire station. In Iowa, the REDL program assisted business development by enabling the Franklin County Rural Electric Cooperative to 

utilize a $450,000 loan to assist with financing the construction of a $3.2 million 

industrial facility in the Hampton Air Industrial Park, which was in turn leased to 

Northern Pipe Products. As a result of this business locating in the facility, there 

have been 11 jobs initially created with a potential for a total of 50 jobs. 

RURAL BUSINESS OPPORTUNITY GRANT PROGRAM

The fiscal year 2005 budget includes $3 million for Rural Business Opportunity 

Grants (RBOG) to provide much-needed technical assistance and capacity building 

in rural areas. The demand for this program continues to grow. We anticipate that 

this level of funding will create or staff over 8,500 jobs and impact 730 businesses. 

Many rural areas need to develop economic and community development strategies 

that will attract private investment capital and Federal and State assistance. Also, 

the vast majority of rural communities are served by part-time officials who do not 

have the time or training necessary to compete with large communities for funding 

that may be available to them. The funds requested under this program will provide 

invaluable assistance to communities as they take their first step toward overcoming these impediments. The following is an example of how this grant program 

has been utilized to assist the Qglala Oyate Woitancan Tribe in South Dakota with 

sustainable economic development on the reservation. The tribe used a $39,000 

grant to provide technical assistance and training for tribal business development 

and planning activities identified in the Tribe’s comprehensive strategic plan. The 

project goal is to start five businesses and create 15 job opportunities on the reservation. 

RENEWABLE ENERGY GRANTS PROGRAM

The Renewable Energy Systems and Energy Efficiency Improvements Program 

was authorized by the Farm Security and Rural Investment Act of 2002. The program authorizes loans, loan guarantees, and grants to farmers, ranchers, and rural 

small businesses to (1) purchase renewable energy systems, and (2) make energy efficiency improvements. The fiscal year 2005 budget proposes $10.8 million in discretionary funds. The program supports the President’s Energy Policy by helping to develop renewable energy supplies that are environmentally friendly. In addition, the 

program contributes to local rural economies through the jobs created and additional income to rural small businesses, farmers, and ranchers. In addition, we anticipate that 15,000 households will be served, and 156 million-kilowatt hours of energy will be generated, while greenhouse gasses will be reduced by 39,000 metric 

tons. The following is an example of how this program was utilized in fiscal year 

2003 to support renewable energy development in rural Illinois. The Illinois Rural 

Electric Cooperative was awarded a $438,544 renewable energy grant to construct 

a 1.65-megawatt wind turbine in rural Pike County. The energy that will be generated from this wind turbine, once constructed and operational, will be distributed 

to the cooperative members as part of the overall electric power supply to a six 

county area in west central Illinois served by the cooperative. 

Mr. Chairman, and Members of the Subcommittee, this concludes my testimony 

for the Rural Development fiscal year 2005 budget for rural business and cooperative programs. I look forward to working with you and other Committee members 
338 

to administer our programs. I will be happy to answer any questions the Committee 

might have. 

Senator BENNETT. Thank you, sir. Dr. Jen. 

STATEMENT OF JOSEPH J. JEN

Dr. JEN. Mr. Chairman, thank you for the opportunity to testify 

before you about important research efforts at the USDA. 

GENOMIC SCIENCE

I, too, have submitted written testimony for the record. Due to 

the limited time here, I will discuss briefly two areas of research: 

genomics and obesity prevention. Genomic science is the core of 

21st Century biology. From the DNA sequencing of genomes to the 

functional genomic research to translation of genome research to 

applied biotechnology, genomic science holds the key to agriculture 

and food research now and for the next several decades. 

Genomic science has the potential to provide food to alleviate 

world hunger, to practice environmentally-friendly production, to 

create new, nutritious foods, to eliminate animal and plant disease 

and to conserve the limited resources on Earth, the water, air and 

land. 

I am happy to report that USDA has been very successful in 

leveraging limited funds to advance genomic research. For example, we launched the DNA sequencing of the bovine genome last 

December. USDA contributed $11 million toward a total cost of a 

$53 million project. USDA’s contribution would not have been possible without your generous support of the fiscal year 2003 National Research Initiative funding. We hope that you will continue 

to support more funding for genomic science and the NRI. In particular, we need funding for bioinformatics research, which includes 

interpreting the results of genomic science data. 

OBESITY PREVENTION

Obesity is now epidemic in our nation. USDA would like to be 

the leader of the Federal agencies in conducting obesity prevention 

research. We have asked for a modest increase in research funds 

for the six ARS human nutrition centers in the Presidential fiscal 

year 2005 budget. We will apply part of the NRI increases in the 

CSREES budget toward obesity prevention research as well. Most 

importantly, we are asking for $8.7 million, Mr. Chairman, for ERS 

to establish a consumer consumption database. This database is essential for us to understand consumer behavior toward eating and 

consumption. 

Obesity prevention must be handled through integrated programs that involve medical, nutritional, and physical activity research, as well as behavioral science research. However, until we 

are able to have quality behavioral science research to complement 

the other fields of research, obesity prevention is unlikely to be successful. 

PREPARED STATEMENTS

Lastly, investment in agriculture and food research not only 

solves problems we face today, but it also builds the groundwork 
339 

for solutions to problems our children, our grandchildren and our 

great-grandchildren will face in the future. 

Thank you for your attention, sir. 

[The statements follow:] 

PREPARED STATEMENT OF DR. JOSEPH J. JEN

Mr. Chairman, members of the Committee, it is my pleasure to appear before you 

to discuss the fiscal year 2005 budgets for the Research, Education, and Economics 

(REE) mission area agencies of the USDA. I have with me today Deputy Under Secretary Brown, Acting Administrator of the Agricultural Research Service (ARS) 

Knipling, Administrator of the Cooperative State Research, Education, and Extension Service (CSREES) Hefferan, Administrator of the Economic Research Service 

(ERS) Offutt, Administrator of the National Agricultural Statistics Service (NASS) 

Bosecker and Office of Budget and Program Analysis Director Dewhurst. Each Administrator has submitted written testimony for the record. 

First of all, I appreciate the support received from Congress in our appropriations 

for fiscal year 2004. With the continuation of a tight domestic, non-homeland security budget, the President’s fiscal year 2005 budget proposes $2.403 billion for the 

four REE agencies, about $66 million less than the level appropriated in fiscal year 

2004. However, the agency budgets include important and valuable increases in 

Food and Agriculture Defense, Bovine Spongiform Encephalopathy or BSE related 

activities and Better Nutrition for a Healthy US, all strategic target areas within 

the entire Department. 

The budget that we are discussing today obviously relates to requested funds for 

the four agencies in the REE. In reality, the REE budget is a reflection of the Department budget. An important role for the REE agencies is to provide the sciencebased information and technology needed by the Department’s regulatory and action 

agencies. To meet this mission, the REE agencies’ programs are very broad and numerous. REE is the only mission area that contributes to all five goals and 17 objectives of the USDA strategic plan. 

We take our role as the science provider for policy and regulatory decisions very 

seriously and are proactive in making sure our research agendas are responsive to 

the needs of fellow agencies. For example, ARS has an annual meeting with Food 

Safety and Inspection Service (FSIS) to jointly identify research needs and set priorities. ARS and NASS are cooperating with the Natural Resources Conservation 

Service (NRCS) in an ambitious program to evaluate the effect of the conservation 

programs in the 2002 Farm Bill. CSREES is working closely with the Animal and 

Plant Health Inspection Service (APHIS) in developing a national diagnostic laboratory network. ERS routinely provides economic analyses for the Foreign Agricultural 

Service (FAS) and the Chief Economist, among others, and plays a major role in the 

analysis of our nutrition assistance programs and policies. The Risk Management 

Agency (RMA) and the Farm Service Agency (FSA) use NASS statistics heavily. The 

net effect is that the REE agency budgets not only influence the size and shape of 

our research, education, and statistical programs, but also our capacity to serve the 

rest of the Department. The public is calling on the government to provide the scientific evidence in decision-making and science-based solutions for specific production, nutrition, security, and environmental challenges. Secretary Veneman and 

other USDA officials repeatedly used REE-generated information to guide USDA 

policy decisions. 

It is no news to this subcommittee that the success of the American food and agricultural system over many decades has been built on agricultural research and technology. Numerous studies have found that the return on investment in agriculture 

research is high. Whether measured in productivity, competitive strength in global 

markets, use of environmentally sustainable production practices, or new sciencebased food safety technology, research and development underpins essentially all advances in the food and agriculture system. High quality, relevant research cannot 

guarantee a successful, competitive food and agricultural business. Natural events, 

markets conditions, and resistance to the adoption of new technologies can be barriers to the translation of new knowledge and technology into sector gains. At the 

same time, in the absence of such research, the food and agricultural sector runs 

the risk of losing its competitive edge in global markets. 

As scientific opportunities continue to expand and the agricultural and food system becomes even more scientifically and technologically dependent, the reliance on 

research to stay competitive is likely to be even greater. The advance of molecular 

biology and resulting remarkable manner in which plants and animals can be modified to enhance their nutritional value, resistance to disease, or ability to grow in 
340 

adverse conditions hold amazing possibilities in the near future. In fact, we are already benefiting from such advances with Bt corn and cotton. But advances like 

these do not happen overnight. Studies show there is a lag of as much as 15 years 

for the payoffs from research to reach the marketplace. Wonderful advances are 

coming out of the research and development pipelines today, from programs in universities and colleges across the country and within USDA and other Federal laboratories. Often they are the product of investments started several years, if not 

decades ago. We must keep up our investment in agriculture now, so our children 

and grandchildren will benefit years from now. I hope you keep this fact in mind 

as you appropriate research funds budgets for this and future years. 

The REE agency fiscal year 2005 budgets include long-term investments, as well 

as others that will yield a return in the immediate or near future. Before turning 

to the specific agency budgets, I would like to highlight three programs. 

The Food and Agriculture Defense Initiative.—The fiscal year 2005 budget provides a funding increase of $201 million for ARS and $27 million for CSREES to 

participate in this interagency Food and Agriculture Defense Initiative, focused on 

strengthening the Federal Government’s capacity to identify and characterize 

bioterriorist attacks. These increases represent investments that would result in 

strengthened homeland security. 

Under the Food Defense component of the initiative, ARS will conduct research 

to develop tests that rapidly detect and accurately identify pathogens, toxins and 

metal contaminants in foods. The actual tests should be available for adoption by 

APHIS and other agencies within a short time. 

The Animal Defense component includes $178 million for ARS to complete the 

largest facility construction project in USDA history, the modernization of the National Centers for Animal Health in Ames, Iowa by October 2007. This consolidated 

ARS/APHIS facility, including biosecurity level or BSL–2, BSL–3, and BSL–3 Ag 

space, will house and support an integrated, multidisciplinary scientific capability, 

combining animal disease research with the development of diagnostic tools and 

vaccines. It will produce benefits immediately by replacing inefficient and obsolete 

facilities. 

Other agricultural defense funds for ARS would support research on controlling 

exotic and emerging diseases and a new National Plant Disease Recovery System 

that would develop the capacity to help the agriculture sector recover from catastrophic outbreaks of plant diseases, whether naturally occurring or intentionally introduced. 

Working cooperatively with APHIS, the budget provides CSREES $30 million, 

which is an increase of $22 million from last year’s appropriation, to maintain and 

enhance the recently established, unified Federal-State network of public agricultural institutions that serves as a backup to APHIS diagnostic laboratories. The initiative also includes $5 million in CSREES’ Higher Education Program for a new 

competitive program that would promote the training of food system defense professionals who will be critical national assets in the years to come. 

BSE Related Activities.—As you know, USDA is responding aggressively to the recent detection of BSE in a cow in Washington State. REE agencies and the knowledge and technology resulting from past research were important to the Department 

in its actions to deal with the positive BSE test results. ARS also supported APHIS 

in running several back-up tests to confirm the diagnosis, to validate that the tissue 

sample was bovine, and to establish the parentage of the index animal. Looking forward, the budget provides ARS an increase of $1 million over last year’s appropriation to discover genetic resistance to BSE that could be bred into cattle and other 

livestock. 

Better Nutrition for a Healthier US.—One need only read almost any newspaper 

in almost any week to be reminded of the epidemic of obesity in this Nation. The 

causes are many and complex, such as a reduction in physical exercise, greater reliance on the convenience of fast food and restaurants, and consumption of more calories. The consequences of obesity and overweight are well documented in the higher incidence of weight-associated diseases, greater health care costs, and billions of 

dollars in lost productivity. What is less clear is how to help individuals and families gain and maintain healthy weights with the right balance of nutritious diets 

and exercise. As a Nation, we spend billions of dollars on diets with little sustained 

success. 

USDA and its research agencies have a valuable role in addressing the obesity 

challenge. As part of the Department initiative, Better Nutrition for a Healthier US, 

and the White House ‘‘Healthier US’’ Initiative, the fiscal year 2005 budget proposes 

increases for ARS, CSREES, and ERS to address this major national health problem 

and associated issues. The increases will focus principally on gaining a better under-
341 

standing of the factors influencing food consumption patterns and developing effective and culturally appropriate diet strategies and interventions. 

An ARS increase of $5 million will support research on the benefits of self-selected 

healthy diets in achieving healthy weight and preventing obesity as input to developing and evaluating culturally relevant behavioral strategies to promote healthy 

diets. The CSREES budget provides an increase of $7 million in the NRI to gain 

a better understanding of the factors influencing obesity and their interaction, including how they vary by gender, race, age, ethnicity and socioeconomic characteristics. Issues relating to the nutrition value of functional foods will also be addressed. 

Funding for the Expanded Food and Nutrition Education Program is also provided 

in the CSREES budget to increase the number of low-income individuals participating in this program, one that has a very impressive track record in achieving 

sustained, positive changes in behavior related to food and diets. 

The President’s budget proposes $8.7 million for ERS to establish a new consumer 

information system designed to gain a better understanding of our increasingly consumer-driven food and agricultural system. An important component of the new system will be a survey on individuals’ knowledge and attitudes about healthy diets 

and how those factors are associated with the quality of their diet and their health 

status. In collaboration with the Department of Health and Human Services and 

ARS, the survey will be conducted as part of the National Health and Nutrition Examination Survey or NHANES. 

Other survey data and analysis in the proposed information system will be used 

to identify, track and gain a better understanding of changes in food supply and consumption patterns, valuable input for making policy decisions in the food, consumer 

and health arenas. While the Department has a robust data system on the production agricultural system, far less is available for understanding the linkages between the farm gate and the consumer. The data and the analysis will be valuable 

to production agriculture and the processing industry in their adjustment to the 

growing emphasis on health and nutrition in the consumer-driven food and agricultural system of today. 

Before turning to the agency budgets, I would like to express my appreciation for 

your past support of genomics research. This research continues to be critical to our 

overall research portfolio, providing the base knowledge on which much of our problem solving research is built. The future of agriculture is in genomics and related 

fields such as proteomics and functional genomics. Sequencing the genome of important agricultural plants and animals and learning about the functions of different 

genes hold the promise of a whole new generation of agricultural and food products 

that are nutritionally enhanced, disease resistant, higher yield, less dependent on 

fertilizers and herbicides and facilitate better use of land. Genetic research is also 

central to the development of rapid diagnostic tests, such as the one used by APHIS 

to identify avian influenza and exotic Newcastle disease. Genomics is a prime example of research that takes years to carry out and realize many of the benefits, but 

we are well on the way. 

USDA has once again been very successful in leveraging our limited genomics research funds with funds from other Federal agencies, the private sector, State government, and foreign partners. Funding for the sequencing of the first large domestic animal, the bovine genome, was secured, with USDA providing $11 million of 

the total $53 million. The USDA contribution would not be possible without your 

generous appropriations for the NRI. The actual sequencing began at Baylor University last December. This revolutionary research project will be completed in 18 

months. The resulting genome sequence will give animal science researchers new 

tools for decades to come. USDA also continues to work with the National Science 

Foundation on the National Plant Genome Initiative and the Microbial Genomics 

Project. 

Both the ARS and CSREES proposed budgets include increases in their genomics 

programs. The President’s fiscal year 2005 budget proposes increases of $12 million 

in ARS and $9 million in the NRI of CSREES. 

REE AGENCY FISCAL YEAR 2005 BUDGETS

I would now like to turn briefly to the budgets of the four REE agencies. 

Agricultural Research Service.—The Agricultural Research Service fiscal year 

2005 budget requests approximately $1.2 billion, or slightly more than in fiscal year 

2004. Within this total $988 million is proposed for research and information programs, approximately $100 million less than in fiscal year 2004. A total of $178 million for buildings and facilities is devoted entirely to the modernization of the ARS/ 

APHIS facilities at Ames. 
342 

The ARS budget proposes increases for high priority program initiatives of national and regional importance. In order to accommodate these high priority increases, including homeland security, the budget proposes redirection or termination 

of approximately $169 million in current programs. As the principal intramural biological and physical science research agency in the Department, ARS continues to 

play a critical role for the Department and the larger agricultural community in 

conducting both basic and mission-oriented research. Results from ARS’ basic research provide the foundation for applied research carried out by ARS, academic institutions and private industry. ARS’ applied research and technology development 

address the research needs of other USDA agencies, as well as those of the broader 

producer and processor community. 

In addition to the increases previously described, the ARS budget proposes increases for climate change, invasive species research, and for the Abraham Lincoln 

National Agricultural Library (NAL). Independent of cause, agriculture is vulnerable to changes in climate, such as rising temperatures, changing amounts of precipitation, increased variability in weather, and increases in the frequency and intensity of extreme weather events. While agriculture is vulnerable to these environmental changes, it also offers significant opportunities to mitigate the increase in 

greenhouse gases in the atmosphere. An increase of $5.2 million in the President’s 

budget for climate change will support research providing information on balancing 

carbon storage, emissions, and agricultural productivity in different agricultural systems across the Nation. 

Invasive species, including weeds, insects and pathogens, are responsible for 

losses in agricultural productivity, environmental quality and biodiversity. An ARS 

increase of $5 million will support research to develop new target specific bio-intensive approaches to control invasive weeds, such as purple loosestrife, and insects, 

such as the Asian longhorn beetle. The increase will also support research for developing highly specific, potent, and inexpensive synthetic agents for controlling the 

red invasive fire ant and the southern cattle tick. 

In the age of digital information, the NAL is providing national leadership 

through the development of the National Digital Library of Agriculture that will deliver pertinent agriculture-related information and knowledge to the American agricultural community. The requested increase of $2 million will enhance NAL’s ability 

to offer integrated services for accessing, managing, and preserving agricultural information through the application of advanced network technologies. 

Advances in information technology, including the ability to share information instantaneously, are enabling agencies such as ARS to gain significant efficiencies and 

collaborative power in conducting research programs and projects. However, these 

advances have also made ARS more vulnerable to cyber security attacks. The safety 

of sensitive research information from unauthorized intruders is critical to the agency’s research program. The fiscal year 2005 budget proposes $1.5 million to 

strengthen ARS’ cyber security program. 

Cooperative State Research, Education, and Extension Service.—The President’s 

fiscal year 2005 budget provides just over $1 billion for the Cooperative State Research, Education, and Extension Service. Compared to fiscal year 2004, the budget 

includes an increase of $62 million in on-going programs and the elimination of 

$166 million in Congressional add-ons and project terminations. The Administration’s request places a strong emphasis on increases in the REE mission area for 

Food and Agriculture Defense and peer-reviewed competitive grants. In providing 

critical funding for the research, education, and extension programs of the Land 

Grant system and other universities and organizations across the country, CSREES 

continues to play a central role in the generation of new knowledge and technology 

and the transfer of that knowledge and technology to stakeholders. 

As described above, the budget provides an increase of $16 million for genomics 

and nutrition research under the NRI, CSREES’ flagship competitive research program. The NRI continues to be a very valuable avenue for supporting cutting-edge 

research conducted by the finest scientists across the country. In addition to the increases in the NRI and the higher education program under the Food and Agriculture Defense Initiative, the budget calls for an increase of $1.6 million in the 

CSREES Graduate Fellowship Grant Program. Despite recent gains in support of 

minority-serving institutions and programs encouraging diversity in higher education and the work force, the Nation faces chronic challenges in promoting human 

capital development that enables all citizens to realize their educational potential 

and promise of contributing to the food and agricultural system. The proposed increase will allow CSREES to further expand the number of fellowships offered at 

the Master of Science level essential for recruiting minority graduate students. 

Economic Research Service.—The Economic Research Service is provided $80 million in the President’s fiscal year 2005 budget. As the Department’s principal intra-
343 

mural economics and social science research agency, ERS conducts research and 

analysis on the efficiency, efficacy, and equity aspects of issues related to agriculture, food safety and human nutrition, the environment, and rural development. 

The Consumer Data Information System described above and supported with an 

increase of $8.7 million will provide the Department, for the first time ever, the data 

and analytical capacity to understand the quickly evolving consumer driven food 

and agricultural system. Knowledge about the dynamics of the system and its relationship to consumer behavior is critical for producers and processors to continue 

to compete effectively in domestic and global markets and for policymakers to identify and develop strategies addressing nutrition and obesity issues at different 

stages of the food system chain. 

National Agricultural Statistics Service.—The National Agricultural Statistics 

Service budget requests $138 million, an increase of $10 million over fiscal year 

2004. NASS’ comprehensive, reliable, and timely data are critical for policy decisions 

and stable agricultural markets, and to ensure a level playing field for all users of 

agricultural statistics. The budget includes a decrease of $2.6 million for the Census 

of Agriculture, due to the cyclical basis of the Census. Preliminary results from the 

2002 census were released early last month. Final results will be released in June. 

The budget provides $7 million for continuing a multiyear initiative begun in fiscal year 2004 to restore and modernize NASS’ core estimates program to meet data 

users’ needs with an improved level of precision. A second increase of $2.5 million 

will incrementally improve statistically defensible survey precision for small area 

statistics that are widely used by USDA agencies, such as RMA for indemnity calculations. An additional $.8 million increase will allow NASS to support Presidential, Departmental, and agency eGovernment initiatives. 

SUMMARY

In summary, I want to reiterate that, given an overall very tight but sensible fiscal year 2005 budget, the REE budget reflects a continuing commitment to investment in agricultural research, economics, statistics, education, and extension. It also 

reflects an understanding that research and education are critical for solving both 

the problems agriculture and its producers and consumers are facing today, as well 

as emerging problems and opportunities of the 21st century. With continued strong 

investment, we will be ready to meet future problems and take advantage of new 

opportunities presented by cutting-edge science. This concludes my statement. 

Thank you for your attention. 

PREPARED STATEMENT OF DR. EDWARD B. KNIPLING, ACTING ADMINISTRATOR, 

AGRICULTURAL RESEARCH SERVICE

Mr. Chairman, and members of the Subcommittee, I appreciate this opportunity 

to present the Agricultural Research Service’s (ARS) budget recommendations for 

fiscal year 2005. The President’s fiscal year 2005 budget request for ARS is $1.166 

billion. This represents a net increase of $20 million from the fiscal year 2004 funding level. Within that total, there is a net reduction of $95 million for research 

projects and a net increase of $115 million for buildings and facilities. The fiscal 

year 2005 budget includes increases for new and expanded program initiatives and 

pay and operational costs. The fiscal year 2005 budget also proposes $178 million 

to finance the completion of the building and modernization of USDA’s National 

Centers for Animal Health in Ames, Iowa. 

The proposed initiatives include research to maintain a viable U.S. food and fiber 

system and strengthen the Nation’s Food and Agriculture Defense in the fight 

against terrorism. The budget proposes an increase of $23.4 million in support of 

the Food and Agriculture Defense Initiative for research in food safety, and exotic 

and emerging diseases of animals and plants, and initiates a National Plant Disease 

Recovery System. The President’s budget also includes increased funding of $34.7 

million for: animal and plant genomics; genetic resources; invasive species affecting 

livestock and crops; obesity prevention; climate change; information technology 

cyber security; and a National Digital Library for Agriculture. 

PROPOSED PROGRAM INITIATIVES

Food Safety ($14,375,000).—ARS research will assist other Federal agencies in 

providing the technical means to ensure that our food supply is safe for American 

consumers. Research will focus on the reduction of hazards, both introduced and 

naturally occurring toxicants in food and feed, including pathogenic bacteria, viruses 

and parasites, chemical contaminants, mycotoxins produced by fungi growing on 
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plants, and naturally occurring toxins produced by plants. ARS will work with other 

USDA/Federal agencies to implement a comprehensive Food and Agriculture Defense Initiative. 

Exotic and Emerging Diseases of Animals and Plants ($10,722,000).—The 

globalization of trade, increased international travel of people and movement of 

goods, changing weather patterns, genetic shifts in pathogen populations, and 

changes in crop management practices and animal management systems all provide 

opportunities for the emergence or reemergence and spread of animal and plant diseases. Porcine Reproductive Respiratory Syndrome (PRRS) in swine and virulent 

forms of Marek’s Disease virus in chickens are two examples of diseases that have 

suddenly emerged. West Nile Virus and Monkey Pox are examples of exotic diseases 

which have been introduced from other countries. The methods for detecting, preventing, and suppressing animal and plant diseases, whether emergent, exotic, or 

intentionally introduced, are similar. ARS will use the proposed increase to develop 

vaccines for high priority threats, such as Foot and Mouth Disease, West Nile Virus, 

Rift Valley Fever, and Equine Encephalopathy, that could devastate the Nation’s 

livestock. In addition, flexible and responsive surveillance systems that maximize 

rapid detection, and better methods to prevent and control plant and animal pathogens will be developed and tested. Of the proposed $10.722 million increase, $7.7 

million will finance part of USDA’s Homeland Security efforts. Genomics ($12,000,000).—Genetic improvements have been largely responsible for 

the productivity and quality of America’s crops and livestock. Additional research 

is now needed to exploit the inherent potential in genomes. With the proposed increase, ARS will identify and characterize genes that influence important traits in 

plants (e.g., plant growth, disease resistance, and stress tolerance) and in animals 

(e.g., reproduction, feed efficiency, and well-being). ARS will also characterize available germplasm for traits of economic and behavioral importance in cattle, swine, 

and poultry (e.g., Marek’s Disease Virus in poultry). 

Genetic Resources (4,000,000).—The prosperity of U.S. agriculture depends on the 

preservation of plant and animal germplasm collections. The current support of the 

germplasm program is inadequate to maintain animal and plant germplasm that is 

threatened or to prevent the loss of genetic diversity. With the availability of new 

genomic tools, genetic diversity is extremely valuable for improving plant and animal productivity and other important traits. ARS will use the proposed increase to 

collect, catalog, and preserve selected germplasm of cattle, swine, poultry, and fish. 

Also, it will collect, identify, characterize, and incorporate plant germplasm into centralized genebanks, and evaluate it for useful qualities (e.g., disease resistance). In 

addition, official insect and microbial germplasm repositories will be established. National Plant Disease Recovery System ($6,000,000).—In case of a national emergency involving a disease outbreak in a major economically important crop, a National Plant Disease Recovery System will provide the infrastructure and technology 

for recovery. With the proposed increase, ARS will establish and coordinate a network of the technology capabilities within Federal, State, and private sector organizations to prevent, slow, or stop the spread of a high consequence pathogen with 

resistant seed varieties and other pest control measures. This network will utilize 

the genetic resources contained in the U.S. National Plant Germplasm System 

which is administered by ARS. The proposed increase will also be used to identify 

and develop new sources of genetic resistance in crops to important disease pathogens. 

Invasive Species Affecting Animals and Plants ($5,000,000).—Invasive weeds, insects, and other pests cost the Nation over $137 billion per year. Weeds, including 

leafy spurge, melaleuca, salt cedar, water hyacinth, purple loosestrife, and jointed 

goat grass, infest over 100 million acres in the United States. They reduce crop 

yields by approximately 12 percent and forage yields by 20 percent. The red invasive 

fire ant, whose venom can kill young animals, has steadily spread through all the 

Gulf States and is now reported in Southern California and New Mexico. The southern cattle tick and the disease it causes, once eradicated from the Nation, may reinvade the United States from Northern Mexico. The tick has become increasingly 

resistant to insecticides and there is no vaccine for the disease it carries. With the 

proposed increase, ARS will target its research on the southern cattle tick (by identifying the genes responsible for pesticide resistance) and the fire ant (by studying 

its genomics and developing more effective pesticides and pathogens). In addition, 

ARS will develop systematics for weeds and arthropods, and develop biologicallybased integrated pest management components for pests. 

Obesity Prevention ($5,000,000).—Obesity is the Nation’s fastest growing public 

health problem, which is affecting every segment of the American population. Obesity contributes to many diseases, such as heart disease, cancer, and diabetes, resulting in hundreds of thousands of deaths, as well as hundreds of billions of dollars 
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in health care costs each year. The deterioration of American dietary habits has occurred with the increased consumption of low cost, convenient, fast foods that are 

typically nutrient diluted. ARS will use the proposed increase to assess the benefits 

from long-term consumption of self-selected ‘‘healthy’’ diets to prevent obesity. Also, 

ARS will develop and evaluate culturally relevant behavioral strategies that promote the selection of healthy foods. Climate Change ($5,189,000).—Climate change encompasses global and regional 

changes in the earth’s atmospheric, hydrological, and biological systems. Agriculture 

is vulnerable to these environmental changes. The objective of ARS’ global change 

research is to develop the information and tools necessary for agriculture to mitigate 

or adapt to climate change. ARS has research programs on carbon cycle/storage, 

trace gases (methane and nitrous oxide), agricultural ecosystem impacts, and weather/water cycle changes. ARS will use the proposed increase to develop climate 

change mitigation technologies and practices for the agricultural sector. Specifically, 

ARS will: conduct interdisciplinary research leading to technologies and practices for 

sustaining or enhancing food and fiber production and carbon sequestration by agricultural systems exposed to multiple environmental and management conditions; expand the existing network of ARS sites conducting measurements of greenhouse gas 

fluxes between the atmosphere and the land; and identify ways to decrease methane 

emissions associated with livestock. 

National Digital Library for Agriculture ($2,000,000).—ARS will use the proposed 

increase to enhance the National Agricultural Library’s (NAL) ability to offer integrated services for assessing, managing, and preserving agricultural information 

through the application of advanced network technologies. The volume, quality, and 

timelines of information available to NAL’s customers will be increased. In 2001, a 

‘‘Blue Ribbon Panel’’ concluded that NAL needed increased resources to take advantage of technological innovations. Information Technology Cyber Security ($1,507,000).—Information technology is 

critical for the delivery of ARS’ research programs. The use of web-based technology 

commonly referred to as ‘‘e-Government,’’ offers ARS the opportunity to improve the 

way it conducts business and exchanges information in achieving its research mission and objectives. As technology has enhanced the ability to share information instantaneously, it has also made ARS more vulnerable to cyber security attacks. 

ARS’ mission critical information systems and networks are increasingly exposed to 

an unprecedented level of risk. Of particular importance is the safety of pathogenic, 

genomic, and other sensitive research information from being acquired or destroyed 

by unauthorized intruders through unprotected or undetected cyber links. ARS will 

use the proposed increase to increase the number of cyber security officers, and to 

implement cyber security management plans and strategies. 

PROPOSED OPERATING INCREASES

In addition to the proposed program initiatives, ARS’ budget provides funding to 

cover costs associated with pay raises and employee performance. These funds, 

$13,188,000 for pay costs and $1,013,000 for employee performance, are critically 

needed to avoid erosion of the agency’s base resources. Absorption of these costs 

would reduce the number of scientists and staff who are essential for conducting 

viable research programs critical to the Nation’s security. 

PROPOSED PROGRAM DECREASES

The President’s budget for fiscal year 2005 addresses a number of national needs 

and priorities. Protecting the Nation’s food and agricultural systems against terrorist attacks is a major concern. In order to finance these high priority initiatives 

related to Homeland Security and the Food and Agriculture Defense Initiative, the 

funding for important but lesser priority research must be reduced. Growing Federal 

deficits also dictate the need to generate savings by termination of unrequested research projects. 

The fiscal year 2005 budget proposes $169,472,000 in program reductions. This 

entire amount represents unrequested research projects added in fiscal years 2001, 

2002, 2003 and 2004. The savings achieved will be redirected to finance the higher 

priority research initiatives related to Homeland Security and the Food and Agriculture Defense Initiative, and to reduce overall Federal spending. 

PROPOSED INCREASE FOR BUILDINGS AND FACILITIES

The fiscal year 2005 budget recommends $178,000,000 for the ARS Buildings and 

Facilities account. In accordance with a previously documented and accepted master 

plan, the entire amount will be used to complete the modernization of the National 

Centers for Animal Health in Ames, Iowa. This $460 million construction project is 
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already well underway. The program of work being carried out in the current inadequate facilities is internationally recognized for preventing and controlling animal 

diseases, and protecting the Nation’s food supply and public health. The new facility 

is critical to supporting and sustaining the Administration’s Homeland Security and 

Food and Agriculture Defense Initiative. 

The new facility combines ARS’ National Animal Disease Center with two Animal 

and Plant Health Inspection Service facilities: the National Veterinary Services Laboratory and the Center for Veterinary Biologics. The new facility will provide an integrated, multidisciplinary scientific capability, combining animal disease research 

with the development of diagnostic tools and vaccines. 

Mr. Chairman, this concludes my statement. I will be happy to respond to any 

questions the Committee may have. 

PREPARED STATEMENT OF DR. COLIEN HEFFERAN, ADMINISTRATOR, COOPERATIVE

STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE

Mr. Chairman and Members of the Committee, I appreciate the opportunity to 

submit the proposed fiscal year 2005 budget for the Cooperative State Research, 

Education, and Extension Service (CSREES), one of the four agencies in the Research, Education, and Economics (REE) mission area of the United States Department of Agriculture (USDA). 

The CSREES fiscal year 2005 budget proposal is just over $1 billion. CSREES, 

in concert with the Secretary of Agriculture and the intent of Congress, works in 

partnership with the land-grant university system, other colleges and universities, 

and public and private research and education organizations to initiate and develop 

agricultural research, extension, higher education, and related international activities. In addition, CSREES implements grants for organizations to better reach and 

assist disadvantaged farmers in accessing programs of USDA. These partnerships 

result in a breadth of expertise that is ready to deliver solutions to problems facing 

U.S. agriculture today. 

The broad portfolio of CSREES supports scientific discovery from idea to application. Formula and other base funds leverage dollars from other sources, provide the 

start-up funds needed for investigators to establish research programs and build the 

capacity to compete successfully in competitive programs, and allow for rapid responses to emerging problems. Competitively funded research from the National Research Initiative (NRI) supports individual investigators undertaking basic research 

aimed at generating new knowledge and supports integrated programs and activities focused on solutions to short- and intermediate-term problems. Research-based 

guidance is delivered through the Cooperative Extension System’s educational efforts. Because these efforts occur primarily at universities, a very broad range of 

expertise is available to address increasing complex problems, and the research 

process contributes to an environment that prepares students to meet the ongoing 

needs of agriculture, the environment, human health and well-being, and communities. Funding for outreach and assistance for socially disadvantaged farmers encourages and assists those farmers by providing technical assistance and education 

for fuller participation in all USDA programs. 

The fiscal year 2005 CSREES budget request aligns funding and performance 

with the USDA strategic goals. CSREES manages its many budget elements in support of research, education, extension, and outreach programs as part of a cohesive 

whole supporting all five of the Department’s strategic goals. Distinct performance 

criteria, including strategic objectives and key outcomes with identified annual targets, are defined for each program or activity. As part of an integrated budget and 

performance process, periodic portfolio reviews by external experts to monitor overall program progress, suggest alternative approaches, and propose management improvements are planned. Although the overall budget supports the breadth of 

USDA’s goals and objectives, the funding increase requested in the CSREES fiscal 

year 2005 budget proposal emphasizes USDA Strategic Goal 3: Enhance Protection 

and Safety of the Nation’s Agriculture and Food Supply, and Strategic Goal 4: Improve the Nation’s Nutrition and Health. 

In continuing and expanding our efforts for agricultural security and in support 

of the President’s Food and Agriculture Defense Initiative, CSREES, through cooperative efforts with the Animal and Plant Health Inspection Service, has established 

a unified Federal-State network of public agricultural institutions to identify and respond to high risk biological pathogens in the food and agricultural system. The network is comprised of 13 State animal diagnostic laboratories and 6 plant diagnostic 

laboratories, dispersed strategically around the country. These 19 key laboratories 

are developing a two-way, secure communications network with other university 
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and State Department of Agriculture diagnostic laboratories throughout their respective regions. The diagnostic laboratories are responsible for identifying, containing, and minimizing the impact of exotic and domestic pests and pathogens that 

are of concern to the security of our food and agricultural production systems. The 

budget proposal requests an increase of $22 million for a total of $30 million to 

maintain the national diagnostic laboratory network and increase the number of 

State plant diagnostic laboratories linked with the National Agricultural Pest Information System. The network will continue its link with the Extension Disaster Education Network (EDEN) to disseminate information to producers and professionals 

at the county level, and to expand these activities to provide more current and timely educational resources. 

As a benefit of the research and education information gained through the Animal 

and Plant Diagnostic networks in conjunction with dissemination efforts of EDEN, 

an influx of new knowledge will be used to fill gaps in addressing agrosecurity 

issues, and to educate students in increasing their risk assessment and mitigation 

skills in order to help manage large scale animal and plant disease outbreaks. 

CSREES proposes $5 million for the Agrosecurity Education Program that will support educational and professional development for personnel in securing the Nation’s agricultural and food supply. The program will develop and promote curricula 

for undergraduate and graduate level higher education programs that support the 

protection of animals, plants, and public health. The program also is designed to 

support cross disciplinary degree programs that combine training in food sciences, 

agricultural sciences, medicine, veterinary medicine, epidemiology, microbiology, 

chemistry, engineering, and mathematics (statistical modeling) to prepare food system defense professionals. 

CSREES continues to provide new opportunities for discoveries and advances in 

knowledge through our programs such as the NRI and Integrated Research, Education, and Extension Competitive Grants. Funding for agricultural research, particularly for competitive or basic science programs, has lagged dramatically behind 

funding for other disciplines. The fiscal year 2005 budget request of $180 million 

for the NRI reflects the same underlying policy objectives of fiscal year 2004, but 

in a way that is consistent with increasing overall constraints on the Department’s 

budget. The NRI will continue to support current high priority programs with an 

emphasis on critical areas. Expanded partnerships with other Federal agencies on 

research topics of mutual interest will be possible. For example, we may be able to 

expand working relationships with the National Institutes of Health and others on 

animal genomics. Current cooperation on the Bovine Genome Sequencing program 

will contribute to a working draft sequence (approximately 6-fold sequence coverage) 

of 90 percent of the bovine genome. Sequencing the bovine genome provides the 

gateway to studies of gene function and improved methods of selection of animals 

based on genotype. This knowledge will then be used to increase the efficiency and 

profitability of animal production systems by enhancing animal health and the quality and safety of food production. The goal of the NRI participation in the program 

is to assure the generation of high quality sequence data, that the assembly of the 

sequence reads into contiguous sequences, the annotation, and the deposition of all 

information into a publicly accessible, pre-existing database. 

We also will continue our partnership with the National Science Foundation on 

the Microbial Genome Sequencing program. The program supports high-throughput 

sequencing of the genomes of microorganisms that are of fundamental biological interest, and are important to the national interest, the productivity and sustainability of agriculture and forestry, or the safety and quality of the Nation’s food supply. The fiscal year 2005 budget requests an increase of $9 million in the NRI to 

support genomics research. Support of animal genomics will increase fundamental 

knowledge of the composition, organization, and function of the genome and increase 

the ability to genetically improve the productivity, efficiency, and quality of agriculturally important animals, including horses and aquaculture species. Research 

also will contribute to reducing adverse environmental changes, preserving genetic 

diversity of wild stock, addressing new and re-emerging disease and pest threats, 

and providing new and renewable products to meet consumer needs. 

According to the President’s Health and Fitness Initiative, Healthier US, too 

many Americans are overweight, have poor dietary habits, and do not exercise 

enough. Five chronic diseases associated with obesity—heart disease, cancer, stroke, 

chronic obstructive pulmonary disease (e.g. bronchitis, emphysema, asthma), and diabetes—account for more than two-thirds of all deaths in the United States. In addition to claiming more than 1.7 million American lives each year, these diseases 

hinder daily living for more than one out of every ten Americans, or 25 million people. More than 100 million Americans live with chronic disease, and millions of new 

cases are diagnosed each year. Healthier US concluded that the health of Americans 
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would improve with modest but regular better eating habits and physical activity. 

Under the NRI, an increase of $7 million in NRI funding is proposed in fiscal year 

2005 to address nutrition, food choices, and the growing obesity epidemic. Research 

will focus specifically on investigating underlying causes of obesity, including physiological, environmental, cultural, social, and biological factors; factors controlling 

the onset of obesity; determining differences in obesity groups defined by race, age, 

gender, etc.; and developing and evaluating the weight loss potential of functional 

foods. 

Also within the fiscal year 2005 budget request is a proposed increase of $6 million for the Expanded Food and Nutrition Education Program (EFNEP). This would 

restore funding to approximately the fiscal year 2003 funding level. The EFNEP 

program reaches predominantly minority low-income youth and families with nutrition education that leads to sustainable behavior changes. EFNEP works with various partners in providing its services, which include collaborating with the National 

Institute of Health on the 5-A-Day program promoting increased consumption of 

fruits and vegetables, and the Centers for Disease Control and Prevention on their 

VERBtm program sharing curriculum material directed at teaching young people 

about the importance of nutrition and physical activity. Increased funding also will 

allow EFNEP to move forward with efforts to add a physical activity focus to help 

combat the rising problem of obesity in children and adults. 

CSREES continues to expand diversity and opportunity with activities under 1890 

base and educational programs, and 1994 and Hispanic-Serving Institutions educational programs. Funding for our 1890 base programs provides a stable level of 

support for the implementation of research and extension programming. Funding for 

the 1994 Institutions strengthens the capacity of the Tribal Colleges to more firmly 

establish themselves as partners in the food and agricultural science and education 

system through expanding their linkages with 1862 and 1890 Institutions. Sustained funding for the Hispanic-Serving Institutions promotes the ability of the institutions to carry out educational training programs in the food and agricultural 

sciences. This proven path of research, extension, and educational program development rapidly delivers new technologies into the hands of all citizens, helping them 

solve problems important to their lives. 

CSREES also will more effectively reach underserved communities through sustained support for the Outreach and Assistance for Socially Disadvantaged Farmers 

and Ranchers Program (OASDFR). CSREES will award competitive multi-year 

projects to support outreach to disadvantaged farmers and ranchers. Funds for the 

OASDFR program will encourage and assist socially disadvantaged farmers and 

ranchers in their efforts to become or remain owners and operators by providing 

technical assistance, outreach, and education to promote fuller participation in all 

USDA programs. 

Sustained support through our base programs, including formula funding for research and extension, is providing the foundation for the Federal/State partnership 

that links science and technology development directly to the needs and interests 

of people. The formula and other base programs provide discretionary resources that 

foster regional and national joint planning, encourage multi-State planning and program execution, and minimize duplication of efforts. Formula and other base funding is the foundation from which a competitive grant funded program can be built 

by developing institutional infrastructure, supporting preliminary studies to 

strengthen competitive proposals, and bridging gaps related to the scope and continuity of grant supported programs. These funds, along with matching funds from 

the States, assure responsiveness to emerging issues such as foot-and-mouth disease, E. coli, Salmonella, Listeria, sorghum ergot, potato late blight, Russian wheat 

aphid, and swine waste. For example, leveraging funds from the Hatch Act with 

other sources, researchers at Ohio State University are continuing work with 

bacteriocins, naturally occurring substances in foods that inhibit pathogens. The researchers found that a type of ‘‘good’’ bacteria in milk makes a bacteriocin that appears to inhibit E. coli and Salmonella. The researchers are working with a food 

packaging company to infuse bacteriocins into packaging material, making containers with a built-in, natural way to help keep food safe. 

The higher education programs contribute to the development of human capacity 

and respond to the need for a highly trained cadre of quality scientists, engineers, 

managers, and technical specialists in the food and fiber system. The fiscal year 

2005 budget provides a $1.6 million increase in the Food and Agricultural Sciences 

National Needs Graduate Fellowship program. This program will prepare graduates 

to deal with emerging challenges in such areas as agricultural biosecurity to ensure 

the safety and security of our agriculture and food supply, new issues in natural 

resources, and human health and nutrition including problems related to obesity, 

such as diabetes, cardiovascular health, and osteoporosis. The International Science 
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and Education Grants program (ISEP) will support the land-grant community and 

other campuses in their efforts to prepare students and help American agriculture 

to maintain our global competitiveness by internationalizing their agricultural programs. ISEP is designed to assist land-grant and other campus faculty in bringing 

world issues and awareness into their agricultural teaching, research, and outreach 

programs. Other higher education programs will provide important and unique support to Tribal Colleges, the 1890 Land-Grant Colleges and Universities, and the 

1862 Land-Grant Universities as they pilot important new approaches to expanding 

their programs. 

Peer-reviewed competitive programs that meet national needs are a much more 

effective use of taxpayer dollars than earmarks that are provided to a specific recipient for needs that may not be national. The scope of the NRI, and the Integrated 

Research, Education, and Extension Competitive Grants is broad enough to provide 

a peer-reviewed forum for seeking and assessing much of the work funded through 

earmarks. For example in the past 4 years, CSREES supported research in animal 

identification and/or animal tracking under earmarked projects which fit within the 

scope of the NRI. In addition, earmarked projects for human nutrition are within 

the program areas of the NRI, and earmarked food safety projects can be supported 

through the CSREES Integrated Food Safety program. In order to ensure the highest quality research for these national needs within available funding, the fiscal 

year 2005 budget has therefore proposed to eliminate earmarked projects. 

CSREES, in collaboration with university and other partners nationwide, continually meets the many challenges facing the food and fiber system. The programs administered by the agency reflect the commitment of the Administration to further 

strengthen the problem-solving capacity of Federally-supported agricultural research, extension, higher education, and outreach and assistance programs. In addition, we continue to enhance our responsiveness and flexibility in addressing critical 

agricultural issues. 

Mr. Chairman, this concludes my statement. I will be glad to answer any questions the Committee may have. 

PREPARED STATEMENT OF SUSAN E. OFFUTT, ADMINISTRATOR, ECONOMIC RESEARCH

SERVICE

Mr. Chairman and members of the Committee, I am pleased to have the opportunity to present the proposed fiscal year 2005 budget for the Economic Research 

Service (ERS). 

MISSION

The Economic Research Service informs and enhances public and private decision 

making on economic and policy issues related to agriculture, food, the environment, 

and rural development. 

BUDGET

The agency’s request for 2005 is $80 million, which includes increases for one initiative and pay costs. The agency is requesting an $8.7 million increase to develop 

an integrated and comprehensive data and analysis framework of the food system 

beyond the farm-gate to provide a basis for understanding, monitoring, tracking, 

and identifying changes in food supply, consumer behavior and reactions, and consumption patterns. 

ERS CONTRIBUTIONS TO MISSION AREA GOALS

ERS supports the five USDA strategic goals to: (1) enhance economic opportunities for agricultural producers; (2) support increased economic opportunities and improved quality of life in rural America; (3) enhance protection and safety of the Nation’s agriculture and food supply; (4) improve the Nation’s nutrition and health; 

and (5) protect and enhance the Nation’s natural resource base and environment. 

Goal 1: Enhanced Economic Opportunities for Agricultural Producers 

ERS helps the U.S. food and agriculture sector adapt to changing market structure in rapidly globalizing, consumer-driven markets by analyzing the linkages between domestic and global food and commodity markets and the implications of alternative domestic and international policies on competitiveness. ERS economists 

analyze factors that drive change in the structure and performance of domestic and 

global food and agriculture markets; provide economic assessments of structural 

change and competition in the agricultural sector; analyze the price impacts of 
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evolving structural changes in food retailing; analyze how international trade agreements and foreign trade restrictions affect U.S. agricultural production, exports, imports, and income; and provide economic analyses that determine how fundamental 

commodity market relationships are adjusting to changing trade, domestic policy, 

and structural conditions. Policy makers and the food and agriculture industry benefit from research contained in reports such as International Evidence on Food Consumption Patterns released in October 2003, that analyze forces shaping the demand for food in global markets, in this case in rapidly growing developing countries, and The Structure of Global Markets for Meat released in September 2003, 

that analyze the economic forces behind the emergence of specialized trade patterns 

and new food marketing chains. 

ERS will continue to work closely with the World Agricultural Outlook Board 

(WAOB) and USDA agencies to provide short- and long-term projections of United 

States and world agricultural production, consumption, and trade. In 2004, several 

initiatives will increase the accessibility, timeliness and breadth of the data and 

analysis. We are creating dynamic web pages that offer the latest outlook information, data, and links through a central location on the ERS website. In addition, 

USDA’s agricultural baseline projections will be available on a timelier basis 

through the release of components as they are completed. ERS continues to work 

closely with the WAOB and other USDA agencies in developing a commodity market 

information system that would provide ‘‘one-stop shopping’’ for key USDA data. The 

breadth of data was expanded in 2002 when ERS launched a unique data series of 

average monthly retail prices for red meat and poultry based on electronic supermarket scanner data. 

ERS continues to expand research on how the dynamics of consumer demand, notably growing consumption and trade in high value products, are shaping global 

markets. In 2003, ERS organized workshops on global markets for high-value foods, 

such as meat, processed cereals, fruits, vegetables and specialized markets for 

grains. These workshops brought together international experts on the food system 

to discuss the economic implications of the growing importance of high value products and trade for the food and agricultural sector. A report analyzing the forces 

shaping trade in high value products was released in 2003. These activities enhance 

our analytic understanding of these fundamental market relationships and continue 

to improve the analytical base for USDA’s foreign market analysis and projections 

activity. 

New appropriations received in 2004 allow ERS to explore in greater depth the 

market for organic products and other commodities and foods that are differentiated 

in the marketplace by virtue of how or where they are produced. This form of product differentiation accommodates consumers’ preferences (or producers’ beliefs about 

consumers’ preferences) for products that guarantee that particular production practices are (or are not) undertaken, or that are assured to be produced in particular 

countries or regions. In 2004, we plan to document the evolution, structure and 

function of differentiated product markets, and derive the implications of alternative 

extents, forms, and timing of government intervention in markets for products that 

embody production process or location characteristics. 

Food price determination is increasingly important for understanding domestic 

and international market events and opportunities that promote the security of the 

U.S. food supply. ERS food markets research focuses on enhancing knowledge and 

understanding of food prices, both their objective measurement and how they are 

set by firms at different stages of the food system, and of the performance of the 

food system to most efficiently supply consumers’ needs. 

ERS research examined whether produce markets’ retail consolidation, technological change in production and marketing, and changing consumer demand have 

altered the traditional market relationships between producers, wholesalers, and retailers. As the market for retail food has changed over time, so has the dynamics 

of market competition. ERS has begun to use micro-level household and store scanner data to measure the impact of changing store formats on food prices to focus 

on the changing environment and how these changes could impact our view of how 

customers make economic decisions in retail food stores. ERS research continues on 

understanding why food prices change over time and forecasting how they will 

change in the future. ERS research on the linkage of food and agriculture to the 

general economy in terms of employment and income provides a statistical foundation for describing both the changing nature of the Food and Fiber System and the 

economy-wide effects of agriculture. 

ERS continues to conduct research to improve understanding among decision 

makers of changes in the agricultural sector structure (for example, the implications 

for producers of the increasing replacement of open markets by contractual arrangements and vertical integration). ERS is currently examining the potential efficiency- 
351 

enhancing motives for the increasing use of contracts by food manufacturers and 

processors. Hog production, highlighted in Economic and Structural Relationships in 

U.S. Hog Production released in February 2003, provides a good example of how economic factors can change animal industry structure and practices, and how these 

changes might affect the environment. Following up on the 2001 reports, Concentration and Technology in Agricultural Input Industries and Public Sector Plant Breeding in a Privatizing World, ERS will publish The Seed Industry in U.S. Agriculture 

in 2004. This report reviews the factors affecting seed production, consumption, and 

seed markets, and summarizes the regulatory policy, including the intellectual property rights (IPR) relating to new plant varieties, the role of public and private R&D 

expenditures in plant breeding for U.S. agriculture, and the influence of concentration on market power and cost efficiency in the seed industry. At the farm level, 

the new Family Farm Report—Structural and Financial Characteristics of U.S. 

Farms, which will be published in 2004, documents the ongoing changes in farms’ 

structure, financial performance, and business relationships in response to consumer demands, competitive pressures, and changing opportunities for farm families. 

ERS analysis has supported implementation of the 2002 Farm Security and Rural 

Investment (FSRI) Act, and our ongoing research will provide objective analysis of 

the impacts of specific programs. Among the studies mandated by this Act is the 

report Characteristics and Production Costs for Dairy Operations to be released in 

2004. This report examines how production costs vary among dairy producers and 

will indicate possible reasons for the cost variation of different commodities. 

In addition, ERS will continue to work closely with the Foreign Agricultural Service (FAS) and the Office of the U.S. Trade Representative to ensure that ongoing 

negotiations on the Doha Development Agenda under the auspices of the World 

Trade Organization (WTO) and regional trade agreements are successful and advantageous for U.S. agriculture. In the negotiations, the United States seeks to minimize farm trade distortions while maintaining some level of domestic support. Central to a successful agreement is domestic and international consensus on the trade 

distorting impacts of various types of domestic agricultural policies, and a recent 

ERS publication is the first output from ongoing research on the potential distortions caused by U.S. policies. The report, Decoupled Payments: Household Income 

Transfers in Contemporary U.S. Agriculture, released in February 2003, analyzes 

the production and trade impacts of the Production Flexibility Contract (PFC) payments enacted under the 1996 Farm Act. Using the data on farm households from 

the Agricultural Resource Management Survey (ARMS), the report provides the first 

data-based analysis of direct payments, and finds little evidence that the PFC payments distorted markets. 

The Department’s implementation of the final rule for organic production and 

marketing in October 2002 ensured that the goals of the Organic Foods Production 

Act of 1990 were met, including certification by a State or private agency accredited 

under the national program of all but the smallest organic farmers and processors. 

ERS had a large impact on the program through its research and data collection 

on pre-existing State and private organic certifying organizations, organic production practices, and organic food marketing. Updating an initial report of organic production statistics in 2001 is the report U.S. Organic Farming in 2001: Adoption of 

Certified Systems, released in April 2003. 

ERS analyses can help guide and evaluate resource allocation and management 

of public sector agricultural research—a key to maintaining increases in productivity that underlie a strong competitive position for U.S. farmers. ERS continues 

to study the economics of adopting genetically modified seed, the role of patents and 

intellectual property rights in fostering innovation, and the potential for technology 

transfer to less developed countries. 

Seed genetically engineered to control insects and weeds, initially introduced in 

1995, now accounts for nearly 70 percent of U.S. soybean plantings and nearly half 

of major crop acreage (corn, soybeans, and cotton). An ERS report, Size and Distribution of Market Benefits From Adopting Biotech Crops, released in November 

2003, estimated the size and distribution of benefits to consumers and the agricultural sector from adopting Bacillus thuringiensis (Bt) cotton, herbicide-tolerant cotton, and herbicide-tolerant soybeans in 1997. A more comprehensive study of seed 

industry changes was reported in The Seed Industry in U.S. Agriculture, released 

in February 2004, which examined the composition of United States and international seed markets, regulations affecting agricultural seeds, the structure and 

evolution of the seed industry, and trends in private and public R&D in plant breeding. Particular emphasis was placed on seeds for the major field crops: corn, cotton, 

soybeans, and wheat. 
352 

In the publication The Effect of Information on Consumer Demand for Biotech 

Foods: Evidence from Experimental Auctions, released in March 2003, ERS examined consumer attitudes toward biotechnology and the role of consumer preferences 

in shaping market trends. Research anticipating the next wave of biotechnology 

products for crops modified to target consumer needs, such as food with altered nutritional qualities (such as canola with high beta-carotene content), crops with improved processing characteristics (such as naturally-colored cotton), or plants that 

produce specialty chemicals or pharmaceuticals (such as rabies vaccine in corn), is 

also being undertaken. This sound research base has been invaluable in tempering 

exaggerated claims of costs and benefits from both sides of the debate. 

Recent innovations in agricultural biotechnology have raised significant policy 

questions concerning potential research delays, the optimal intellectual property design for maximizing dynamic innovation when innovation is sequential, and the potential effects of concentration of research and market power in the agricultural inputs industry. In cooperation with researchers at Rutgers University and the U.S. 

Patent Office, ERS created in 2003 a classification system and on-line searchable 

database of agricultural biotechnology patents and licensing arrangements. This 

project identifies who generates the innovations, who controls the innovations and, 

to the extent possible, who has access to the innovations. 

Data from the Agricultural Resource Management Survey (ARMS) underlie important estimates of farm income and well-being, and constitute an essential component in much of ERS’ research. Reflecting the 2003 budget initiative, in 2003 the 

ARMS survey sample was expanded sufficiently to allow ERS, with the National Agricultural Statistics Service (NASS), to produce State level estimates for the largest 

fifteen States (as measured by value of farm output). Also in 2003, ERS collaborated 

with NASS to develop new survey instruments and data collection approaches that 

merge mail surveys with in-person surveys, thereby reducing respondent burden 

and improving the efficiency of data collection. In addition, ERS has developed a 

path breaking, web-based, secure ARMS data retrieval and summarization prototype tool that is attractive and easy to use despite the complex tasks it performs 

on this massive data set. When implemented in 2004, this system will retrieve 

ARMS data in formats customized to the customers’ needs while assuring that sensitive data are not disclosed. 

Goal 2: Support Increased Economic Opportunities and Improved Quality of Life in 

Rural America 

ERS research explores how investments in rural people, businesses, and communities affect the capacity of rural economies to prosper in the new and changing 

global marketplace. The agency analyzes how demographic trends, employment opportunities, educational improvements, Federal policies, and public investment in 

infrastructure and technology enhance economic opportunity and quality of life for 

rural Americans. Equally important is our commitment to help enhance the quality 

of life for the Nation’s small farmers who are increasingly dependent on these rural 

economies for their employment and economic support. The rural development process is complex and sensitive to a wide range of factors that, to a large extent, are 

unique to each rural community. Nonetheless, ERS assesses general approaches to 

development to determine when, where, and under what circumstances rural development strategies will be most successful. 

ERS analyzes changing economic and demographic trends in rural America, with 

particular attention to the implications of these changes for the employment, education, income, and housing patterns of low-income rural populations. Data from the 

2000 Census and other Federal information sources provide the most up-to-date information on the current conditions and trends affecting rural areas and provide the 

factual base for rural development program initiatives. In 2003, the agency continued its series of publications that report the most current indicators of social and 

economic conditions in rural areas for use in developing policies and programs to 

assist rural people and their communities. Rural America at a Glance and Rural 

Education at a Glance, designed for a policy audience, summarize the most current 

information on population and migration, labor and education, poverty, race and 

ethnicity, infrastructure, and rural development policy. The ERS website 

(www.ers.usda.gov) serves as a major repository of rural data, offering unique mapping utilities and comprehensive county-level data bases. In January 2004, ERS 

joined Cornell University in sponsoring a conference on ‘‘Population Change and 

Rural Society’’. This conference showcased an integrated set of demographic studies 

by leading social scientists that analyzed critical demographic trends from the 2000 

Census and drew conclusions about their implications for economic and social life 

in rural America. The conference focused on the policy implications of changing demographic composition, economic restructuring, changing land use patterns, and ge-
353 

ographic patterns of chronic disadvantage and emerging growth. This conference 

marked the first comprehensive look at rural America based on data from the 2000 

Census. 

ERS is at the forefront of analysis assessing the critical role of education in local, 

regional, and national economic development. Rural communities view increased 

educational investments as an important part of economic development, but are sensitive to the partial loss of their investment, in the form of youth outmigration to 

areas with better opportunities. ERS is partnering with land-grant universities in 

a research program designed to measure the relationship between education and 

economic outcomes, both for the individual worker and rural community, to help 

local communities better target their economic development and school improvement 

efforts. 

For over 30 years, ERS has captured aspects of the broad economic and social diversity among rural areas in various county classifications. These typologies have 

been widely used by policy analysts and public officials to determine eligibility for 

and the effectiveness of Federal programs to assist rural America. In 2003, ERS redesigned a county typology that maps out a geographic portrait of the rich diversity 

of rural America in ways that are meaningful for developing public policies and programs. ERS will now address how the economic, demographic, and policy themes 

identified in this typology translate into effective rural development strategies for 

enhancing rural economic opportunities and well being. 

ERS also continues its long tradition of economic research on the welfare of disadvantaged population groups in rural areas, including low-income families, children, the elderly, and racial/ethnic groups, as well as the Federal assistance programs that serve them. Through its research on the measurement and dimensions 

of rural poverty, ERS helps to better target and improve the effectiveness of Federal 

assistance programs. One ERS study, Comparisons of Metropolitan-Nonmetropolitan 

Poverty During the 1990s, documents the greater incidence of poverty in nonmetro 

relative to metro areas, but finds that metro-nonmetro differences in the depth and 

severity of poverty are less striking and more variable over time. These findings and 

differences in the characteristics of the metro and nonmetro poor, suggest that poverty-reduction policies will be most effective when tailored to specific local areas. A 

second ERS study, published in ERS’ new magazine, Amber Waves, assessed the effect of major demographic, economic, and Federal policy changes on the magnitude 

and dimensions of poverty during the 1990s. Race and ethnicity, family structure, 

and the ability to work are critical determinants of poverty in rural areas. In 2004, 

ERS will publish findings from a study assessing the factors affecting geographic 

and racial/ethnic concentration of high poverty in rural areas. Characteristics such 

as education, employment, family structure, disability, and language proficiency differentiate these areas with poverty rates of over 20 percent. 

The agency focuses research on the implications of changing racial/ethnic composition in rural areas. Hispanics were the fastest growing racial/ethnic group in rural 

America, and accounted for over 25 percent of the rural population growth during 

the 1990s. One ERS study on the impacts of Hispanic population growth on rural 

wages, found that the growth of Hispanics in rural areas has negatively affected the 

wages of local workers with a high school education and some college, due largely 

to changes in labor demand in specific industries. A second ERS study examined 

changing Hispanic settlement patterns over the last two decades, and found extensive Hispanic population dispersion into non-traditional Hispanic settlement regions. These patterns reduced residential separation at the national level between 

Hispanics and non-Hispanic Whites, but led to increased residential separation at 

the neighborhood level, especially in rapid-growth counties. 

ERS conducts ongoing research on the impact and effectiveness of Federal programs in rural areas. For example, ERS assists USDA’s Rural Development mission 

area in efforts to improve the delivery and effectiveness of rural development programs. In 2003, ERS worked with Rural Development staff to help design measurable performance indicators for their rural development programs. ERS also conducted analyses to help Rural Development staff assess the economic impacts of proposed changes in their rural business loan programs. In addition, in 2004, ERS will 

focus attention on the effects of Federal farm policy on rural areas and farm households by co-hosting a workshop with the National Center for Food and Agricultural 

Policy. This workshop will provide policymakers with a better understanding of the 

linkages between farm policy, farm households, and rural communities well in advance of the next farm bill. 

The farm typology developed by ERS researchers, coupled with a new accounting 

stance that views the farm household as a more relevant decision unit than just the 

farm business, have been keys to greater insight into the factors affecting the wellbeing of farmers. A condensed version of the farm typology was an important fea-
354 

ture in Secretary Veneman’s statement of principles for farm policy, and it continues 

to inform debates about the incidence of farm profits and government payments. In 

2003, ERS researchers developed a new department-wide definition of limited resource farms that will lead to a change in the farm typology in 2004. 

Goal 3: Enhance Protection and Safety of the Nation’s Agriculture and Food Supply 

ERS research is designed to support food safety decision-making in the public sector and to enhance the efficiency and effectiveness of public food safety policies and 

programs. The program focuses on valuing societal benefits of reducing and preventing illnesses caused by microbial pathogens; assessing the costs of alternative 

food safety policies; assessing industry incentives to enhance food safety through 

new technologies and supply chain linkages; evaluating regulatory options and 

change; and exploring linkages between food safety and international trade. ERS 

has worked closely with various USDA agencies and the Centers for Disease Control 

and Prevention (CDC) on various pathogen risk assessments and on analyzing the 

benefits and costs of implementing the Hazard Analysis and Critical Control Points 

(HACCP) rule. ERS and the Food Safety and Inspection Service (FSIS) work together to identify research projects and activities that address the needs of the Department. 

ERS, in cooperation with Washington State University, completed the first postHACCP national survey of meat and poultry slaughter and processing plants. The 

survey finds that implementing the 1994 Pathogen Reduction (PR)/HACCP rule 

raised costs about 1 percent, or about $850 million for the industry. Survey results 

will allow companies to assess their own adaptation performance vis-a-vis the industry average. While larger than pre-regulation estimates of PR/HACCP costs, the estimated costs are still considerably smaller than expected benefits. Results showed 

plants with branded products, strong customer requirements, and export orientation 

made the largest post-PR/HACCP investments in new food safety management processes or technologies, indicating market forces are at work to raise food safety above 

regulatory requirements in some cases. In 2003, ERS completed a study that summarizes the survey results and made the survey questions and summary results 

available on the ERS website. 

ERS has become well-known for its pioneering estimates of the societal costs associated with foodborne illnesses due to E. coli and other known pathogens. In Spring 

2003, ERS launched its first interactive web-based data product, the foodborne illness cost calculator. The calculator allows users to choose a pathogen of interest, 

the number and severity of illnesses, and from among several alternative methodologies employed by economists for calculating societal costs. 

In 2003, ERS researchers completed a project that developed an economic framework for analyzing linkages between food safety and international trade. The project 

produced an ERS report, International Trade and Food Safety: Economic Theory 

and Cases Studies, which explores global trends in food safety regulation and food 

safety-trade policies, and analyzes food safety and trade conflicts and resolutions in 

various commodity sectors. 

In 2004, ERS will publish a study analyzing the private incentives for improving 

food safety in the U.S. Case studies include innovations the industry has developed 

and is using to produce safer beef, including new equipment, new testing technologies, and new management systems. Interviews with firms were used to determine the most significant factors contributing to the innovation. The collaborative 

and contractual relationships among firms in the meat, equipment, microbial testing, and restaurant industries are found to be key. 

Recently, policymakers have begun weighing the usefulness of mandatory 

traceability to address issues ranging from food safety and bioterrorism to the consumer right to know, as well as to inform consumers about food attributes including 

country of origin, animal welfare, and biotech content. Industry interviews, backed 

by industry-level market studies, have been used to establish a description of the 

extent and type of traceability maintained by private sector firms. This information 

reveals that financial incentives are leading forms to develop a significant capability 

to trace. The findings indicate that mandatory traceability—possibly a one-size-fitsall regulation can be costly as firms already trace many product attributes. Further, 

other policies may be better targeted toward augmenting product differentiation or 

traceback for food safety. 

In response to increased risks to the Nation’s agriculture and food supply due to 

bio-terrorism, ERS embarked on an ambitious new project in July of 2002. Security 

Analysis System for U.S. Agriculture (SAS–USA) establishes a framework to systematically tie all food supply processes from farm production, food manufacturing, 

distribution of food products, to the food consumption in every region of the country. 

SAS–USA is capable of quickly distilling massive detailed regional information and 
355 

displaying the information visually in user-friendly formats. These capabilities mean 

that emergencies can be managed efficiently and expeditiously by assessing 

vulnerabilities and predicting outcomes. SAS–USA is truly unique, filling a niche 

that previously required weeks and months of data assembly, analysis, and interpretation. In 2004, ERS will: continue to integrate agriculture, food, and transportation data to make the system more realistic in simulations; connect the U.S. agricultural/food supply chain to imports and exports; and continue to develop scenarios 

based on animal and plant diseases and food contamination. 

Goal 4: Improve the Nation’s Nutrition and Health 

ERS studies the relationships among the many factors that influence food choices 

and eating habits and their health outcomes. The roles of income, aging, race and 

ethnicity, household structure, knowledge of diet and health relationships, nutrition 

information and labeling, and economic incentives and policies that affect food 

prices and expenditures are of particular interest. Obesity—including understanding 

its costs to individuals and society, how income, diet and health knowledge affect 

obesity status, and considering private versus public roles in reducing obesity—is 

a priority for this Administration. 

ERS research has a major focus on the economic dimensions of obesity, including 

understanding the societal costs of obesity, explaining obesity trends among different demographic and income groups, and assessing the benefits and costs of alternative options for influencing Americans’ food choices and dietary behaviors, including roles for nutrition education and Federal food and nutrition assistance programs. In April 2003, ERS organized the first national workshop on the economics 

of obesity. The workshop brought together leading health economists in the Nation 

and was attended by researchers from Federal agencies such as the CDC, Council 

of Economic Advisers, the Food and Drug Administration (FDA), the Federal Trade 

Commission (FTC), and the National Cancer Institute (NCI). Topics encompassed 

nearly all of the cutting-edge health economics research on the causes and consequences of the rise in U.S. obesity. A conference report has been drafted and is 

being edited for publication in 2004. Additionally, in 2004 studies will be completed 

on the effects of snack and fat taxes on food choices and diet quality; the demand 

for fruits and vegetables by consumers from different income groups; the effectiveness of labeling foods consumed away from home; and the link between obesity and 

awareness of Federal nutrition information programs. 

As part of our effort to improve the timeliness and quality of the Department’s 

food consumption data, in 2003 ERS launched an interagency effort to develop a 

proposal for an external review of USDA’s food consumption data needs and gaps. 

Enhancements to the food consumption data infrastructure are critical to understanding and addressing many market and policy issues in the Department. The 

interagency effort led to the funding of a review by the National Research Council’s 

Committee on National Statistics. A panel of experts is being compiled, and the first 

stage of the data review will be a workshop to be held in spring 2004. 

Through the Food Assistance and Nutrition Research Program (FANRP), ERS 

conducts studies and evaluations of the Nation’s food and nutrition assistance programs. FANRP research is designed to meet the critical information needs of USDA, 

Congress, program managers, policy officials, clients, the research community, and 

the public at large. FANRP research is conducted through internal research at ERS 

and through a portfolio of external research. Through partnerships with other agencies and organizations, FANRP also enhances national surveys by adding a food and 

nutrition assistance dimension. FANRP’s long-term research themes are dietary and 

nutritional outcomes, food program targeting and delivery, and program dynamics 

and administration. 

ERS completed a Congressionally mandated study of USDA’s Fruit and Vegetable 

Pilot Program (FVPP). Section 4305 of the 2002 Farm Act provided $6 million to 

the FVPP for the 2002–2003 school year to improve fruit and vegetable consumption 

among the Nation’s school children. The FVPP provided fresh and dried fruits and 

fresh vegetables free to children in 107 elementary and secondary schools—100 

schools in 4 States (25 schools each in Indiana, Iowa, Michigan, and Ohio) and 7 

schools in the Zuni Indian Tribal Organization (ITO) in New Mexico. The intent of 

the pilot was to determine the feasibility of such a program and its success as assessed by the students’ interest in participating. The ERS monograph, Evaluation 

of the USDA Fruit and Vegetable Pilot Program: Report to Congress (May 2003), 

provides an early review of the pilot. 

Food pantries and emergency kitchens play an important role in feeding America’s 

low-income and needy populations. During a typical month in 2001, food pantries 

served about 12.5 million people, and emergency kitchens served about 1.1 million 

people. These organizations are part of the Emergency Food Assistance System 
356 

(EFAS), a network run largely by private organizations with some Federal support. 

As part of the first comprehensive government study of EFAS, the ERS monograph, 

The Emergency Food Assistance System—Findings From the Client Survey (August, 

2003), presents findings from a national study of EFAS clients who received emergency food assistance from selected food pantries and emergency kitchens. 

ERS has continued to fund a national survey of food security and hunger, conducted by the Census Bureau as a supplement to the Current Population Survey 

(CPS). The survey is designed to measure whether U.S. households always have access to enough food to meet basic needs. ERS focuses its efforts on improving the 

measurement of food security, promoting the use of the CPS 18-item food security 

index, and contributing to a better understanding of the determinants and consequences of food insecurity in the United States. ERS released the annual report, 

Household Food Insecurity in the United States, 2002, that provides statistics on 

the food security of U.S. households, as well as on how much they spent for food 

and the extent to which food-insecure households participated in Federal and community food and nutrition assistance programs. 

ERS delivered the Congressionally mandated study, Assessment of WIC Cost-Containment Practices: A Final Report to Congress in February, 2003. WIC State agencies adopt various cost-containment practices to reduce food costs, such as limiting 

food-item selection by WIC participants, limiting authorized food vendors, and negotiating rebates with food manufacturers or suppliers. The study found that cost-containment practices can be relatively inexpensive to operate, reduce food package 

costs, and have few adverse impacts on WIC participants in terms of participant 

satisfaction, program participation, and product availability. 

CONSUMER DATA AND INFORMATION SYSTEM

The request for an increase of $8,676,000 will fund the development of an integrated and comprehensive data and analysis framework of the post-farm food system to identify, understand and track changes in food supply and consumption patterns and to explore the relationship between consumers’ knowledge and attitudes 

and their consumption patterns. The centerpieces of this framework are nationally 

representative consumer and retail surveys of food prices, retail sales, consumption 

and purchases of food for at home and away-from-home eating, as well as data on 

consumer behavior, reactions, attitudes, knowledge, and awareness. This information system will provide market surveillance and insights into price changes, market 

demand, and consumer reactions to unforeseen events and disruptions such as the 

recent discovery of Bovine Spongiform Encephalopathy (BSE). In addition, the data 

and analysis framework will provide intelligence on diets, knowledge and awareness 

levels, helping policymakers respond to current events, such as the rise in obesity 

and overweight, and their interactions with the U.S. food and agriculture system. 

Such understanding will provide a basis for ensuring that consumers enjoy a lowcost, safe, secure, and nutritious food supply, as well as enhancing their health and 

productivity, and enabling farmers to prosper with new ways of doing business in 

diverse and ever-changing food markets by identifying changing consumer demand. 

The Consumer Data and Information System has four components providing intelligence across and within the food and agricultural complex. The first component, 

a Food Market Surveillance System, is an integrated set of surveys and supporting 

analysis concentrating on production and linkages in agriculture beyond the farmgate. It would be the foundation of a research and monitoring program to: provide 

timely price, purchase, and sales data; identify food consumption patterns of consumers and how they change; provide consumers with improved information; quickly survey consumers about new issues or developments; and measure and identify 

strategies for managing food losses and waste. The second component, a new Rapid 

Consumer Response Module, would provide real-time information on consumer reactions to unforeseen events and disruptions, current market events, and government 

policies. This module would be integrated into several proprietary consumer data 

panels currently maintained by private vendors. The third component, a Flexible 

Consumer Behavior Survey Module (FCBSM), would complement data from the National Health and Nutrition Examination Survey (NHANES). The FCBSM would 

provide information needed to assess linkages between individuals’ knowledge and 

attitudes about dietary guidance and food safety, their food-choice decisions, and 

their nutrient intakes. Combining the NHANES with this new module allows analysis of how individual attitudes and knowledge about healthful eating affect food 

choices, dietary status, and health outcomes. The last component is additional staff 

to ensure the successful design and implementation of the Consumer Data and Information System. 
357 

As a Nation, we face challenges to our health, safety, and food arising from rapid 

changes in technology, social structure, and a globalizing economy. The cumulative 

effect of these issues and others is to strain and erode a general understanding of 

the role food and diet plays in our society. USDA’s ability to assure nutritious foods 

and respond to these issues is grounded on investments in the creation of knowledge. 

Goal 5: Protect and Enhance the Nation’s Natural Resource Base and Environment 

In this area, ERS research and analytical efforts, in cooperation with the Natural 

Resources Conservation Service (NRCS), support development of Federal farm, conservation, environmental, and rural policies and programs. These efforts require 

analyses of the profitability and environmental impacts of alternative production 

management systems in addition to the cost-effectiveness and farm income impacts 

of public sector conservation policies and programs. 

With passage of the 2002 Farm Bill, USDA looked to ERS to provide comprehensive and detailed, yet understandable, information to public and private users, including information on programs in the Conservation Title. In addition, ERS provided extensive support to other USDA agencies in developing rules for implementation of 2002 conservation programs. ERS participated in Farm Service Agency (FSA) 

and NRCS working groups on the Conservation Reserve Program (CRP), the Environmental Quality Incentives Program (EQIP), the Conservation Security Program 

(CSP), and implementation of conservation technical assistance by third-party technical service providers. ERS contributed substantially to the NRCS benefit-cost assessments for EQIP, CSP and the third-party technical service provider rule. For 

instance, ERS participated in the EQIP Benefit-Cost Analysis Team and helped to 

prepare the NRCS report Environmental Quality Incentives Program: Benefit Cost 

Analysis released in May 2003. ERS assisted FSA with rulemaking for the CRP program by suggesting ways to decrease the complexity of the Environmental Benefits 

Index (EBI) used by USDA county office staff, as well as methods to expand the EBI 

to include program impacts on nutrient loadings in ground and surface waters. 

Since 1985, U.S. agricultural producers have been required to practice soil conservation on highly erodible cropland and conserve wetlands as a condition of farm 

program eligibility. Compliance mechanisms have been criticized, however, for low 

standards and lax enforcement. A report to be released in 2004, Environmental 

Compliance in U.S. Agricultural Policy: Past Performance and Future Potential, discusses the general characteristics of compliance mechanisms, their effectiveness in 

their current form, and the potential for expanding compliance to address nutrient 

runoff from crop production. This report will empirically assess the extent of erosion 

reduction that is likely to be the direct result of compliance. NRCS has indicated 

that the data and analysis developed for the report will be useful in carrying out 

the benefit-cost analysis of compliance that the agency has been ordered to undertake. 

The Congressionally-mandated study, The Conservation Reserve Program’s Economic and Social Impacts on Rural Counties, transmitted to Congress in January 

2004, addresses a number of concerns about the unintended consequences of high 

levels of enrollment in the CRP. Long run trends in rural employment and population are influenced by a variety of characteristics, and some have argued that high 

levels of CRP enrollment exacerbate the declines suffered by many rural communities. However, the report finds no statistically significant evidence that high enrollments in the CRP have had a systematic, adverse effect on population or community services in rural counties across the country. High CRP enrollments were associated with a negative effect on jobs in the years immediately following program introduction, but this effect generally was short-lived as communities adjusted to 

changing demands and new economic opportunities. In addition, CRP has improved 

hunting and fishing opportunities in rural areas. Changing the way CRP participants are compensated can affect the productivity profile of enrolled soils, but these 

changes would be small and represent a necessary cost of enrolling environmentally 

sensitive land. 

ERS researchers have actively assisted NRCS and the Environmental Protection 

Agency (EPA) in assessing the economic costs and benefits of changes to the rules 

governing Confined Animal Feeding Operations (CAFOs) under the Clean Water 

Act, signed on December 16, 2002, with revisions proposed to the Total Maximum 

Daily Load (TMDL) provisions. Following up on the report Confined Animal Production and Manure Nutrients, published in 2001, is a new report, Manure Management for Water Quality: Costs of Land Applying Nutrients from Animal Feeding Operations, released in June 2003, which analyzes the farm-, regional-, and nationallevel costs to the livestock and poultry sector of meeting manure management requirements similar to those in the December 2002 rule. Results indicate that meet-
358 

ing a manure nutrient application standard increases the costs of managing manure. Costs are a function of farm size, acres of cropland on the farm, regional land 

use, willingness of landowners to substitute manure nutrients for commercial fertilizer, and whether a nitrogen or phosphorus standard is met. 

As rising populations and incomes increase pressure on land and other resources 

around the world, agricultural productivity plays an increasingly important role in 

improving food supplies and food security. The report, Linking Land Quality, Agricultural Productivity and Food Security, released in June 2003, explores the extent 

to which land quality and land degradation affect agricultural productivity, how 

farmers respond to land degradation, and whether land degradation poses a threat 

to productivity growth and food security in developing regions and around the 

world. 

In fiscal year 2003, ERS initiated the Program of Research on the Economics of 

Invasive Species Management (PREISM). PREISM promotes economic research and 

the development of decision support tools that have direct implications for USDA 

policies and programs for protection from, control/management of, regulation concerning, or trade policy relating to invasive species. Accomplishments in PREISM’s 

first year included organizing the Economics of Invasive Species Workshop (May 12– 

13) and conducting a competitive grants and cooperative agreements program. The 

workshop brought together invasive species experts from the USDA and other Federal agencies, State governments, universities, industry, and non-governmental organizations to identify research priorities that would inform USDA invasive species 

policy and program decisions. The competitive grants and cooperative agreements 

program funded 12 research projects in the areas of bioeconomic modeling and risk 

assessment, trade and invasive species, and the economics of alternative approaches 

to managing invasive species. When completed, these projects will provide insights, 

information, and practical decision tools to help USDA policy makers deal with the 

uncertainties and risks associated with invasive species outbreaks, jointly account 

for biological and economic factors in prioritizing invasive species threats, allocate 

resources between exclusion and control activities, and evaluate new approaches to 

addressing invasive species threats (including insurance schemes and producer purchased bonds). 

CUSTOMERS, PARTNERS, AND STAKEHOLDERS

The ultimate beneficiaries of ERS’ program are the American people, whose wellbeing is improved by informed public and private decisionmaking, leading to more 

effective resource allocation. ERS shapes its program and products principally to 

serve key decision makers who routinely make or influence public policy and program decisions. This clientele includes White House and USDA policy officials and 

program administrators/managers; the U.S. Congress; other Federal agencies, and 

State and local government officials; and domestic and international environmental, 

consumer, and other public organizations, including farm and industry groups interested in public policy issues. 

ERS depends heavily on working relationships with other organizations and individuals to accomplish its mission. Key partners include: NASS for primary data collection; universities for research collaboration; the media as disseminators of ERS 

analyses; and other government agencies and departments for data information and 

services. 

CLOSING REMARKS

I appreciate the support that this Committee has given ERS in the past and look 

forward to continue working with you and your staff to ensure that ERS makes the 

most effective and appropriate use of public resources. Thank you. 

PREPARED STATEMENT OF R. RONALD BOSECKER, ADMINISTRATOR, NATIONAL

AGRICULTURAL STATISTICS SERVICE

Mr. Chairman and members of the Committee, I appreciate the opportunity to 

submit a statement for this Committee’s consideration in support of the fiscal year 

2005 budget request for the National Agricultural Statistics Service (NASS). This 

agency administers the U.S. agricultural statistics program, created in USDA in 

1863, and, beginning in 1997, conducts the U.S. Census of Agriculture, first collected in 1840. Both programs support the basic mission of NASS to provide timely, 

accurate, and useful statistics in service to U.S. agriculture. 

The continual progression of American farms and ranches to make greater use of 

agricultural science and technology increases the need for more detailed informa-
359 

tion. The periodic surveys and censuses conducted by NASS contribute significantly 

to the overall information base for policy makers, agricultural producers, handlers, 

processors, wholesalers, retailers, and ultimately, consumers. Voids in relevant, 

timely, accurate data contribute to wasteful inefficiencies throughout the entire production and marketing system. 

Official data collected by NASS are used for a variety of purposes. Absence or 

shortage of these data may result in a segment of agriculture having to operate with 

insufficient information; therefore, NASS strives to continuously produce relevant 

and timely reports, while at the same time reviewing priorities in order to consider 

emerging data needs. The Farm Security and Rural Investment Act of 2002 created 

the need for several new data series. For example, NASS designed a new survey 

in cooperation with the Natural Resources Conservation Service (NRCS) and the 

Farm Service Agency (FSA) to collect information on land management and conservation practices. This assessment will be used by NRCS and FSA to report annual progress on the Farm Bill conservation program implementation. Additionally, 

the Act introduced several other new agricultural data needs and reinforced the importance of existing data series to ensure the continuation of farm security and 

rural investments. For example, counter-cyclical payments are determined in part 

by market year average prices determined by NASS. Each $0.01 change in the average corn price can result in a change of more than $80 million in counter-cyclical 

payments. Similarly, large payment changes also apply for the other program crops. 

These are only a few specific data needs required by the Act, but they clearly highlight the importance of a strong, reliable agriculture statistics program. 

The NASS works cooperatively with each State Department of Agriculture 

throughout the year to provide commodity, environmental, economic, and demographic statistics for agriculture. This cooperative program, which began in 1917, 

has served the agricultural industry well and is often cited by others as an excellent 

model of successful State-Federal cooperation. This joint State-Federal program 

helps meet State and national data needs while minimizing overall costs by consolidating both staff and resources, eliminating duplication of effort, and reducing the 

reporting burden on the Nation’s farm and ranch operators. The success of this partnership was demonstrated by NASS, through its State-Federal cooperation, during 

the planning, collection, and preliminary release of the 2002 Census of Agriculture. 

Improved quality, an 88 percent response rate, and professional customer service 

through the use of a toll-free telephone number are direct results of the State-Federal partnership. NASS’s 46 field offices, which cover all 50 States and Puerto Rico, 

provide statistical information that serves national, State, and local data needs. 

NASS statistics contribute to providing fair markets where buyers and sellers 

alike have access to the same official statistics, at the same pre-announced time. 

This prevents markets from being unduly influenced by ‘‘inside’’ information which 

might unfairly affect market prices for the gain of an individual market participant. 

Empirical evidence indicates that an increase in information improves the efficiency 

of commodity markets. Information on the competitiveness of our Nation’s agricultural industry has become increasingly important as producers rely more on the 

world market for their income. 

Through new technology, the products produced in the United States are changing 

rapidly as producers continue to become more efficient. This also means that the 

agricultural statistics program must be dynamic and able to respond to the demand 

for coverage of newly emerging products and changing industries. For example, during fiscal year 2003, NASS issued the U.S. Broiler Industry Structure report. This 

report provided a summary of the changes in the structure of the U.S. broiler industry from 1934 to present. 

Not only are NASS statistical reports important to assess the current supply of 

and demand for agricultural commodities, but they are also extremely valuable to 

producers, agribusinesses, farm organizations, commodity groups, economists, public 

officials, and others who use the data for decision making. For example, a special 

report titled Corn, Soybeans, and Wheat Sold Through Marketing Contracts 2001 

Summary was released in February 2003. This report included information on marketing contracts at the United States and regional levels by Economic Sales Classes 

and by Farm Production Region and was developed to help identify changes in the 

structure of the Nation’s grain and oilseed markets. 

All reports issued by NASS’s Agricultural Statistics Board are made available to 

the public at previously announced release times to ensure that everyone is given 

equal access to the information. NASS has been a leader among Federal agencies 

in providing electronic access to information. All of NASS’s national statistical reports and data products, including graphics, are available on the Internet, as well 

as in printed form. Customers are able to electronically subscribe to NASS reports 

and can download any of these reports in a format easily accessible by standard 
360 

software. A summary of NASS and other USDA statistical data are produced annually in USDA’s Agricultural Statistics, available on the Internet through the NASS 

Home Page, on CD–ROM disc, or in hard copy. All of NASS’s 46 field offices have 

Home Pages on the Internet, which provide access to special statistical reports and 

information on current local commodity conditions and production. 

Beginning in fiscal year 1997, NASS received funding to conduct the Census of 

Agriculture on a 5-year cycle. The transfer of the responsibility for the Census of 

Agriculture to USDA streamlines Federal agricultural data collection activities and 

has improved the efficiency, timeliness, and quality of the census data. Preliminary 

results of the 2002 Census of Agriculture were released on February 3, 2004. The 

preliminary release included selected demographic data at the National and State 

level and are available by request via CD-Rom, the NASS Website, or in paper copy. 

The final National, State, and county level data are scheduled to be released on 

June 3, 2004. The 2002 Puerto Rico Census of Agriculture was also released on February 3, 2004. 

Statistical research is conducted to improve methods and techniques used in collecting and processing agricultural data. This research is directed toward providing 

higher quality census and survey data with less burden to respondents, producing 

more accurate and timely statistics for data users, and increasing the efficiency of 

the entire process. For example, NASS has implemented statistical methodology to 

measure and adjust for the incompleteness of its list sampling frame. This allows 

for more complete coverage of farms traditionally difficult to identify during list 

building activities, mainly small and disadvantaged farm operations. The NASS statistical research program strives to improve methods and techniques for obtaining 

agricultural statistics with improved levels of accuracy. The growing diversity and 

specialization of the Nation’s farm operations have greatly complicated procedures 

for producing accurate agricultural statistics. Developing new sampling and survey 

methodology, expanding modes of data collection including Internet contacts, and 

exploiting computer intensive processing technology enables NASS to keep pace 

with an increasingly complex agricultural industry. NASS is making considerable 

advancements in providing respondents the option of reporting via the Internet with 

the ultimate goal of giving the Nation’s farmers and ranchers the opportunity to 

electronically respond to the 2007 Census of Agriculture. 

The fiscal year 2004 budget included $4.8 million for agricultural estimates restoration and modernization. These funds provided a much needed foundation for 

quality improvements in forecasts and estimates and are greatly appreciated. The 

2004 funds are being used to improve the precision level from commodity surveys 

conducted by NASS. The majority of the funding is being allocated to increased sample sizes and the data collection activities of local interviewers throughout the Nation. 

MAJOR ACTIVITIES OF THE NATIONAL AGRICULTURAL STATISTICS SERVICE (NASS)

The primary activity of NASS is to provide reliable data for decision making 

based on unbiased surveys each year, and the Census of Agriculture every 5 years, 

to meet the current data needs of the agricultural industry. Farmers, ranchers, and 

agribusinesses voluntarily respond to a series of nationwide surveys about crops, 

livestock, prices, chemical use and other agricultural activities each year. Periodic 

surveys are conducted during the growing season to measure the impact of weather, 

pests, and other factors on crop production. Many crop surveys are supplemented 

by actual field observations in which various plant counts and measurements are 

made. Administrative data from other State and USDA agencies, as well as data 

on imports and exports, are thoroughly analyzed and utilized as appropriate. NASS 

prepares estimates for over 120 crops and 45 livestock items which are published 

annually in over 400 separate reports. 

The Census of Agriculture provides national, State, and county data for the 

United States on the agricultural economy every 5 years. The Census of Agriculture 

is the only source for this information on a local level which is extremely important 

to the agricultural community. Detailed information at the county level helps agricultural organizations, suppliers, handlers, processors, and wholesalers and retailers 

better plan their operations. Important demographic information supplied by the 

Census of Agriculture also provides a very valuable data base for developing public 

policy for rural areas. 

Approximately 65 percent of NASS’s staff are located in the 46 field offices; 23 

of these offices are collocated with State Departments of Agriculture or land-grant 

universities. NASS’s State Statistical Offices issue approximately 9,000 different reports each year and maintain Internet Home Pages to electronically provide their 

State information to the public. 
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NASS has developed a broad environmental statistics program under the Department’s water quality and food safety programs. Until 1991, there was a serious void 

in the availability of reliable pesticide usage data. Therefore, beginning in 1991 

NASS cooperated with other USDA agencies, the Environmental Protection Agency 

(EPA), and the Food and Drug Administration, to implement comprehensive chemical usage surveys that collect data on certain crops in specified States. NASS data 

allows EPA to use actual chemical data from scientific surveys, rather than worst 

case scenarios, in the quantitative usage analysis for a chemical product’s risk assessment. Beginning in fiscal year 1997, NASS also instituted survey programs to 

acquire more information on Integrated Pest Management (IPM), additional farm 

pesticide uses, and post-harvest application of pesticides and other chemicals applied to commodities after leaving the farm. These programs have resulted in significant new chemical use data, which are important additions to the data base. 

Surveys conducted in cooperation with the Economic Research Service (ERS) also 

collect detailed economic and farming practice information to analyze the productivity and the profitability of different levels of chemical use. American farms and 

ranches manage nearly half the land mass in the United States, underscoring the 

value of complete and accurate statistics on chemical use and farming practices to 

effectively address public concerns about the environmental effects of agricultural 

production. Through funding provided by this Committee in fiscal year 2003, data 

on the status of the farm economy will now be expanded to the State level for 15 

major agricultural States. 

NASS conducts a number of special surveys as well as provides consulting services for many USDA agencies, other Federal or State agencies, universities, and agricultural organizations on a cost-reimbursable basis. Consulting services include assistance with survey methodology, questionnaire and sample design, information resource management, and statistical analysis. NASS has been very active in assisting 

USDA agencies in programs that monitor nutrition, food safety, environmental quality, and customer satisfaction. In cooperation with State Departments of Agriculture, land-grant universities, and industry groups, NASS conducted 148 special 

surveys in fiscal year 2003 covering a wide range of issues such as farm injury, 

nursery and horticulture, farm finance, fruits and nuts, vegetables, and cropping 

practices. All results from these reimbursable efforts are publicly available to benefit all of agriculture. 

NASS provides technical assistance and training to improve agricultural survey 

programs in other countries in cooperation with other government agencies on a 

cost-reimbursable basis. NASS’s international programs focus on developing and 

emerging market countries in Asia, Africa, Central and South America, and Eastern 

Europe. Accurate information is essential for the orderly marketing of farm products. NASS works directly with countries by assisting in the application of modern 

statistical methodology, including sample survey techniques. This past year, NASS 

provided assistance to Brazil, China, Ecuador, El Salvador, Ethiopia, Kazakhstan, 

Mexico, Russia, South Africa, and the Ukraine. In addition, NASS conducted training programs in the United States for 168 visitors representing 27 countries. These 

assistance and training activities promote better quality data and improved access 

to data from other countries. 

NASS annually seeks input on improvements and priorities from the public 

through the Secretary of Agriculture’s Advisory Committee on Agriculture Statistics, 

displays at major commodity meetings, data user meetings with representatives 

from agribusinesses and commodity groups, special briefings for agricultural leaders 

during the release of major reports, and through numerous individual contacts. As 

a result of these activities, the agency has made adjustments to its agricultural statistics program, published reports, and expanded electronic access capabilities to 

better meet the statistical needs of customers and stakeholders. 

FISCAL YEAR 2005 PLANS

The fiscal year 2005 budget request is for $137,594,000. This is a net increase of 

$9,433,000 from fiscal year 2004. 

The fiscal year 2005 request includes increases for the continuation of restoration 

and modernization of NASS’s core survey and estimation program ($7,045,000); improvement in the statistical integrity and standardization of the data collection and 

processing activities of the Locality Based Agricultural County Estimates/Small 

Area estimation program ($2,500,000); collaborative Presidential and Departmental 

eGovernment initiatives ($785,000); funding for increased pay costs ($1,812,000) and 

funding to recognize employee performance ($465,000). The request also includes a 

decrease due to the cyclical activities associated with the Census of Agriculture program (¥$3,174,000). 
362 

An increase of $7,045,000 and 10 staff years are requested to fund phase II of 

the restoration and modernization of NASS’s core survey and estimation program. 

This increase will be directed at continuing to restore and modernize the core survey 

and estimation program for NASS to meet the needs of data users at an improved 

level of precision for State, regional, and national estimates. The program covers 

most agricultural commodities produced in the United States, as well as economic, 

environmental, and demographic data. Funding in fiscal year 2004 is primarily 

being used to restore sample sizes for greater statistical defensibility. These changes 

are designed to increase precision at the State and regional levels to promote the 

NASS goal for fiscal year 2004 of reaching precision target levels at least 60 percent 

of the time for major survey indications. The additional funding requested in fiscal 

year 2005 will allow continued improvements and provide the necessary resources 

to reach precision target levels an estimated 77 percent of time. 

An increase of $2,500,000 and 4 staff years are requested to provide for data acquisition for the annual integrated Locality Based Agricultural County Estimates/ 

Small Area estimation program. Local area statistics are one of the most requested 

NASS data sets, and are widely used by private industry, Federal, State and local 

governments and universities. This funding supports the NASS goal to incrementally improve survey precision for small area statistics. Proper follow-up data collection activities and redesign of survey systems will improve the critical annual county-level data. The Risk Management Agency (RMA) uses these statistics in indemnity calculations for Group Risk Plans and the Group Risk Revenue Plans as part 

of the risk rating process. This affects premium levels paid by producers. The FSA 

uses county estimates to weight posted county prices to national loan deficiency payments, and as an input to assist producers to update their base acreage and yields 

as directed by the 2002 Farm Bill. In addition, financial institutions, agriculture 

input suppliers, agricultural marketing firms, and transportation utilize county 

level data to make informed business decisions. 

An increase of $785,000 for collaborative eGovernment efforts is requested to support Presidential and Departmental eGovernment initiatives. Specifically, the funding will support NASS’s share of the USDA Presidential initiatives, the continued 

development of the USDA Enterprise Architecture, and the USDA Enablers initiative. Without this funding, NASS’s efforts to increase the percentage of questionnaires available via the Internet will be negatively impacted. 

A net decrease of $2,610,000 and 7 staff-years is requested for the Census of Agriculture. The Census of Agriculture budget request is for $22,520,000. This includes 

a cyclical program cost decrease of $3,174,000, partially offset by $564,000 for employee compensation. The available funding includes monies to finalize analysis, 

summary, and dissemination of the 2002 Census of Agriculture. The reduction reflects the decrease in staffing and activity levels to be realized due to the cyclical 

nature of the 5-year census program and the postponement of the Census of Horticultural Specialties. Historically the Census of Horticultural Specialties has been 

conducted every 10 years, but due to the dynamic growth of this industry, NASS 

was planning to measure this component of agriculture every 5 years. Competing 

funding priorities have precluded this accelerated schedule. The annual program 

covering selected horticultural commodities will continue to be available. 

This concludes my statement, Mr. Chairman. Thank you for the opportunity to 

submit this for the record. 

Senator BENNETT. Thank you all for your testimony. 

FACILITY FEASIBILITY STUDIES

Dr. Jen, in the Senate report that accompanied our bill last year 

and the narrative that accompanied the conference report, we both 

included direction to ARS to provide feasibility reports on various 

buildings and facilities projects. Took a little heat on that from 

some of my colleagues who said we want our building money right 

now without having to go through a feasibility report. 

But the House and Senate Committees both agreed that funding 

requests for construction projects would not be considered until a 

feasibility study and forwarded to the Committee by March 1, and 

we requested that FAS prioritize these projects. To date, we have 

not received your reports. I do not think that that means that there 

are not going to be any ARS appropriations, but I would like to 
363 

know what the status of the preparation of these reports are and 

why they have not been forwarded to the Committee. 

Dr. JEN. Mr. Chairman, it is my understanding that those feasibility study reports have been delivered already to the Committee 

members. Is that correct? 

Senator BENNETT. They came up by courier last Friday? Okay; 

has the courier reached us? 

Well, the report is in the mail. 

I think we better find out where it is, because obviously, if we 

are going to act on that basis, we need the reports, so I assume you 

kept a copy. 

Dr. JEN. We did. We will check on the courier. 

Senator BENNETT. Send us another one. 

Dr. JEN. Yes. 

Senator BENNETT. And when the courier shows up, wherever he 

or she may have wandered, why, then, we will have two, but we 

would appreciate getting those as quickly as we possibly could. 

Dr. JEN. We will make sure that you have them, Mr. Chairman. 

CONGRESSIONAL ADD-ONS

Senator BENNETT. Okay; now, while I have you, let us concentrate on the impact on ARS. The fiscal year 2005 budget request 

assumes the termination of all additional funding provided by Congress during the last four appropriations cycles; that is, where the 

initiative came from the Congress. We are talking about $170 million roughly. Setting aside for the moment the debate about whether members of Congress have a better idea of the needs of their 

particular areas than the Department does, let us concentrate on 

the impact on ARS. 

If Congress were to agree to these terminations, we calculate 312 

ARS scientists, researchers and support staff in 42 States would 

lose their jobs, which is roughly 3 percent of the total ARS staffing. 

That is not a huge amount of people unless you happen to be one 

of the 312, but that does not count the people that ARS is currently 

in the process of hiring with fiscal year 2004 monies, nor does it 

include the impact on cooperative agreements with the various universities. 

I have been out and visited the universities and found the ARS 

to be probably the most popular single program at various agricultural schools, because of the synergy that they feel between their 

faculty and ARS people. When universities say we really do not 

know or care whether a researcher is an ARS type or a member 

of our faculty, the cooperation is so close. 

So this would be a very serious reduction, and how would you 

plan to go about conducting a reduction in force of this size, and 

do you have any ideas what it would cost? 

Dr. JEN. Mr. Chairman, I think I appreciate particularly your 

comments about the fact that ARS scientists are very well respected in the university campuses. In my travels, I have found it 

to be the same. Many universities would prefer that ARS scientists 

would never be relocated or change direction, and many of them 

wish ARS scientists would become university faculty members. 

Senator BENNETT. Is that how we are going to do the RIF is get 

them all hired by the universities? 
364 

Dr. JEN. No, I do not believe so, sir. Some of them probably will 

have that opportunity. Other ARS scientists would be offered reassignment in funded vacant positions either at the location or at 

other ARS locations throughout the country. 

We are under a very difficult budget situation. Personally, I recognize that this is a very difficult situation. 

Senator BENNETT. Well, does that mean we no longer need to 

provide funding for diet, nutrition and obesity research at the Pennington Biomedical Research Center or Pierce’s Disease research in 

California or Sudden Oak Disease research in Maryland? These are 

all projects that are terminated apparently because Congress 

thought of them rather than the Administration. Do we consider 

that these projects are now complete? 

Dr. JEN. Yes and no, sir. Some of the projects are being carried 

out in more than one location, so some of the slack will be picked 

up by the other research locations. 

ARS has over 1,100 projects. Some of the projects will have to be 

terminated after the job has been completed. However, if you allow 

researchers to determine when projects have been completed, they 

will never be done. 

Senator BENNETT. I understand that. 

Dr. JEN. And so, sometimes, you know we have to make that 

hard choice. 

Senator BENNETT. I understand that. I would just hope, and it 

does not appear, that the controlling factor as to which projects get 

terminated and which ones do not is which ones came from the 

Congress and which ones did not. I would like to think maybe Congress knows a little bit about some of these things and has a role 

to play as to who gets funded and who does not. There is an uncertainty here if, in every instance, and your Administration is not the 

first, in every instance where they request termination of every 

Congressionally-originated project, Congress somehow finds the 

money to fund them anyway, but this is a year-to-year funding situation without the stability that comes elsewhere, and I would 

think it would have an unfortunate impact on the efficiency and 

continuity of some of these programs. Do you have any sense that 

the Congressionally-sponsored programs are, by definition, inferior 

to the others? 

Dr. JEN. I do not believe so, sir. In fact, we make a very conscious effort to coordinate the projects that were initiated by Congress with the base programs. 

Senator BENNETT. Well, we will look at this closely. I note that 

the budget requests termination of the diet research and obesity research program at Pennington Biomedical Research Center at ARS 

headquarters and then requests funding for an Administration initiative to do similar research at the same facility. I am not sure 

we are going to do that. We will have this discussion as we go forward, and I appreciate your candor and your sensitivity to this 

issue. 

CONSERVATION SECURITY PROGRAM

Mr. Rey, you have estimated the cost for the CSP at $13.4 billion. Did I get that number right? 
365 

Mr. REY. That would be our computation of the cost of the proposed rule projected forward through the life of the program. That 

is a theoretical estimate, obviously. 

Senator BENNETT. That is a theoretical estimate. 

Mr. REY. Right. 

Senator BENNETT. All right; never mind. I had another name for 

it, but I will not put it on the record. 

Mr. REY. Theoretical works better in a public hearing. 

Senator BENNETT. Yes, yes; well, okay, if the program becomes 

an open-ended entitlement, as some have suggested, do you have 

any estimate of the cost? 

Mr. REY. That is somewhat difficult to anticipate. I do not think 

anyone really knows what the total cost would be at that point. 

One of the limitations would be the limitation of a 15 percent cap 

on the use of technical assistance in delivering the program. That 

will limit how many NRCS employees and hours could be spent delivering it, because there are, as I said in my remarks, 700,000 

farmers and ranchers that would be eligible. 

So I think it is conceivable that there would be an excess of what 

we have projected the proposed rule forward to cost. But that 

would be hard to predict based on what we know today. 

Senator BENNETT. All right. Senator Kohl has joined us, so I will 

stop in this round and turn it over to Senator Kohl, reserving the 

option of a second or third round. 

Senator KOHL. Thank you, Senator Bennett. 

DAIRY FORWARD CONTACTING

Dr. Collins, in 1999, Congress passed legislation to set up a dairy 

forward contracting pilot program, which is set to expire at the end 

of this year. Dairy forward contracting, as you know, allows buyers 

and sellers to voluntarily agree upon delivery of a specific amount 

of milk for a set price over a specified period. About 655 of Wisconsin’s dairy farmers have participated in the pilot program. Many of 

them recommend making this voluntary program permanent because it gives them a new way to manage their risk. 

Can you tell us the Administration’s position on this program? 

Do they support legislation that would make the dairy forward contracting program permanent? 

Dr. COLLINS. Senator Kohl, to answer that directly, I think I 

would have to see the legislation and get the Secretary’s view on 

that. I would say that, however, we have looked at this program 

a couple of times. We did a mandated study of the program in 

2001. We followed that up with a supplement to the report based 

on the experience of 2002. And in those cases we found that the 

forward contracting program worked perfectly fine. In 2001, producers actually were slightly worse off than they would have been 

had they not participated in forward contracting. In 2002, we found 

just the opposite, that producers were slightly better off than had 

they not participated in forward contracting. 

The only issue that the Department has raised with respect to 

this is, while it sees no problem with continuing a forward contracting program for milk used for Class III and Class IV purposes, 

it has been concerned about legislative proposals that would allow 

forward contracting for milk used for Class I purposes. So that 
366 

would be the one reservation that I would raise on legislation on 

this issue. 

REOPENING EXPORT MARKETS FOR BEEF AND POULTRY

Senator KOHL. All right. Secretary Penn, following the BSE discovery in Washington State last December, our beef export markets, as you know, were badly shaken. Similarly, we have seen 

problems with certain poultry export markets due to avian influenza. In both these cases, the problem originated in another country and was imported to the United States. Open markets are a 

two-way street. They allow our products to move in foreign commerce, but they also raise the possibility that we are importing serious problems. 

Could you update us on what USDA is doing to reopen export 

markets for our beef and poultry products? And can you please 

comment on how we protect our export markets from problems 

which are themselves foreign in origin? 

Dr. PENN. Well, thank you for the question, Senator. I think you 

characterized the situation very aptly. Since the discovery of this 

one cow on December 23rd in Washington State, and since earlyyear outbreaks of avian influenza on the east coast and the hi-path 

avian influenza case in Texas, we have seen our export markets 

summarily closed for beef and a large amount of our poultry products. 

Before the BSE outbreak, we had anticipated exporting $3.8 billion worth of beef and beef products this year, and we had anticipated our poultry products to be $2.3 billion. Together, that is 

about 10 percent of the total amount of exports that we had forecast for the year. 

So this is very important to us, and we have set about immediately trying to engage our customers, our trading partners, and 

to try to get the markets reopened. 

In every case, we have tried to make sure that we do this on the 

basis of sound science, that is, that we try to make sure that we 

have taken all of the amelioration measures that are warranted, 

and then we have gone to great lengths to explain to our trading 

partners what we have done and why that ensures the safety of the 

product that we are trying to sell to them and the safety of the 

product for our own consumers. 

We have provided a large amount of technical information to all 

of these markets. We have sent technical teams to several of these 

countries to more fully explain what we have done and why our 

products are safe. And in several cases, we have invited technical 

teams from various countries to come and review our procedures 

and visit our plants and facilities. This has certainly been the case 

with Japan and Mexico. We anticipate a technical team to come 

from Korea in the very near future. 

Again, the international standards that govern trade in both of 

these products indicate that once certain measures have been 

taken, then it is okay for trade to resume. We think that we have 

taken all of the measures that are appropriate to take, all the 

measures that are based upon science, and we are now in the process of encouraging these countries to resume trade as quickly as 

possible. 
367 

I am pleased to say that in the case of Canada, much of that 

market for beef has reopened. In the case of Mexico, we have restored about 65 percent of what we were formerly exporting to 

Mexico. And in the case of poultry, we have managed to get most 

of the pipeline shipments—those shipments that were caught on 

the water between the export point and the delivery point moved 

into the country. And we have managed to get many of those markets to regionalize, to only ban products from States in which we 

have had actual outbreaks of avian influenza, rather than banning 

all exports from the United States. 

So we are continuing to work diligently on this, and I hope that 

we get a substantial portion of these markets restored in the very 

near future. 

Senator KOHL. You said at the outset of your statement that we 

were predicting exports of beef products—did you say threepoint—— 

Dr. PENN. $3.8 billion for beef. 

Senator KOHL. And poultry at? 

Dr. PENN. $2.3 billion. 

Senator KOHL. Yes. So what is your anticipation now for the 

year? Are you prepared to make some estimate? 

Dr. PENN. I have not done a new rack-up in a while, but we 

think that for beef, out of the $3.8 billion, we have about $1 billion 

restored at the moment. We are hoping to get more of that restored, of course, with our big markets like Japan and Korea and 

Hong Kong, in the very near future. 

For poultry, the situation is much better. I don’t know the percentages, but of the $2.3 billion, we now have trade flowing for a 

substantial part of that. We are not exporting from the State of 

Texas, where we had hi-path avian influenza, and a few other 

States. But we are doing much better for poultry than we are for 

beef at the current moment. 

TRADE IMPLICATIONS OF GENETICALLY MODIFIED CROPS

Senator KOHL. Dr. Penn, given the fact that there has been a tremendous increase in U.S. production of genetically modified crops, 

and given the trade implications, do you think that we have allowed for too much production of biotech crops before we had the 

knowledge and the tools in hand to make sure contamination would 

not occur? If we have moved so quickly on biotech crops that we 

placed some of our export markets at risk, what steps are you taking to meet concerns of some countries that will not even accept 

those genetically modified crops as food aid? 

Dr. PENN. Well, this question has a connection to the previous 

question, and that is, we are increasing our exports of agricultural 

products almost every year, and more and more of our agricultural 

products involve genetically modified products. These are products 

that have gone through the regulatory system in this country, and 

we think that we have got one of the best, strictest regulatory systems anywhere in the world. 

We continue to insist that these trading rules must be based on 

solid scientific underpinnings, and there are international organizations that are involved more and more in helping to establish these 

trading rules—the OIE or the International Organization for Ani-
368 

mal Products, the IPPC, which relates to plants, CODEX, which relates to food products—and I think more and more we are going to 

have to rely on these international standard-setting bodies to be 

the ones that govern rules for trading in various kinds of products. 

Now, with respect to biotech products, as you correctly note, biotechnology in a very substantial way burst upon U.S. agriculture 

in 1996, sort of all of a sudden, with Roundup Ready soybeans. In 

our most recent crop report, the acreages for corn, cotton, and soybeans, the proportion of the acreage that is biotech has substantially increased: 46 percent of the corn acreage for the coming year, 

farmers are indicating, will be biotech, and about three-quarters of 

our soybean and cotton acreage will be biotech. 

Now, these products have been approved by our regulatory authorities. They are as safe as other products. And we see no reason 

why there should be any restraint of trade in those products. We 

continue to have problems with some markets, most notably the 

European Union, of course, but we are continuing to try to educate 

and persuade in that case. 

You mentioned specifically food aid. I think that is very, very unfortunate that we have people who are literally starving and who 

are being denied perfectly safe food simply because their authorities are insisting that for various reasons no genetically modified 

food aid be allowed. 

Now, I am aware of the case, the most recent case in Angola that 

you mentioned, and our USDA authorities are working with the 

World Food Program and with the nongovernmental organizations 

that are supplying food in Angola. And we are trying to work 

around this problem because literally people’s lives are at stake in 

this case. So we are trying to work through this, and then we are 

also trying to educate other countries about the safety of genetically modified food so that we don’t have these kinds of disruptions 

of food aid in the future. 

GEOSPATIAL INFORMATION SYSTEM

Senator KOHL. All right. Finally, Dr. Penn, in the Common Computing Environment account, there is a request for $9 million for 

FSA to complete digital data maps for rural farm communities 

across the country. These maps are an important tool to the farmer 

and for the agency to effectively administer farm, conservation and 

disaster programs and also to provide critical information with animal or plant disease outbreaks. 

It is my understanding that the data must be digitized and as 

a last step certified before this information can be of any use to the 

farmer or agency. In my own State of Wisconsin, not a single county has been certified. 

Can you tell us how many of the 3,051 counties in the United 

States targeted by FSA have been digitized and certified? When do 

you expect to finish this work? 

Dr. PENN. I cannot tell you that right now off the top of my head, 

but I will certainly be happy to get that information and we will 

provide it to you. We won’t use Dr. Jen’s courier. 

We will try to make sure that we hand-carry that information so 

that you have it in a short period of time. 
369 

But I can say that this is, as you note, a very important step forward, being able to have these maps. They are important not only 

for FSA, but they have benefits for our colleagues in the natural 

resources conservation area and in the crop insurance area. It is 

very important that we complete this project, which is a multi-year 

task. We not only have money in the FSA budget, but there is also 

a request for support of the Geospatial Information System within 

the $18 million increase in the budget of the Office of the Chief Information Officer for USDA, which funds our common computing 

environment. And we very desperately need to get that funding because our efficiency gains in the future very much depend on being 

able to implement a lot of this new technology. Our budget does not 

support additional numbers of people, so we really do need the new 

technology. 

Senator KOHL. I do appreciate your willingness to supply a 

progress report on where we are. 

Dr. PENN. We will do that. 

[The information follows:] 

GEOSPATIAL INFORMATION SYSTEM (GIS) PROGRESS

As of April 7, 2004, 1,767 counties have digitized common land units (CLU’s) and 

381 of these counties have been certified. Of the 72 counties in Wisconsin, 20 counties have digitized CLU’s. While no counties in Wisconsin are currently certified, 

about 10 counties are planned for certification by the end of fiscal year 2004. 

Approximately 2,100 to 2,200 counties should be digitized by the end of the fiscal 

year. At the current rate, we would expect to have as many as 700 to 800 counties 

certified by the end of the fiscal year. 

Senator KOHL. Thank you so much, and thank you, Mr. Chairman. 

Senator BENNETT. Thank you, sir. 

Senator Harkin. 

Senator HARKIN. Thank you very much, Mr. Chairman. 

NATURAL RESOURCES AND ENVIRONMENT

First, I would like to start, if I could, with Under Secretary Rey. 

Mr. Rey, you are obviously the top official at the Department of Agriculture in the area of conservation and natural resources and environment. Dr. Penn sitting next to you there, he is the lead when 

it comes to commodities, like corn and wheat and beans and other 

products that are important to society. 

Mr. Rey, your responsibilities, I believe, also involve products or 

commodities that farmers and ranchers produce and which are very 

important to society and for which society has said that it is willing 

to pay. Those products or commodities include, of course, clean 

water and air, productive soil, wildlife habitat, and so forth. 

This idea of conservation and environmental benefits as commodities or products was part of our thinking in the Farm Bill. And 

as you know, it has further evolved, for example, when we envisioned carbon credit trading. 

CSP PROPOSED RULE

So, Mr. Rey, with that in mind, I want to convey my thanks to 

the Secretary, to you, to Mr. Knight, for providing public access to 

the comments on the CSP proposed rule. Farmers, ranchers, and 

the general public have sent more than 14,000 comments, as I un-
370 

derstand it, and I understand virtually all expressing disappointment in the proposed rule. I also know that you attended the listening session on the proposed rule in Des Moines in February, 

where over 250 people attended, again, which I understand most 

of whom opposed the proposed rule and everybody who spoke was 

against the proposed rule. 

So I guess I would just start off by saying that I am sure you 

acknowledge that there is a very high level of interest in the CSP 

and that there is a widespread disagreement with the proposed 

rule and that these are serious and substantive concerns. And I 

would just ask, you know, again, for any comments you have on 

what I have just said and what is happening to the proposed rules 

and when we can expect to see a final rule. 

Mr. REY. First of all, I don’t disagree with your characterization 

of how the comments were transmitted to us. As I said before you 

arrived, I think many of the comments expressed concerns which 

we have an obligation to address in clarifying our intent about how 

the rule is drafted and how it will work in practice. Other comments are concerns that are going to drive changes to the proposed 

rule, and that is why we have comment periods, to get those kinds 

of comments. 

We are trying to bring forward a final rule in time for there to 

be a CSP sign-up this year so that we can use the money that you 

and other Members of Congress appropriated in the fiscal year 

2004 Agriculture and Related Agencies Appropriations bill. And I 

would be happy to share with the Committee for the record our 

current schedule, which we think will get us there in time to start 

a sign-up this year. 

[The information follows:] 

TIMELINE TO FIRST CSP SIGN-UP 

Mid May ................................................................ Complete analysis of the Public Comments on CSP proposed Rule 

Mid June ................................................................ Clear and Publish CSP Final Rule 

Early July ............................................................... Conduct First CSP Signup 

End of July ............................................................ Complete Signup 

August ................................................................... Begin enrolling CSP contracts 

September ............................................................. Complete full obligation of fiscal year 2004 CSP funding 

Mr. REY. I won’t repeat my summary of some of the basic concerns and where we think we can either clarify our intent to address those concerns or make some changes to address those concerns. But I will share them with your staff today and later as we 

move forward in the rulemaking process. 

I will say that the Des Moines hearing was, I thought, a good 

one. I remarked to all of the assembled commentors that, because 

of their numbers, we had asked them to be very brief in their comments. And I told them that I was pleased that they were respectful of the time limits that we imposed on them, if not the regulatory proposal on which they were commenting. But we got a lot 

of good comments. I took somewhere in the neighborhood of eight 

or nine pages of notes from the session. 

Senator HARKIN. I appreciate that, and I have heard from other 

States where you have had the forums, and I understand they were 

also well attended in other States and that the general consensus 
371 

was that most of the farmers were very upset, ranchers that came 

in were very upset with the proposed rules, thinking that it really 

was going to cut a lot of them out of the program. That seems to 

be the general consensus, at least as I have heard from the input 

that I got. 

CSP FUNDING CAP

Now, again, in the proposed rule, USDA complains about the difficulties that come from running a program open to all producers 

but with a strict funding limit. The proposed rule says, ‘‘The greatest challenge was to design a new conservation entitlement program with a cap.’’ Well, as we both know, CSP does not have a set 

funding limit starting October 1st of this year. 

Mr. REY. Right. At the time that the rule—— 

Senator HARKIN. And you talked about that in your statement. 

I read that. I read that. But the President’s budget proposes one. 

Mr. REY. We propose a cap for fiscal year 2004 and—well, Congress provided one for 2004. 

Senator HARKIN. Yes. 

Mr. REY. We are proposing an amount of money for 2005. 

Senator HARKIN. Well, do you see the irony that I have just—the 

irony that USDA is complaining about the difficulty of implementing a rule that is open to all with a cap, okay? But we took 

off the cap. Then the Administration turns around and requests a 

cap for next year. 

Mr. REY. But I think the order of sequence was that the cap was 

taken off after our budget was sent forward. It was taken off in the 

Omnibus Appropriations Bill for fiscal year 2004. 

Senator HARKIN. Well, that is true. That is true. I don’t know the 

sequence of events, but that is true. It was taken off in the Omnibus Appropriation before the budget. 

Mr. REY. So, I mean, I think that is an issue—— 

Senator HARKIN. So is the Administration requesting a change 

then in their budget proposal to reflect what we did? 

Mr. REY. Well, I don’t think we have to. That is now before you, 

and I assume that Congress will continue to give us clear direction. 

FISCAL YEAR 2005 FUNDING REQUEST

Senator HARKIN. Well, I mean, the Administration could come 

back and say look, you know, we do not need a cap now since Congress has taken it off, that—what, $205 million, I think it was, if 

I am not mistaken. 

Mr. REY. $209 million for fiscal year 2005. 

Senator HARKIN. For next year, yes, right. 

Mr. REY. I think the more useful thing for us to provide to the 

Congress at this juncture as you consider the 2005 bill is our best 

estimate of what the different program options would cost. 

Senator HARKIN. So you are no longer requesting a cap? 

Mr. REY. We are going to abide by whatever Congress eventually 

tells us to do, which we should do. 

Senator HARKIN. Which we said no cap. 

Mr. REY. Right. 

Senator HARKIN. I appreciate that. So, again, to continue this, 

the full funding was restored, as you pointed out, in the Omnibus 
372 

Appropriations Bill. But the proposed CSP rule—I am getting back 

to that proposed rule again—would bar the vast majority of producers from participating. 

I wanted to do an analogy of what it would be like if we took 

the commodity program, which is an uncapped entitlement program. And I said, What would be the equivalent? In Iowa, with the 

proposed rule, if we did this on the commodity program, it would 

be like USDA arbitrarily limiting commodity payments only to 

those Iowa farmers who produce more than 200 bushels an acre of 

corn and only if they live in one of 12 of our 99 counties chosen 

here in D.C. And, further, these farmers would receive no payments for their soybeans. To top it off, the payments would only 

be one-tenth of what is in the Farm Bill. And any farmer who does 

not qualify for the commodity program 1 year has to wait another 

8 years to apply again. 

So I am just saying, if we think about conservation as a commodity, compared to the commodity programs, and one for which 

society has said it is willing to pay, then it would seem that we 

need some kind of equivalency. We need to start looking at this a 

little bit differently than what we have in the past. 

ACCESS TO CSP BY PRODUCERS

USDA says only 14,000 producers will get into CSP a year. Is 

that not your—you are looking at me quizzically. Did I misstate 

myself? 

Mr. REY. No, that is—— 

Senator HARKIN. 14,000 a year. Again, in Iowa, with this percentage only 700 Iowa farmers out of 93,000 would get into the 

CSP a year. 

Now, I have tried to figure that out, and I figure it would take 

about a little over 100 years for them to get into the program if 

that is what we are going to do. My point is it would not be acceptable for a commodity program to do that, and it should not be acceptable for this kind of commodity program. 

TECHNICAL ASSISTANCE

Mr. REY. But, again, to talk about terms of equivalency, one of 

the key limitations to the rate of entry of the program is how we 

provide NRCS technical assistance to producers who want to come 

into the program. That 14,000-producer limit is as much a reflection of the cap on the use of technical assistance funding in implementing the program as it is anything else. And with the commodity programs, we do not have such a limit on how the agency 

brings people into the program. That is something we can obviously 

work on and fix. 

Senator HARKIN. I heard about that, and I read it in your testimony, and I heard you mentioned it earlier, too, I think, in answer 

to a question here. I thought about that. And so I asked my staff, 

I said, What do we provide, what is the technical assistance under 

EQIP? I think it is 19 percent. 

Mr. REY. Yes, it is a little higher. 

Senator HARKIN. Nineteen, but I am told that it has been much 

less than 19 percent. 
373 

Mr. REY. In the past, we have had the latitude to use conservation assistance funds to provide part of the support for EQIP, 

which is something that we have separately argued about over the 

last couple of appropriations cycles. 

Senator HARKIN. My staff informs me that it was capped at 19 

percent in the past, the EQIP funding, my point being that if you 

can implement EQIP at that rate—I just want to take issue with 

you on the 15 percent being some kind of a problem for you. For 

the life of me, I do not understand that. I mean, 15 percent is, I 

think, a considerable amount of money to implement a program. 

And keep in mind, this is a program, albeit a new one, but relying 

upon a lot of things that you have already developed in the past, 

Bruce, and all of you. You have got these things. You know what 

they are. It is not like it is making something out of whole cloth. 

I mean, this is something that you have all done in the past. 

So I cannot believe that a 15 percent limitation is any kind of 

a real onerous limit. 

Mr. REY. Well, it is based on things that NRCS has done in the 

past. 

Senator HARKIN. Sure. 

Mr. REY. But it is clearly a new program that farmers are going 

to be facing for the first time, including, if the program works as 

Congress has intended, and we would like it to work, farmers that 

have not participated in some of the basic conservation programs 

like EQIP. 

Last year, I am told that we used 24 percent, which was the level 

for technical services in EQIP. I think, for a new program, it is not 

a reasonable assumption to assume that you can do it for 10 percent less. Much of the cost of technical assistance that is going to 

be provided for a new program is not going to be things that NRCS 

does by itself in developing the program, but rather the time NRCS 

field agents spend with farmers explaining how a new program 

works, particularly farmers who have not participated in EQIP or 

any of the other basic conservation programs in the past. So this 

is a problem we can fix working together, but I think it is a problem. 

TECHNICAL SERVICE PROVIDERS

Senator HARKIN. And we also provided, if I am not mistaken, and 

I am reaching back now, we also provided in the Farm Bill that 

in this regard I believe you can use people outside of NRCS for the 

technical—what is the word I am looking for? 

Mr. REY. Technical service providers. 

Senator HARKIN. Technical service providers can be used for that 

that also have this knowledge and can assist in doing that. So, 

again, I just have a hard time thinking that 15 percent is going to 

be a real onerous limitation on providing this because a lot of the 

practices that we are talking about are already being done by some 

farmers, not by others, but by some. So, therefore, since NRCS has 

got this history, they know the practices, it just does not seem to 

me to be a problem to transfer this over to others besides using the 

availability of outside people that we allowed you to use in the 

Farm Bill. 
374 

Mr. REY. The Technical Service Providers program is going to be 

instrumental in helping us deliver conservation programs, but that 

program itself has a ramp-up period to get technical service providers certified. And, moreover, they are going to be most useful in 

helping us apply specific conservation practices in existing programs. Now, that will help because that means that we can transfer some of our staff time out of EQIP, out of the Wetlands Reserve 

Program, out of the programs that are better established and use 

that time and effort to work on CSP, but that is going to be a 

ramp-up period as well. 

I think this is an issue that we should continue to discuss. It is 

not going to be a problem in fiscal year 2004. We will begin to see 

the effect of the limitation on technical services in 2005 and beyond, and I think we will have time to adjust, if we need to. 

But, at this point, I think I would say there is, if not the reality, 

then a high potential for a disconnect between the desire to bring 

as many producers into the program as quickly as possible and a 

limitation on how much NRSC staff time we can devote to going 

out and educating people about a new program and what their interests in it are and why they should be participants. That is a 

very resource-intensive process. 

TIME LAG ON CSP IMPLEMENTATION AND RULEMAKING

Senator HARKIN. I appreciate that, and I have not—Mr. Chairman, I thank you for your indulgence—I have not been too hard 

on this in the past. I have worked with the Secretary and others. 

But when we passed the Farm Bill, we put in a 270-day requirement to get the rule out. That did not happen. Then, they said, 

‘‘Well, we will get it out in a year.’’ That did not happen. And they 

said, well, they had a lot of other things to do. And I understand 

that. They had new commodity programs and everything like that. 

So I think we have been fairly indulgent on this. 

We are now coming up on 2 years since the Farm Bill was 

passed—2 years—and not one farmer has been signed up in the 

CSP program. Now, you can understand why I am a little quizzical 

about the pace at which this is proceeding and whether or not— 

and I said this to the Secretary when she was here. Is there an attempt by some to kill the suborning—to kill it before it even gets 

off the ground? 

Mr. REY. No such attempt. 

Senator HARKIN. Well, it looks like that. I am just telling you. 

It is 2 years and not one farmer. 

Mr. REY. Senator Harkin, you can usually explain most things by 

malfeasance rather than conspiracies. There is no conspiracy to do 

away with this program. It is a difficult program to implement. It 

is essential that we get it right because I believe we agree that it 

is the future of conservation on working lands. My testimony has 

said that. That is not a hollow commitment. 

We are grateful for the Committee’s indulgence. You could do 

just one more thing to help us, and that is not help us again by 

changing it one more time between now and when we get the final 

program out. 

Senator HARKIN. There are few things that I can assure you of. 

But because of what happened last year and the assurances I have 
375 

from the Chairman of the Appropriations Committee, it will not 

happen again until the Farm Bill is up. 

Mr. REY. Excellent. 

Senator HARKIN. Take it to the bank—as long as I am here. I 

mean, you know—— 

And as long as the Chairman is here. The Chairman has been 

very, very helpful on this, and I would not let this opportunity pass 

without thanking Chairman Bennett for his strong support of conservation programs, and I appreciate it very much. 

Mr. Chairman, I spent all of my time on this. Are you going to 

have a second round? 

Senator BENNETT. Well, I was going to, but I find most of the 

burning questions that I had Senator Kohl has asked. If you want 

to pursue another issue, we can do that. 

Senator HARKIN. Just a little bit, I would appreciate it. 

Senator BENNETT. Yes. 

Senator HARKIN. Thank you, Mr. Chairman. 

STANDARD REINSURANCE AGREEMENT

J.B., late last year, USDA cancelled the Standard Reinsurance 

Agreement—and I am sorry I am late. Has this been talked about? 

They cancelled the Standard Reinsurance Agreement with the crop 

insurance industry. I understand you are now in the process of negotiating a new one. I have heard a second draft of the SRA would 

impose $40 million in cuts annually from the delivery system. 

We have lost five companies in the last few years—five companies, the largest writer, American Growers, Fireman’s Fund is now 

a reinsurer. Anyway, we have lost all of these companies. Two 

major reinsurers left the reinsurance market, and I understand 

there are a number of areas that are just served by only one company. So I am concerned about the proposed $40-million cut and 

what will that do to any competition that we might even have left 

in the crop insurance industry. 

Dr. PENN. Well, Senator Harkin, as you know, this is a process. 

It is a negotiation. And as you go through the negotiation, everybody makes their case, and everybody puts their most compelling 

arguments forward. And these are some of the arguments that are 

being put forward by some of the companies as we go through the 

negotiation. 

Since the passage of ARPA in 2000, the risk management area 

or crop insurance area has changed substantially. We have had a 

large expansion in the crop insurance program. Last year we covered about 218 million acres. The liability insured was about $40 

billion. We have tremendously expanded the number of products 

that are available. There is continued expansion underway as the 

board reviews and approves new products, and the overall operating environment has changed. 

So we thought it was prudent to review and renegotiate the insurance agreement. This is the agreement by which we deliver all 

of the services to the producers in this very unique public-private 

partnership. I mean, this is a public program that is delivered 

through the private sector. And we thought that it was time that 

we reviewed that contract, and we take account of all of these 

changes that have occurred. 
376 

As you said, it is a dynamic industry. There are companies that 

leave the industry. There are companies that come back into the 

industry. There are reinsurers that leave, reinsurers that come 

back. But we had one chance in the legislation and a 5-year period 

to revise this standard reinsurance agreement. This is the last opportunity that we had. So we thought we should do it. 

RMA prepared a first draft to begin the process. And I have to 

say that first draft was pretty roundly criticized. We spent a lot of 

time with the companies, we listened to their concerns, and we 

have now prepared a second draft. That draft was made available 

last week to the companies, and they are beginning to review and 

to go through that now, and we are starting the process of having 

individual sessions with them to go through the second round. We have proposed some $40 million in savings. We think that we 

have a good basis for doing that, of course, or we would not have 

done it. Of course, it will be resisted. But there is more to it than 

just savings. There are some regulatory aspects of the agreement 

that we think need to be reviewed and revised, and a lot of the 

companies have said that they think it is good for the industry, 

that it is time that we try to achieve some new efficiencies, that 

we try to tighten up the possibilities for fraud, waste and abuse, 

and that we also try to give RMA a better opportunity to monitor 

the financial health of the companies. 

As you said last year, the largest insurer in the business left the 

business, and the American taxpayer had to step up and sweep up 

after that—— 

Senator HARKIN. I know. 

Dr. PENN [continuing]. It cost some $35 million of taxpayer 

money to do that. And we think that, by rights, RMA ought to have 

a little more authority to anticipate that kind of situation and to 

avoid that happening in the future. So we have tried to make some 

changes in the SRA to account for that. 

So we are in the middle of this process, and it is a negotiation. 

In a negotiation everybody wants to paint the situation in the most 

compelling way they can that would be to the greatest advantage 

to them. And so I think that is what you are hearing, but we are 

in the middle of a process. All we are asking now is to give us a 

little more time and let us work through this draft, and then we 

will come forward with a third, and we hope final, version of this. 

RURAL BUSINESS INVESTMENT CORPORATION

Senator HARKIN. Thank you very much, Dr. Penn. 

Two quick ones. Mr. Gonzalez, will you have the final rules out 

on the RBIC Program this summer, the Rural Business Investment 

Corporation? 

Mr. GONZALEZ. Yes, Senator Harkin. We will have that application window open in the summer or at least the fall of 2004. 

Senator HARKIN. Summer or early fall. How about summer? 

Mr. GONZALEZ. Well, we are trying our hardest. We are looking 

at the fall of 2004 to have the application window for that program. 

Senator HARKIN. So the first applications would be available this 

fall. 

Mr. GONZALEZ. Yes, sir. 

Senator HARKIN. Well, okay. I wish it was earlier. 
377 

Dr. Jen, are you working with HHS and with maybe FDA—well, 

that is in HHS—maybe NIH to revise the food pyramid? Is that underway now? 

Dr. JEN. Senator Harkin, the USDA is responsible for the Food 

Guide Pyramid. It is Under Secretary Eric Bost’s group, CNPP. 

Senator BENNETT. We discussed that at the last hearing. 

Dr. JEN. Yes, last week. 

Senator HARKIN. What is that, Mr. Chairman? 

Senator BENNETT. We discussed that at the last hearing with the 

other Under Secretary. 

Senator HARKIN. It is being done. 

Dr. JEN. Yes. 

Senator BENNETT. Yes, we are monitoring that. 

Senator HARKIN. Thank you, Mr. Chairman. I appreciate that. 

With that affirmation, I do not have any more questions. 

Thank you, Mr. Chairman. 

Senator BENNETT. Having gotten the attention of all of the fat 

doctors in the world—— 

I raised that a year ago, why we have to keep on top of it. 

Senator HARKIN. So it is being—I mean, it is actually under review. 

Senator BENNETT. Yes. 

Senator HARKIN. That is good. Thank you. 

Senator BENNETT. Are you through, sir? 

Senator HARKIN. Yes, I am. Thank you. 

SUPERCOMPUTER RESOURCES

Senator BENNETT. Dr. Jen, I have one last question. I was recently contacted about USDA’s access to supercomputing resources, 

and I would appreciate it if you would furnish to the Committee 

information about the supercomputing resources that you currently 

have access to, I assume, in conjunction with universities, and how 

frequently you need this kind of power. And do you believe that 

you would benefit from a dedicated supercomputer facility? 

If you can answer that quickly, why we can do that now or you 

can furnish it. 

Dr. JEN. Genomic science research benefits from the use of supercomputers, particularly when the research moves from the DNA sequence, the nucleics, into the proteomics. Our need for analysis by 

supercomputers will increase in the future especially due to the extreme complexity of protein research. 

Currently, some universities have supercomputers, but I think 

we will also work with Department of Energy. A dedicated facility 

probably would be desirable a few years down the line, especially 

considering the other research that USDA has. At this point I could 

not even think about it because the cost is not only the cost of the 

computer itself, but it also includes associated operation and maintenance costs. That would be something that would worry me because I have absolutely no idea how much it costs. 

Senator BENNETT. Thank you very much. That is helpful. 

Senator Kohl, do you have any last questions? 

Senator KOHL. Just one. Mr. Gonzalez, in fiscal year 2003, Wisconsin had four applications for funding through the Section 525 
378 

Technical Assistance Account to provide homeownership education 

for people in rural areas. 

Wisconsin has historically received funding for our good work in 

this area. In fiscal year 2003 funding, I understand the Administration selected priority States primarily within one region of the 

country, with justification that there was not enough funding to 

reach more applicants for other regions. 

I included language in the fiscal year 2004 bill that increased 

funding, and provided limits any one State could receive under this 

account. 

How will you ensure that States like Wisconsin receive a fair 

consideration for funds available this year? 

Mr. GONZALEZ. Thank you, Senator Kohl. 

In terms of the 525, there was a $2-million grant amount that 

was allocated to that program for homeownership training and 

credit counseling. And we are closely following the conferees’ report 

in terms of administering that program. There was a 10-percent 

cap to those 10 States in terms of providing that technical assistance, and we are looking at a NOFA being published May of 2004. 

Senator KOHL. I appreciate your consideration. 

Mr. GONZALEZ. Thank you, sir. 

Senator KOHL. Thank you. 

Senator BENNETT. Thank you. I do have one last question for Dr. 

Collins. You say the ag economy is booming, exports, consumption, 

industrial use, all the rest of it. Any chance that this can mean 

lowering of mandatory payments, mandatory support payments to 

help us out with the budget? 

Dr. COLLINS. Sure, Mr. Chairman. I think that is exactly what 

is going to happen. When you say ‘‘mandatory payments,’’ if you 

look at Commodity Credit Corporation expenditures on price support and related activities, in the year 2000, it hit an all-time 

record of $32 billion. In 2003, it was down to about $17.5 billion. 

In 2004, the President’s fiscal year 2005 budget released in February estimated a spending level of about $14.8 billion. I think that 

that number is more likely to come in closer to $10 to $11 billion 

rather than $14.8, which is in the President’s budget. That will be 

updated in the President’s Mid-Session Review of the Budget that 

will be released in July. 

Clearly, there are a couple of expenditure categories that do not 

change, such as direct payments, which are not a function of prices, 

and they are about $5.5 billion a year. 

And then there is also conservation spending, such as the CRP, 

which is about $2 billion a year. Those things are not going to 

change, but the loan deficiency payments, the loan programs, the 

countercyclical payments all are coming down dramatically, including the milk income contract payment program as well. So, yes, I 

think we are looking at a several-billion dollar decline below the 

President’s budget and a number that is probably about a third of 

what it was in the year 2000. 

Senator BENNETT. I would like to find a way to get that into discretionary funds. I am not sure we can. 

You have a last question? 

Senator HARKIN. Let me just follow up on that because I think 

it is an interesting story. When we passed the Farm Bill in 2001— 
379 

I think that is right, 2001—we were given a budget to work with 

by the Budget Committee for 10 years for our programs. We stayed 

within that. We did not go beyond what was allotted to our Committee for our mandatory programs, and so we passed that. 

In that estimate, there was an estimate for how much the outlays would be for 2002, 2003, 2004 or 2005, et cetera. And, Dr. Collins, you can correct me if I am wrong, but I believe, Mr. Chairman, that if you look at just the 2002, 2003, 2004 estimate, basically, since we kind of know what 2004 is going to be, that we have 

spent about $15 billion less than what we were allotted; in other 

words, what the Budget Committee gave us to spend, we have 

spent about $15 billion less; is that about correct? 

Dr. COLLINS. I have not done that calculation, but I can tell you 

that what we are spending is tracking very closely to what we 

would have expected spending to be with an extension of the 1996 

Farm Bill, that is, before you even added on the programs of the 

2002 Farm Bill. So, yes, it is running below the spending levels 

that were projected in the spring of 2002 for the life of the 2002 

Farm Bill. 

Senator HARKIN. Well, my figures show about $15 billion less, so 

I think agriculture has got a good story to tell there. Of course, I 

come back to things like the other commodity program, the Conservation Security Program, that when people start talking about 

capping and stuff, we have saved $15 billion less than what we 

were allotted to spend. I think that is pretty darn good. Surely, we 

could get a couple of billion out of that or a billion-and-a-half at 

least to help on the conservation program. I just want to make that 

point. I think it is a good story. 

Senator BENNETT. We may make an attempt at that. I am not 

sure whether we will get—— 

My comment is, repeating what I say in my role as Chairman of 

the Joint Economic Committee, I do not know various estimates 

about the economy. People ask me about it. Can we cut the deficit 

in half in 5 years? Will the Kerry numbers hold up? Are the Bush 

numbers accurate? 

And I say the one thing I know about them is that they are all 

wrong. 

They have always been proven wrong. Any attempt to make a forecast in an $11 trillion economy that goes out much more than 

6 months fits into the category that we decided not to use earlier 

as we were describing one of the other estimates. It is basically a 

guess, and it may be a very well-educated guess, but it is basically 

a guess. And I think this illustrates, also, we made the best guess 

we could, and then the economy behaved differently. 

And for those who say, ‘‘Well, why can you not be more accurate?’’ I will use the phrase with which all politicians are very familiar, ‘‘The numbers are all within the margin of error.’’ The difference between surplus and deficit on a $2.7 trillion 

budget, when you move a couple of hundred billion either way, is 

within the margin of error that a pollster might use. And we get 

carried away with our rhetoric around here about we created this 

huge deficit or are we not wonderful, we have created this huge 

surplus. The economy has done what it has done, and we are kind 

of following along on the trail of that and hoping to take credit 
380 

when it is good, and hoping to point and assume blame when it is 

bad. 

ADDITIONAL COMMITTEE QUESTIONS

But, apparently, this is the same kind of situation, and I am glad 

that this one was wrong on the right side of things instead of 

wrong on the other side of things. 

Senator HARKIN. Mr. Chairman, it is just not pencil dust. Let us 

just be careful of that phrase. 

[The following questions were not asked at the hearing, but were 

submitted to the Department for response subsequent to the hearing:] 

QUESTIONS SUBMITTED BY SENATOR ROBERT F. BENNETT

CONSUMER DATA AND INFORMATION SYSTEM INITIATIVE

Question. Dr. Jen, the Economic Research Service is looking for a significant increase in fiscal year 2005—$9 million and 6 additional research staff. The majority 

of this increase and all of the new staff would be for the Consumer Data and Information System initiative. The components of this initiative are a food market surveillance system, a rapid consumer response module, and a flexible consumer behavior survey module. What exactly, do you hope to accomplish with these additional 

information-gathering capabilities? 

Answer. Data and analysis from this initiative would provide a basis for understanding, monitoring, tracking, and identifying changes in food supply and consumption patterns. Without this increase in funding, many problems facing Americans 

will go unsolved. The data and analysis capability embodied in this forward-looking 

initiative will prove invaluable for policymakers in addressing issues ranging from 

obesity prevention to understanding market opportunities to food safety. Currently, 

large gaps exist in USDA’s data and analysis system in the areas of consumer and 

industry behavior. Our Nation does not have timely consumer information upon 

which to base policy decisions and program actions. The centerpieces of this budget 

initiative are nationally representative consumer and retail surveys of food prices, 

retails sales, consumption and purchases of food for at-home and away-from-home 

eating, as well as data on consumer behavior, reactions, attitudes, knowledge, and 

awareness. 

This information system will provide market surveillance and insights into price 

changes, market demand, and consumer reactions to unforeseen events and disruptions such as the recent discovery of bovine spongiform encephalopathy (BSE). In 

addition, the data and analysis framework will provide intelligence on the public’s 

diets, knowledge and awareness levels helping policymakers respond to current 

events, such as the rise in obesity and overweight, especially in minority populations, and their interactions with the U.S. food and agriculture system. 

In addition, as our country faces bio-terrorist threats, increased knowledge about 

American eating behavior and its implications for food markets are of heightened 

importance. Understanding, where food is eaten and purchased and the amounts of 

different foods consumed by various demographic groups is important for understanding how to best protect our food supply, for designing and implementing rapid 

and effective government responses to unforeseen food related events, and for the 

management of events after they have occurred. 

The four components of the initiative in order of priority are: 

—The Flexible Consumer Behavior Survey Module would complement data from 

the National Health and Nutrition Examination Survey (NHANES). This module provides information needed to assess linkages between individuals’ knowledge and attitudes about dietary guidance and food safety, their food-choice decisions, and their nutrient intakes. Combining the NHANES with this new module allows analysis of how individual attitudes and knowledge and healthful 

eating affect food choices, dietary status, and health outcomes. Cost: $3 million. 

—The Rapid Consumer Response Module would provide real-time information on 

consumer reactions to unforeseen events and disruptions, current market 

events, and government policies. This module would be integrated into several 

proprietary consumer data panels currently maintained by private vendors. 

Consumer reactions would be linked to actual food purchases, sales, consumption, and price information. For example, the module could be executed to gath-
381 

er information on consumer reactions to food safety problems and issues. Cost: 

$1 million. 

—The Food Market Surveillance System would consist of an integrated set of surveys and supporting analysis concentrating on linkages in the food and agriculture system. This system would be the foundation of a research and monitoring program designed to: provide timely price, purchase, and sales data; identify food consumption patterns of consumers and how these change as people 

age, households change, new products are introduced, and new information is 

acquired; identify and develop consistent strategies for consumers to adopt the 

Dietary Guidelines for Americans; better understand the market dynamics of 

food safety and other consumer health issues; and understand links between 

foods, physical activity and health outcomes. Cost: $4.176 million. 

—Funding is needed to support 6 additional staff to ensure the successful design and implementation of the initiative. Cost: $500,000. 

Question. Is this a one-time expenditure, or are you envisioning continuing this 

level of funding in fiscal year 2006 and later? 

Answer. I envision that this level of funding will continue in fiscal year 2006 and 

beyond. This data system is a continuous, real time surveillance, tracking, and research vehicle whose demand will only grow over time as it becomes completely integrated into USDA operations. 

AGRICULTURAL ESTIMATES RESTORATION

Question. The National Agricultural Statistics Service is requesting a healthy increase in fiscal year 2005—almost $9.5 million and 14 new staff. Of this amount, 

$7 million and 10 new staff would go to the Agricultural Estimates Restoration and 

Modernization project. This is on top of $4.8 million provided in fiscal year 2004 for 

this purpose. Why is this additional funding necessary? 

Answer. Escalating survey expenses, unfunded pay costs, and declining response 

rates have forced adjustments to many of the Agency’s survey and estimates programs, reducing the quality of survey data on which NASS estimates are based. The 

consequences of poor estimates can involve millions of dollars. For example, inaccurate crop and livestock forecasts may result in unstable market conditions for producers and consumers resulting in large price fluctuations. Funds are needed to increase area frame survey sample sizes to meet precision targets for major estimates 

from the base survey conducted in June, improve non-response follow-up for specialty commodities, increase sample sizes for surveys to measure coverage error, and 

increase list sample sizes to further improve commodity yield forecasts and production estimates. The fiscal year 2005 request will allow for continued progress in 

these areas, in addition to supporting adequate resources necessary to process, analyze, and disseminate vital statistical data. 

Question. Do you expect to request additional funds in fiscal year 2006? 

Answer. At the present time, we do not know what will be reflected in the fiscal 

year 2006 budget request. 

HORTICULTURAL SPECIALTIES

Question. The National Agricultural Statistics Service is responsible for conducting the Census of Horticultural Specialties every 5 years. The fiscal year 2005 

budget recommends that this program be delayed and, as a result, reduces the 

NASS budget by $3 million and the staffing by 6 staff years (FTE). When was the 

last Census of Horticultural Specialties conducted? 

Answer. The 1998 Census of Horticultural Specialties was conducted following the 

1997 Census of Agriculture. This Census of Horticultural Specialities is completed 

on a 10 year schedule. 

Question. Why was the decision made to delay this next Census? 

Answer. The Census of Horticultural Specialities has traditionally been conducted 

every 10 years. Due to the dynamic growth of this industry, NASS was planning, 

pending available funding, to measure this component of agriculture every 5 years. 

Due to the tight budget constraints placed on all discretionary Federal spending, difficult decisions were necessary to maximize use of the available funds for improving 

and modernizing our base agricultural statistics, which are indispensable to the entire agricultural sector. The annual program covering selected horticultural commodities will continue to be available. 

Question. Who benefits from these updated statistics? How will they get their information absent this Census? 

Answer. The information provided by NASS surveys and the Census of Agriculture help to ensure an orderly flow of goods and services among agriculture’s producing, processing, and marketing sectors. Many segments of the horticulture sector 
382 

utilize NASS census data to make informed business decisions at the local level. Additionally, policymakers use NASS data in assessing the impact of potential legislation. In the absence of the Census of Horticultural Specialities, the NASS annual 

program provides information for selected horticultural commodities at the State 

level. 

The annual statistics program includes several reports on the production, value, 

and chemical usage for nursery and floriculture crops. Three main reports constitute 

the annual program. The Floriculture Crops Annual Summary is released each April 

and includes production, price, and wholesale value for growers having $100,000 or 

more in sales in 36 selected States. It also includes the number of growers and 

growing area for growers with $10,000 or more in sales. This report can be accessed 

via the Internet at http://usda.mannlib.cornell.edu/reports/nassr/other/zfc-bb/. The 

Nursery Crops Summary is conducted periodically in tandem with the Agricultural 

Chemical Usage—Nursery and Floriculture Summary. The Nursery Crops Summary 

includes gross sales and the number of trees/plants sold for 17 selected States and 

growers having $100,000 or more in sales. It also includes area in production and 

the number of growers and workers for operations having $10,000 or more in annual 

gross sales. The next summary will be released on July 26, 2004 and will be available at http://usda.mannlib.cornell.edu/reports/nassr/other/nursery/index.html. The 

Agricultural Chemical Usage—Nursery and Floriculture Summary is scheduled for 

release on September 15, 2004. This summary includes chemicals used (by active 

ingredient) and to what crop the chemicals were applied, the amount of chemicals 

applied, the method of application, who made the application, and the pest management practices used on operations for six selected States. Agricultural Chemical 

Usage Summaries are available at http://www.usda.gov/nass/pubs/estindx1.htm#A. 

In addition to the annual program, the Census of Agriculture provides basic data 

on the area of nursery and floriculture crops grown, by crop, under protection or 

in the open, the total area irrigated, and an aggregate value of sales for nursery, 

greenhouse, floriculture, and sod. These data will be available in June 2004 at the 

National, State, and county level. 

SMALL AREA ESTIMATION

Question. Dr. Jen, $2.5 million and 4 new staff are requested by NASS for data 

acquisition for the Small Area Estimation Program. It is my understanding that this 

information is used by the Risk Management Agency and the Farm Service Agency. 

How will these USDA agencies benefit by this increased funding and staff? 

Answer. The Risk Management Agency and the Farm Service Agency are two of 

the major users of the NASS small area estimates. Due to the dynamic growth of 

the agricultural insurance programs and the farm bill utilization of these estimates, 

both agencies rely heavily on the precision of county level estimates produced by 

NASS. Due to limited funding, current estimates are derived through a survey process that does not allow for full implementation of the probability design that produces statistically defensible survey precision. This funding will be used to allow follow-up data collection activities to support the probability design in an initial onethird of the U.S. counties. Therefore, users of NASS small area statistics will be 

able to accurately define the statistical precision of each estimate. 

Question. What additional data will be acquired? 

Answer. This funding will allow the initial implementation of follow-up data collection activities necessary to calculate statistically defensible survey precision for 

the current program. The county estimates program continues to grow in scope and 

importance for Federally administered farm programs, thus increasing the need for 

defensible survey precision. 

Question. What is the impact on these agencies if these funds are not provided? 

Answer. These agencies will be forced to continue to administer Federal farm programs based on data which does not have a calculated level of precision. As the 

number of farm programs, and Federal outlays, which depend on these estimates 

continues to grow, the absolute level of precision must be known. Without a calculated level of precision, some payment decisions to farm operators may result in 

either an overpayment to farmers at the taxpayers expense or an underpayment to 

farmers who have a legitimate claim. 

BSE TRADE RESTRICTIONS

Question. Last week Secretary Veneman sent Japan a proposal to break the impasse over BSE trade restrictions. The Japanese in turn sent a letter rejecting the 

proposal. In a joint statement released Thursday, Secretary Veneman and Trade 

Representative Zoellick expressed their disappointment in the Japanese response. 
383 

Would you care to comment on the current situation regarding Japan’s trade restrictions on the import of U.S. beef? 

Answer. The Department has been and remains in close contact with Japanese 

government officials. Immediately following USDA’s announcement of the BSE case, 

senior USDA officials held talks with Japanese officials in Tokyo, Japan, on December 29 and January 23. A Japanese technical team visited USDA in Washington, 

D.C., and the BSE-incident command center in Yakima, Washington, during the period January 9–15. On March 23, the Agricultural Affairs Office, American Embassy 

in Tokyo, reported meetings with the Japanese Ministry of Health and Welfare 

(MHLW), Ministry of Agriculture, Fish and Food (MAFF), and the Food Safety Commission (FSC). 

There is still a significant difference in our official positions regarding BSE testing and specified risk materials (SRM) removal. On March 29, Secretary Veneman 

sent a letter to Japanese Agriculture Minister Kamei proposing to have a World 

Animal Health Organization (OIE) technical experts panel meet before April 26 to 

discuss a definition of BSE and related testing methodologies as well as a common 

definition of SRM. On April 2, Japan rejected the proposal, reasoning that the 

United States first needed to reach a bilateral scientific understanding on BSE. 

USDA is planning another high-level visit to Japan to continue talks in late April. 

The United States exported over $1.3 billion in beef to Japan in 2003, representing 

over 50 percent of Japan’s total beef imports. The import ban has severely impacted 

Japan’s market supplies and beef prices. Given Japan’s need for beef imports and 

the importance of beef exports to Japan to the U.S. beef and cattle industry, we are 

hopeful that a solution can be found. 

GENETICALLY MODIFIED FOOD

Question. A recent Wall Street Journal article states that last week Angola decided to ban imports of genetically modified grain, even though it will disrupt the 

country’s food aid. In 2002, 13 member countries of the Southern African Development Community all balked at accepting genetically modified food aid. Last year 17 

scientists from the same Development Community conducted a fact-finding mission 

and concluded that genetically modified foods posed no danger to people or animals. 

What is FAS doing to educate countries regarding genetically modified foods? 

Answer. FAS is actively engaged in the interagency process to provide accurate 

information on the benefits and risks of agricultural biotechnology to food aid recipient countries. In the wake of the food crisis in southern Africa in the summer of 

2002, USDA, the State Department, and the U.S. Agency for International Development committed to identifying food aid recipient countries where the issue of biotechnology could hamper relief efforts. Since being formed in the fall of 2002, this 

interagency group has also addressed new challenges to the delivery of food aid, including the entry into effect of the Cartagena Protocol on Biosafety in September 

2003. This group has and will continue to work with foreign countries, international 

organizations and the private voluntary community to ensure that safe and wholesome U.S. food aid reaches those in need. 

Issues related to biotechnology are both varied and complex, affecting every country to differing degrees. FAS attaches are often relied upon in their host countries 

to provide answers to questions regarding the benefits and risks of agricultural biotechnology. A high premium is thus placed on ensuring that FAS attaches are properly trained in all facets of agricultural biotechnology and that they receive updated 

information regarding political, scientific, and trade developments affecting biotechnology. 

One of the most effective ways to encourage the acceptance and adoption of agricultural biotechnology around the world is to provide foreign regulators, policy makers, farmers, consumers, and members of the media with accurate information on 

agricultural biotechnology. FAS understands this and is heavily involved in developing exchange projects that showcase the U.S. regulatory system for agricultural 

biotechnology and allow foreigners to see firsthand how the technology is being used 

to benefit Americans. These programs are extremely effective in creating advocates 

for the technology at all levels of society, from farmers to high ranking government 

officials. 

International standards play an integral role in the movement in international 

trade of agricultural products of all types, including those containing the products 

of biotechnology. FAS plays the critical role of representing U.S. interests in a number of international fora that promulgate standards affecting agricultural biotechnology. FAS works with interested stakeholders to develop and advance U.S. positions within CODEX, the Cartgena Protocol on Biosafety, the World Trade Organization, the Organization for Economic Cooperation and Development, and the Food 
384 

& Agriculture Organization, among others. Playing a prominent role in these international standards setting bodies is one of the many ways FAS encourages other 

countries to adopt science-based, transparent approaches to the regulation of agricultural biotechnology. 

Question. Is USDA currently conducting any research on the effects of genetically 

modified foods? 

Answer. The Agricultural Research Service (ARS) has identified three general 

areas for research on the effects of genetically engineered foods: environmental effects of crops, genetic effects from the introduction of new DNA into crop plants, and 

food safety/quality. The ARS research portfolio encompasses all three areas. Safety 

evaluations are currently focused on genetically engineered foods created by ARS research. 

The most notable genetically engineered food currently undergoing scrutiny by 

ARS is a soybean genetically engineered to reduce allergic reactions by two-thirds. 

Soy is one of the ‘‘big eight’’ sources of food allergies, estimated to affect 6 to 8 percent of children and 1 to 2 percent of adults. The issue is especially important to 

vegetarians, for whom soy protein often serves as a staple of their diet. This example shows that genetically engineered foods can have highly beneficial effects, and 

they can in fact be less risky to human health than conventional foods. 

The Cooperative State Research, Education, and Extension Service (CSREES) also 

manages a Biotechnology Risk Assessment Competitive Grants Program that supports research to examine the effects of genetically engineered crops. This program, 

funded by a 2 percent set-aside from all biotechnology research funding in USDA, 

is mandated to target only environmental risks. 

IRAQ FOOD AID

Question. Last month it was reported that 110,000 metric tons of wheat is destined for export to Iraq. This is good news and will certainly be beneficial to the 

Iraqi people. Can you update the Committee on the current situation regarding food 

aid for Iraq? 

Answer. There are no U.S. plans to provide additional food aid to Iraq this year. 

The renegotiated Oil for Food contracts and some additional World Food Program 

commercial tenders, using Iraqi funds, are expected to keep the pipeline sufficiently 

supplied into the summer. The Ministry of Trade, through the Iraqi Grain Board, 

is expected to take over commodity purchasing this spring and to buy commodities 

commercially for delivery during the remainder of the year. Additional food aid 

would simply displace the emerging commercial markets in Iraq. 

FSA FARM LOAN PORTFOLIO

Question. Dr. Penn, in fiscal 2003 the delinquency rate for direct farm operating 

loans was 12.5 percent and the default rate was 4.7 percent. Fiscal 2003’s delinquency and default rates are similar to past years even though last year was a good 

year for farm prices. Can you explain why this is? 

Answer. FSA has made considerable progress during the past 5 years in reducing 

both delinquency and loss (default) rates. In fiscal year 1998, the direct farm operating loan program delinquency rate was 16.78 percent; at the end of fiscal year 

2003, it was 12.5 percent. The loss rate in 1998 was 5.6 percent, and in 2003 was 

4.7 percent. 

A portion of the loss rate can be attributed to long-term indebtedness from the 

farm crisis period of the late 1980’s and early 1990’s that had never been written 

off the Agency’s books. Some of these debts had been reduced to judgments, which 

were still uncollected. Other loans could not be finally written off because of litigation and other circumstances. 

Implementation of the Debt Collection Improvement Act of 1996 in the past few 

years has resulted in more efficient and effective collection from the judgment accounts and delinquent debtors. This has allowed both greater recovery and final determination that some accounts are uncollectible, resulting in writing off of the latter debt, which had the effect of inflating losses during this period. 

Question. Does USDA believe these rates are acceptable? 

Answer. While the Agency would certainly like to see lower delinquency and default rates, the current numbers represent a vast improvement over historical rates. 

FSA will continue to make efforts to reduce these numbers. However, as the Government’s ‘‘lender of last resort,’’ FSA can lend only to farmers who cannot obtain 

commercial credit. Providing credit to those who do not meet standard lending criteria will inevitably result in higher default and delinquency rates than are experienced by commercial lenders. 
385 

Question. What specific actions are you taking to lower the delinquency and default rates? 

Answer. FSA has purchased and begun implementation of an automated, webbased farm business planning system widely used by commercial farm lenders. The 

new system will permit FSA staff to easily identify borrowers who, as the result of 

economic or production issues, will likely have financial problems. FSA loan personnel will then be able to proactively work with them to avoid delinquencies or 

mitigate them before financial problems become insurmountable. It will also help 

staff work with applicants and borrowers to identify potential risks and formulate 

risk management strategies. 

For those cases that do go into default, FSA and the Department of the Treasury 

continue to work together to enforce collection of delinquent debt through offset of 

Federal payments and salaries, income tax refunds, and a statutorily authorized 

portion of Social Security benefits, as well as other methods. In some cases, offset 

provides sufficient funds to cure the default, thereby reducing the delinquency rate. 

Through the cross-servicing program, Treasury contracts with private collection 

agencies to locate and attempt collection from delinquent debtors. Where the borrowers have no assets or prospects from which collection can be made, those accounts can then be written off, further reducing the delinquency rate. 

FSA also provides primary loan servicing to delinquent borrowers, through which 

their accounts can be restructured or written down to an amount they can repay, 

eliminating the default. 

Question. What level of delinquency and default are you aiming for? 

Answer. We aim for the lowest levels possible, given the type of customer we 

serve. FSA establishes goals for reduction of delinquency and loss rates, and has already exceeded those goals for the current year. Goals are revisited and adjusted 

each year, and the Agency will continue to make efforts to reduce these rates to the 

greatest degree possible. 

Question. FSA is requesting a loan level of $25 million for emergency disaster 

loans for fiscal year 2005. The default rate in fiscal 2002 was 20.3 percent and 11.5 

percent in fiscal 2003. Based on historical data, we know there will be high loss 

rates on emergency loans. Do the benefits of these loans justify the high levels of 

loss? 

Answer. This assistance is available only to borrowers who have suffered losses 

through natural disasters and cannot obtain credit from commercial lenders. As in 

the Operating Loan program, this means that losses will always exceed those experienced by commercial lenders. Further, loans made to recover from disasters carry 

inherent risks that do not apply to normal operating and ownership loans. However, 

this program does appear to be the best method of providing assistance to those who 

have suffered disaster losses, especially considering that the alternative—grants and 

other aid that does not have to be repaid—would increase the cost to the Federal 

Government. 

Question. What specific actions are you taking to lower the default rate? 

Answer. FSA has purchased and begun implementation of an automated, webbased farm business planning system widely used by commercial farm lenders. The 

new system will permit FSA staff to easily identify borrowers who, as the result of 

economic or production issues, will likely have financial problems. FSA loan personnel will then be able to proactively work with them to avoid delinquencies or 

mitigate them before financial problems become insurmountable. It will also help 

staff work with applicants and borrowers to identify potential risks and formulate 

risk management strategies. 

For those cases that do go into default, FSA and the Department of the Treasury 

continue to work together to enforce collection of delinquent debt through offset of 

Federal payments and salaries, income tax refunds, and a statutorily authorized 

portion of Social Security benefits, as well as other methods. In some cases, offset 

provides sufficient funds to cure the default, thereby reducing the delinquency rate. 

PERFORMANCE REVIEW

Question. Based on an OMB assessment, FSA is conducting a performance review 

of its loan portfolio. When will this review be complete? 

Answer. The Program Effectiveness Study of the FSA direct loan portfolio will be 

complete by June 2005. Preliminary data is expected by August 1, 2004. 

Question. What do you hope to learn from this review? 

Answer. We expect to learn more about financial characteristics of program participants as a group and how those characteristics change during the time borrowers 

have debts with FSA; how many participants ‘‘graduate’’ to commercial credit and 

subsequently return to FSA for loans; the effectiveness of statutory assistance tar-
386 

gets; potential improvements for administering the ‘‘credit elsewhere’’ requirement; 

and alternatives for reducing program subsidy rates. 

Question. Will you please share the results of the review with this Subcommittee? 

Answer. Yes, FSA will share the findings with the Subcommittee when the program effectiveness study is complete. 

FARM LOAN STAFFING

Question. FSA is requesting 100 new staff years to administer its farm loan programs. In the FSA administrator’s testimony, he states that the new staff will ‘‘help 

avert increases in direct loan delinquency and loss rates.’’ Is that the best we can 

do—attempt to stop the rate of increases? Why won’t these staff contribute to decreasing the overall level of defaults and delinquencies? 

Answer. The FTE request is intended to avert increases in loan delinquency and 

loss rates, and continue improvement in loan performance. FSA’s Farm Loan Program has an urgent need to establish a training ‘‘pipeline’’ of loan officers and technicians to replace large numbers of anticipated retirees, to maintain a cadre of experienced loan program delivery personnel. Adequate training for a loan officer takes 

at least 2 years. Inadequately trained staff cannot be efficient because they must 

learn as they work, and they make more and potentially more serious errors. Because FSA farm loan programs are complex, poorly or partially trained loan officers 

are prone to errors that create substantial program vulnerability and result in higher loss rates. Merely replacing retirees with new hires is ineffective in the short run 

and will adversely affect program performance in the long run. 

Question. How was this level determined? 

Answer. In determining the request, the agency took into account the fact that 

resources are limited and proposed an increase that, while not completely solving 

the trained loan officer ‘‘pipeline’’ problem, will be a major step in that direction. 

Question. Does it not make sense to wait for the results of the performance review 

before creating 100 new positions? 

Answer. No, these two issues are not directly related. The Program Effectiveness 

Study will provide data that will allow more informed policy decisions, and possibly 

result in administrative or policy adjustments to make the programs more effective. 

The FTE request is necessary to maintain a cadre of fully trained staff which will 

maintain and enhance current performance, protect the government’s financial interest in existing loans and guarantees, and help existing borrowers stay on the 

path to financial success. 

Question. How do you know this is the agency’s most pressing need? 

Answer. The Agency has a combined guaranteed and direct loan portfolio of nearly $17 billion, annual loan and guarantee commitments approaching $4 billion, and 

a commitment to assist nearly 120,000 borrowers. Farm loan programs make FSA 

the largest single farm lender in the country. Given the level of financial exposure 

and the anticipated scope of retirements of seasoned staff in the farm loan programs, the need for this additional staff is critical. 

CROP INSURANCE

Question. The Risk Management Agency (RMA) is currently working to renegotiate the Standard Reinsurance Agreement (SRA). This agreement establishes the 

terms and conditions under which the Federal Government will provide subsidies 

and reinsurance on eligible crop insurance contracts. Can you provide the Committee with an update on the negotiation process and have you set a deadline for 

completion? 

Answer. The Department announced on December 31, 2003 that the current 

standard reinsurance agreement would be renegotiated effective for the 2005 crop 

year. The first proposed reinsurance agreement was made publicly available at that 

time. Based on the advice of the Department of Justice, RMA established a process 

by which we renegotiate the agreement individually with each company and meet 

with each company in detailed negotiating sessions. Interested parties had until 

February 11, 2004 to provide written comments about the proposed agreement. 

RMA reviewed comments from insurance companies and interested parties to revise 

the first draft. On Tuesday, March 30, RMA announced the release of the second 

SRA proposal. RMA believes that the second draft demonstrates responsiveness to 

concerns raised by companies and interested parties. The proposed SRA will enhance the Federal crop insurance program by: encouraging greater availability and 

access to crop insurance for our nation’s farmers; providing a safe and reliable delivery system; and reducing fraud, waste, and abuse, while achieving a better balance 

of risk sharing and cost efficiencies for taxpayers. 
387 

As part of the process, RMA will meet with the insurance providers in individual 

negotiating sessions the last 2 weeks of April and will receive public comments until 

April 29. At that point RMA will evaluate the comments and negotiating session 

materials and develop another draft for discussion with the companies. There are 

several remaining issues of substance to resolve before a final draft may be completed. While it is the agency’s desire to resolve them and complete the process before July 2004, given that this is a negotiation, RMA is not able to determine how 

long it will take to resolve issues to all parties’ satisfaction. Prior SRA negotiations 

have taken well past July to conclude, but have not affected the continuing delivery 

of the program. 

Question. The Administration’s Budget request for the RMA includes an increase of over $20 million to improve information technology. Within the increase, the 

Budget requests funding to monitor companies and improve current procedures to 

detect fraud and abuse. Can you explain how the department will monitor companies and improve detection of fraud and abuse? 

Answer. The current systems are based on technology that is more than 20 years 

old. The information that is collected from the Insurance Companies is distributed 

to a collection of 100∂ databases. Any subsequent updates or changes, received 

from the Insurance Companies, to this information overlays the original information. This architecture does not allow RMA to track changes in the submissions from 

the external entities. 

As the data requirements of the current data structures change from year to year, 

new databases are created for each crop year. The prior years databases are problematic due to the intense effort needed to convert the historical information to formats that are consistent with the more recent years. This creates problems in data 

analyses when trying to use data from multiple crop years. 

The requested increase in funds is directed at the establishment of a consistent 

enterprise architecture and enterprise data model. This would replace the 100∂ 

databases with a single enterprise data model that would be consistent across the 

organization. This enterprise data model would allow data mining operations to be 

conducted without first converting the data to a consistent useable format. 

By moving the data to a modern relational database system RMA will be able to 

track detailed changes that are made to the data that is received from the Insurance Companies. This will allow RMA to monitor the timing of the changes as they 

occur and identify those changes that could potentially be related to fraud and 

abuse. 

ADVENTITIOUS PRESENCE

Question. The U.S. government’s intent to implement a science-based policy with 

respect to adventitious presence (AP) was announced by the Office of Science and 

Technology Policy (OSTP) in August 2002 (Federal Register Notice 67 FR 50578). 

The seed, grain, and food industry continue to face the possibility of disruptions in 

trade due to uncertainty around low levels of biotech events in conventional and 

biotech products. Can you update the Committee on this situation and what actions 

USDA may take this year? 

Answer. The biotechnology, food, and grain industries have all identified adventitious presence (AP) as a priority issue and development of an AP policy is a priority for APHIS as well. AP refers to the intermittent low-levels of biotechnology 

derived genes and gene products occurring in commerce as a result of the field testing of biotechnology crops. In August 2002, OSTP began coordinating a governmentwide approach to AP, which involves updating APHIS field testing requirements 

and establishing early food safety assessments at the Environmental Protection 

Agency and the Food and Drug Administration. APHIS has participated in the Agricultural Biotechnology Working Group (ABWG) to develop an AP policy under the 

auspices of the White House and OSTP. APHIS is working as quickly as possible 

to establish an AP policy as part of its upcoming regulatory revisions. 

RENTAL ASSISTANCE

Question. Mr. Gonzalez, GAO has recently assessed the Rural Housing Service’s 

rental assistance program. I understand that USDA does not generally agree with 

GAO’s conclusions. Does USDA agree with the idea that rental assistance contracts 

should last only as long as the life of the contract, that is, in our current situation, 

for 4 years? 

Answer. RHS has worked diligently over the last 6–7 years to estimate rental assistance (RA) needs as closely as possible to the contract term. However, it is impossible to estimate the contracts exactly due to tenant turnover and market conditions 

in the last 2 years of the contract. Therefore, requiring a set term provides an addi-
388 

tional burden to both the borrower and the Agency in the monitoring of these contracts. Within the last year, automated technology has made it possible for the 

Agency to drill down to a per-property basis to determine the most current usage 

rate of rental assistance. Development of an automated rental assistance forecasting 

tool, now completing the testing phase, will enable RHS to establish a more accurate 

per property cost of RA over the life of the contract. 

Question. Do you believe that the fiscal 2005 request will be completely spent 

within 4 years (If not, why not?) 

Answer. RHS believes that the fiscal 2005 request will be completely spent within 

4 years. 

MANAGEMENT CONTROL REVIEW

Question. Mr. Gonzalez, I understand that the rental assistance program will undergo a ‘‘Management Control Review’’ this month. Who will conduct this review? 

Answer. The Financial Management Division of the Rural Development mission 

area oversees the conduct of all Management Control Reviews (MCRs) within RD 

done on all programs deemed assessable. This includes most loan and grant programs, including the Section 521 Rental Assistance Program. The review is performed by subject matter experts, generally 8–10 field staff who work in the particular program area, as well as Civil Rights personnel, who conduct their review 

from a perspective of fair housing regulations and civil rights compliance. 

Question. Why did you choose to begin this review? 

Answer. MCRs are generally done on a 5-year cycle. In this case, the last MCR 

done on the Section 521 program was in 1999 and is due again in 2004. 

Question. What are the goals of this review? 

Answer. The general goals of a MCR are to improve the accountability and effectiveness of USDA’s programs and operations through the use of sound systems of 

internal and management controls. The specific objectives of the MCR on Section 

521 assistance are to ensure: 

—Priority of Rental Assistance (RA) applications properly processed in accordance 

with RD Instruction 1930–C Ex. E IV; 

—That any denial of RA requested is in accordance with RD Instruction 1930– 

C Ex. E V C 4; 

—Recordkeeping responsibilities are in accordance with RD Instruction 1930–C 

Ex. E VII & X; 

—That borrower’s administration of the RA program is in accordance with RD Instruction 1930–C Ex. E VIII; 

—That assigning RA to tenants is in accordance with RD Instruction 1930–C Ex. 

E XI; 

—Suspending or transferring existing RA is in accordance with RD Instruction 

1930–C Ex. E. XV; 

—That unused RA units are reviewed and transferred in accordance with RD Instruction 1930–C Ex. E XV B 5; 

—That AMAS (the automated multifamily accounting system) is maintained to 

support the Rental Assistance program. 

Question. Will you please share the results of the review with this subcommittee? 

Answer. The MCR is expected to be completed this summer, and the report should 

be available by August 2004. RHS will provide the subcommittee with a copy of the 

report at that time. 

COMPREHENSIVE PROGRAM ASSESSMENT

Question. Mr. Gonzalez, the Section 515 housing program is currently undergoing 

a ‘‘Comprehensive Program Assessment’’. When will the Comprehensive Program 

Assessment be complete? 

Answer. Our target date for completion of the physical inspections and market 

analysis portions of the study is the summer of 2004. 

Question. How much did this assessment cost? 

Answer. The assessment cost is $1.8 million 

MULTIFAMILY HOUSING

Question. As part of this review, why did USDA choose to evaluate the organizational structure of the Multifamily Housing division? 

Answer. The Section 515 Rural Rental Housing program has 17,314 properties in 

its portfolio as of April 2003. We have undertaken an effort to develop a comprehensive assessment of these properties. The Rural Housing Service has initiated an effort to determine the condition of the portfolio from several perspectives. The Comprehensive Property Assessment (CPA) has several objectives, all of which are de-
389 

signed to provide an all-encompassing evaluation of the state of the portfolio. These 

objectives include: 

—Assessment of property’s physical condition, 

—Assessment of property’s financial health, 

—Assessment of property’s position in the real estate rental market, 

—Determination of continuing need for this rental housing, 

—Assessment of needed capital improvements and cost, 

—Assessment of future capital reserve needs, 

—Analysis of prepayment potential, and 

—Analysis of prepayment incentive costs to retain properties/use restrictions. 

The Department convened a Multifamily Advisory Group to oversee completion of 

the study, and ICF Consulting, Inc. was hired in September 2003 to undertake the 

study. At the completion of this study, we will be able to determine the long-term 

capital needs of the portfolio for budget purposes. 

The study will make recommendations on needed modifications to the program delivery system to meet the long-term capital needs of the portfolio. 

BROADBAND

Question. The Rural Broadband Program has received a great deal of interest 

from Congress, rural communities, and the broadband industry. Of particular interest is the status of many of the loan applications. Could you please provide us with 

an update on the loan program and some of the issues you are dealing with? 

Answer. There are 40 loan applications pending totaling $438.8 million; 14 loans 

have been approved totaling $201.8 million; 20 loan applications totaling $300.3 million have been returned as ineligible; and 17 loan applications totaling $195.4 million have been returned as incomplete. 

The Broadband loan program is distinctive from all other lending programs within 

the RUS portfolio. Broadband is currently viewed as a commodity that must be 

properly marketed and potential customers must be made aware of the benefits of 

broadband service if they are to spend their discretionary dollars on it. As such, it 

is difficult to predict what penetration rates will be today and in the future. 

Nearly half of the applicants are ‘‘start-up’’ companies with little, if any, history 

of doing business in this industry. There are two distinctly different characteristics 

at play-competition (rather than a monopolistic environment) and multi-state businesses (rather than a single cooperative serving a single rural community). 

Applications for the Broadband Program are different from those in the other 

RUS infrastructure programs. Very few of these applications are designed to serve 

a single rural community or even a small grouping of geographically close rural 

communities. Most are applications requesting to serve 50, 75, or in excess of 100 

rural communities in multiple states. 

Furthermore, the vast majority of the communities already have broadband service available in some of the proposed service area; in some instances, from more 

than one provider. To determine financial feasibility, RUS must determine what 

portion, if any, of a competitive market the applicant will be able to penetrate. As 

a result, working with each applicant is also uniquely time consuming. 

Finally, many of the first applications submitted were assembled hastily to secure 

positions due to our first-in first-out review procedures. Valuable time was used 

helping applicants assemble complete loan application packages. 

Based on this experience, RUS changed its review procedures to expedite reviews 

and has instituted new techniques to determine whether an application is complete 

and can be processed; is incomplete but can be completed with the submission of 

additional information; is incomplete and will require a significant amount of additional work and must, therefore, be returned; or is ineligible and must be returned. 

QUESTIONS SUBMITTED BY SENATOR HERB KOHL

DAIRY FORWARD CONTRACTING

Question. Dr. Collins, in 1999, Congress passed legislation to set up a dairy forward contracting pilot program, which is set to expire at the end of this year. Dairy 

forward contracting allows buyers and sellers of milk to voluntarily agree upon delivery of a specific amount of milk for a set price over a specified period of time. 

About 655 of Wisconsin’s 16,000 dairy farmers have participated in this pilot program. Many of them recommend making this voluntary program permanent because 

it gives them a new way to manage risk. What is the Administration’s position on 

this program? Does the Administration support legislation that would make the 

dairy forward contracting program a permanent program? 
390 

Answer. The Consolidated Appropriations Act of 2000 required USDA to conduct 

a study to determine the impact of the Dairy Forward Pricing Pilot Program on milk 

prices paid to producers. Data from the mandated study indicates that the program 

can help stabilize the price dairy producers receive for their milk and thereby be 

a valuable risk management tool. For this reason, USDA does not oppose extending 

or making permanent the current Dairy Forward Pricing Pilot Program. 

EXPORT MARKET PROBLEMS

Question. Following the BSE discovery in Washington State last December, our 

beef export markets were badly shaken. Similarly, we have seen problems with certain poultry export markets due to avian influenza. In both of these cases, the problem originated in another country and was imported to the U.S. Open markets are 

a two way street, they allow our products to move in foreign commerce, but they 

also raise the possibility that we are importing serious problems. 

Please update us on what USDA is doing to reopen export markets for our beef 

and poultry products. Also, can you please comment on how we protect our export 

markets from problems which are, themselves, foreign in origin? 

Answer. Re-opening foreign markets for U.S. beef and beef products is a top priority for USDA. As a result of USDA’s efforts, Mexico and Canada, which are the 

second and fourth largest U.S. beef export markets, have opened their markets to 

selected U.S. beef, beef products, and ruminant by-products exports. Further, USDA 

is working very closely with NAFTA trading partners to harmonize animal health 

standards and regulations with regard to Bovine Spongiform Encephalopathy (BSE). 

USDA continues to work closely with foreign trading partners to re-establish U.S. 

beef and beef product exports as quickly as possible. We are working with foreign 

officials at all levels to personally assure them of our robust safeguards and to indicate that trade can safely resume. The Animal and Plant Health Inspection Service 

(APHIS) was in constant contact with its counterparts providing them with updates 

on the BSE investigation, as well as new USDA regulatory policies imposed on BSE 

testing and specified risk material (SRM) removal. USDA continues to be engaged 

with foreign governments at the technical level responding to all of their questions 

and encouraging them to make trade decisions based on sound science. 

With respect to poultry exports, USDA responded quickly and effectively to control the spread of Avian Influenza (AI) in the AI-affected states. Throughout this 

process, USDA officials were in constant contact with their foreign counterparts to 

provide timely information about the outbreaks and quarantine control measures. 

U.S. export markets accounting for 66 percent of total U.S. poultry meat export 

value continue to import U.S. poultry meat. In 2003, the export value of poultry 

meat to these markets was $1.31 billion. 

On April 1, the USDA Chief Veterinary Officer (CVO) announced the completion 

of the required surveillance and testing protocols per the World Animal Health Organization (OIE) guidelines. An official request from the CVO has been sent to 

major U.S. poultry export markets requesting the removal of all import bans on U.S. 

poultry and poultry product imports. The Department, at all levels, is diligently pursuing with its trading partners the lifting of all AI trade restrictions on products 

from the United States. By the summer of 2004 or earlier, the remaining countries 

imposing nationwide bans on U.S. poultry meat are expected to at least regionalize 

their import bans to those states affected by Low Pathogenic Avian Influenza 

(LPAI). 

The U.S. Department of Agriculture takes protecting U.S. agriculture from animal 

and plant diseases very seriously. APHIS makes its regulatory decisions using a 

science-based evaluation. Before approving a product for import from a given country, a rigorous risk assessment is conducted to determine the risk associated with 

introducing a particular disease. Once approved, APHIS continues to monitor that 

country’s animal health standards to ensure implementation is enforced. Because of 

these standards and controls, USDA can assure countries that imports of agricultural and food products from the United States are wholesome and fit for human 

consumption. 

GENETICALLY MODIFIED CROPS

Question. USDA has pointed out the ever-increasing importance of biotechnology 

and its implications for U.S. agricultural trade. The more U.S. agricultural production includes elements of genetically modified (GM) materials, the more at risk our 

foreign markets become as long as there is a general reluctance throughout the 

world to accept such products. 
391 

Over the past several weeks, items appeared in the Washington Post and the New 

York Times reporting that genetically modified traits are appearing in traditional 

seed supplies with unknown consequences. 

Secretary Penn, given the fact that there has been a tremendous increase in U.S. 

production of GM crops, and given the trade implications, do you think that we have 

allowed for too much production of biotech crops before we knew we had the knowledge and tools in hand to make sure contamination would not occur? In other words, 

have we moved so quickly on biotech crops that we have placed our exports markets 

at risk? 

Answer. USDA’s Prospective Plantings report, released on March 31, 2004, indicates that U.S. production of crops produced using modern biotechnology will continue to increase in 2004. However, U.S. farmers are not alone in their rapid adoption of this technology. According to the International Service for the Acquisition of 

Agri-biotech Applications, 2003 saw the 7th year of double-digit global growth in the 

production of biotech crops. Over 7 million farmers in 18 countries produce 167 million acres of crops enhanced though modern biotechnology. Farmers are increasingly 

using biotechnology for improved control of pests and weeds. In addition to these 

economic benefits, in some instances, farmers are realizing environmental benefits 

through increased use of no-till’ and reduced use of chemicals and fuel. 

USDA will continue to work very hard to promote U.S. crops in overseas markets 

and is engaged on many levels to provide trading partners with accurate information regarding the benefits and risks associated with agricultural biotechnology. 

Question. What steps are you taking to meet concerns of some countries that 

won’t even accept GM crops as food aid? 

Answer. FAS is actively engaged in the interagency process to provide accurate 

information on the benefits and risks of agricultural biotechnology to food aid recipient countries. In the wake of the food crisis in southern Africa in the summer of 

2002, USDA, the State Department and the U.S. Agency for International Development committed to identifying food aid recipient countries where the issue of biotechnology could hamper relief efforts. Since being formed in the fall of 2002, this 

interagency group has also addressed new challenges to the delivery of food aid, including the entry into effect of the Cartagena Protocol on Biosafety. This group has 

and will continue to work with foreign countries, international organizations, and 

the private voluntary community to ensure that safe and wholesome U.S. food aid 

reaches those in need. 

Issues related to biotechnology are both varied and complex, affecting every country to differing degrees. USDA’s Foreign Agricultural Service (FAS) attaches are 

often relied upon in their host countries to provide answers to questions regarding 

the benefits and risks of agricultural biotechnology. A high premium is thus placed 

on ensuring that FAS attaches are properly trained in all facets of agricultural biotechnology and that they receive updated information regarding political, scientific, 

and trade developments affecting biotechnology. 

One of the most effective ways to encourage the acceptance and adoption of agricultural biotechnology around the world is to provide foreign regulators, policy makers, farmers, consumers, and members of the media with accurate information on 

agricultural biotechnology. FAS understands this and is heavily involved in developing exchange projects that showcase the U.S. regulatory system for agricultural 

biotechnology and allow officials from other countries to see firsthand how the technology is being used to benefit Americans. These programs are extremely effective 

in creating advocates for the technology at all levels of society, from farmers to highranking government officials. 

International standards play an integral role in the movement in international 

trade of agricultural products of all types, including those containing the products 

of biotechnology. FAS plays the critical role of representing U.S. interests in a number of international fora that promulgate standards affecting agricultural biotechnology. FAS works with interested stakeholders to develop and advance U.S. positions within CODEX, the Cartgena Protocol on Biosafety, the World Trade Organization, the Organization for Economic Cooperation and Development, and the Food 

& Agriculture Organization, among others. Playing a prominent role in these international standards setting bodies is one of the many ways FAS encourages other 

countries to adopt science-based, transparent approaches to the regulation of agricultural biotechnology. 

SOUND SCIENCE

Question. I agree that these crops provide the opportunity for much improved food 

security throughout the world, and possibly, reduced pesticide use. But world-wide 

acceptance of these products will depend on world-wide acceptance of the science 
392 

used to establish their safety. This is true for plant science, this is true for animal 

science, this is true for all science. 

Dr. Jen, would you please respond to the questions that have been raised regarding the use, or abuse, of science in the pursuit of certain policy objectives? What 

are you doing at USDA to ensure that the term ‘‘sound science’’ is a truly scientific 

term and not a political term? 

Response. USDA is committed to an open and transparent regulatory process that 

reflects the latest science to protect America’s agricultural and natural resources. 

One of the purposes of our Office of Risk Assessment and Cost Benefit Analysis is 

to review risk assessments for certain regulatory actions. As part of the regulatory 

process, risk assessments are also made available for comment and input from 

stakeholders, industry, and the general public. Further, in the area of biotechnology 

policy and regulations, we have requested input from the National Research Council 

of the National Academy of Sciences. On the question of BSE risks, we have requested analyses by Harvard Center for Risk Analysis. These examples illustrate 

that we attempt to find and use the best science based information available in a 

transparent process to help guide our decisions. 

DOWNED ANIMAL RISK MANAGEMENT TOOLS

Question. Dr. Penn, it was recently announced that downed cattle will no longer 

be accepted for slaughter at plants destined for the food chain. Since that announcement, producers have pointed to their potential lost income as a result of this policy. 

Would you recommend that RMA develop a risk management tool to help these producers seek compensation for lost income resulting from this new policy, as crop producers have tools for similar losses? 

Answer. Section 523(a)(2) of the Federal Crop Insurance Act (Act), states the Corporation shall not conduct any pilot program that provides insurance protection 

against a risk if insurance protection against the risk is generally available from 

private companies. It is my understanding there are a number of private insurance 

products in the market that cover livestock from injury or disease loss, which would 

prohibit the Federal Crop Insurance Corporation Board of Directors from approving 

such a product. However, if it is determined that insurance protection for downed 

cattle is not generally available, the Risk Management Agency could contract for a 

feasibility study to determine if an appropriate insurance product may be developed 

to protect against the risk of loss due to downed cattle. 

FARM LOAN STAFFING

Question. Dr. Penn, you have requested an increase of $7,395,000 for 100 new 

Federal permanent employees. Your justification indicated these new employees will 

prevent direct loan delinquency and loss rates from increasing and assist in loan 

processing and servicing. We also understand that FSA faces tremendous problems 

in the future related to large numbers of senior loan officers eligible for retirement. 

How will you allocate these resources, will it be used primarily to backfill senior 

loan officers in the field that retire? 

Answer. The staff years would be deployed first to States with the highest attrition rates of loan officers and secondly to high loan volume offices. 

Question. Will other factors, for example loan processing delays, servicing of large 

loan portfolios be considered? 

Answer. Offices with larger portfolios and those that are experiencing difficulty 

in delivering farm loan programs due to lack of trained staff will be considered. It 

should be noted that new hires must complete a training program that can last up 

to 2 years, so the workload in these offices will not be immediately affected. 

Question. Will racial, ethnic and gender diversity be considered when filling these 

positions in the field? 

Answer. Certainly, there will be discussion about hiring employees who represent 

the States’ underserved constituencies. The States are being encouraged to use outreach efforts to ensure that qualified diverse individuals are hired for these positions. 

Question. The farm credit programs have remained relatively flat in the past few 

years. Isn’t there a need to address retirement or work flow needs in other areas 

of FSA that are outside of the positions devoted to farm credit programs? 

Answer. There are definitely attrition and workflow issues in other programs 

within FSA. However, the farm loan program area is unique in that adequate training for loan officers can take up to 2 years. Many of the other jobs in FSA have 

training programs that would allow the employee to be fully functional in their jobs 

much sooner. In the farm loan program area, retirees cannot be replaced with untrained new hires. 
393 

DIGITAL DATA MAPS

Question. In the Common Computing Environment account, there is a request for $9,000,000 for FSA to complete digital data maps. In my home State of Wisconsin, 

not a single county has been certified and it is my understanding the only State 

that has every county certified is Minnesota. This has been an ongoing effort for 

several administrations. How many counties are certified, when do you expect to finish this work, and what has been spent to date by FSA to complete this effort? 

Answer. As of April 7, 2004, 1,767 counties have digitized common land units 

(CLU’s) and 381 of these counties have been certified. Of the 72 counties in Wisconsin, 20 counties have digitized CLU’s. While only one county in Wisconsin is currently certified, certification is planned for about 10 counties by the end of fiscal 

year 2004. 

Within current funding constraints, approximately 2,200 counties should be 

digitized by the end of the fiscal year. At the current rate, we would expect to have 

as many as 600 to 800 counties certified by the end of the fiscal year. Minnesota, 

Nebraska, Oregon, and Massachusetts are fully certified, and Kansas has 102 of 105 

counties certified. 

To date, USDA has spent about $16,000,000 on contracts to digitize the Common 

Land Unit. The expectation is that all of the CLU will be completed except for some 

areas in Alaska and the territories by the end of fiscal year 2005. Not all of the 

$9,000,000 in the current request is for the CLU. Most of this request is for annual 

expenses for obtaining compliance imagery (National Agricultural Imagery Program). 

Question. What other Federal agencies have this capability, and can you use their 

information for your purposes? 

Answer. Many other Federal agencies have GIS capability and the ability to 

digitize information, either directly or through contract support. However, the Common Land Unit is information collected and managed only by USDA. No other Federal Agency tracks this kind of information for private (non-Federal) land nationwide. U.S. Department of Interior, Bureau of Reclamation tracks similar information for watersheds in the Western United States and USDA has worked with them 

to share information. There are similarities between this information and information tracked by some State and local agencies, but there is no consistency across 

States and local areas and no single authoritative source for this information outside of the Farm Service Agency. 

BROADBAND LOAN PROGRAM

Question. Secretary Gonzalez, please elaborate upon the RUS broadband loan program internal review process. Your response should detail the average timeframe 

for: (a) acknowledgement of an application by RUS; (b) the actual review of an application including review by the RUS senior loan review committee; (c) the preparation of recommendations to the Administrator; (d) the consideration of the recommendations by the Administrator; and (e) notification to the applicant regarding 

the final ruling upon an application including instances when any further action is 

requested of the applicant. 

Answer. When an application is received, RUS performs an initial review for eligibility and completeness within 20 working days. When that review is complete, a 

letter is sent to the applicant detailing the results of the review: (1) the application 

is complete and will be processed; (2) the application is incomplete, including details 

needed for making the application complete; or (3) the application has been determined ineligible in accordance with program regulations. If the application is determined to be complete, upon assignment, the application should be processed within 

60 days, including the following committee reviews. If the application is feasible and 

adequately secured, the loan is presented to the Assistant Administrator’s Loan 

Committee (AALC) for recommendation. At a minimum, this committee meets twice 

a week or as necessary to review loans. Upon approval from the AALC, the loan 

is forwarded to the Senior Loan Committee (SLC) for review and recommendation. 

Again, at a minimum, this committee meets twice a week or as necessary to review 

loans. The Administrator participates as chair of the Senior Loan Committee. Upon 

final action from the SLC, applicants are immediately notified of the status of their 

application. If the SLC approval is conditional upon the applicant agreeing to complete further action, then the action is stated in the letter notifying the applicant 

of the status of the application. 

Question. Please provide an accounting of the total number of applications that 

have been received, approved, returned, currently under review and not yet reviewed under the RUS broadband program. Please include detailed information 

about the corresponding loan levels for each category. 
394 

Answer. 

[Dollars in millions] 

Applications Number Amount 

Received .................................................................................................................................. 93 $1,157 

Approved .................................................................................................................................. 18 216 

Returned .................................................................................................................................. 40 538 

Under review ........................................................................................................................... 34 386 

Not yet reviewed ...................................................................................................................... 1 17 

Question. When will the RUS announce the opening of the application process for 

funds appropriated in fiscal year 2004? What will be the deadline for submitting applications for fiscal year 2004 loans? What actions have been taken by RUS to ensure that potential RUS applicants submit complete and thorough applications? 

Answer. The ‘‘application window’’ for fiscal year 2004 has been open since the 

beginning of the year, since mandatory funding from the previous year was carried 

forward to fiscal year 2004. There is no ‘‘deadline’’ for the submission of applications—applications are accepted year-round. On March 24, 2004, RUS published a 

Notice of Funds Availability that detailed the amount of funding available, including 

the mandatory funding and the fiscal year 2004 appropriation. The notice also detailed the amount of funding available by category (4 percent direct, direct cost-ofmoney, and guaranteed). The notice also sets forth the maximum and minimum 

loan levels as well as the definition of broadband service to be used for loans made 

this fiscal year. 

To ensure timely loan processing, RUS has been diligent in reviewing and re-engineering its Broadband Program loan processing procedures in an effort to expedite 

loan processing. The agency has instituted new triaging techniques to more rapidly 

review applications upon submission to determine whether the application is complete and can be processed; is incomplete but can be completed with the submission 

of additional information; is incomplete and will require a significant amount of additional work and must, therefore, be returned; or is ineligible and must be returned. In addition, field personnel have been trained and instructed in working 

with potential applicant borrowers to facilitate the submission of completed applications. 

Question. Please detail the overall number of applications that have been received 

by RUS under each of the various RUS Rural Broadband Access Loan and Loan 

Guarantee Programs loans: (1) direct cost of money loans; (2) direct 4 percent loans; 

(3) private lender guaranteed loans. How many applications have been approved 

under each category of loans? 

Answer. The overall number of applications received by RUS under the requested 

categories follows: (1) Under the direct cost of money category, 92 applications totaling $1,153 million. Of those, 18 totaling $216 million have been approved. (2) Only 

one application has been received under the 4 percent direct program totaling $4.2 

million. This application has been approved. (3) No applications for private lender 

loan guarantees have been received. 

Question. Please detail the current and planned allocation of your staffing resources among the various RUS administered programs including how many FTE’s 

are solely devoted to loan processing and servicing for the broadband loan program. 

Answer. The RUS telecommunications program currently has a total of 128 assigned FTEs (including the broadband program), of which 113 positions are filled. 

This office is responsible for the telecommunication loan program, DLT, Broadband 

loans and grants and other programs like the weather radio grant program. No new 

FTEs have been added since receiving the broadband program and the Local to 

Local TV loan guarantee program. 

A team of 14 headquarters individuals were initially assigned to the Broadband 

program. Under a recently approved reorganization plan, approximately 25 individuals will be assigned to it, pending filling vacancies which currently exist. 

Question. Secretary Gonzalez, please provide the private contracts for services including the dollar amount and purpose that were provided in fiscal year 2003 and 

fiscal year 2004 to date. Please include carry-over funds from previous appropriations that have been placed in the FISERV and GOVWORKS accounts. 

Answer. The information is provided for the record. 

[The information follows:] 
395 

RBS—BUSINESS PROGRAMS 

FISCAL YEAR PERFORMING AGENCY AMOUNT PROJECT 

2003 ............................................. Mineral Management Service 

(GovWorks).

$60,000 Enhancement to RBS Data 

Project. 

2003 ............................................. GSA/FEDSIM .................................. 97,000 Web-delivery of Moody’s Financial 

Analyst software training. 

2003 ............................................. Farm Credit Administration ......... 542,600 Assist redevelopment of the Business Programs Assessment 

Review process. 

2003 ............................................. GovWorks ...................................... 30,000 Assist in development of regulations for Section 9006 of the 

Farm Bill. 

2004 ............................................. MACTEC (GovWorks) ..................... 25,712 Assist in development of regulations for special project for 

Under Secretary. 

Total ................................ 755,312 

GUARANTEED SINGLE-FAMILY HOUSING PROGRAM

Question. Secretary Gonzales, the President’s budget request for the Section 502 

Guaranteed Single-Family housing program for fiscal year 2003 was below what 

your agency really needed. I have been told you face similar problems for fiscal year 

2004. In fiscal year 2003, this Committee, at USDA’s informal request, provided an 

additional $900 million in loan authority. Now, we are told by concerned housing 

lenders that the President’s request for fiscal year 2005 will once again fall short 

and you will be forced to shut this program down prior to the end of the fiscal year. 

Since this program is highlighted as part of the President’s Homeownership Initiative, why haven’t you asked for a reasonable program level to carry you through 

this year? Will this program run out of money before the end of the year? If so, 

when? 

Answer. The Agency is considering administrative measures to supplement its 

program level this fiscal year. Early this year, we discussed funding management 

options with the Office of Management and Budget and Senate and House staffs. 

We are in the process of approving and implementing some of the options we discussed, including a 25 basis point increase in the fee on guaranteed loans. Certain 

administrative transfers of funds are also being considered. These should alleviate 

any problems that might have arisen due to the demand for funds exceeding the 

amount of funds available in 2004. 

Question. Will you ask this Committee again to increase this program during this 

current fiscal year or in fiscal year 2005 prior to the depletion of funds? 

Answer. There are no plans to request an increase in the Guaranteed Loan Program funding during the current fiscal year and we do not anticipate requesting an 

increase to GLP funding during fiscal year 2005. 

Question. The President’s fiscal year 2005 budget request increases the origination fee from 1.5 percent to 1.75 percent. Additionally, I understand that you may 

consider raising this fee administratively to 2 percent during the current fiscal year 

to stretch your funding. In fiscal year 2003, the President’s Housing Initiative at 

RHS entitled ‘‘Lowering Fees to Reduce Barriers to Minority Homeownership’’ reduced the fee for this program from 2 percent to 1.5 percent. What impact will reinstating what you previously considered a ‘‘barrier’’ have on borrowers? 

Answer. The 25 basis point increase in the fee will be negligible for homebuyers. The increase of less than $250 per loan will not be a barrier to homeownership. The 

resultant monthly payment increase will be about $2, on average. Raising the fee 

will allow about 1,000 more families to be served this year than would have been 

possible otherwise. 

Question. When you run out of funding before the end of the year, do you lose 

many rural lenders you have worked so hard to bring into the program? What will 

you do to keep these lenders in the program? 

Answer. We are currently exploring the potential of transferring unused budget 

authority to the program. 

SECTION 515 MULTI-FAMILY HOUSING PROGRAM

Question. Transfers of Sec. 515 properties typically require new financing from 

sources other than USDA—from banks, Low Income Housing Tax Credit equity investors and public agencies. RD typically does not give any indication prior to the 
396 

transfer itself that it will approve the resources and other items it must provide required for the transfer to work. Would the Department be able to provide formal 

binding commitments (with reasonable conditions for final approval and closing, as 

other lenders do) at a stage earlier in the transfer process in order to facilitate the 

approvals of other parties to transfer transactions? 

Answer. The Department has tried to be sensitive to the timing requirements of 

our lending partners, while at the same time, performing the required due diligence 

for underwriting transfers and maintaining as much flexibility as possible. We have 

modified our proposed regulations and will soon issue an Administrative Notice 

(AN) designed to improve and streamline transfer processing. In addition, the Department has been actively working to develop methods to ease the transfer process. 

We are currently working with Fannie Mae and the Federal Home Loan Mortgage 

Corporation (FHLMC) to create a standardized process to accommodate transfers 

that involve multiple parties. This process, once completed, will remove duplication 

of effort for each agency and allow for work done by either Fannie Mae or FHLMC 

to be accepted by Rural Development and vice versa. Another step that has been 

taken by the Agency is the proposed transfer that will replace RD AN 3767 (1965– 

B). The new AN outlines standardized processing guidelines and a checklist for the 

transfer process. This will ensure that all transfers completed by Rural Development are consistent across the country. The Agency is attempting to utilize more 

creative and innovative approaches and is developing alternative tools to leverage 

other financing in our multifamily properties. Through these steps, we hope to expedite the transfer process. 

Question. Under what conditions will Rural Development approve forgiveness of 

Section 515 debt? What has been RD’s historical experience—under what circumstances and for what amounts has RD approved debt forgiveness and when has 

the Department not approved this? Is there national policy (regs, ANs) providing 

guidance? What are the constraints? Is debt forgiveness viewed as a tool to facilitate 

transfers of Sec. 515 properties? 

Answer. Rural Development has approved forgiveness of debt in circumstances 

where the appraised value of the property no longer supports the debt and the borrower intends to make substantial improvements to the property to prevent loss of 

affordable housing. This has occurred when the property is being rehabilitated or 

when transfers are required due to administrative or legal actions. In these instances, no equity exchange is made. Historically, Rural Development has written 

off $171,800,000 since inception of the housing loan programs. This represents 1,013 

loans. This is 1.45 percent of the $11.8 billion multifamily portfolio. Most recently, 

RD has received 5 debt forgiveness requests in the last 3 years: three of those were 

disapproved and two were approved. The National policy governing debt forgiveness 

is in regulation 7 CFR Ch. XVIII § 1956 Subpart B, which is provided for the record. 

Debt forgiveness is not viewed as a tool to facilitate transfers of Section 515 properties but rather a method by which to retain properties that would otherwise no 

longer be available because of severe deterioration, bankruptcy or foreclosure, or 

legal action against the borrower. [The information follows:] § 1956.54 Debt forgiveness. For the purposes of servicing Farm Loan Programs (FPL)loans, debt forgiveness is defined as a reduction or termination of a direct FLP loan in a manner that 

results in a loss to the Government. Included, but not limited to, are losses from 

a writedown or writeoff under subpart S of part 1951 of this chapter, debt settlement, after discharge under the provisions of the bankruptcy code, and associated 

with release of liability. Debt cancellation through conservation easements or contracts is not considered debt forgiveness for loan servicing purposes. 

Question. Nonprofit owners of Sec. 515 properties are not permitted any distributions of project surplus cash as are for profit owners. What would be the Department’s position on establishing a national policy allowing non profit owners a fee 

from surplus cash in order to cover the costs of asset management, accounting, compliance reporting and other obligations to government, lenders and investors which 

participate in the financing of transfer and rehabilitation of older properties? Currently, there is a mixture of state RD guidance in this area. 

Answer. The proposed regulation 3560 included a provision for nonprofit borrowers to earn an asset management fee in lieu of a return to owner. This fee is 

intended to pay expenses directly attributable to ownership responsibilities. Many 

nonprofit borrowers also serve as the property management agent and, as such, are 

entitled to a management fee. In these identity of interest situations, we must ensure that duties as outlined in the management plan are appropriate to earn a management fee but are not also charged as an asset management fee. A final rule on 

the regulation is being developed. 
397 

RENTAL ASSISTANCE

Question. What do you do with rental assistance in projects that prepay? How is 

it distributed? 

Answer. Rental assistance in properties that prepay their mortgage is returned 

to the State for distribution in accordance with Regulation 1930 Subpart C, Exhibit 

E, paragraph XV A 2. 

Question. I understand that you have indicated there is not enough rental assistance for preservation efforts. Have you or will you consider unobligated transfers 

to this account similar to your activity in the last 2 years with the Section 502 guaranteed program? Isn’t preservation a priority with this administration? 

Answer. Preservation of the multifamily portfolio has been and continues to be 

a priority with this Administration; however, the Agency does not have the authority to convert other appropriated funds to rental assistance. 

SECTION 502 SINGLE-FAMILY HOUSING PROGRAMS

Question. It has come to the Committee’s attention that RHS has different policies 

for making section 502 direct and guarantee loans available under continuing resolutions. We understand that, in general, less money is made available for direct 

loans under continuing resolutions and that this policy has made it more difficult 

for builders to plan for and deliver houses for construction under the direct program. We understand that this is particularly a problem for self help housing. 

Please describe for the Committee the differences between the policy for direct 

loans and guarantee loans, and the spending for the two programs under the fiscal 

year 2004 continuing resolutions. Also, please explain why RHS has different policies. Finally, please make recommendations to the Committee on ways in which section 502 direct loans could be administered during continuing resolutions so that 

delays in obligation of funds and construction may be minimized. 

Answer. Priority is given to all Rural Development housing programs during periods covered during continuing resolutions (CR). However, there is a difference between our direct and guaranteed programs. In the direct program, since Rural Development controls the application process, we can notify applicants to not be actively signing contracts to purchase a home. In the guarantee program, Rural Development does not work directly with the homebuyer. These homebuyers work with 

real estate agents, builders, and over 2,000 private sector lending institutions that 

are unfamiliar with a lender not having available funding. When 502 guaranteed 

funds are not available, it is not just the consumer who is affected but also private 

sector lenders and the financial markets that are vital to the economy. Thus, while 

502 direct loan customers are a priority, a higher priority during continuing resolutions is given to section 502 guaranteed customers, private sector lenders, and the 

secondary markets. 

Realizing the realities of the annual appropriations process, the Agency does its 

best to manage its programs within the authorities available. We would be happy 

to work with the committee to come up with solutions to keep both programs operating through the CR process. 

Question. According to the USDA Economic Research Service, 4 million, or 17 percent of the households in non-metro areas, are classified as being in housing poverty. Households are defined as being in housing poverty when their housing has 

at least one of four important indicators of housing disadvantage: 

—Economic need—housing costs over 50 percent of household income; 

—Inadequate quality—physical quality defined as moderately or severely inadequate using the HUD measure based on 26 indicators of physical problems; 

—Crowding—more household members than rooms; and 

—Neighborhood quality—perception of poor quality in at least 2 out of 4 neighborhood conditions (crime, noise, inadequate public services, and litter/deteriorating housing). 

How many units of housing will the Rural Housing Service finance with the budget authority requested in the fiscal year 2005 budget? How does this relate to the 

need? 

Answer. USDA expects to finance approximately 11,900 units of Section 502 Single Family Housing through the Direct loan program and approximately 27,000 

units through the Guaranteed program in fiscal year 2005. 

Question. What is the dollar value of Section 502 direct loan applications on hand? 

Answer. As of May 24, 2004, there is a backlog of demand totaling approximately 

$3.3 billion. 

Question. Last year, the Administration made much of the increase in homeownership spending and its priority for home ownership. Now, a year later, RHS 
398 

proposes to reduce section 502 loans by more than $200 million. Is homeownership 

less important than last year? 

Answer. For fiscal year 2005, an expectation of increasing interest rates causes 

the subsidy rate for the Direct Section 502 program to increase. Therefore, while 

we are dedicating slightly higher budget resources to the Direct program, the supportable program level is down. For fiscal year 2004, we were able to support a dramatic increase in the Direct loan program and we proposed a 30 percent increase 

in the program level. For fiscal year 2005, the proposed program level of $1.1 billion 

is still higher than the fiscal year 2003 program level. Despite the budget constraints, we were also able to keep the Section 523 Mutual and Self-Help Technical 

Assistance program at level funding. The Administration is committed to increasing 

rural homeownership and in particular, meeting our minority homeownership goals. 

We plan to manage our resources responsibly and to maximize the results in order 

to meet our program goals. 

SUBSIDY RATES

Question. I understand that the subsidy rate for rural housing loans has increased. What is the basis for the increase in subsidy costs? What are the elements 

of the subsidy cost calculations? 

Answer. The subsidy rates for Federal loan programs are affected annually by 

changes in technical assumptions such as default rates, prepayments, or fees and 

also by the economic assumption of interest for the term of the loan. The technical 

assumptions for every program are updated annually to reflect the most recent 

year’s performance. Additionally, new interest rates are set by OMB annually. The 

change in interest rates affects all Federal credit programs and is not unique to 

USDA. These changes are routine upward or downward changes that reflect the cost 

of borrowing by the Federal Government to finance its credit programs. I will provide for the record a more detailed summary of the changes by program. 

[The information follows:] 

The change in the subsidy rates for the following Rural Housing Service (RHS) 

programs is due primarily to the change in interest costs. Changes were also due 

to technical changes, but those changes were minimal. 

Increased Subsidy Rate from 2004 to 2005: 

—Section 504 Very Low-Income Housing Repair Loans; 

—Section 515 Multi-Family Housing Loans; and 

—Multi-Family Housing Credit Sales. 

Decreased Subsidy Rate from 2004 to 2005: 

—Section 502 Guaranteed Refinance Single Family Housing Loans 

The change in the subsidy rate for the following RHS programs is due primarily 

to changes in technical assumptions such as defaults, fees, and prepayments. 

Changes were also due to the interest rate change, but that change did not account 

for the primary shift in cost. 

Increased Subsidy Rate from 2004 to 2005: 

—Direct Section 502 Single Family Housing Loans; 

—Direct Section 514 Farm Labor Housing Loans; and 

—Single Family Credit Sales of Acquired Property Loans. 

Decreased Subsidy Rate from 2004 to 2005: 

—Section 502 Guaranteed Single-Family Housing Purchase Loans; 

—Section 538 Guaranteed Multi-Family Housing Loans; 

—Section 524 Housing Site Development Loans; and 

—Section 523 Self-Help Land Development Loans. 

The Direct Section 502 Single Family Housing Loan program has a higher subsidy 

rate due to the increase in payment assistance. 

The Direct Section 514 Farm Housing Loan program has a higher subsidy rate 

due to the increase in the net default component. 

The Single Family Housing Credit Sales program has a higher subsidy rate due 

to the change in prepayments and the subsequent change in the unpaid principal 

balance. 

The Section 502 Guaranteed Single Family Housing Purchase Loans program has 

a lower subsidy due to the increase in the upfront fee percentage from 1.50 percent 

in 2004 to 1.75 percent in 2005. 

The decrease in the subsidy rate for the Guaranteed Section 538 Multi-Family 

Housing Loan program was the result of an increase in the annual fee percentage 

to 0.50 percent in 2005 and a slight increase in the percentage of program level receiving interest assistance. 

Methodologies used for calculating defaults, recoveries, and scheduled collections 

changed for both the Section 524 Site Development and Section 523 Self-Help Devel-
399 

opment programs. Program performance assumptions are based on historical program performance on a loan-by-loan basis. Prior to this, program assumptions were 

based on the historical trend of the total portfolio. 

REPAIR AND REHABILITATION

Question. The budget requests $60 million for rural rental housing. This amount 

does not include any funding for new construction. This is the third consecutive year 

that the Administration has not requested funds to finance new rental housing 

units. Does the Administration plan to seek new construction any time in the future? 

Answer. Over 45 percent of the Section 515 portfolio is 20 years old. Many of our 

apartment complexes are in need of repair and rehabilitation. The average apartment complex has reached the age where major components such as roofs, cabinets, 

siding, and heating and cooling systems need to be replaced. Ensuring that our residents continue to be housed in decent, safe, and sanitary rental housing continues 

to be one of the Agency’s top priorities and will be our focus in fiscal year 2005. 

We believe it is appropriate for the Agency to focus its efforts on maintaining the 

existing stock of housing. 

Question. I understand that the Sec. 515 portfolio is aging and that close to 10,000 

of the 17,000 developments across the country are more than 20 years old. Does 

RHS have an estimate of the overall dollar need for restoration of existing Section 

515 developments? 

Answer. We estimate that approximately 45 percent of the portfolio has been in 

operation for 20 years or more. We do not have an estimate of the overall dollar 

need for restoration of existing section 515 developments. However, below is the recent history and projections of requests and funding for rehabilitation loans. 

REPAIR AND REHABILITATION LOANS 

[In thousands of dollars] 

Fiscal year Requests Funded Not Funded 

2000 ........................................................................................................... 128,900 54,900 74,000 

2001 ........................................................................................................... 128,900 50,900 78,000 

2002 ........................................................................................................... 139,500 49,000 90,500 

2003 ........................................................................................................... 139,000 60,000 79,000 

2004 (est.) ................................................................................................. 167,100 55,800 111,300 

2005 (est.) ................................................................................................. 160,000 60,000 100,000 

Total .............................................................................................. 863,400 330,600 532,800 

Question. The Department has recently hired a consulting firm to assess the Section 515 portfolio. What is the status of that report? Can you share with the Committee any preliminary findings? 

Answer. The fieldwork has been completed. The report will not be available until 

late this summer. At that time we would be more than willing to share the report 

and its recommendations with the Committee. 

Question. In recent years, due to budget cuts RHS has offered little in the way 

of incentives for section 515 owners to maintain long-term use. This lack of funding 

has prompted both the courts and the Congress to consider the provision of the law 

that regulates section 515 and provides incentives. All section 515 tenants are low 

income—with an average annual income of approximately $9,000—and two-thirds 

are elderly or disabled households. What is RHS doing to resolve this issue so that 

owners are compensated consistent with the law and tenants are not displaced? 

Answer. The Agency is working with Fannie Mae, Freddie Mac, nonprofit organizations and public housing authorities to alleviate some of the demand for preservation incentives. These efforts are slow in providing relief because due diligence must 

be done to ensure that each participant maintains integrity to its authorizing statute, charter and/or by-laws. The Agency is working very closely with partners such 

as Fannie Mae and Freddie Mac to realize some preservation and rehabilitation 

deals yet this year. 

PREPAYMENTS IN SECTION 515 PROGRAM

Question. If Congress, or the courts, lifted the restrictions in the 1987 Housing 

Act, what is your estimate of the number of units that would be lost and the number of households that are likely to be displaced? 
400 

Answer. It is difficult to project the number of borrowers who will prepay their 

mortgage. Considerations such as motivation, real estate market, and economic conditions all play a role in determining the likelihood of prepayment. While approximately 11,000 properties are eligible to prepay (mortgages made prior to 1989), our 

most recent prepayment history has been averaging about 100 properties a year or 

less than 1 percent of those eligible. 

RENTAL ASSISTANCE PROGRAM

Question. The fiscal year 2004 Appropriations Conference Agreement and the fiscal year 2005 budget request reduce the total for rural rental assistance, by reducing term of contracts from 5 years to 4 years. What are the implications of this 

change for future budgets? What are the annual estimates of costs for the contracts 

expiring fiscal year 2004? Is the appropriation adequate to cover more than the 4- 

year period? 

Answer. The objective of RD’s estimation of rental assistance needs is to predict 

as closely as possible the exact amount of rental assistance needed at each property. 

However, predicting these costs is not an exact science, especially in recent years 

as property and health insurance, and benefits and utility costs have driven up 

property expenses and increased the rate of rental assistance usage. In theory, the 

4-year contracts written in fiscal year 2004 should last 4 years, until fiscal year 

2008. In reality, the rate at which contracts use rental assistance changes every 

month and their funds’exhaustion date changes as well. However, the impact of 

fixed terms on these contracts is that all fiscal year 2004 contracts, except those 

which exhaust funds prior to fiscal year 2008, will be renewed in fiscal year 2008. 

These fiscal year 2004 renewal contracts will be added to the expected number of 

renewals needed for contracts written prior to fiscal year 2004 and expected to expire in fiscal year 2008. Our estimate at this time is that all 40,754 fiscal year 2004 

contracts will need renewals in fiscal year 2008 and 33,435 contracts written prior 

to fiscal year 2004 will need renewals in fiscal year 2008 for a total number of contracts requesting renewals in fiscal year 2008 of 74,189. 

Question. The recent GAO Study ‘‘Standardization of Budget Estimation processes 

Needed for Rental Assistance Program’’ and testimony before the House of Representatives last year indicated that there is a large sum of unspent rental assistance funds in existing contracts. What is the status of these funds, how much is 

unspent? Have you or will you work with owners that have large unobligated rental 

assistance funds to voluntarily change existing contracts for preservation and other 

purposes? 

Answer. The amount of unliquidated obligations on rental assistance contracts entered into between 1978 and 1999 was $597,000,000 as of December 30, 2003. RHS 

does not have the authority to amend the current RA Agreements to allow rental 

assistance funds obligated for a project to be used for other purposes. Such a use 

of funds would be a violation of the legislation that appropriated the funds. To allow 

RHS to enter into such amendments, Congress would have to specifically authorize 

the expenditure of such funds for other purposes as the Congress would like to authorize. 

Question. Secretary Gonzalez, in fiscal year 2003, my State of Wisconsin had four 

applications for funding through the Section 525 Technical Assistance Account to 

provide homeownership education for our rural residents. Wisconsin has historically 

received funding for our good work in this area. In the fiscal year 2003 selection 

process, I understand the Administration selected priority states primarily within 

one region of the country with the justification that there was not enough funding 

to reach more applicants for other regions of the nation. I included language in the 

fiscal year 2004 bill that doubled the account and provided limits any one state 

could receive under this account. 

How will you ensure that states like Wisconsin will receive a fair playing field 

for consideration for the funds available this fiscal year? 

Answer. A Notice of Funding Availability (NOFA) for the fiscal year 2004 funding 

will be published soon in the Federal Register, outlining the competitive application 

process. In accordance with our published regulations, priority must be given for 

funding to targeted states. To meet the requirements of our regulations, we intend 

to target up to half of the funds to 10 states, based on the 2000 Census, including: 

Texas, California, North Carolina, Georgia, Mississippi, Louisiana, Kentucky, Alabama, Florida and Pennsylvania. States may receive no more than one grant from 

target funds. 

For remaining funds, a scoring system will favor programs serving rural counties 

with high rates of poverty and deficient housing, as well as those operating most 

efficiently. No grant may exceed $100,000 (except multi-state or group programs, to 
401 

$200,000). Funding to any state or territory will be limited to 10 percent of available 

funds. 

We believe the proposed award method will meet the objectives of the TSA program by funding projects in the most needy areas and supporting the most effective 

programs throughout the nation. The language you suggested in the fiscal year 2004 

Appropriations Bill will help further ensure that all states, including Wisconsin, 

have better access to funding. 

COOPERATIVE SERVICES

Question. What is the number of full-time permanent positions in the field devoted to providing cooperative technical assistance for fiscal year 2002 through fiscal 

year 2005? 

Answer. While only a couple of States currently have full-time staff providing 

technical assistance for cooperatives, 12 States have a staffer who works at least 

50 percent of their time in Cooperative Services (CS) activities. The remaining 

States have individuals who perform a range of technical assistance, outreach, and 

CS administered grant program activities as a collateral duty. 

Question. I understand you have a current analysis ongoing to review the cooperative service mission. Can you share your results to date? 

Answer. We are in the early stages of a review of our Cooperative Services Program. We have assembled a review team, representing a diverse range of cooperative and rural perspectives, to take a comprehensive look at the role of CS, review 

of present activities and priority areas, resource history and allocation, and recommendations for pursuing cooperative strategies within the Rural Development 

portfolio. Scheduling for review activities is underway and we expect the review 

process and completion of the final report to take approximately 3 months. We will 

be happy to share results as they are completed by the review team. 

QUESTIONS SUBMITTED BY SENATOR TOM HARKIN

CONSERVATION SECURITY PROGRAM

Question. Mr. Rey, the press has recently reported that USDA plans to spend 

$13.4 billion on the Conservation Security Program (CSP) over the next ten years. 

I have also been told that other numbers attributed to USDA are out there. Most 

recently, you testified that USDA will spend $13.4 billion on CSP for the life of the 

program, from fiscal 2004-fiscal 2007. I have looked at the cost information NRCS 

is distributing on CSP. According to the NRCS charts, USDA plans to spend only 

$1.372 billion during the farm bill, not $13.4 billion. 

While I recognize the difference between obligations and actual spending, this 

question is strictly about how much USDA plans to spend. 

Can you please confirm that the total spending for CSP during the farm bill time 

period are actually estimated by USDA to be $1.372 billion, or approximately that 

amount? 

Answer. The Administration’s proposed funding approach for the Conservation Security Program is to fund only the annual payment for an active CSP contract plus 

the technical assistance out of each respective year’s budget authority. This approach is similar to the funding approach for the Conservation Reserve Program, 

unlike all other USDA conservation programs where the total financial assistance 

for the life of a contract is obligated to the Federal budget in the first year. This 

approach will allow greater participation by farmers and ranchers in CSP at the 

proposed budget levels and represents a significant commitment and investment 

over the life of the contracts by USDA. The $1.374 billion in budget authority 

through fiscal year 2007 will result in $6.92 billion in estimated payments to farmers and ranchers over the life of their individual CSP contracts. The $4.411 billion 

in baseline projections through 2010 will result in $13.32 billion in estimated payments to farmers and ranchers over the life of their contracts. Keep in mind that 

this represents a theoretical estimate at this point in time based on certain program 

design assumptions that could change in the final rule. The current USDA baseline 

budget projections for CSP is submitted for the record. 

[The information follows:] 
402 

[Dollars in millions] 

Fiscal year Budget Authority 

Estimated Commitment for the CSP 

Contract Life to 

Farmers & Ranchers 

(Financial Assistance 

Only) 

2004 ............................................................................................................................ 41.4 430.6 

2005 ............................................................................................................................ 209.4 1,742.2 

2006 ............................................................................................................................ 457.4 2,579.2 

2007 ............................................................................................................................ 665.4 2,163.2 

2008 ............................................................................................................................ 873.4 2,163.2 

2009 ............................................................................................................................ 1,045.6 2,070.8 

2010 ............................................................................................................................ 1,118.5 2,173.7 

Total fiscal year 2004–2007 ......................................................................... 1,373.6 6,915.2 

Total fiscal year 2004–2010 ......................................................................... 4,411.1 13,322.9 

FOREST SERVICE MANAGEMENT PLANS

Question. The Administration’s proposed rule for National Forest System Land 

and Resource Management Planning would make substantial changes to the extent 

in which the public is involved in Forest Service management plans. Most importantly, the proposed rule would allow forest supervisors to categorically exclude new 

forest plans as well as plan amendments and changes from environmental analysis 

under NEPA. 

The proposed rule would also make a significant change to existing rules by explicitly stating that agency-wide management policy and procedure relevant to planning and resource management should be issued through the Forest Service Directive system. This means that major management policy would be issued in Forest 

Service manuals, handbooks, or white papers which are subject to only very limited 

public review or comment and would not be subject to NEPA. I am aware that the 

Forest Service is currently looking at comments to the proposed rule and is in the 

process of drafting a new final rule. 

Given that the overall goal of managing the National Forest System as stated in 

the proposed rule is ‘‘to sustain in perpetuity the productivity of the land and the 

multiple use of its renewable resources,’’ and that multiple uses may involve many 

different types of public users, why has the Administration chose to limit public 

input for long term forest management plans? 

Answer. The Forest Service has completed review of public comments on the December 6, 2002 proposed planning rule. The Agency is in the process of drafting the 

final rule. The proposed rule included National Forest Management Act (NFMA) requirements for public involvement, which were the same as for previous rules. The 

Department strongly supports active public participation and collaboration in planning. 

Question. Since sustainable management is by definition a long-term goal, how do 

you expect members of the public to have input into the Forest Service’s plans for 

sustainable management if entire forest plans can be categorically excluded from 

NEPA? 

Answer. The Forest Service has completed review of public comments on the December 6, 2002 proposed planning rule. The Agency is in the process of drafting the 

final rule. The proposed rule included National Forest Management Act (NFMA) requirements for public involvement, which were the same as for previous rules. The 

Department strongly supports active public participation and collaboration in planning. 

Question. Furthermore, by limiting public input into the establishment and revision of long-term management goals and objectives, won’t this simply encourage 

members of the public to object to every project that appears to go against their particular interests, thus decreasing the efficiency of the Forest Service planning and 

increasing costs? 

Answer. The Department strongly supports public involvement in planning. For 

the proposed 2002 rule, the Department used the input provided by the Committee 

of Scientists for the 2000 rule. The current rulemaking process has retained this 

Committee’s recommendation for emphasis on public involvement, adaptive management, monitoring and evaluation, use of science, and sustainability. There are requirements for use of science in the proposed rule, and the final rule will also include science requirements. 
403 

Question. In addition, your proposed regulations were developed without the formal input of an independent Committee of Scientists, in contrast to the development 

of all previous versions of these regulations. You also proposed eliminating most requirements for independent scientific input into forest plans themselves, making the 

involvement of independent scientists optional on the part of the local forest manager. 

Won’t this approach lead to less scientifically based forest management and less 

credibility with the scientific community and the public in general? And won’t it 

therefore lead to more controversy and difficulty in implementing forest plans? Most 

importantly, won’t limiting scientific input increase the chance that poor management decisions will harm the forest resources we seek to maintain? 

Answer. The Department strongly supports public involvement in planning. For 

the proposed 2002 rule, the Department used the input provided by the Committee 

of Scientists for the 2000 rule. The current rulemaking process has retained this 

Committee’s recommendation for emphasis on public involvement, adaptive management, monitoring and evaluation, use of science, and sustainability. There are requirements for use of science in the proposed rule, and the final rule will also include science requirements. The planning rule will result in management based on 

science. 

HIGH FRUCTOSE CORN SYRUP

Question. Last month, the Office of the Trade Representative announced that they 

would pursue a WTO case against the government of Mexico for its blatantly unfair 

imposition of a 20 percent tax on beverages using high fructose corn syrup (HFCS) 

that has kept U.S. HFCS exports out of its previously largest market for more than 

2 years. Under WTO rules, parties to the dispute are supposed to undertake bilateral discussions to see if a formal dispute panel can be avoided. 

I understand that representatives of the sweeteners sectors in both countries have 

also been engaged in negotiations to try to reach a resolution of this issue and also 

the issue of Mexican sugar exports to the United States. Do you think either of 

these sets of discussions will be successful in the next few months, and if they are 

not, will the U.S. government go ahead and request the formation of a WTO dispute 

resolution panel later this spring? 

Answer. We are not optimistic about the bilateral discussions, since prior efforts 

to resolve the disagreements between Mexico and the United States involving trade 

in sugar, high fructose corn syrup, and corn have not been fruitful. We will only 

be able to evaluate the results of the private sector discussions once they are concluded. The U.S. government will request the formation of a WTO dispute resolution 

panel if that appears to be the best course of action once consultations have been 

exhausted. 

PAYMENT LIMITATION

Question. The Commission on the Application of Payment Limitations for Agriculture recommended that more resources should be allocated for payment limit administration in USDA’s Farm Service Agency (FSA) and Office of the Inspector General (OIG). The commission recognized the integrity and determination of FSA county office staff, but noted that more resources could augment current efforts to train 

staff on payment limits and monitor compliance. What efforts, if any, have you 

taken to implement this recommendation? 

Answer. As part of FSA’s initiative to improve the delivery of programs with the 

available county office staffing, the agency is re-engineering its business processes 

dealing with program eligibility and payment limitations. An important component 

of the re-engineering is the development of software to improve the efficiency and 

implementation of payment limitations and other related payment eligibility provisions. The first phase of the re-engineering, payment eligibility, will be piloted in 

the next few months and is anticipated to be deployed nationally in late fall 2004. 

This deployment will be followed next year with the rollout of the re-engineered 

payment limitation system, which includes many automated validations and decision points that will assist the County Committees in their person determinations. 

Training on the software and payment limitations will be held for the pilot counties 

in August. If piloting goes well, the national training will be held shortly thereafter. 

Question. The Commission also recommended that FSA track all benefits through 

entities to individuals as required in section 1614 of the 2002 farm bill. Often program benefits are delivered indirectly through complex business arrangements or 

through marketing associations. To enable Congress to better understand the complexity of payment limitations, the 2002 farm bill included a requirement to track 

benefits—both direct and indirect—to individuals and entities: 
404 

‘‘SEC. 1614. TRACKING OF BENEFITS. 

‘‘As soon as practicable after the date of enactment of this Act, the Secretary shall 

establish procedures to track the benefits provided, directly or indirectly, to individuals and entities under titles I and II and the amendments made by those titles.’’ 

What steps have you taken to begin tracking commodity and conservation benefits 

as required by law? 

Answer. The payment database is currently being revised to enable the tracking. 

The reporting capability will be completed no later than September 30, 2004. 

SOYBEAN RUST

Question. Although Asian soybean rust has not yet arrived in the United States, 

its recent arrival in major soybean producing countries in South America has caught 

the attention of American soybean framers. Given the ability of the soybean rust 

spores to move on air currents, we know it is only a matter of time until the disease 

arrives on U.S. fields. One of the research activities that will be key to combating 

soybean rust over the long run will be the identification or development of soybean 

varieties that are resistant or tolerant to soybean rust, and incorporation of such 

traits into commercially available varieties. 

Since there are restrictions from the Bioterrorism Act limiting work on viable rust 

spores to the Fort Detrick facility, will those hinder USDA’s research effort, and 

what steps are you taking to relieve that constraint? 

Answer. Soybean rust has been reported in numerous countries throughout the 

world including Australia, China, India, Taiwan, Philippines, and Thailand in the 

Eastern Hemisphere; Brazil, Argentina, Paraguay, Uruguay, Costa Rica, Columbia, 

and Puerto Rico in the Western Hemisphere; and in Zimbabwe and South Africa on 

the African continent. 

ARS researchers at Fort Detrick are screening approximately 18,000 accessions of 

soybean varieties for soybean rust resistance. This material represents a worldwide 

collection of ancestral soybean that is maintained in the USDA Soybean Germplasm 

collection in Urbana, Illinois. In addition to these soybean lines, ARS scientists at 

Fort Detrick are screening 1,000 commercial soybean lines for broad spectrum soybean rust resistance using a mixture of four soybean rust strains with varying levels 

of virulence. 

To relieve the constraints at Fort Detrick, international agreements are in place 

with cooperators in Brazil, China, Thailand, South Africa and Paraguay to evaluate 

soybean varieties currently grown in the United States for tolerance to soybean rust 

and to screen exotic soybean germplasm for resistance to soybean rust under field 

conditions. The international cooperations, now in their second year, will identify 

varieties that exhibit broad spectrum resistance. 

ARS is also working with cooperators in South America to monitor and map the 

incidence of soybean rust outbreaks in South America. This information will be used 

to develop models to predict possible routes of entry into the United States. 

NATIONAL RESEARCH INITIATIVE

Question. I am pleased to hear that the CSREES National Research Initiative, in 

response to language in the fiscal year 2004 appropriations bill, will soon be issuing 

a supplemental Request for Applications to solicit integrated research, education, 

and extension proposals that respond to the goals of the Initiative for Future Agriculture and Food Systems to enhance farm profitability, small and medium-size 

farm viability, and rural economic development. I commend you for this effort and 

would like to have two questions answered. It is my understanding that this will 

be more than a token effort, and will be at least in the range of $5 million or more. 

First, I would like to know the projected funding level for this supplemental RFA? 

Answer. The projected funding level for the supplemental RFA is $5 million. 

These funds will primarily come from the fiscal year 2004 budget; however, part of 

the RFA may be funded by fiscal year 2005 funds, if necessary. All funds will be 

made available within calendar year 2004. 

Question. Second, as we are already now half way through the fiscal year, I am 

wondering what the timeline is for the issuance of the RFA, the proposal deadline, 

the review process, and the ultimate grant awards? 

Answer. Since passage of the Agriculture appropriation in February, we have been 

actively engaged in consulting with stakeholders and expert groups through a series 

of workshops to help shape the ideas in the RFA. The RFA is planned to be released 

in June 2004 with a September 2004 deadline. Following peer review of the applications in the Fall of 2004, it is anticipated that awards will be made no later than 

December 2004. 
405 

Question. Is the RFA imminent and what can you tell me about the timeline for 

the full grantmaking process? 

Answer. The RFA is currently being prepared, having benefited from stakeholder 

input and internal discussions concerning this complex area of research. The RFA 

is planned for release in June 2004 with a September 2004 deadline for applications. 

Peer review of all applications will occur in the Fall of 2004, with awards being 

made by the end of calendar year 2004. 

ORGANIC AGRICULTURE RESEARCH AND EXTENSION INITIATIVE

Question. As you know, the 2002 farm bill contains modest mandatory funding for 

a new Organic Agriculture Research and Extension Initiative. I am anxious to see 

this program get started, and I know many of my colleagues are also quite interested in this initiative. Can you tell me when the Request for Applications will be 

issued? 

Answer. The Cooperative State Research, Education, and Extension ServiceCSREES—published the Request for Applications for the Integrated Organic Program on our website on April 15, 2004, at http://www.csrees.usda.gov/fo/ 

fundview.cfm?fonum=1141. The Request for Applications offers two program areas: 

the Organic Transitions Program and the Organic Agriculture Research and Extension Initiative. Together, the two programs will fund integrated research, education, 

and extension projects that address critical organic agriculture issues, priorities or 

problems. The deadline for applications for both program areas is June 10, 2004. 

Question. Also, more broadly, can you tell me what plans ARS or CSREES has 

for expanding its research effort on organic production and marketing? 

Answer. Since 2001, the Organic Transition Program has provided approximately 

$3.9 million for competitive grants to fund the development and implementation of 

organic production practices and improve the competitiveness of organic producers. 

In 2004, approximately $1.9 million of funding for the Organic Transition Program will be combined with an additional $3 million of mandatory funding provided 

by the 2002 Farm Bill for the Organic Agriculture Research and Extension Initiative 

(OAREI). The 2004 funding level for organic research, education and extension programs is $4.9 million. As authorized by the 2002 Farm Bill, OAREI will provide a 

total of $15 million through fiscal year 2008, $3 million per year for 4 years, to fund 

studies that will help producers and processors grow and market certified organic 

food, feed, and fiber products. 

ARS has been actively increasing its efforts to better serve organic producers over 

the last several years. Much of this research has been in cooperation with organic 

producers and organizations, particularly the Organic Farming Research Foundation (OFRF). In many instances research is conducted jointly with scientists at land 

grant universities including 1890 institutions. In addition, National Program Leaders from ARS and CSREES regularly discuss research on organic farming and sustainable agriculture at joint meetings such as those held by the USDA Sustainable 

Development Council, the Sustainable Agriculture Research and Education (SARE) 

Program and the informal USDA organic agriculture interest group. ARS and 

CSREES scientists and National Program Leaders also continue to participate with 

OFRF and organic producers in the Scientific Congress for Organic Agricultural Research (SCOAR) meetings and related activities to identify research priorities for organic agricultural. 

ARS has assembled a database of its researchers that are doing or are interested 

in doing research on organic agriculture. More than 140 ARS scientists are doing 

research that could benefit organic producers. In addition ARS is doing research on 

many topics such as biological control, integrated pest management (IPM), weed 

control, and soil management that may fit well with organic farming practices. Organic growers, therefore, could reap benefits even though the research may not have 

originally been specifically directed towards organic systems. ARS is planning on 

holding a workshop later this year to improve its focus, interactions and coordination of its research on organic farming. Representatives from CSREES and OFRF 

will be invited. 

A few examples of ARS research on organic production include the following. All 

of these examples are on systems that are certifiably organic under the new USDA 

organic standards. 

—In Salinas, California ARS has a scientist dedicated solely to organic agriculture. Some of his research is studying how to best incorporate cover crops 

in organic systems for fertility and weed management. University of California 

researchers, extension agents and producers are all cooperating in this research. 

—ARS scientists in Weslaco, Texas in cooperation with producers, organic organizations and university colleagues are researching a broad number of organic 
406 

systems including olive, melon, citrus and grain crop production systems. One 

unique aspect of this research is to determine if organically produced crops have 

higher levels of beneficial compounds. 

—ARS researchers from Beltsville, Maryland and Wyndmoor, Pennsylvania are 

cooperating with the Rodale Institute in Pennsylvania to develop improved 

weed management and fertility using for example, mycorrhizae inoculation. 

Three of the five systems of the Beltsville Farming System Project are certifiably organic. This research receives input from a group of farmers, extension 

agents and university cooperators. 

—Other Beltsville scientists are cooperating with farmers and others across the 

United States on organic practices. The system they have developed based on 

cover crops has been shown to be successful for a variety of crops from Maryland to Florida to California. Furthermore, it can eliminate the need for methyl 

bromide and plastic for those producers interested in transitioning into organic 

agriculture. 

—ARS led research in Georgia in cooperation with university scientists and organic farmers is investigating insect and fertility management. Other significant research on organic systems is occurring in Iowa, Minnesota, Washington 

and Florida. 

All these are examples of an expanded ARS effort to address the needs of organic 

producers and almost all have CSREES partners. 

A proposed new effort involves ARS in cooperation with sustainable and organic 

organizations (e.g., Michael Fields Agriculture Institute, Practical Farmers of Iowa, 

Land Stewardship of Minnesota). We are organizing a cooperative project on how 

to better integrate forage and animal production in grain crop systems in the 

cornbelt. This planned project involves ARS units and sustainable and organic 

NGOs in Iowa, Wisconsin, Minnesota, North Dakota, South Dakota and Illinois and 

will include university researchers as well. The extent of this effort is dependent on 

obtaining increased funding. 

RURAL BUSINESS INVESTMENT PROGRAM

Question. The 2002 Farm Bill established the Rural Business Investment Program 

in order to attract venture capital financing to businesses located in rural areas. It 

is the only Federal program of its kind to target rural areas for venture capital investments. 

For decades, venture capital has helped develop industries of the new economy 

and is responsible for creating or maintaining as many as 12.5 million jobs and generating business revenues of as much as $1.1 trillion. Most of these jobs, however, 

have been established in cities and states along the two coasts and not in the rural 

communities of America’s heartland. 

Congress authorized $280 million of investment capital debentures for the Rural 

Business Investment Program however the Administration’s proposal would sharply 

cut this program to $60 million for fiscal year 2005. 

I understand that USDA may release a program design in May so comments can 

be received. I think a stakeholder meeting would be highly advantageous if it can 

occur soon thereafter. 

I believe the RBIP program should clearly use the New Markets Venture Capital 

Program debenture model. That is the type of debenture that Congress used in developing the program. That is how the cost was estimated. There are some rumors 

that the Department may act otherwise. Is the New Markets model type of debentures your plan for the program? 

Answer. USDA is working with the Small Business Administration in developing 

regulations for this program, consistent with the statutory requirements. It is anticipated that a proposed rule will be published for public comment before the end of 

fiscal year 2004. 

Sec. 384E of the statute authorizes the Secretary to guarantee debentures issued 

by a rural business investment company, including a provision for the use of discounted debentures. 

As stated in the related Conference Report, Congress modeled RBIP after the 

Small Business Administration’s Small Business Investment Company program, 

where considerable expertise in operating the program that provides capital for equity investments has been developed. The Managers noted that the RBIP grant provisions are similar to the New Markets Venture Capital program. 

For the RBIP, the Small Business Administration has recommended the guarantee of either standard debentures or discounted debentures, pursuant to Sec. 

384E. 
407 

Question. The President’s budget limits the program to $60 million in debentures 

for fiscal year 2005, equivalent to $12 million in Budget Authority. And, the President’s budget Appendix calls for an elimination of $65 million in BA in fiscal year 

2005. Is this elimination a proposal to end the program after 2005 or is it simply 

an accounting item? Does the Department believe that the RBIP program should 

continue for the long term? 

Answer. The President’s fiscal year 2005 budget proposal for this program does 

not discuss subsequent program years. However, Rural Development, in association 

with our program partner, the Small Business Administration, intends to design 

and implement a program that will produce measurable results, on behalf of America’s rural entrepreneurs, for the long-term. 

BROADBAND

Question. I appreciate your letter to mine concerning Broadband. As your statement indicated, this is a very important need, crucial for rural America. 

I wanted to briefly raise a few points: (1) I think the next time the Department 

sends out a NOFA that it would be very useful to adopt a two-step process: preliminary applications that could be reviewed by RUS staff and for those applications 

that appeared to have viability, a second stage application that would be complete. 

I think a lot of small entities are putting a lot of funds into a complete application 

and that is limiting applications. (2) That the Department adjust its 20 percent cash 

rule to count ongoing receipts within this sum. I understand that the Department 

wants equity in place by applicants. But I think ongoing recurring revenue streams 

should be counted. I am not talking about speculative possible receipts, but mainly 

the monthly billings from existing customers. (3) We need to be careful to manage 

risk in this program. But, we should not become excessively risk adverse. 

If these things are done, I believe we could see a considerable improvement and 

increase in applications. And, I would like to work with you on this important need. 

What will you do to address the points that I have outlined above? 

Answer. The required components of a completed application, taken as a whole, 

form the basis for determining the viability of a project. Each is dependent upon 

the other to evaluate the technical and financial feasibility of a project. Before a 

project is undertaken, it is critical to determine if a market exists for the product 

and, if so, to what extent and what are potential customers willing to pay for that 

product. This market study provides the basis for a determination of potential revenue streams and the size and capability requirements of the system. To properly 

estimate the cost of the system, and, ultimately, the amount of the loan request, 

the system must be designed and quotes gotten from venders. Operational expenses 

must be estimated to determine whether the project is sustainable from a financial 

perspective. Each of these aspects of a business plan is critical in the determination 

of viability. Therefore, it would be difficult to provide a potential applicant with a 

meaningful determination without each of these components. 

It is important to note that RUS’ field and headquarters staffs are available to 

assist potential applicants in developing a loan package. RUS has general field representatives (GFR) located throughout the country who will visit potential applicants, review their business plans, and assist them in developing a completed application. During this process, if a business plan does not appear viable, the GFR will 

be able to inform the applicant. 

RUS’ 20 percent credit support requirement is intended to improve the sustainability of a project by ensuring that it is not 100 percent debt financed. The credit 

support requirement may be satisfied with cash, cash equivalents, undepreciated assets that would otherwise be eligible for financing, licenses, and an unconditional 

letter of credit. An applicant must have, as part of the 20 percent requirement, cash 

equal to the first full year’s operating expenses. RUS will waive this requirement 

for entities with 2 years of positive cash flow. RUS is a facilities-based lender and 

does not, therefore, lend for operating costs. As such, the applicant must have the 

ability to fund its operating expenses without RUS assistance. If an applicant is a 

start-up entity or is experiencing negative cash flow, the 1-year cash requirement 

ensures the entity’s ability to sustain operations and to make principle and interest 

payments. 

We agree that risk must be properly managed which entails assuming the appropriate amount of risk. RUS works very diligently to appropriately manage risk and 

its fiduciary responsibility to the American taxpayers with its mission of extending 

broadband service into the most remote, highest cost rural areas of our country. 

RUS recognizes that an appropriate amount of risk must be taken if we are to succeed in our mission. However, the meaningful deployment of broadband services can 

only be met by making quality loans that produce exponential benefits through re-
408 

duced subsidy rates and greater lending levels. A failed business plan translates not 

only into the loss of taxpayer investments, but deprives millions of citizens living 

in rural communities of the technology needed to attract new businesses, create 

jobs, and deliver quality education and health care services. 

CONCLUSIONS OF HEARINGS

Senator BENNETT. I know a politician who used that phrase and 

maybe regretted it, but I will be appropriately admonished. 

Thank you all for your testimony and your attendance here 

today. And, again, than you for your service to the country in the 

various positions that you hold. 

The hearing is recessed. 

[Whereupon, at 5:03 p.m., Tuesday, April 7, the hearings were 

concluded, and the subcommittee was recessed, to reconvene subject to the call of the Chair.] 
(409) 

1The ad hoc coalition is composed of American Maritime Congress, American Soybean Association, International Organization of Masters, Mates & Pilots, Liberty Maritime Corporation, 

Marine Engineers’ Beneficial Association, Maritime Institute for Research and Industrial Development, National Association of Wheat Growers, National Corn Growers Association, National 

Council of Farmer Cooperatives, Sealift, Inc., TECO Transport Corporation, Transportation Institute, USA Dry Pea & Lentil Council, USA Rice Federation, U.S. Wheat Associates, Inc., and 

Wheat Export Trade Education Committee. 

AGRICULTURE, RURAL DEVELOPMENT, AND 

RELATED AGENCIES APPROPRIATIONS FOR 

FISCAL YEAR 2005 

U.S. SENATE, 

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, 

Washington, DC. 

NONDEPARTMENTAL WITNESSES 

[The following testimonies were received by the Subcommittee on 

Agriculture, Rural Development, and Related Agencies for inclusion 

in the record. The submitted materials relate to the fiscal year 

2005 budget request for programs within the subcommittee’s jurisdiction.] 

PREPARED STATEMENT OF THE AD HOC COALITION

Mr. Chairman, Members of the Subcommittee, this statement is respectfully submitted on behalf of the ad hoc coalition 1 composed of the organizations listed below. 

The coalition supports sustained funding for the concessional sales program under 

Title I of Public Law 480 at a baseline level that will ensure the continued viability 

of the program. 

In recent years, funding appropriated for Title I has declined sharply. The direct 

appropriation to the Title I account in fiscal year 2003 was $118 million. In fiscal 

year 2004, it declined to $106 million. In the administration’s fiscal year 2005 budget, the requested funding is just under $90 million. According to the fiscal year 2005 

USDA Budget Summary, these appropriated amounts supported a fiscal year 2003 

program level of $163 million in commodity and (separately funded) freight costs, 

and are expected to support a Title I program level (with an additional $38 million 

in carryover funding) of $197 million in fiscal year 2004. The administration’s request for fiscal year 2005 establishes a program level of only $123 million. 

Mr. Chairman, our coalition has noted that funding for the Title I account in recent years increasingly has been used to support Food for Progress (FFP) grants. 

In fiscal year 2003, for example, Title I funding was used under FFP authority to 

ship 321,000 metric tons of commodities, with a value of $62.4 million, to some 13 

countries. While FFP is an essential component of our overall food aid system, the 

coalition nonetheless believes that the Foreign Agricultural Service (FAS) should 

make a determined effort to increase participation in the traditional Title I 

concessional sales program. As discussed more fully below, Title I has important 

policy objectives that are unique and deserving of sustained support. 

In the statement that follows, our coalition recommends aggressive marketing of 

the Title I concessional sales program, higher funding levels for Title I, and sustained funding for other food aid programs that fulfill our humanitarian obligations 

and promote the long-term interests of recipient countries in becoming commercial 

customers. 
410 

GUIDING PRINCIPLES OF FOOD AID POLICY

Mr. Chairman, the coalition recognizes that American food assistance policy is 

well-established and founded on certain guiding principles, including the following: 

—Meeting America’s humanitarian obligation to sustain food assistance programs, 

U.S. participation in which should constitute more than 50 percent of all food 

aid worldwide. 

—Employing food assistance programs as stepping stones for economic growth and 

development. 

—Employing food assistance programs to promote respect worldwide for American 

values and our economic system, thereby enhancing goodwill toward America 

among disadvantaged populations that may be breeding grounds for terrorism. 

THE SHARP DECLINE IN OVERALL FOOD AID PROGRAM LEVELS

Mr. Chairman, the programs needed to implement these principles have enjoyed 

broad, bipartisan support for many decades. The strength of our commitment has 

made the United States the world’s leading food aid supplier. In the process, American agriculture is bolstered as food aid recipients strengthen and stabilize their 

economies, ultimately proving to be valuable long term customers for U.S. products. 

In recent years, however, food aid shipments have declined sharply. In fiscal year 

2000, the United States programmed more than 6.7 million tons of food aid to 95 

countries, consisting of 35 different commodities with a value of $1.4 billion. In fiscal year 2001, our food aid program declined to 6.36 million tons of assistance to 

45 countries, valued at $1.28 billion. In fiscal year 2002, the United States programmed 4.67 million tons of food aid for shipment to 84 countries. This assistance 

consisted of 26 different products with a commodity value of $1.091 billion. In fiscal 

year 2003, FAS reports that 4.56 million tons were programmed for shipment, with 

a commodity value of $1.288 billion. 

While data for fiscal year 2004 are necessarily incomplete, the administration’s 

budget estimates that food aid shipments under Public Law 480, Titles I and II, will 

decline to 3.4 million metric tons of grain equivalent, down from 4.3 million metric 

tons in fiscal year 2003. Unfortunately, as discussed below, the administration recommends further overall reductions in food assistance in fiscal year 2005. 

THE ADMINISTRATION’S BUDGET FOR FISCAL YEAR 2005

The administration proposes Title I funding that would support a program level 

of only $123 million. This is well below the appropriation for fiscal year 2003, which 

supported a program level of $154.7 million and is even below the fiscal year 2004 

appropriation, designed to support a program level of $132 million. Our coalition regrets the continued erosion of the Title I program, and believes that funding should 

be restored to levels which will ensure the program’s viability as a flexible and significant policy initiative. 

The baseline for the Food for Peace Title II program has been increased from $850 

million in fiscal year 2002 (and prior years) to $1.185 billion. The coalition supports 

this increase as an essential component of our donated food assistance to the most 

needy countries and regions in the world. As required by the 2002 Farm Bill, the 

administration has announced that it will meet the annual minimum tonnage level 

of 400,000 metric tons for that portion of the Food for Progress grant program carried out with CCC funding. 

Under authority provided by Section 416(b) of the Agricultural Act of 1949, the 

administration states that surplus nonfat dry milk will be made available for donation in fiscal year 2005, with a commodity value and associated costs estimated at 

$147 million. This represents another year of diminished reliance on the 416(b) program, which is CCC-funded. Finally, the administration has requested $75 million 

for the McGovern-Dole International Food for Education and Child Nutrition Program (IFEP), an increase of 50 percent over the fiscal year 2004 level, but less than 

the $100 million requested by a broad-based commodities coalition. 

The administration’s recommendations, taken together, would lead to further reductions in food aid. Because of the availability of supplemental and carryover funding in prior years, the food aid programmed under Public Law 480 reached 4.3 million metric tons in fiscal year 2003; it is estimated to decline to 3.4 million metric 

tons in the current fiscal year; and the fiscal year 2005 budget provides for only 3.2 

million metric tons. Increases in IFEP and FFP will not offset the declines in the 

Public Law 480 and Section 416(b) programs. 
411 

RESTORATION OF OVERALL FOOD ASSISTANCE PROGRAM LEVELS

Mr. Chairman, the coalition recommends that food aid be restored over time to 

sustainable levels in the range of 4.0 million to 6.0 million metric tons of grain 

equivalent in each fiscal year. In fiscal year 2005, this would require an incremental 

increase in Title I baseline funding, enactment of the administration’s request for 

Title II, an increase to $100 million for the IFEP, and greater use of existing authorities of the Commodity Credit Corporation. The Title I program must be restored if the United States is to take full advantage of the unique potential of this 

historic initiative. The special features of Title I remain significant elements of U.S. 

food aid policy, as discussed below. 

ADVANTAGES OF THE TITLE I PROGRAM

Mr. Chairman, the Title I program offers countries long-term loans and 

concessional payment terms for the purchase of U.S. agricultural commodities. As 

such, Title I has advantages over other food aid programs. 

—Resource Efficient.—Because Title I is a concessional sales program, appropriations required to support Title I, under the terms of the Federal Credit Reform 

Act of 1990, cover only the subsidy cost, and not the full commodity value. In 

the President’s budget for fiscal year 2005, the subsidy cost of the Title I program is established for the fiscal year at 86.42 percent. Thus, under the Title 

I program, Congress ensures the shipment of $1.00 worth of U.S. agricultural 

products at an appropriated cost of about 86 cents. Moreover, Title I currently 

recovers more dollars for the U.S. Treasury in loan repayments than it expends 

in annual outlays. 

—Bridge to Economic Independence.—The Title I program is designed to operate 

in markets which are neither poor enough to warrant donations nor rich enough 

to purchase commodities on commercial terms. Of the top 50 consumer nations 

of American agricultural products, 43 were once recipients of U.S. foreign aid 

in some form. The Title I program historically has been an essential component 

of our humanitarian food assistance program, and should be retained. 

Unfortunately, Mr. Chairman, Title I concessional sales have been reduced to 

their lowest levels in half a century. According to the administration’s budget, Title 

I loans in fiscal year 2003 generated only $81 million in commodity sales; this 

amount will decline to an estimated $38 million in fiscal year 2004. The fiscal year 

2005 budget proposes only $30 million in concessional commodity sales. The balance 

of Title I funding supports FFP grants. Our analysis of the fiscal year 2003 program 

shows that Title I-funded FFP shipments were made to Cambodia, Togo, Pakistan, 

Afghanistan, Bolivia, Eritrea, Ethiopia, Honduras, Kenya, Mongolia, Peru, Sri 

Lanka and Yemen. The total commodity value of these FFP grants, as stated above, 

was $62.4 million. According to the administration’s budget, the FAS plans to obligate $93 million for Title I-funded FFP grants in fiscal year 2004, and another $60 

million from the account for FFP grants in fiscal year 2005. 

Mr. Chairman, the potential demand for donated food will always exceed the supply. The coalition recognizes that recipient countries would prefer grants over 

concessional sales—even sales at extremely favorable terms. In order to ensure that 

the most desperate countries have sufficient donated food aid, the coalition recommends that FAS aggressively market the Title I concessional sales program to 

other countries that can afford the terms. Among the countries receiving Title Ifunded FFP grants in fiscal year 2003, there are surely some who reasonably could 

afford to make the transition from grant assistance to concessional sales, using the 

direct loan authority of Title I. 

CONCLUSIONS AND RECOMMENDATIONS

Mr. Chairman, the coalition is committed to maintaining U.S. food assistance programs at responsible levels in order to meet humanitarian needs and enhance the 

potential for economic growth in recipient countries. Our recommendation is to increase over time annual food assistance at combined program levels of between 4.0 

million and 6.0 million metric tons of grain equivalent. This can be accomplished, 

as in the past, with a blend of programs supported by direct appropriations and 

CCC program authorities. 

The coalition recommends the following: 

—Title I program levels should be increased in fiscal year 2005, and responsibly 

increased again in succeeding years, so that the unique advantages of the program, highlighted above, are not lost. The Senate Appropriations Committee 

should accompany such increased funding with strongly-worded report language 
412 

directing FAS to market the Title I program aggressively to those countries that 

reasonably can afford the terms. —IFEP should be increased in fiscal year 2005 to the $100 million level established by Congress for the fiscal year 2003 program. This action, together with 

full funding of the administration’s Title II request, will help ensure that the 

United States fulfills its moral obligation to provide not less than one-half of 

the world’s donated food aid. 

—In committee report language, the Senate Appropriations Committee should direct the FAS to make greater use of existing CCC authorities to expand food 

aid to regions in critical need. 

Mr. Chairman, the Title I program has been a bulwark of American food aid policy since the days of the Marshall Plan. It deserves the strong support of your subcommittee, the Congress and the entire nation. 

The Title I program delivers more food assistance per dollar of investment than 

any other program. The Title I program, moreover, is fully consistent with the administration’s position that aid to developing countries be tied to their adoption of 

reforms and policies that make development both lasting and effective. With strong 

Congressional support, the Food for Peace Title I program will continue to promote 

American humanitarian values. The funding of Title I, accordingly, should be increased to ensure that this historic program is restored to its proper place in U.S. 

food assistance policy. 

PREPARED STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

The American Farm Bureau Federation supports full funding for the Farm Security and Rural Investment Act of 2002 (FSRIA). 

Unpredictable weather conditions and markets, uncertainties involved with international trade, and variable input costs can produce turbulent and difficult times 

for agriculture. The FSRIA helps American farmers and ranchers weather financial 

storms and it provides unprecedented funds for our nation’s conservation needs. 

Changes in programs would be devastating not only to farmers and ranchers, but 

to the rural economy as well. 

Full funding of commodity programs is essential. It is imperative that counter-cyclical payment rates, loan rates and direct payments be preserved as adopted in 

FSRIA. We are adamantly opposed to any changes in the current payment limitations. 

Farm Bureau has selected the following four items as our priorities for funding 

in fiscal year 2005: (1) Programs key to protecting animal and plant health; (2) full 

funding and implementation of the Conservation Security Program; (3) programs 

key to the proper regulation of the Food Quality Protection Act and crop protection 

regulations; and (4) programs key to expanding and protecting markets for agricultural products. 

PROGRAMS KEY TO PROTECTING ANIMAL AND PLANT HEALTH

The threat of bioterroism and the discovery of Bovine Spongiform Encephalopathy 

(BSE) in the United States has prompted increased action by USDA and others to 

step up animal and pest disease surveillance and funding for critical programs such 

as animal identification. Farm Bureau places great priority on efforts to safeguard 

our food supply and requests increased resources be appropriated to APHIS and 

FSIS for these activities. 

Farm Bureau supports the Administration’s Food and Agriculture Defense Initiative of $381 million. These funds will enhance food and agriculture defense by: 

—Providing funds for completing the consolidated BSL–3 animal research and diagnostic laboratory at Ames, Iowa; 

—Establishing a National Plant Disease Recovery System that will quickly coordinate with the seed industry to provide producers with resistant stock before the 

next planting season in the event of a natural or intentional catastrophic disease or pest outbreak; and 

—Substantially enhancing the monitoring and surveillance of pests and diseases 

in plants and animals, including targeted national wildlife surveillance. 

BSE.—Farm Bureau supports BSE-related funding proposed by USDA that calls 

for $5 million for the Agricultural Research Service (ARS) to conduct advanced research and development of BSE testing technologies; $17 million for the Animal and 

Plant Health Inspection Service (APHIS) to continue collecting 40,000 samples, including sampling at rendering plants and on farms; $4 million for the Food Safety 

and Inspection Service (FSIS) to conduct monitoring and surveillance of compliance 

with the regulations regarding specified risk materials and advanced meat recovery; 
413 

and $1 million for Grain Inspection, Packers and Stockyards Administration 

(GIPSA) to enable them to dispatch rapid response teams to markets experiencing 

BSE-related complaints regarding contracts or lack of prompt payment. 

We do, however, have serious concerns about the Administration’s proposal for $33 million to help implement an animal identification system. For over 2 years, the 

industry has been working to develop the U.S. Animal Identification Plan (USAIP). 

USIAP estimates an ongoing cost of $122 million per year to implement such a system. This is a far cry from a one-time $33 million appropriation. Farmers and 

ranchers simply cannot afford to bear the brunt of the cost of this program, especially when most of the benefit will accrue to consumers. We strongly encourage the 

Committee to significantly increase funding for this critical program. Implementation of the program will not only add to our ability to trace a diseased animal back 

to the source but will also reassure the public and our trading partners of a safe 

food supply. 

Soybean Rust (Phakopsora pachyrhizi).—Soybean Rust (SBR), a fungal disease 

that attacks the foliage of a soybean plant, is a potential threat to the United 

States. Only two fungicides are currently approved for use on soybean rust and 

manufacturers have indicated that there would not be enough chemical available to 

treat a nationwide outbreak. Soybean check-off and government-funded research activities are underway, however, approximately $2.8 million additional funds are urgently needed. 

Avian Influenza.—Avian flu is a respiratory virus spread among chickens by nasal 

and eye secretions and manure. Adequate funding for detection, control and eradication of low and high pathogen Avian Influenza is critical. Farm Bureau supports 

an additional $12 million above the Administration’s request for $13 million ($25 

million total) to combat this deadly poultry disease. We support USDA’s development of a high-containment facility to study this disease. 

National Animal Health Emergency Management System.—Farm Bureau supports 

full funding for the National Animal Health Emergency Management System that 

was developed in cooperation with the states, industry and the veterinary profession. These funds will enhance APHIS’s emergency preparedness and response capabilities to address emergency animal disease issues that threaten the U.S. food supply. 

Food Animal Residue Avoidance Databank (FARAD).—Farm Bureau supports 

funding for FARAD. Adequate funding for FARAD will allow for continued, fair, immediate expert consultation to livestock owners and veterinarians in the event of 

accidental drug or toxin exposure to livestock or poultry. 

Plant and Animal Health Monitoring, Pest Detection and Control.—Plant and animal health monitoring and surveillance are important programs. We support a $48 

million increase for improved plant pest detection, management of animal health 

emergencies and to increase the availability of animal vaccines. Expansion of Plant 

Protection and Quarantine (PPQ) personnel and facilities is necessary to protect 

U.S. agriculture from new and often-times virulent pest problems. 

FULL FUNDING AND IMPLEMENTATION OF THE CONSERVATION SECURITY PROGRAM (CSP)

Prompt implementation of the Conservation Security Program (CSP) is critical. 

This program recognizes the costs associated with sound conservation practices and 

provides assistance to producers who have historically practiced good stewardship 

as well as provide incentives to those that who want to do more. The CSP must be 

implemented as authorized by FSRIA in order to achieve the program’s full potential. All farmers and ranchers should have the opportunity to participate is CSP as 

intended by FSRIA. No restrictions or limitations should be placed on this important new conservation program. 

Ongoing USDA conservation programs should be fully funded. No limitations 

should be placed on funding for the Environmental Quality Incentive Program 

(EQIP). EQIP is key to assisting agricultural producers in complying with environmental regulations and addressing important conservation issues. Maximum conservation technical assistance should be provided for both FSRIA conservation programs and for Conservation Operations to help landowners in planning for and the 

application of conservation treatments to control erosion and improve natural resources. 

PROGRAMS KEY TO THE PROPER REGULATION OF THE FOOD QUALITY PROTECTION ACT

AND CROP PROTECTION REGULATIONS

USDA must continue to work with EPA, agricultural producers, food processors 

and registrants to provide farm data required to ensure that agricultural interests 

are properly considered and fully represented in all pesticide registration, tolerance 
414 

reassessment re-registration, and registration review processes. In order to participate effectively in the process of ensuring that crop protection tools are safe and remain available to agriculture, USDA must have all the resources necessary to provide economic benefit, scientific analysis and usage information to EPA. To this end, 

funding should be maintained or increased to the following offices and programs: 

Office of Pest Management Policy (OPMP).—OPMP has the primary responsibility 

for coordination of USDA’s FQPA and crop protection obligations and interaction 

with EPA. Proper funding is vital for the review tolerance reassessments, particularly dietary and worker exposure information; to identify critical use, benefit and 

alternatives information; and to work with grower organizations to develop strategic 

pest management plans. The funding to OPMP should be designated under the Secretary of Agriculture’s office, rather than as an add-on to the Agricultural Research 

Service budget. 

Agriculture Research Service (ARS).—Integrated Pest Management (IPM) research, minor use tolerance research (IR–4) and research on alternatives to methyl 

bromide must continue to receive adequate funding to fully address the unique concerns of these programs. Research is also needed to identify new biological pest control measures and to control pesticide migration. 

Cooperative State Research, Education and Extension Service (CSREES).—Full 

funding should be provided for Integrated Pest Management (IPM) research grants, 

IPM application work, pest management alternatives program, expert IPM decision 

support system, minor crop pest management project (IR–4), crops at risk from 

FQPA implementation, FQPA risk avoidance and mitigation program for major food 

crop systems, methyl bromide transition program, regional crop information and policy centers and the pesticide applicator training program. 

Economic Research Service (ERS).—ERS programs provide USDA and EPA with 

unique data information and they should be properly funded including IPM research, pesticide use analysis program and the National Agriculture Pesticide Impact Assessment Program (NAPIAP). 

FQPA and Crop Protection Regulation.—Additional funding for proper regulation 

of pesticides is needed in the following programs: National Agriculture Statistics 

Service (NASS) pesticide use surveys; Food Safety Inspection Service (FSIS) increased residue sampling and analysis; Agricultural Marketing Service (AMS); and 

the Pesticide Data Program (PDP). 

PROGRAMS KEY TO EXPANDING AND PROTECTING MARKETS FOR AGRICULTURAL

PRODUCTS

Creating new overseas markets and expanding existing markets is essential for 

a healthy agricultural economy. Continued funding of export development programs 

is fundamental to improving farm income. Farm Bureau recommends maximum 

funding of all export development programs consistent with our commitments under 

World Trade Organization (WTO) rules. USDA programs that protect U.S. agricultural exports from unfair trade barriers are also critical and should receive priority 

funding. 

CODEX.—The U.S. CODEX office must have sufficient funding to adequately represent American interests in this important body that develops the international 

food safety standards used as guidance by the WTO. Increasingly CODEX focuses 

on issues such as biotechnology, traceability/product tracing, and acceptable farm 

practices. An ongoing international effort is being led by the European Union to 

place limits on our ability to produce food and fiber. 

APHIS Biotech Regulatory Service (BRS).—Agricultural biotechnology is an extremely promising development and all reasonable efforts must be made to allow it 

to be realized. BRS plays an important role in overseeing the permit process for 

products of biotechnology. Funding and personnel are essential for ensuring public 

confidence and international acceptance of biotechnology products. 

APHIS Trade Issues Resolution and Management. Full funding is needed for 

APHIS trade issues resolution and management. As Federal negotiators and U.S. 

industry try to open foreign markets to U.S. exports, they consistently find that 

other countries are raising pest and disease concerns, real or contrived, to resist allowing American products to enter. Officials from other countries often attempt to 

refuse entry to American products under the guise of a technicality or flimsy suspicion. Only APHIS can respond effectively to these issues. This requires placing 

more APHIS officers overseas where they can monitor pest and disease situations, 

negotiate protocols with other countries, and intervene when foreign officials wrongfully prevent the entry of American imports. It is essential that APHIS be positioned to swiftly and forcefully respond to such issues when and where they arise. 
415 

Export Development Programs.—We recommend fully funding all export development programs consistent with our commitments under the WTO. Farm Bureau 

supports General Sales Manager (GSM) credit guarantee programs. These important export credit guarantee programs can help make commercial financing available for imports of U.S. food and agricultural products via a deferred payment plan. 

The Market Access Program (MAP) and Foreign Market Development Program 

(FMD) are also worthwhile programs. The Foreign Agricultural Service (FAS) will 

require sufficient funding to expanded services to cover all existing and potential 

market posts. 

Direct export subsidies of U.S. agricultural products are authorized through the 

Export Enhancement Program (EEP) to counter unfair trading practices of foreign 

countries. Farm Bureau supports the funding and use of this program in all countries, and for all commodities, where the United States faces unfair competition. The 

Dairy Export Incentive Programs (DEIP) allows U.S. dairy producers to compete 

with foreign nations that subsidize their commodity exports. The International Food 

for Education Program (IFEP) will be an effective platform for delivering severely 

needed food aid and educational assistance. Finally, the Public Law 480 programs 

serves as the primary means by which the United States provides foreign food assistance. The Public Law 480 programs provide humanitarian and public relations 

benefits, positively impacts market prices and helps develop long-term commercial 

export markets. 

PREPARED STATEMENT OF THE AMERICAN HONEY PRODUCERS ASSOCIATION, INC. 

I am Lyle Johnston of Rocky Ford, Colorado, President of the American Honey 

Producers Association. The American Honey Producers Association (‘‘AHPA’’) is a 

national organization of commercial beekeepers actively engaged in honey production throughout the country. I am here today to request your assistance in continuing to support full funding for honey bee research. 

First, we wish to thank the Subcommittee for the strong support it has provided 

in the past for agricultural research activities on behalf of the beekeeping industry. 

For example, in the fiscal year 2003 cycle, the Subcommittee fully restored proposed 

cuts in honey bee research that would have resulted in the elimination of three Agricultural Research Service (‘‘ARS’’) laboratories that are indispensable to the survival of our industry. Such support has enabled the ARS to meet the critical needs 

of the industry. To continue this valuable research, the AHPA requests that for the 

fiscal year 2005 cycle Congress not only restore proposed rescissions of add-on funding from previous years for the two ARS Honey Bee Research Laboratories at Baton 

Rouge, Louisiana and Weslaco, Texas, but also approve specific funding increases 

proposed in the Administration’s budget both for honey bee genome research at the 

ARS laboratory in Baton Rouge (under the category of invasive species affecting 

plants), and for invasive honey bee pest control research at the ARS laboratory in 

Beltsville, Maryland. We also urge the Congress to maintain honey bee research 

funding at fiscal year 2004 levels for the ARS laboratory in Tucson, Arizona. 

THE PRESIDENT’S BUDGET PROPOSAL

The American Honey Producers Association applauds the President’s fiscal year 

2005 budget proposal for recommending funding increases for the Honey Bee Research Laboratories located at Baton Rouge, Louisiana, and Beltsville, Maryland, 

and also for proposing a continuation of funding at fiscal year 2004 levels for the 

Honey Bee Research Laboratory in Tucson, Arizona. However, we are concerned 

that the President’s budget also calls for significant funding decreases for the two 

Honey Bee Research Laboratories at Baton Rouge and at Weslaco. These cuts are 

proposed rescissions of funding increases included by Congress in previous appropriation cycles. Specifically, the Administration is suggesting $397,000 in cuts for 

the Baton Rouge facility and $249,000 in cuts for the Weslaco facility. These cuts 

to the ARS Honey Bee Research Laboratories would have a severe effect on the 

honey industry as well as on all pollination-dependent agriculture and many native 

plants. This seems particularly inappropriate considering the substantial benefits 

that flow from this program, which helps assure the vitality of the American honey 

bee industry and U.S. agriculture. 

These four ARS laboratories provide the first line of defense against exotic parasite mites, Africanized bees, brood diseases and other new pests and pathogens that 

pose serious threats to the viability and productivity of honey bees and the plants 

they pollinate. If the rescissions proposed this year by the President were to be enacted, scientists at the Baton Rouge and Weslaco laboratories will be overburdened 

and forced to discontinue essential research, thereby jeopardizing the U.S. honey 
416 

bee industry and the production of agricultural crops that require pollination by 

honey bees. 

THE IMPORTANCE OF HONEY BEES TO U.S. AGRICULTURE

Honey bees fill a unique position in contemporary U.S. agriculture. They pollinate 

more than 90 food, fiber, and seed crops. Honey bees are necessary for the production of such diverse crops as almonds, apples, oranges, melons, vegetables, alfalfa, 

soybeans, sunflower, and cotton, among others. A Cornell University study, published in 2000, estimated that the annual value of agriculture production attributable to honey bee pollination exceeds $14.6 billion. The increased value of such 

crops comes in the form of both better yields and improved quality. In addition, 

honey bees are responsible for the production of an average of 200 million pounds 

of honey annually in the United States, the sales of which helps sustain this nation’s beekeepers. 

Since 1984, the survival of the honey bee has been threatened by continuing infestations of mites and pests for which appropriate controls are being developed by scientists at the four ARS laboratories. The industry is also plagued by a honey bee 

bacterial disease that has become resistant to antibiotics designed to control it and 

a honey bee fungal disease that has no known medication to control it. These pests 

and diseases, especially Varroa mites and the bacterium causing American 

foulbrood, are now resistant to chemical controls in many regions of the country. 

Such resistance is increasingly becoming a problem, as most of the major chemical 

controls are ineffective in treating such pests and diseases. Further, we have seen 

that honey bees are building resistance to newly-developed chemicals more quickly 

than in the past, thereby limiting the longevity of chemical controls. 

Unfortunately, there is no simple solution to these problems, and the honey bee 

industry is too small to support the cost of the needed research, particularly given 

the depressed state of the industry in recent years. Further, there are no funds, facilities, or personnel elsewhere available in the private sector for this purpose. Accordingly, the beekeeping industry is dependent on research from public sources for 

the scientific answers to these threats. Since the honey bee industry is completely 

comprised of small family-owned businesses, it relies heavily on the ARS for needed 

research and development. The key to the survival of the honey industry lies with 

the honey bee research programs conducted by ARS. 

The sequencing of the honey bee genome at Baylor University has opened the door 

to creating highly effective solutions to these problems via marker assisted breeding. 

Marker assisted breeding would permit the rapid screening of potential breeders for 

specific DNA sequences that underlie specific desirable honey bee traits. The 

sequenced honey bee genome is the necessary key which will allow scientists to discover the important DNA sequences. Because of the sequenced honey bee genome, 

it is now possible to apply molecular biological studies to the development of marker 

assisted breeding of honey bees. Good success can be expected in several areas: 

honey bee tracheal mite resistance, certain aspects of Varroa mite resistance such 

as grooming behavior (mite removal from the hive), bacterial and fungal disease resistance, and the optimization of pollination behavior. 

Furthermore, research on honey bees, one of five animals chosen by the National 

Institutes of Health for genome sequencing, may provide important insight into 

other areas of science. The honey bee is the first agricultural species to be 

sequenced, and such work may provide breakthrough advances in many areas of 

science. In fact, honey bees are being studied by the U.S. Department of Defense 

as sentinel species that could detect and locate agents of harm, such as chemical 

or biological threats. According to one researcher, it appears that honey bees’ olfactory capabilities are at least on par with a dog, if not more sensitive. Thus, the scientific advances achieved by ARS will provide an array of benefits across many disciplines. 

THE WORK OF THE ARS HONEY BEE RESEARCH LABORATORIES

The ARS Honey Bee Research Laboratories work together to provide research solutions to problems facing businesses dependent on the health and vitality of honey 

bees. The findings of these laboratories are used by honey producers to protect their 

producing colonies and by farmers and agribusinesses to ensure the efficient pollination of crops. Each of the four ARS Honey Bee Research Laboratories (which are 

different in function from the ARS Wild Bee Research Laboratory at Logan, Utah) 

focuses on different problems facing the U.S. honey industry and undertakes research that is vital to sustaining honey production in this country. Furthermore, 

each honey bee research laboratory has unique strengths and each is situated and 
417 

equipped to support independent research programs which would be difficult, and 

in many cases impossible, to conduct elsewhere. 

Research at the ARS Weslaco Laboratory 

Because the AHPA recommends that the appropriation for the Weslaco laboratory 

be approved at not less than current levels, we respectfully request Congress to reject the President’s proposal to eliminate $249,000 in funding added by Congress for 

the ARS Honey Bee Laboratory at Weslaco, Texas. Retaining the current (fiscal year 

2004) level of funding for the Weslaco laboratory will enable it to continue its work 

in finding a chemical solution to parasitic mites that are causing a crisis for the U.S. 

beekeeping and pollination industries. Varroa mites are causing the loss of hundreds of thousands of domestic honey bee colonies annually as well as devastating 

wild bee colonies. The only chemical which has received a general registration for 

Varroa mite control, fluvalinate, is being rendered ineffective by the development 

of resistant mite populations. The ARS laboratory at Weslaco has been developing 

alternative chemicals to control the Varroa mite. The laboratory has found a chemical, coumaphos, with the potential of being equally effective as fluvalinate. Unfortunately, the mites are also rapidly developing a resistance to this latest chemical 

product, coumaphos. Presently, there are no other chemicals available for controlling 

the Varroa mite, and the laboratory is working frantically to develop other means 

of control. 

Additionally, the laboratory is researching methods that may control the small 

hive beetle. Since its discovery in Florida in 1998, this pest has caused severe bee 

colony losses in California, Florida, Georgia, South Carolina, North Carolina, Pennsylvania, Ohio, and Minnesota. Estimates put these losses in just one season at over 

30,000 colonies. The beetles are now spreading all across the United States. Although it seems that coumaphos may help control this insect as well as the Varroa 

mite, it has not yet received a Section 3 registration for general use. The ARS honey 

bee research scientists at the Weslaco laboratory have been working overtime to 

find chemicals, techniques, pheromones, or other methods of controlling the beetle. 

Time is of the essence and a control must be found immediately, because all the 

bee colonies in the Western Hemisphere are at risk. 

This facility also focuses its research efforts on developing technologies to manage 

honey bees in the presence of Africanized honey bees, parasitic mites, and other 

pests. In order to ensure that further pests are not introduced into the United 

States, scientists at the Weslaco facility provide technical assistance to agriculture 

departments in foreign countries on the control of parasitic mites. The laboratory 

has worked with officials in Guatemala, Costa Rica, Mexico, and South Africa to 

protect the U.S. honey bee population from further devastation by infestation of foreign parasites, diseases, and other pests. This inter-governmental cooperation is 

necessary to ensure the continued viability of the U.S. honey bee industry. 

Research at the ARS Baton Rouge Laboratory 

While we are pleased that the President has requested an increased funding in 

the amount of $250,000 for honey bee genome research at the ARS Baton Rouge 

Laboratory, we are dismayed by and opposed to the Administration’s simultaneous 

request for $397,000 in cuts for this facility, eliminating previous Congressional increases in funding. In light of the importance of genome research, we hope that Congress will support the President’s recommended increase for the ARS laboratory at 

Baton Rouge, Louisiana, while opposing the rescission proposed by the Administration. An increase in funding will allow the vital genome research conducted in Baton 

Rouge to achieve more quickly the breakthrough successes that are closer than ever 

to realization. The Baton Rouge facility is the only laboratory in the United States 

developing long-term, genetic-based solutions to the Varroa mite. Existing stocks of 

U.S. honey bees are being tested to find stocks which exhibit resistance to the parasitic mites. 

Research scientists with the laboratory have also been to the far corners of the 

world looking for mite resistant bees. For example, in eastern Russia, they found 

bees that have co-existed for decades with the mites and survived. Using these bees, 

the laboratory develops stocks of honey bees resistant to the parasites. Before these 

new stocks are distributed to American beekeepers, the laboratory ensures that the 

resistance holds up under a wide range of environmental and beekeeping conditions, 

testing attributes such as vigor, pollination, and honey production. We believe recent scientific breakthroughs with this genomic research will allow scientists in the 

near future to breed honey bees that are resistance to the Varroa mite and other 

parasites. 

The Baton Rouge facility also operates the only honey bee quarantine and mating 

station approved by the Animal and Plant Inspection Service. These stations are 
418 

necessary to ensure that new lines of bees brought into the United States for research and development are free of diseases unknown in the United States. In addition, Baton Rouge research scientists are focused on the applications of new technologies of genomics. This work has the potential to enhance the proven value of 

honey bee breeding for producing solutions to the multiple biological problems that 

diminish the profitability of beekeeping. 

Research at the ARS Tucson Laboratory 

The American Honey Producers Association supports the Administration’s request 

that funding for the ARS Honey Bee Research Laboratory in Tucson be kept at the 

current level for fiscal year 2005. This research center is the only ARS honey bee 

laboratory serving the needs of beekeepers and farmers in the western United 

States. The facility works to improve crop pollination and honey bee colony productivity through quantitative ecological studies of honey bee behavior, physiology, pest 

and diseases, and feral honey bee bionomics. 

Because more than one million colonies are transported from across the country 

for pollination into crops grown in the western United States (primarily California), 

the Tucson research center addresses problems that arise from transporting and introducing colonies for pollination of crops such as almonds, plums, apricots, apples, 

cherries, citrus, alfalfa, vegetable seed, melons, and berries. This research center 

has been instrumental in disseminating information on technical issues associated 

with the transport of bee colonies across state lines. Additionally, in order to ensure 

that transported colony populations remain stable during transport and also during 

periods before the crop to be pollinated comes into bloom, scientists at the laboratory have developed an artificial diet that stimulates brood production in colonies. 

A large bee population is necessary to ensure that efficient pollination occurs, creating superior quality crops. 

Research at the ARS Beltsville Laboratory 

Again, we support the President’s proposal to increase funding at the ARS Honey Bee Research Laboratory in Beltsville by $100,000 to boost current research efforts 

aimed at eliminating invasive honey bee pests. This facility, the oldest of the federal 

bee research centers, conducts research on the biology and control of honey bee 

parasites, diseases, and pests to ensure an adequate supply of bees for pollination 

and honey production. Using biological, molecular, chemical, and non-chemical approaches, scientists in Beltsville are developing new, cost-effective strategies for controlling parasitic mites, bacterial diseases, and emergent pests that threaten honey 

bees and the production of honey. 

The laboratory also develops preservation techniques for honey bee germplasm in 

order to maintain genetic diversity and superior honey bee stock. Scientists at the 

facility also provide authoritative identification of Africanized honey bees and diagnosis of bee diseases and pests for Federal and State regulatory agencies and beekeepers on a worldwide basis. In operating this bee disease diagnosis service, the 

Beltsville facility receives over 2,000 samples annually from across the United 

States. 

CONCLUSION

In conclusion, we wish to thank you again for your support of honey bee research 

in the past and for your Committee’s understanding of the importance of these laboratories. The American Honey Producers Association would appreciate your continued support by (1) increasing the level of funding for the ARS Honey Bee Research 

Laboratory in Baton Rouge, Louisiana, by $250,000, as proposed by the Administration in its fiscal year 2005 budget; (2) increasing the level of funding for the ARS 

Honey Bee Research Laboratory in Beltsville, Maryland, by $100,000, as proposed 

by the Administration in its fiscal year 2005 budget; (3) restoring the proposed rescissions from previous years of $397,000 for the Baton Rouge facility and $249,000 

for the Weslaco, Texas, facility; and (4) maintaining the current level of funding for 

the ARS Honey Bee Research Laboratory in Tucson, Arizona. Only through research 

can we have a viable U.S. beekeeping industry and continue to provide stable and 

affordable supplies of bee pollinated crops which make up fully one-third of the U.S. 

diet. 

Furthermore, we urge you to reject any effort to cut the operating budgets of these 

vitally important research laboratories by consolidating their functions. Any proposed cuts and their resulting budget and staff reductions would significantly diminish the quality of research conducted by these laboratories, harming bee keepers as 

well as farmers who harvest pollination-dependent agriculture. Congress cannot 

allow these cuts to occur and must continue to provide sufficient funding for the 

ARS Honey Bee Research Laboratories to perform their vital role. 
419 

1White Earth Tribal & Community College is in the pre-candidacy stage of accreditation. 

I would be pleased to respond to any questions that you or your colleagues may 

have. 

PREPARED STATEMENT OF THE AMERICAN INDIAN HIGHER EDUCATION CONSORTIUM

Mr. Chairman and Members of the Subcommittee, on behalf of the American Indian Higher Education Consortium (AIHEC) and the 32 Tribal Colleges and Universities that comprise the list of 1994 Land Grant Institutions, thank you for this opportunity to share our funding requests for fiscal year 2005. 

This statement is presented in three parts: (a) a summary of our fiscal year 2005 

funding request, (b) a brief background on Tribal Colleges and Universities, and (c) 

an outline of the 1994 Tribal College Land Grant Institutions’ plan for using our 

land grant programs to fulfill the agricultural potential of American Indian communities, and to ensure that American Indians have the skills needed to maximize the 

economic development potential of their resources. 

SUMMARY OF REQUESTS

We respectfully request the following funding levels for fiscal year 2005 for our 

land grant programs established within the USDA Cooperative State Research, 

Education, and Extension Service (CSREES) and Rural Development mission areas. 

In CSREES, we specifically request: $12 million payment into the Native American 

endowment fund; $3.1 million for the higher education equity grants; $5 million for 

the 1994 institutions’ competitive extension grants program; $3 million for the 1994 

Institutions’ competitive research grants program; and in the Rural DevelopmentRural Community Advancement Program (RCAP), that $5 million for each of the 

next five fiscal years be targeted for the tribal college community facilities grants. 

RCAP grants help to address the critical facilities and infrastructure needs at the 

colleges that impede our ability to participate fully as land grant partners. Since 

fiscal year 2001, the RCAP tribal college competitive program has received an annual appropriation of $4 million. 

BACKGROUND ON TRIBAL COLLEGES AND UNIVERSITIES

The first Morrill Act was enacted in 1862 specifically to bring education to the 

people and to serve their fundamental needs. Today, over 140 years after enactment 

of the first land grant legislation, the 1994 Land Grant Institutions, as much as any 

other higher education institutions, exemplify the original intent of the land grant 

legislation, as they are truly community-based institutions. 

The Tribal College Movement was launched in 1968 with the establishment of 

Navajo Community College, now Dine ́ College, serving the Navajo Nation. Rapid 

growth of tribal colleges soon followed, primarily in the Northern Plains region. In 

1972, the first six tribally controlled colleges established the American Indian Higher Education Consortium to provide a support network for member institutions. 

Today, AIHEC represents 34 Tribal Colleges and Universities—32 of which now 

comprise the list of 1994 Land Grant Institutions—located in 12 states created specifically to serve the higher education needs of American Indian students. Annually, 

they serve approximately 30,000 full- and part-time students from over 250 Federally recognized tribes. 

Thirty-one 1 of the 1994 Land Grant Institutions are accredited by independent, 

regional accreditation agencies and like all institutions, must undergo stringent performance reviews on a periodic basis to retain their accreditation status. Tribal colleges serve as community centers by providing libraries, tribal archives, career centers, economic development and business centers, public meeting places, and child 

care centers. Despite their many obligations, functions, and notable achievements, 

tribal colleges remain the most poorly funded institutions of higher education in this 

country. Most of the 1994 Land Grant Institutions are located on Federal trust territory. Therefore, states have no obligation and in most cases, provide no funding 

to tribal colleges. In fact, most states do not even fund our institutions for the nonIndian state residents attending our colleges, leaving the tribal colleges to absorb 

the per student operational costs for non-Indian students enrolled in our institutions, accounting for approximately 20 percent of our student population. Under 

these inequitable financing conditions and unlike our state land grant partners, our 

institutions do not benefit from economies of scale—where the cost per student to 

operate an institution is diminished by the increased size of the student body. 
420 

As a result of 200 years of Federal Indian policy—including policies of termination, assimilation and relocation—many reservation residents live in abject poverty comparable to that found in Third World nations. Through the efforts of Tribal 

Colleges and Universities, American Indian communities are receiving services they 

need to reestablish themselves as responsible, productive, and self-reliant citizens. 

It would be regrettable not to expand the very modest investment in, and capitalize 

on, the human resources that will help open new avenues to economic development, 

specifically through enhancing the 1994 Institutions’ land grant programs, and securing adequate access to information technology. 

1994 LAND GRANT PROGRAMS—AMBITIOUS EFFORTS TO REACH ECONOMIC DEVELOPMENT

POTENTIAL

Sadly, due to lack of expertise and training, millions of acres on our reservations 

lie fallow, under-used, or have been developed through methods that render the resources non-renewable. The Equity in Educational Land Grant Status Act of 1994 

is our hope for rectifying this situation. Our current land grant programs are small, 

yet very important to us. It is essential that American Indians learn more about 

new and evolving technologies for managing our lands. We are committed to being 

productive contributors to the agricultural base of the nation and the world. 

Native American Endowment Fund.—Endowment installments paid into the 1994 

Institutions’ account remain with the U.S. Treasury, only the annual interest, less 

the USDA’s administrative fee, is distributed to the colleges. The latest gross annual 

interest yield (fiscal year 2003) is $1,929,849, after the USDA’s administrative fee 

of $77,194 is deducted; $1,852,655 remains to be distributed among the 31 eligible 

1994 Land Grant Institutions by statutory formula. We believe that the annual administration fee is excessive. Last year, the USDA’s administrative fee of $70,863 

was larger than the interest yield payments distributed to 74 percent of the 1994 

Land Grant Institutions. After the distribution amounts are determined for this 

year’s disbursement we fully expect similar results and therefore ask the Subcommittee to review the administration fee and consider reducing it. More critical 

funding can then be put to work at the 1994 Land Grant Institutions in order to 

accomplish the goals of their community based programs. 

Just as other land grant institutions historically received large grants of land or 

endowments in lieu of land, this endowment assists 1994 Land Grant Institutions 

in establishing and strengthening our academic programs in such areas as curricula 

development, faculty preparation, instruction delivery, and as of fiscal year 2001, to 

help address our critical facilities and infrastructure issues. Many of the colleges 

have used the endowment funds in conjunction with the Education Equity Grant 

funds to develop and implement their academic programs. As earlier stated, tribal 

colleges often serve as primary community centers and although conditions at some 

have improved substantially, many of the colleges still operate under deplorable conditions. Most of the tribal colleges cite improved facilities as one of their top priorities. Several of the colleges have indicated the need for immediate and substantial 

renovations to replace construction materials that have long exceeded their effective 

life span, and to upgrade existing buildings due to accessibility and safety concerns. 

An increased endowment payment would enhance the size of the corpus and 

thereby increase the annual interest yield available to the 1994 land grant colleges. 

This additional funding would be very helpful in our efforts to continue to support 

faculty and staff positions and program needs within Agriculture and Natural Resources departments, as well as to continue to help address the critical and very 

expensive facilities needs at our institutions. Currently, the amount that each college receives from this endowment is not enough to adequately address curricula development and instruction delivery, as well as make even a dent in the necessary 

facilities projects at the colleges. In order for the 1994 Institutions to become full 

partners in this nation’s great land grant system, we need and frankly deserve the 

facilities and infrastructure necessary to engage in education and research programs 

vital to the future health and well being of our reservation communities. We respectfully request the subcommittee build upon this much needed base fund by increasing the fiscal year 2005 endowment fund payment to the $12 million recommended in the President’s Budget. 

1994 Institutions’ Educational Equity Grant Program.—Closely linked with the 

endowment fund, this program currently provides approximately $50,000 per 1994 

Institution to assist in academic programs. Through the modest appropriations 

made available since fiscal year 1996, the tribal colleges have been able to begin 

to support courses and plan activities specifically targeting the unique needs of our 

respective communities. 
421 

The 1994 Institutions have developed and implemented courses and programs in 

natural resource management; environmental sciences; horticulture; forestry; bison 

production and management; and especially food science and nutrition to address 

epidemic rates of diabetes and cardiovascular disease on reservations. If more funds 

were available through the Educational Equity Grant Program, tribal colleges could 

channel more of their endowment yield to supplement other facilities funds to address their critical infrastructure issues. Authorized at $100,000 per eligible 1994 

Institutions, in fiscal year 2004, this program was appropriated at just $1,679,000, 

or about $54,000 per 1994 institution. We respectfully request full funding of $3.1 

million to allow the colleges to build upon the courses and activities that the initial 

funding launched. 

Extension Programs.—The 1994 Institutions’ extension programs strengthen communities through outreach programs designed to bolster economic development; 

community resources; family and youth development; natural resources development; agriculture; as well as health and nutrition awareness. In fiscal year 2004, $2,929,000 was appropriated for the 1994 Institutions’ competitive extension grants, a 13 percent decrease from fiscal year 2003, by far the 

largest percentage decrease of all Smith Lever programs, as the 1862 and 1890 programs received a reduction of just 0.59 percent. Reductions in already sparse funding will significantly limit the 1994 Institutions’ ability to maintain existing programs and to respond to emerging issues such as food safety and homeland security 

especially on border reservations. Additional funds are needed to support these vital 

programs designed to address the inadequate extension services provided to Indian 

reservations by their respective states. It is important to note that the 1994 extension program is specifically designed to complement and build upon the Indian Reservation Extension Agent program, and is not duplicative of other extension activities. For the reasons outlined above, we request the Subcommittee support this competitive program by appropriating $5 million to sustain the growth and further success of these essential community based programs. 

1994 Research Program.—As the 1994 Land Grant Institutions have begun to 

enter into partnerships with 1862/1890 land grant institutions through collaborative 

research projects, impressive efforts to address economic development through land 

use have come to light. Our research program illustrates an ideal combination of 

Federal resources and tribal college-state institutional expertise, with the overall 

impact being far greater than the sum of its parts. We recognize the budget constraints under which Congress is functioning. However, $1.1 million, the fiscal year 

2004 appropriated level of funding, is clearly inadequate for a competitive pool of 

31 institutions. This research program is vital to ensuring that tribal colleges may 

finally become full partners in the nation’s land grant system. Many of our institutions are currently conducting agriculture-based applied research, yet finding the resources to conduct this research to meet their communities’ needs is a constant challenge. This research authority opens the door to new funding opportunities to maintain and expand the research projects begun at the 1994 Institutions, but only if 

adequate funds are appropriated. The following is an example of the projects funded 

under this program: 

—Southwestern Indian Polytechnic Institute (SIPI) serves American Indian/Alaska Native students from across the nation. Currently, SIPI is studying the feasibility of an intensive, extended production of high value crops. This research 

project compares the economic returns from growing raspberries and strawberries under high tunnels to returns from open-field growing conditions, under 

organic management at three sites that consider variations in harvest time and 

duration, and total production. 

Other project areas include soil and water quality, amphibian propagation, pesticide and wildlife research, range cattle species enhancement, and native plant 

preservation for medicinal and economic purposes. We strongly urge the Subcommittee to fund this program at $3 million to enable our institutions to develop 

and strengthen their research potential. 

Rural Community Advancement Program (RCAP).—Beginning in fiscal year 2001, 

each year $4 million of the RCAP funds appropriated for loans and grants to benefit 

Federally recognized Native American tribes have been targeted for community facility grants for improvements at Tribal Colleges and Universities. As stated earlier, 

the facilities at many of the 1994 Land Grant Institutions are in serious need of 

repair and in many cases replacement. We urge the Subcommittee to designate $5 

million of the Native American RCAP funds to address the critical need for improving the facilities at the 1994 Tribal College Land Grant Institutions. Additionally, 

we respectfully request report language directing the Department of Agriculture to 

target a minimum of $5 million for each of the next five fiscal years to allow our 

institutions the means to aggressively address critical facilities needs. 
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CONCLUSION

The 1994 Land Grant Institutions have proven to be efficient and effective tools 

for bringing educational opportunities to American Indians and hope for self-sufficiency to some of this nation’s poorest regions. The modest Federal investment in 

the 1994 Land Grant Institutions has already paid great dividends in terms of increased employment, education, and economic development. Continuation of this investment makes sound moral and fiscal sense. American Indian reservation communities are second to none in their need for effective land grant programs and as earlier stated no institutions better exemplify the original intent of the land grant concept than the 1994 Land Grant Institutions. 

We appreciate your support of the Tribal Colleges and Universities and we ask 

you to renew your commitment to making our communities self-sufficient. We look 

forward to continuing our partnership with you, the U.S. Department of Agriculture, 

and the other members of the nation’s land grant system—a partnership that will 

bring equitable educational, agricultural, and economic opportunities to Indian 

Country. 

Thank you for this opportunity to present our funding proposals to this Subcommittee. We respectfully request your continued support and full consideration of 

our fiscal year 2005 appropriations requests. 

PREPARED STATEMENT OF THE AMERICAN LEGION

National School Lunch Program 

Since 1941, The American Legion has supported programs of nutrition for children, including the National School Lunch Program. This federally-assisted meal 

program operates in more than 99,000 public and non-profit private schools and residential child care institutions, providing nutritionally balanced, low-cost or free 

lunches to more than 25 million children each school day. 

The importance of this nutrition assistance program is underscored by these facts: 

A poor diet is a significant factor in 4 of the 10 leading causes of death in the 

United States—coronary heart disease, cancer, hypertension, stroke and diabetes. 

—Poor nutrition and lack of physical activity account for 300,000 deaths per year. 

—The economic cost of poor nutrition accounts for at least $200 billion per year 

in medical costs and lost productivity. 

—Participation in school feeding programs leads to improved educational outcomes. 

There continues to be expressions of concern by health authorities and various national organizations with an interest in the status of proper nutrition among young 

people. A USDA analysis of the 1994–1996 Continuing Survey of Food Intakes for 

Individuals (CSFII) noted these alarming trends in children’s eating patterns: 

—Only 2 percent of school-aged children meet the Food Guide Pyramid serving 

recommendations for all five major food groups. 

—Girls, ages 14 to 18, have especially low intakes of fruits and dairy products. 

—More than two-thirds of females, ages 14 to 18, exceed the recommendations for 

intake of total fat and saturated fat, but even greater percentages of children 

exceed these recommendations among the other age/gender groups. 

—Children’s diets are high in added sugars. For all children, added sugars—including sugars used as ingredients in processed foods or added to foods as they 

are consumed—contribute an average of 20 percent of total food energy. 

—Children are heavy consumers of regular or diet soda. Overall, 56 to 85 percent 

of children (depending on age and gender) consume soda on any given day. 

Teenage males are especially heavy consumers of soda, with over a third consuming more than three servings a day. 

—All of the age/gender groups experienced a shift from milk products to soda and 

fruit drinks. The decrease in milk consumption tended to be larger for females 

than for males. 

—These trends have contributed to some serious diet-related health concerns. 

—The prevalence of overweight among youth ages 5–17 years in the United States 

has more than doubled in the past 30 years; most of the increase has occurred 

since the late 1970’s. 

—Current evidence suggests that childhood overweight and obesity continue into 

adulthood. 

—One of the most serious aspects of overweight and obesity in children is Type 

II diabetes. Type II diabetes accounted for 2 to 4 percent of all childhood diabetes before 1992, but skyrocketed to 16 percent by 1994. Overweight adolescents 

are more likely to become overweight adults, with increased risk for developing 
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heart disease and stroke, gallbladder disease, arthritis, and endometrial, breast, 

prostate and colon cancers. 

—Failure to meet calcium requirements in childhood can hinder the achievement 

of maximal skeletal growth and bone mineralization. Getting enough calcium in 

the diet during childhood, adolescence, and young adulthood, to reduce the risk 

for osteoporosis later in life is particularly important for females. 

Nutrition clearly has a major impact on children—on their health, their ability 

to learn and on their potential for becoming healthy and productive adults. School 

meals make an important contribution to the nutrition of school-aged children. The 

School Nutrition Dietary Assessment Study-II indicates that reimbursable meals selected by students exceeds the Recommended Dietary Allowances (RDA) standards 

for key nutrients. According to the USDA analysis of the 1994–1996 CSFII data: 

—National School Lunch Program (NSLP) participation is associated with higher 

average intakes of many nutrients, both at lunch and over 24 hours. 

—NSLP participants have substantially lower intakes of added sugars than do 

non-participants. 

—NSLP participants are more likely than non-participants to consume vegetables, 

milk and milk products, and meat and other protein-rich foods, both at lunch 

and over 24 hours; they also consume less soda and fruit drinks. 

Federal nutrition assistance programs have a critical role to play in promoting 

health and preventing diet-related health problems by ensuring access to nutritious 

food to those who need it, and by promoting better diets and physical activity 

through nutrition education and promotion to program participants. The American 

Legion urges Congress to appropriate $10.6 billion for school nutrition programs to 

reflect the increased cost of food and to provide for needed facilities and trained personnel for the purpose of conducting an adequate school lunch program. 

PREPARED STATEMENT OF THE AMERICAN PUBLIC POWER ASSOCIATION

The American Public Power Association (APPA) is the national service organization representing the interests of over 2,000 municipal and other state and locally 

owned utilities throughout the United States (all but Hawaii). Collectively, public 

power utilities deliver electricity to one of every seven electric consumers (approximately 40 million people), serving some of the nation’s largest cities. However, the 

vast majority of APPA’s members serve communities with populations of 10,000 people or less. 

We appreciate the opportunity to submit this statement outlining our fiscal year 

2005 funding priorities within the jurisdiction of the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Subcommittee. 

Department of Agriculture: Rural Utility Service Rural Broadband Loan Program 

APPA urges the Subcommittee to fully fund the Rural Utility Service’s (RUS) 

Rural Broadband Loan Program at $20 million, as authorized in the 2002 Farm Bill, 

and to take all appropriate steps to assist the RUS in facilitating the processing of 

loan funds provided in fiscal year 2002 through fiscal year 2004. A funding level 

of $20 million would produce approximately $700 million in RUS loans for fiscal 

year 2005. 

APPA believes it is important to provide incentives for the deployment of 

broadband to rural communities, many of which lack broadband service. Increasingly, access to advanced communications services is considered vital to a community’s economic and educational development. In addition, the availability of 

broadband service enables rural communities to provide advanced health care 

through telemedicine and to promote regional competitiveness and other benefits 

that contribute to a high quality of life. Approximately one-fourth of APPA’s members are currently providing broadband service in their communities. Several APPA 

members are planning to apply for RUS broadband loans to help them finance their 

broadband projects, and one member—Grant County Public Utility District in 

Washington—applied for an RUS loan last year. 

PREPARED STATEMENT OF THE AMERICAN SHEEP INDUSTRY

The American Sheep Industry Association (ASI) is a federation of state member 

associations representing over 64,000 sheep producers in the United States. The 

sheep industry views numerous agencies and programs of the U.S. Department of 

Agriculture as important to lamb and wool production. Sheep industry priorities include rebuilding and strengthening our infrastructure primarily through the Na-
424 

tional Sheep Industry Improvement Center, critical predator control activities, fully 

funded our national animal health efforts, and expanding research capabilities. 

The rapid changes that have occurred in the domestic sheep industry and continue to take place put further emphasis on the importance of adequately funding 

the U.S. Department of Agriculture programs important to lamb and wool producers. 

We appreciate this opportunity to comment on those portions of the USDA fiscal 

year 2005 budget. 

RURAL DEVELOPMENT

The National Sheep Industry Improvement Center is critical to the industry and 

we fully support appropriations for the balance of authorized spending of $22 million. The Sheep Center is currently involved with an Intermediary Low Interest Direct Loan Program, which became operational in 2000 and has committed $14 million for lamb, wool and goat projects. Loans are being used to fund a variety of large 

and small projects in every region of the country with emphasis on targeting different marketing challenges through value added and niche marketing initiatives. 

The second focus area is a direct grant program that was started in 2002. The Center has approved a grant solicitation process with an increased funding amount for 

fiscal year 2004, which ought to be considered again in fiscal year 2005 with additional appropriations. 

We understand that loan proposals currently under consideration will fully use 

the available funds. The demand for the Center’s funds is increasing and additional 

appropriations will be required to meet the new project requests. Furthermore the 

authority of the Center to receive Federal funds allows for another $22 million during the next 2 fiscal years. The Center is a premier vehicle of the U.S. sheep industry’s adjustment plan and adequate funding is critical to the industry. 

ANIMAL AND PLANT HEALTH INSPECTION SERVICE (APHIS)

Scrapie 

The American Sheep Industry Association is very appreciative for the increased 

appropriations approved in fiscal year 2003 and fiscal year 2004 of $15.47 million. 

USDA/APHIS, along with industry and State regulatory efforts, is now in the position to eradicate scrapie from the United States with a multi-year attack on this 

animal health issue. As the collective and aggressive efforts of Federal and State 

eradication efforts are expanding into slaughter-surveillance and other methods and 

systems, the costs are, as expected, escalating. We urge the subcommittee to support 

the President’s request of $21 million for scrapie eradication in the 2005 budget. 

Scrapie is one of the family of transmissible spongiform encephalopathies (TSEs), 

all of which are the subject of great importance and interest around the globe. 

USDA/APHIS, along with the support and assistance of the livestock and allied industries, began an aggressive program to eradicate scrapie in sheep and goats three 

years ago. The plan USDA/APHIS is implementing will eradicate scrapie by 2010 

and with subsequent monitoring and surveillance would allow the United States to 

be declared scrapie-free by 2017. Becoming scrapie-free will have significant positive 

economic impact to the livestock, meat and feed industries and, of course, rid our 

flocks and herds of this fatal animal disease. 

Essential to the eradication effort being accomplished in a timely manner, is adequate appropriated funds. The program cannot function properly without additional 

personnel, diagnostic support and surveillance activities that depend upon appropriated funds. We strongly urge you to support the level of funding that is specified 

for scrapie in the President’s budget request. Funding of $21 million will provide 

for an achievable scrapie eradication program and the eventual scrapie-free status 

for the United States. As with the other successful animal disease eradication programs conducted by USDA/APHIS in the past, strong programs at the State level 

are key. We therefore urge the subcommittee to send a clear message to USDA to 

budget significant funding toward cooperative agreements with the State animal 

health regulatory partners. 

Wildlife Services 

With well over one-quarter million sheep and lambs lost to predators each year, 

the Wildlife Services (WS) program of USDA–APHIS is vital to the economic survival of the sheep industry. The value of sheep and lambs lost to predators and 

predator control expenses are second only to feed costs for sheep production. Costs 

associated with depredation currently exceed our industry’s veterinary, labor and 

transportation costs. 
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Wildlife Service’s cooperative nature has made it the most cost effective and efficient program within Federal Government in the areas of wildlife management and 

public health and safety. Wildlife Services has more than 2,000 cooperative agreements with agriculture, forestry groups, private industry, state game and fish departments, departments of health, schools, county and local governments to mitigate 

the damage and danger that the public’s wildlife can inflict on private property and 

public health and safety. 

ASI strongly supports the fiscal year 2004 appropriations for Wildlife Services operations and methods development programs, particularly as related to livestock 

protection. We request the Committee restore the funding levels that are decreased 

in the Administration’s fiscal year 2005 budget. We encourage continued recognition 

in the appropriations process for fiscal year 2005 of the importance of aerial hunting 

as one of Wildlife Service’s most efficient and cost-effective core programs and ASI 

supports continued appropriations. It is used not only to protect livestock, wildlife 

and endangered species, but is a crucial component of the Wildlife Services rabies 

control program. 

Similar to the increasing needs in the aerial hunting program we encourage continued emphasis in the programs to assist with management of wolf depredation in 

the states of Montana, Idaho, Wyoming, Minnesota, Wisconsin, Michigan, New Mexico and Arizona. Additionally, program expenses are expected in the states surrounding the Montana, Idaho and Wyoming wolf populations. It is strongly supported that appropriations be provided for $586,000 for additional wolf costs anticipated in Washington, Oregon, Nevada, Utah, Colorado and North Dakota. A regional helicopter proposed for use in the affected areas is supported at $980,000. 

The following additional appropriations are urged for consideration in fiscal year 

2005: 

—Wildlife Services must document its operations in order to conduct program 

analysis and comply with Federal reporting requirements. The agency’s current 

information technology support system has become antiquated, which could result in incomplete data collection and analysis. To update and maintain the information system, an additional $700,000 is needed. 

—Research and Development is needed to improve existing techniques, find new 

methods for capturing and/or discouraging wildlife from preying on livestock or 

other wildlife species, and explore fertility methods (i.e., sterilization and 

immunocontraception) that are economically and socially acceptable. An additional $1,150,000 is needed to meet the research and personnel needs of the National Wildlife Research Center Predator Research Unit. 

—Implementation of Newly Developed Methods including new technologies that 

deal with electronic devices or immunocontraception require significant funds to 

implement. It is recommended that a fund of $2,300,000 be established to take 

the newly developed techniques and test them in actual field conditions to determine their practicability in terms of effectiveness and cost. 

—Livestock protection is the major emphasis of the WS western program and the 

agency frequently receiving requests to assist other types of wildlife damage related issues. For example, concerns over declining native wildlife are being expressed by many state wildlife agencies. WS is being requested to provide assistance to reduce impacts of predation on these species to allow for recovery 

and to avert threatened and endangered species listings. With limited resources 

and employees to accommodate these requests, additional infrastructure and 

equipment is needed to meet these demands. An additional $6,900,000 is necessary to purchase equipment, meet personnel needs to maintain and implement programs, update the data collection system, develop and implement a 

public communication plan, and meet NEPA planning requirements. 

AGRICULTURAL MARKETING SERVICE

Lamb Market Information and Price Discovery Systems 

The sheep industry strongly supports the fiscal year 2005 budget for Market News 

of USDA-Agricultural Marketing Service. Furthermore ASI supports necessary increases in appropriations for the full implementation of the mandatory price-reporting system for livestock. We expect AMS to continue efforts to fully implement the 

price reporting system this fiscal year with the inclusion of the imported lamb meat 

price report. 

FOREIGN AGRICULTURAL SERVICE (FAS)

The sheep industry participates in FAS programs such as the Market Access Program (MAP), Quality Samples Program and the Foreign Market Development Program. ASI strongly supports appropriations at the full authorized level for these 
426 

critical Foreign Agricultural Service programs. ASI is the cooperator for American 

wool and sheep pelts and has achieved solid success in increasing exports of domestic product. Exports of American wool have been increased dramatically with approximately 60 percent of U.S. production now competing overseas. 

NATURAL RESOURCES CONSERVATION SERVICE (NRCS)

ASI urges increased appropriations for the range programs of the Soil Conservation Service to benefit the private range and pasture lands of the United States with 

conservation assistance. We support the budget item and recommend an increased 

level for the Grazing Lands Conservation Initiative, which ASI has worked with, 

along with other livestock and range management organizations, to address this important effort for rangelands in the United States. 

RESEARCH, EDUCATION AND ECONOMICS

Our industry is striving to be profitable and sustainable as a user of and contributor to our natural resource base. Research, both basic and applied, and modern 

educational programming is essential if we are to succeed. We have been disappointed in the decline in resources USDA has been targeting toward sheep research and outreach programs. With net increases in the animal systems category 

of the agriculture research budget, for example, sheep and wool research has either 

declined or remained static for the past several years. In order for the sheep industry to be more globally competitive in the future, we must invest in the discovery 

and adoption of new technologies for producing, processing and marketing lamb and 

wool. We urge the subcommittee to send a strong message to USDA supporting 

sheep research and education funding increases. 

Agricultural Research Service 

We continue to vigorously support the administration’s funding of research concerning emerging and exotic diseases. Emerging and exotic diseases continue to 

have significant impact on our industry due to animal health and trade issues. The 

animal disease portion should be substantial and is urgently needed to protect the 

U.S. livestock industry. We agree that BSE is an extremely important disease issue 

globally and believe that research is needed. With this in mind, we remind the subcommittee that scrapie is a TSE that is endemic in the United States and we recommend that these monies for BSE research be utilized in such a manner that the 

resultant research assists with scrapie eradication needs. We also respectively remind the subcommittee that scientists in the Animal Disease Research Unit 

(ADRU), ARS, Pullman Washington, have made significant progress in the early diagnosis of TSEs, in understanding genetic resistance to TSEs and in understanding 

mechanisms of TSE transmission, which are important in eradication of all TSEs. 

The programs of these scientists at ADRU should be enhanced and expanded to include, for instance, the development of further improvements in rapid and accurate 

TSE detection methods and to provide an understanding of the role of environmental sources of the TSE agent in the transmission of TSEs within the United 

States and world and to further understand the basis of genetic resistance and susceptibility to these devastating diseases. 

We appreciate and support the President’s budget request of $1 million for Animal 

Genomics at ARS/ADRU. Since 2001, Congress has had the foresight to appropriate 

$775,000 each year to this unit for ‘‘Microbial Genomics.’’ Microbial genomics is the 

cornerstone project for their genomic research infrastructure and has resulted in 

very important genome projects for infectious diseases of livestock such as scrapie. 

The $250,000 enhancement of the genomics program at ADRU over the fiscal year 

2004 would enhance the program to include defining the genes involved in the immune response of sheep to important emerging diseases such as MCF and ovine progressive pneumonia virus. 

We also urge the subcommittee to recommend the restoration of $496,000 for Malignant Catarrhal Fever (MCF) at the ARS/ADRU in Pullman for the fiscal year 

2005 budget. MCF is a viral disease of ruminants that is of great concern to our 

livestock industries. The exotic variant of MCF is considered a high priority select 

agent. This funding is provided for collaborative research with the U.S. Sheep Experiment Station, Dubois ID, for vaccine development directed at preventing transmission of MCF. 

Research into Johne’s disease has received additional funding through ARS over 

the past several years, focusing on cattle. Johne’s disease is also endemic in the U.S. 

sheep population and is not well understood as a sheep disease. The same food safety concerns exist in both sheep and cattle; other countries are also very concerned 

about Johne’s in sheep. We urge the subcommittee to send a strong message to ARS 
427 

that Johne’s disease in sheep should receive more attention at the National Animal 

Disease Research Center (NADC) with an emphasis on diagnostics. 

Economic Research Service 

ASI appreciates the subcommittees’ support of USDA/ERS and the accomplishment of publicly available retail price data on lamb as initiated last year. We urge 

continued support of funding for mandatory price reporting including collection and 

reporting of retail lamb price data. 

COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE (CSREES)

The Minor Use Animal Drug Program is funded through a ‘‘Special Research 

Grant’’ that has had great benefit to the U.S. sheep industry. The research under 

this category and the companion ‘‘NRSP–7’’ program through FDA/CVM has provided research information on therapeutic drugs that are needed for the approval 

process. Without this program, American sheep producers would not have effective 

products to keep their sheep healthy. We appreciate the Administration’s request 

of $588,000 for this program, and we urge the subcommittee to recommend that it 

be funded at least at this level to help meet the needs of our rapidly changing industry and increasing costs for research necessary to meet the requirements for approving additional therapeutics for sheep. 

On-going funding for the Food Animal Residue Avoidance Databank (FARAD) program is critically important for the livestock industry in general and especially for 

‘‘minor species’’ industries such as sheep where extra-label use of therapeutic products is more the norm rather than the exception. FARAD provides veterinarians the 

ability to accurately prescribe products with appropriate withdrawal times protecting both animal and human health. We urge the subcommittee to restore funding for FARAD at least to the level of $800,000. 

Ongoing research in wool is critically important to the sheep and wool industry. 

ASI urges the subcommittee’s support of $294,000 for fiscal year 2005 through the 

special grants program of the CSREES for wool research. 

Ongoing research for the Montana Sheep Institute is important to the sheep and 

wool industry. Sheep grazing is being used as an important tool for natural resource 

management to improve the competitiveness of lamb and wool in the marketplace. 

ASI encourages the subcommittee’s support of funding at $556,360. 

The research and education programs conducted through the Joe Skeen Institute 

for Rangeland Restoration provide valuable information for sheep producers in the 

western United States. ASI urges the subcommittee to restore the funding to the 

originally proposed $1,000,000 in fiscal year 2003. 

The industry greatly appreciates this opportunity to discuss these programs and 

appropriations important to the sheep industry. 

PREPARED STATEMENT OF THE AMERICAN SOCIETY FOR MICROBIOLOGY

The American Society for Microbiology (ASM), the largest single life science society with a membership of over 43,000, appreciates the opportunity to submit testimony in support of the fiscal year 2005 budget for the Food and Drug Administration (FDA). The FDA serves as the science-based protector of public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, the food supply, consumer products and by responding to new 

challenges of bioterrorism and food defense. The FDA also advances health care by 

taking steps to improve and ensure new medical product development based on biomedical research. It is critical that FDA maintain the highest level of public trust 

in all of its activities and increased funding is vital to its success and its critical 

mission initiatives. 

The ASM supports the Administration’s fiscal year 2005 budget request of $1.8 

billion which represents an 8.8 percent increase over the fiscal year 2004 funding 

level. This increase will enhance security of the nation’s domestic and imported food 

supply and support stronger FDA review of medical devices, better protection 

against bovine spongiform encephalopathy (BSE), and more efficient work output 

through further consolidation of FDA facilities. The increase recognizes the important activities of the FDA in improving patient and consumer safety and responding 

to new challenges of bioterrorism and food defense. The FDA is a principal partner 

in inter-agency homeland security strategies. 

Science-based decision making and a well-trained workforce make the FDA an effective and reliable guardian of public health. As the U.S. population grows and 

threats to public safety persist, demands on the FDA are multiplying in number and 

complexity. Changes in global trade and international politics affect the FDA mis-
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sion as well. Last year for instance, the FDA conducted nearly 80,000 imported food 

examinations, up from 12,000 in 2001. The agency must remain highly responsive 

both to on-going consumer needs and to unexpected emergency situations. In 2003 

the FDA activated its Emergency Operations Center to respond to the first reported 

United States case of BSE and to participate in a two-city, full-scale counterterrorism exercise of a simulated detonation of a nuclear device and the release of 

the pneumonic plague pathogen. 

Food Defense and National Security 

Over the past three years, the FDA has worked to improve food security by adding more inspections of imported food, trained investigators, and port of entry security measures. Protecting the food consumed by over 290 million Americans demands major effort from the FDA and its staff. The agency directly oversees the 

safety of about 80 percent of the nation’s food supply and assists the U.S. Department of Agriculture (USDA) on the remainder. Nearly half of the proposed $149 million budget increase, an amount of $65 million, would further broaden the FDA’s 

capabilities to guarantee and defend the national food supply to an fiscal year 2005 

total of $181 million. 

This allocation would support the key food defense strategies already being implemented by the agency: increase food security awareness among public and private 

stakeholders; develop advanced capacities to identify specific threats or attacks on 

the food supply; design additional protection to shield the food supply from terrorist 

attack; fine-tune rapid coordinated response capability in the event of a foodborne 

terrorist attack; and enhance the capacity for a quick recovery if such an attack did 

harm any residents of the United States. 

Of the proposed $65 million increase, $35 million would establish a joint FDAUSDA network of qualified investigative laboratories, the Food Emergency Response 

Network (FERN). Throughout its long history, the FDA has optimized consumer 

protection by collaborating with states, other Federal agencies, law enforcement, industry, academic institutions and others in the areas of research, information exchange, and emergency responses. The FERN program will continue this tradition 

by creating a nationwide network of Federal and State laboratories capable of testing thousands of food samples for biological, chemical, and radiological threat 

agents. It will add 15 FDA-funded state laboratories to the 10 labs planned for fiscal 

year 2004, all to possess advanced instrumentation and pathogen containment capabilities. The program also incorporates FDA research on new testing methods that 

could shorten the time needed to detect foodborne threats. The FDA will expand to 

104 the number of state health and agricultural laboratories connected through its 

electronic network, eLEXNET, to facilitate exchange of lab data critical in first-alert 

situations. 

Basic research underlies every application applied by the FDA in its search for 

possible foodborne health hazards. Within the fiscal year 2005 increase, $15 million 

would fund intramural and extramural research on methods development, characteristics of specific foodborne pathogens, and new prevention technologies to improve 

food safety—results subsequently would help shape new guidelines and performance 

standards for the food production industry. Better understanding of how pathogens 

survive in foods during processing and storage and of the doses of pathogens needed 

to cause disease will provide superior prevention protocols. FDA funded research 

also discovers new microbiological, chemical, and radiological methods to detect and 

identify biothreats found in food. 

Surveillance constitutes a large part of the FDA’s protection of the food supply. 

In fiscal year 2005, the FDA intends to conduct nearly 26,000 inspections of domestic food production firms, almost 11 times the investigations done in fiscal year 

2001. FDA inspectors also will perform 97,000 import-food field inspections, more 

than 60 percent over last year and seven times the number in fiscal year 2001. The 

$7 million within the proposed fiscal year 2005 increase earmarked for increased 

food inspections would help alleviate the burgeoning potential of contaminated food 

imports, though many thousands of imported food shipments would remain left unchecked. The FDA will soon implement its component of the Public Health Security 

and Bioterrorism Preparedness and Response Act of 2002, which among other measures will require the registration of food facilities and advance notice of food imports. In the fiscal year 2005 food defense increase, the FDA also would receive $5 

million for its role in the new interagency Biosurveillance Initiative developed to improve the Federal Government’s capability to rapidly identify and characterize bioterrorist attacks. When in place, the Biosurveillance Initiative will shorten the time 

needed to alert the nation to such an attack. Towards this goal, the FDA will coordinate existing state and Federal food surveillance networks to facilitate communications on outbreaks and other events related to foodborne illness. The remaining $3 
429 

million of the proposed funding increases for food defense would upgrade the FDA’s 

intra-agency communication system used by personnel during emergencies. 

Contamination of the food supply not only threatens public health; the economic 

and political ramifications are enormous, as evidenced by costly export embargoes 

recently triggered by fear of BSE in meat products. More than 30 countries have 

banned the import of American beef, in response to last December’s discovery of an 

imported BSE-infected dairy cow. The Federal Government just announced that up 

to 300,000 U.S. cattle may be tested for BSE each year, which would require some 

new, FDA-approved rapid screening test to succeed. The President’s budget includes 

more than $8 million to fund new FDA safeguards against BSE. This would increase 

FDA’s funding to stop BSE to $30 million in fiscal year 2005. 

Most of the $8 million will be used for field activities under the FDA’s Animal 

Drugs and Feeds program, including an additional 920 risk-based inspections, 600 

targeted sample collections/analyses, and at least 2,500 state inspections of animal 

feed firms. Animal feed contaminated with the BSE agent is the only known route 

of BSE transmission. As the agency responsible for animal feeds used in food production, this year the FDA will inspect 100 percent of feed mills and renderers. The 

FDA’s more aggressive approach to BSE also will involve evaluating new commercial BSE screening tests like polymerase chain reaction techniques and educating 

even more food producers on new and updated regulations. In January, the FDA announced additional, more-rigid safeguards to prevent potentially BSE-contaminated 

animal parts from entering either the food supply or health care products. 

Medical Products and Public Safety 

The ASM supports the Administration’s proposed fiscal year 2005 funding levels 

for FDA regulation of medical-use products, including medical devices, human 

drugs, and biologics such as vaccines and gene therapies. The budget includes $252 

million for the Medical Devices program, a $26 million increase over fiscal year 

2004. The program plans to more rapidly review new products, while increasing the 

number of products reviewed in a time period. The Human Drugs program would 

receive $499 million, an increase of $23 million, and the Biologics program, $173 

million, or $4 million more than last fiscal year. All medical products are evaluated 

by the FDA for safety and efficacy before entering the U.S. marketplace. In fiscal 

year 2003, the FDA approved 466 new and generic drugs and biological products, 

following extensive science-based evaluations. Agency personnel also monitor the 

10,000 drugs already on the market. FDA oversight of these products has both public health and national security significance, under the goal of more quickly reviewing new products and making them available to the nation’s health care systems 

and defense agencies and to the public. 

FDA is the only government agency involved with the approval of products necessary to prevent or treat human exposure to terrorist agents. Given the unpredictability of emergencies, the FDA must be able to respond to product needs at any 

point along the product production pipeline. The Administration has included $5 

million in the fiscal year 2005 budget proposal to support the FDA’s role in Project 

Bioshield, an inter-agency initiative to ensure medical readiness in the event of war 

or a catastrophic event. The FDA’s role in Project Bioshield is the expedited review 

of specialized products and medical countermeasures for at-risk populations, such 

as the military, first responders, those near nuclear facilities, and others. FDA plans 

collaboration with the CDC on plague in African countries, and with the National 

Institute of Allergy and Infectious Diseases on studies to determine the lowest effective antibiotic dose to treat pneumonic plague. Like the other Federal agencies involved in Project Bioshield, the FDA must be able to respond quickly and correctly 

to emergencies, using its best science-based capabilities. 

The ASM recommends continuing commitment and support by Congress for the 

important public health protection work of FDA. Increased funding will help enable 

FDA to perform its responsibilities to ensure access to safe and effective medical 

countermeasures against potential biological, chemical or radiological terrorism, consumer product safety, food safety, accurate product information and safe and effective drug and device evaluations. Additional funding will help to ensure that FDA 

can develop and maintain a highly skilled scientific workforce and that science 

based decision-making continues to be strong at all of FDA’s research centers. 

PREPARED STATEMENT OF THE AMERICAN SOCIETY FOR MICROBIOLOGY

The American Society for Microbiology (ASM) appreciates the opportunity to submit testimony on the fiscal year 2005 appropriation for the United States Department of Agriculture (USDA). The ASM is the largest single life science organization 
430 

in the world, with more than 43,000 members who work in academic, industrial, 

medical, and governmental institutions worldwide. The ASM’s mission is to enhance 

the science of microbiology, to gain a better understanding of life processes, and to 

promote the application of this knowledge for improved health, and for economic and 

environmental well-being. 

The USDA sponsors research and education programs which contribute to solving 

agricultural problems of high national priority and sustaining safe food and a competitive agricultural economy. United States agriculture faces new challenges, including threats from emerging infectious diseases in plants and animals, climate 

change, and public concern about food safety and security. It is critical to increase 

the visibility and investment in agriculture research to respond to these challenges. 

The following testimony will focus on USDA’s research and education programs. 

The ASM supports increases proposed for the USDA Food and Agriculture Defense Initiative, the Bovine Spongiform Encephalopathy (BSE) Initiative, and the 

Genomics Initiative. The ASM recommends greater emphasis on funding for research in these programs. Microbiological research in agriculture is vital to understanding and finding solutions to foodborne diseases, new and emerging plant and 

animal diseases, and the development of new agriculture products and processes. 

Unfortunately, Federal investment in agricultural research has not kept pace with 

the need for additional agricultural research to solve emerging problems. According 

to National Science Foundation (NSF) data, agriculture research makes up only 4 

percent of Federal funds devoted to basic research. ASM urges Congress to provide 

increased funding for research programs within the USDA. 

USDA National Research Initiative Competitive Grants Program 

The National Research Initiative Competitive Grants Program (NRI) was established in 1991 in response to recommendations outlined in Investing in Research: 

A Proposal to Strengthen the Agricultural, Food and Environmental System, a 1989 

report by the National Research Council’s (NRC) Board on Agriculture. This publication called for increased funding of high priority research, that is supported by 

USDA through a competitive peer-review process directed at: 

—Increasing the competitiveness of U.S. agriculture. 

—Improving human health and well-being through an abundant, safe, and highquality food supply. 

—Sustaining the quality and productivity of the natural resources upon which agriculture depends. 

Continued interest in and support of the NRI is reflected in two subsequent NRC 

reports, Investing in the National Research Initiative: An Update of the Competitive 

Grants Program of the U.S. Department of Agriculture, published in 1994, and National Research Initiative: A Vital Competitive Grants Program in Food, Fiber, and 

Natural Resources Research, published in 2000. 

Today, the NRI, housed within USDA’s Cooperative State Research, Education, 

and Extension Service (CSREES), supports research on key problems of national 

and regional importance in biological, environmental, physical, and social sciences 

relevant to agriculture, food, and the environment on a peer-reviewed, competitive 

basis. Additionally, NRI enables USDA to develop new partnerships with other Federal agencies that advance agricultural science. An example of such collaboration is 

USDA’s partnership with the NSF on the Microbe Project. 

In fiscal year 2004, funding for NRI suffered a decrease of $2 million from fiscal 

year 2003, providing just $164 million. Comparatively, the USDA requested $180 

million for NRI in fiscal year 2005, a decrease of $20 million from the request for 

fiscal year 2004, and a decrease of $60 million from the request for fiscal year 2003. 

NRI can fund only between 14–15 percent of the high quality research proposals received, while agencies such as the National Institutes of Health (NIH) and the NSF 

fund between 20–30 percent of the research proposals. ASM urges Congress to fund 

NRI at the President’s requested level for fiscal year 2003 of $240 million in fiscal 

year 2005. Increased funding for competitive, peer reviewed grants is needed to increase the size and number of awards and to pursue more research opportunities. 

Additional funding for the NRI is needed to expand research in microbial genomics 

and to provide more funding for merit reviewed basic research with long-term potential for new discoveries. Without an increase in funding for NRI, the following critical research will be severely limited: 

—Research showing linkages between food and human diseases; 

—Research showing new ways to combat insects, weeds, plant and animal disease 

in fields and ranches; 

—Research that helps keep pathogens and other dangers out of our air, water, 

soil, plants, and animals; 
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—Research establishing new crops, improved livestock and economic opportunities; 

—Research that creates new food and processing techniques, producing greater 

value and profitability; 

—Research on air culture to adapt to and mitigate climate change. 

USDA Food and Agriculture Defense Initiative 

The Food and Agriculture Defense Initiative is an interagency initiative to improve the Federal Government’s capability to rapidly identify and characterize a bioterrorist attack, by improving the national surveillance capabilities in human 

health, food, agriculture, and environmental monitoring. The President’s request for 

this initiative within the USDA budget is $381 million for fiscal year 2005, an increase of $79 million over fiscal year 2004. This funding will go towards: 

Enhancing food defense by: 

—Increasing surveillance and monitoring of pathogens and other hazards in meat, 

poultry and eggs and establishing connectivity with the integration and analysis 

function at the Department of Homeland Security (DHS); 

—Establishing a Food Emergency Response Network (FERN) with participating 

laboratories including implementation of the Electronic Laboratory Exchange 

Network (eLEXNET) and an electronic methods repository; and strengthening 

research to develop diagnostic methods for quickly identifying various pathogens and contaminated foods; and 

—Developing diagnostic methods to quickly identify pathogens and contaminated 

foods. 

Enhancing agriculture defense by: 

—Providing funds for completing the consolidated state-of-the-art BSL–3 animal 

research and diagnostic laboratory at Ames, Iowa; 

—Establishing a National Plant Disease Recovery System that will quickly coordinate with the seed industry to provide producers with resistant stock before the 

next planting season in the event of a natural or intentional catastrophic disease or pest outbreak; 

—Expanding the Regional Diagnostic Network with links to the National Agricultural Pest Information System; 

—Establishing a Higher Education Agrosecurity Program that will provide capacity building grants to universities for interdisciplinary degree programs to prepare food defense professionals; 

—Substantially enhancing the monitoring and surveillance of pests and diseases 

in plants and animals, including targeted National wildlife surveillance; 

—Increasing State Cooperative Agreements to better select and identify plant and 

animal health threats; 

—Increasing biosurveillance of pests and diseases in plants and animals and establishing connectivity with the integration and analysis function at DHS; 

—Establishing a system to track select disease agents of plants; and 

—Increasing the availability of vaccines through the National veterinary vaccine 

bank. 

ASM believes there should be greater emphasis on research in the Food and Agriculture Defense Initiative, which provides just a small portion of funding, $31 million, for research of the overall $381 million requested for this initiative. ASM recommends an increase in funding, both extramurally and intramurally, for research 

on pathogenic microorganisms as part of the Food and Agriculture Defense Initiative. 

USDA BSE Initiative 

In the wake of the discovery of the first incident of BSE in a Holstein cow from 

Washington State, the USDA has requested an increase for BSE related activities 

of $47 million in fiscal year 2005 over fiscal year 2004, for a total of $60 million. 

USDA has allocated only $5 million of the total request for BSE activities related 

to research. This level of funding for research is inappropriately low. ASM urges 

Congress to increase the funding level for BSE research above the $5 million requested. Basic research is essential in this area for the development of scientifically 

sound prevention strategies. 

Food Safety 

The USDA plays a key role in the government’s effort to reduce the incidence of 

foodborne illness. Continued and sustained research is important to safeguarding 

the nation’s food supply and focusing on methods and technologies to prevent microbial foodborne disease and emerging pathogens. Although increases are provided for 

the Food and Agriculture Defense Initiative, for the Food Safety and Inspection 
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Service, and for BSE activities, we note that funding for food safety is level within 

ARS and only a small increase is provided within CSREES. 

Genomics Initiative 

The NRI and the ARS fund USDA collaborative efforts in the field of genomics. 

There are opportunities to leverage USDA investments with those of the NIH, the 

Department of Energy, and the NSF in projects to map and sequence the genomes 

of agriculturally important species of plants, animals, and microbes. USDA plays an 

important role in coordinating and participating in interagency workgroups on domestic animal, microbial, and plant genomics. Access to genomic information and 

the new tools to exploit it have implications for virtually all aspects of agriculture. 

In 2005, the NRI will support investments in functional genomics and databases. 

The USDA budget requests a $12 million increase in animal and plant genomics research within the ARS, although the current funding levels are not specified in the 

budget request. There is no specific increase in the NRI for this initiative which suggests the program may have to reallocate from other under-funded programs to support this initiative. 

Emerging Infectious Diseases in Plants and Animals 

The food production and distribution system in the United States is vulnerable 

to the introduction of pathogens and toxins through natural processes, global commerce, and intentional means. The ASM supports increases in the USDA research 

budget for emerging diseases and invasive species. Nearly 200 zoonotic diseases can 

be naturally transmitted from animals to man. For emerging diseases to be effectively detected and controlled, the biology and ecology of the causal pathogens must 

be understood and weaknesses exploited to limit their spread. This research will 

help address the risk to humans from zoonotic diseases and the safety of animal 

products. Additionally, expanded research is needed to accelerate the development 

of information and technologies for the protection of United States livestock, poultry, 

wildlife and human health against zoonotic diseases. 

Antimicrobial Resistance Research 

The USDA plays a key role in addressing the national and global increase in antimicrobial resistance and the complex issues surrounding this public health threat. 

The ARS Strategic Plan for 2003–2007 states the need to ‘‘determine how antimicrobial resistance is acquired, transmitted, maintained, in food-producing animals, and develop technologies or altered management strategies to control its occurrence.’’ In 1996, the Department of Health and Human Services (HHS) and the 

USDA established the National Antimicrobial Resistance Monitoring System 

(NARMS) to monitor trends in antimicrobial resistance in foodborne pathogens. 

USDA support for this project should continue. USDA research also has a vital role 

to play in controlling the emergence of resistance in pathogens associated with food 

through NRI funded grants. ASM urges Congress to increase support for antimicrobial resistance surveillance, research, prevention, and control programs. 

Conclusion 

The USDA’s mission and goals include leadership on food, agriculture, and natural resources, based on sound public policy, the best available science, and efficient 

management. With a significant investment in research, USDA will be better able 

to meet its goals. ASM urges Congress to provide sufficient funding for research at 

USDA increasing funding for agricultural research programs, including providing 

$240 million for NRI. 

The ASM appreciates the opportunity to provide written testimony and would be 

pleased to assist the Subcommittee as the Department of Agriculture bill is considered throughout the appropriations process. 

PREPARED STATEMENT OF THE AMERICAN SOCIETY FOR NUTRITIONAL SCIENCES

(ASNS) 

The American Society for Nutritional Sciences (ASNS) is the principal professional organization of nutrition research scientists in the United States representing 

3,000 members whose purpose is to develop and extend the knowledge and application of nutrition science. Our members include scientists involved in human as well 

as animal nutrition research. ASNS members hold positions in virtually every land 

grant, private institution, and medical school engaged in nutrition-related research 

in the United States as well as industrial enterprises conducting nutrition and foodrelated research. 
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1 National Research Initiative: A Vital Competitive Grants Program in Food, Fiber, and Natural Resources Research. National Research Council, National Academy Press, Washington, 

D.C. 2000. 

RESEARCH FUNDING MECHANISMS AND ISSUES

Competitive Grants 

The NRC report, National Research Initiative (NRI), suggests that inadequate 

funding for competitive research has ‘‘limited its potential and placed the NRI program at risk.’’ 1 A competitive system for allocating government research funds is 

the most effective and efficient mechanism for focusing efforts on cutting edge research aimed at improving the health of the American people. Competitive grants 

provide the highest economic return to the public. ASNS strongly supports the competitive grants process as reflected in the NRI and believes that an open, merit and 

peer review process, applied as extensively as possible throughout the research system, is the preferred way to distribute research funds among qualified scientists and 

to support the most meritorious new concepts. ASNS also supports the finding in 

the National Academies Report, Frontiers in Agricultural Research that total competitive grants should be substantially increased to and sustained at 20–30 percent 

of the total portfolio. For these reasons, we strongly urge this subcommittee to consider an appropriation of $200 million for the NRI competitive grants program as 

an important step toward the original authorized level of $500 million. 

Indirect Costs Cutting-edge research requires substantial investment in buildings 

and instrumentation. The USDA provides partial reimbursements for these indirect, 

but necessary, costs of research as part of grant funding. While we appreciate the 

efforts to raise the Congressionally mandated cap to 20 percent, the partial reimbursement for buildings and instrumentation still remains a significant disincentive 

for many university faculty to seek USDA funding. Furthermore, a diminutive facilities reimbursement significantly impairs the ability of universities to meet their 

fixed obligations such as, building and facility maintenance, and prevents them from 

further investing in needed facilities in the future. ASNS strongly urges that the 

USDA indirect costs rate be raised and made commensurate with the rate of other 

federal agencies. The best and brightest scientists in the United States are being 

deterred from agricultural research to the detriment of U.S. agriculture and the consumers of its commodities because universities discourage their researchers to apply 

for grants that when full indirect costs cannot be recovered. Furthermore, increasing 

the cap on fixed costs from 20 percent should not come at the expense of the overall 

agricultural research budget and its competitive grant programs. 

Nutrition Monitoring 

Under an agreement between the Department of Health and Human Services 

(DHHS), the Center for Disease Control and Prevention (CDC), the National Center 

for Health Statistics (NCHS), and the USDA Agricultural Research Service (ARS/ 

USDA), the ARS and NCHS has agreed to collaborate on a program of nutrition 

monitoring. This agreement establishes a cooperative diet and nutrition monitoring 

program integrating previously conducted Continuing Survey of Food Intakes by Individuals (CFSII) and the National Health and Nutrition Examination Survey 

(NHANES), which was designed to assess food consumption and related behavior in 

the U.S. population using personal interviews. The most recent survey was conducted in 1998. This appropriations sub-committee has long supported USDA’s role 

in food security, progress on foot and mouth disease, WIC, and prevention of diseases such as diabetes, cancer, and heart disease. ASNS requests your support for 

data collection via nutrition monitoring which is essential to policy making in all 

of these areas. 

The Human Nutrition section of the 2005 budget proposal includes an increase 

of $5 million for research in support of the Administration’s Healthier U.S. Initiative. This research ‘‘will be pursued to define the role of nutrients and other food 

components in promoting health and preventing obesity and related diseases.’’ Additionally, we support the $3 million slated for the Economic Research Service (ERS) 

to carry out a Flexible Consumer Behavior Module to assess the relationship between individuals’ knowledge and attitudes about dietary guidance and food safety 

and their food-choices. Data for this survey will be collected in conjunction with the 

National Health and Nutrition Examination Survey. Finally, we request $8.7 million for the Consumer Date and Information Initiative proposed for USDA’s Economic Research Service (ERS). This data and analysis framework will provide information on diets, knowledge and information levels, and health status. Such information will help policymakers respond to current events, such as the rise in obesity 

which is especially troublesome in minority populations. 
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2Frontiers in Agricultural Research: Food, Health, Environment, and Communities, National 

Research Council of the National Academies, 2002. 

THE NEED FOR FEDERALLY FUNDED NUTRITION-RELATED RESEARCH

The need for increased nutrition science and research is critical within the USDA. 

As stated in the recent report of the National Academies, ‘‘despite food and nutrition 

assistance programs, hunger and food insecurity persist in the United 

States . . . in addition, prevalence of overweight and obesity among U.S. adults 

has increased over the last three decades... and the percentage of overweight 

children and adolescents has also increased.’’ We already know that many chronic 

diseases are weight-related, including diabetes, cancer, heart disease, stroke, and 

hypertension. There is an urgent need for increased research to ‘‘guide and evaluate 

food and nutrition policies and interventions at multiple levels and settings, including individual, family, school, worksite, retail, marketing, and production.’’ 2

Increasing populations, international economic competitiveness, improving the environment and minimizing healthcare costs through disease prevention are all areas 

that will continue to demand solutions for the future. These solutions will include 

advances in the understanding of the genetic basis of disease and the genetic basis 

of nutrient requirements for optimal health, which will require greater understanding of how nutrition and dietary information can be used for disease prevention in at-risk populations. 

The economic impact on society in healthcare costs produced by advances in nutrition research is significant in the number of dollars saved by the American taxpayer. As health costs continue to rise, it is imperative that our medical practices 

take a preventive approach. This requires a thorough understanding of the role of 

nutrients in foods in preventing chronic illnesses such as heart disease, cancer and 

diabetes. Most of the recent work on nutrient content and availability in various 

foods has come from USDA-National Research Initiative Competitive Grants Program (NRICGP) supported research. 

NUTRITION-RELATED RESEARCH OPPORTUNITIES AND ACCOMPLISHMENTS

Obesity 

Nutrition and physical activity are the two most important factors in the prevention of many chronic diseases such as diabetes, heart disease, stroke, and cancer. 

The United States Center for Disease Control (CDC) calls obesity the number one 

health problem in America. Current estimates show that half the American population will be clinically obese by the year 2030. The direct costs of treating complications of obesity, plus the indirect costs from lost productivity, represent a $100 billion annual burden on the U.S. economy. For these reasons the Federal Government 

needs to play a larger role in finding more effective treatments and ways to prevent 

this disease that is linked to so many other chronic diseases. 

NRICGP—funded obesity research that has made significant advances in nutrition and human health include: 

—Using mice as research models to study mechanisms of obesity; USDA NRIfunded researchers are studying the compromised hormone recognition in dietinduced obesity (http://www.reeusda.gov/nri/pubs/highlights/2001PDFs/No6.pdf). 

—NRI researchers have observed that prepregnant overweight or obese women 

were associated with failure to initiate and sustain lactation. They concluded 

that a reduction in the prolactin response to suckling represents one biological 

mechanism that could help to explain the early lactation failure observed in 

overweight and obese women. 

—Food, Phytonutrients and Health 

Research in areas of bioactive food components will lead to a better understanding 

of the most promising food compounds that can address major health threats. Other 

areas offering great promise include improving the nutrient content of foods by 

modifying fats in plant and animal products to reduce cardiovascular disease, cancer 

and diabetes risk as well as research on how consumers select and use food and how 

food intake is linked to health. 

—The USDA was the lead U.S. agency in the International Rice Genome Sequencing Project, which led to the published initial sequences for two varieties of rice 

(Science 296:32–35 (2002)). 

—USDA–NRI supported studies in recent years have led to a new understanding 

of folate requirements and health effects. Dietary studies of nonpregnant 

women provided strong evidence that folate intakes similar to the previouslyheld RDA were not adequate to support metabolic needs. Other studies have 

shown that an adequate folate intake in women of child-bearing age minimizes 
435 

the risk of certain birth defects should they become pregnant. Ongoing studies 

are examining the role of an adequate folate intake in maintaining health by 

reducing the risk of cardiovascular disease and certain cancers. 

—Flavonoids are non-essential nutrients found in all plant foods and plant-derived beverages. Epidemiological studies have shown that these compounds are 

protective against various cancers. USDA-funded researchers have found that 

a flavonoid-inducible enzyme is important in inactivation of the major cookedfood mutagen and colon carcinogen in cell cultures. Studies to determine the 

bioavailability of the active flavonoids in rats and humans are ongoing. 

—Soy isoflavones and vitamin E may reduce the risk of fractures in osteoporotic 

women. Osteoporosis-related fractures are an enormous public health problem. 

Scientists are studying the effects of soy isoflavones and vitamin E on fracture 

healing and bone quality in a rat model that mimics osteoporotic fracture in 

postmenopausal women. They found that the combination of soy isoflavones and 

vitamin E at 1,000 and 525 mg/kg diet, respectively, was effective in bringing 

bone mineral content of the femur to levels similar to those of intact, non-ovarian hormone deficient rats. 

—Dietary omega-3 fatty acids affect immune function. Omega-3 fatty acids are essential for the normal development and function of the neonatal brain and retina. However, the consumption of a diet rich in omega-3 fatty acids may impair 

infectious disease resistance against certain pathogens. Results can be used to 

formulate future recommendations for dietary omega-3 fatty acid intakes for 

human. 

—Cows that eat fish oil as part of their feed produce milk with higher concentrations of conjugated linoleic acid, a compound shown to help prevent cancer. 

USDA-funded research shows that butter, yogurt, and ice cream produced from 

this milk also contains healthful compounds and that consumers like the taste. 

—Efforts are under way to develop a corn hybrid that will synthesize genistein, 

an isoflavone in soybeans that protects against breast, prostate, and colon cancers. 

Conclusion 

ASNS appreciates the proactive approach to the Subcommittee in supporting research at the USDA in the past and looks forward to the continued growth of research at and through the USDA in the critical areas of nutrition and disease prevention issues. Thank you for considering our request for the NRI and other important research programs within the USDA. We hope that you will call upon the expertise of our members as the Committee continues to deliberate these very important research areas. 

PREPARED STATEMENT OF THE AMERICAN SOCIETY OF PLANT BIOLOGISTS (ASPB) 

The American Society of Plant Biologists (ASPB), representing nearly 6,000 plant 

scientists, appreciates this opportunity to submit comments to the Subcommittee for 

its consideration of fiscal year 2005 appropriations for research sponsored by the Department of Agriculture. 

ASPB supports the fiscal year 2005 budget request of the Department of Agriculture of $180 million for the National Research Initiative Competitive Grants Program (NRI). The NRI supports research into fundamental questions that lead to 

new enhanced crops, technologies and practices in agriculture. These research findings help address critical needs of the nation’s farmers. NRI-sponsored plant research is needed to help prevent future losses of crops to pests, diseases and adverse 

weather conditions, such as drought and freezing. 

Advances in science made possible through the NRI will enable farmers to reduce 

their dependency on pesticides and antibiotics and to protect the water supply, soils 

and fragile ecosystems. 

Research sponsored by the NRI contributes to higher yields and safer foods. The 

NRI contributes to the talent pool of agricultural scientists in the states and nation 

to better serve the needs of producers and consumers. Without grant support from 

the NRI, the agricultural research community in our nation would be severely weakened. 

The National Research Council Board on Agriculture and Natural Resources Committee report on the NRI in 2000 strongly endorsed support for this competitive 

grants program. The NRC committee recommended that a major emphasis of the 

NRI continue to be the support of high-risk research with potential long-term payoffs. Much of this research would be classified as fundamental in the traditional use 

of this term. 
436 

A major conclusion of the NRC committee was that, ‘‘Without a dramatically enhanced commitment to merit-based peer-reviewed, food, fiber and natural resources 

research, the nation places itself at risk.’’ 

Continued support for a balanced research portfolio in the Department including 

intramural and extramural research is needed to address the many and sometimes 

devastating problems farmers face in growing crops. The Department of Agriculture’s Agricultural Research Service (ARS) continues to address very effectively 

many important research questions for American agriculture. 

Helping America’s farmers meet the food production needs of the nation’s people 

and millions more overseas places huge demands on the research community. Researchers supported by the NRI and ARS are called upon to help farmers produce 

higher yields while farming the same or less acres of land. At the same time, the 

research community is asked to help make farming friendlier to the environment. 

Scientists supported by the NRI and ARS are responding to these needs. For example, research sponsored by the NRI and ARS is leading to plants engineered to 

tolerate higher levels of salinity. This will help farmers salvage more of their crops 

in dry seasons. Increased tolerance of future engineered plants to environmental 

stresses of cold and freezing will be beneficial to growers, consumers, and the environment. 

Much progress has been made in fighting plant diseases with crops engineered 

to resist pests. At the same time, the usage of harsh chemical pesticides has been 

reduced through the use of genetically engineered crops. Research sponsored by the 

NRI and ARS contributed knowledge leading to the development of these superior 

crops. Increased support for the NRI and ARS will lead to more varieties of enhanced crops resistant to devastating diseases. 

Human nutrition depends upon plants. Vitamins, minerals, and other important 

compounds such as essential amino acids come from plants directly or indirectly. 

There remain substantial questions about how minerals are taken up and essential 

compounds are made. As these questions are answered by basic plant research it 

will be possible to determine how plants can be used to assist in providing a 

healthier mix of nutrients in the diet both in developed and developing countries. 

Substantial progress can be made in understanding the role of plant products in 

human nutrition with additional funding for the NRI and ARS. 

We urge the Subcommittee to increase support for the NRI and ARS in fiscal year 

2005. As requested by the President, ASPB urges appropriating $180 million to the 

NRI in fiscal year 2005. We urge a significant increase for ARS over the fiscal year 

2004 appropriation. 

We deeply appreciate the Subcommittee’s support for research sponsored by the 

Department of Agriculture. The Subcommittee’s support has been essential to producing and securing the nation’s food supply. 

PREPARED STATEMENT OF THE AMERICAN VETERINARY MEDICAL ASSOCIATION

Dear Mr. Chairman: On behalf of the 70,000 members of the American Veterinary 

Medical Association (AVMA) we thank you and the committee for the past support 

of issues and programs of importance to our nation’s veterinarians. AVMA membership is comprised of 86 percent of the veterinarians in the United States. These 

members direct the activities and policies of the AVMA. These Doctors of Veterinary 

Medicine are trained scientific experts in the fields of agriculture, animal health, 

public health, food safety, medical and veterinary research, epidemiology, toxicology, 

microbiology, and a host of other activities necessary for the continued safety and 

prosperity of our nation. 

Policy item 8c of the Homeland Security Presidential Directive HSPD–9 states, 

‘‘(8) The Secretaries of the Interior, Agriculture, Health and Human Services, the 

Administrator of the Environmental Protection Agency, and the heads of other appropriate Federal departments and agencies shall build upon and expand current 

monitoring and surveillance programs to: . . . (c) develop nationwide laboratory 

networks for food, veterinary, plant health, and water quality that integrate existing 

Federal and State laboratory resources, are interconnected, and utilize standardized 

diagnostic protocols and procedures.’’ In order for American veterinarians to successfully continue in their traditional roles, as well as to aid in the fulfillment of the 

HSPD–9 policy we respectfully request the following appropriations in fiscal year 

2005 for the U.S. Department of Agriculture (not ranked by priority). 

The National Veterinary Medical Service Act (NVMSA) 

$20 million for the funding of the NVMSA. NVMSA (Public Law 108–161) was 

enacted on December 6, 2003 to correct the serious shortage of veterinarians in 
437 

rural agricultural areas, agencies of the Federal Government, and certain disciplines 

such as public health, food safety and research. High student loan debt precludes 

veterinarians from accepting lower-paying positions in these areas. NVMSA authorizes the Secretary of Agriculture to conduct a student loan repayment program for 

veterinarians who agree to work in these shortage situations. This law will also 

repay student loan debt for those veterinarians who volunteer to provide services 

to the Federal Government in emergency situations as determined by the Secretary 

of Agriculture. NVMSA will improve national preparedness by placing veterinarians 

at locations where agricultural emergencies occur. $60 million is needed over a 3- 

year period to allow 400 veterinarians to participate in this program. This would 

provide a net of $25,000 per year for 3 years for service in a shortage situation plus 

an additional $10,000 per year for volunteer service in emergency situations. 

Food Animal Residue Avoidance Databank 

$1.5 million for the Food Animal Residue Avoidance Bank (FARAD). FARAD is 

a highly cost-effective, federal/multi-university extension program that provides assistance to veterinarians, extension agents, and regulatory personnel throughout the 

country in preventing contaminated milk, meat, and eggs from reaching the consumer through publications, continuing education, a web-site, and a toll free hotline. Staffed by highly trained veterinary pharmacologists/toxicologists, FARAD provides assistance ranging from explaining which drugs can legally be used in food 

animals to creating computer models for cases of herds or flocks exposed to toxins 

such as pesticides or dioxins. 

National Animal Health Laboratory Network 

$107 million for the National Health Laboratory Network (NAHLN). In June 

2002, President Bush signed HR 3448 into law as the Public Health Security and 

Bioterrorism Preparedness and Response Act of 2002 (Public Law 107–188). This 

law authorized the Secretary of Agriculture to develop an agriculture early warning 

surveillance system, enhancing the capacity and coordination between state veterinary diagnostic laboratories, Federal and State facilities, and public health agencies. 

It also provided authorization for Congress to appropriate funding to the NAHLN. 

A pilot NAHLN, involving 12 state/university diagnostic laboratories was funded 

through USDA in May 2002 for a 2-year period to develop capacity and surveillance 

programs for eight high priority foreign animal diseases considered to be bioterrorist 

threats. However, these funds fell short of developing a true national network that 

will effectively provide surveillance for zoonotic and foreign disease, bioterrorist 

agents, and newly emergent diseases. 

USDA § 1433 Formula Funds for Animal Health 

$100 million for USDA § 1433 Formula Funds for Animal Health. Animal health 

protection requires an effective veterinary response at the local level. In the event 

of a disease outbreak, veterinarians are responsible for diagnosis and risk management leading to disease control or elimination. The failure to accurately and rapidly 

diagnose foreign animal diseases, emerging infectious diseases and zoonotic agents, 

whether intentionally introduced or naturally occurring, can lead to catastrophic 

economic losses and loss of human and animal lives. Thus, new methods for rapid 

diagnosis, prevention and eradication of these diseases must be developed. The nation’s veterinary medical colleges can develop new diagnostic methods with increased funding. 

Foreign Animal Disease Laboratory 

$400 million for the Foreign Animal Disease Laboratory (FADL). The Foreign 

FADL was transferred to the Department of Homeland Security in June 2003 as 

directed by the Homeland Security Act of 2002 (Public Law 107–296). The United 

Department of Agriculture (USDA) continues to perform its functions of research 

and diagnostics within the FADL. Currently, 180 employees at the FADL are helping to lead a research and development program to protect America’s food supply 

against the intentional or natural introduction of foreign animal diseases and to develop improved methods to diagnose foreign animal diseases. FADL is in critical 

need of renovation and upgrades to be able to maintain its capabilities in foreign 

animal disease detection and research. 

Once again thank you for the support you and your staff have extended in the 

past. 
438 

LETTER FROM D. LARRY ANDERSON

STATE OF UTAH, 

DEPARTMENT OF NATURAL RESOURCES, 

Salt Lake City, UT, March 26, 2004. 

Hon. ROBERT BENNETT, 

Chairman, Subcommittee on Agriculture, Committee on Appropriations, U.S. Senate, 

Washington, DC. 

CHAIRMAN BENNETT: As the Governor of Utah’s representative on Colorado River 

Issues and the senior Utah member of the Colorado River Salinity Control Forum, 

I wish to convey Utah’s support for funding the Salinity Title II Program, authorized in 1995 (Public Law 104–20) at the level of 2.5 percent of the Environmental 

Quality Incentives Program (EQIP) of the United States Department of Agriculture 

with EQIP being funded at the amount sought in the President’s 2005 budget. In 

addition, Utah requests funds be provided to the Natural Resources Conservation 

Service at sufficient levels to provide the technical assistance necessary to efficiently 

spend these funds. 

This vital program has been a mainstay in improving water use efficiency in the 

Colorado River Basin of Utah. During the past 5 years of drought, the facilities 

funded by the salinity earmark of the EQIP program have been a significant reason 

for agriculture in the Uinta and Price/San Raphael basins maintaining productivity 

and stimulating these rural economies. 

In addition, the Salinity Control Program helped to meet the salinity related 

water quality standards for the Colorado River and U.S. treaty obligation with Mexico. This important program helps meet national and international obligations and 

needs to be funded at the aforementioned level. 

Thank you, 

D. LARRY ANDERSON, P.E., 

Director. 

PREPARED STATEMENT OF THE ASSOCIATION OF STATE DAM SAFETY OFFICIALS

The Association of State Dam Safety Officials is pleased to offer this testimony 

on the President’s proposed budget for the Department of Agriculture Natural Resource Conservation Service (NRCS) for fiscal year 2005, specifically in support of 

the Watershed Rehabilitation Program. 

The Association of State Dam Safety Officials is a national non-profit organization 

of more than 2000 State, Federal and local dam safety professionals and private sector individuals dedicated to improving dam safety through research, education and 

communications. Our goal simply is to save lives, prevent damage to property and 

to maintain the benefits of dams by preventing dam failures. Several dramatic dam 

failures in the United States called attention to the catastrophic consequences of 

failures. The failure of the federally-owned Teton Dam in 1976 caused 14 deaths 

and over $1 billion in damages, and is a constant reminder of the potential consequences associated with dams and the obligations to assure that dams are properly constructed, operated and maintained. 

The Administration’s proposed budget includes only $10 million in discretionary 

appropriations to fund rehabilitation of unsafe and seriously deficient dams that 

were originally constructed under USDA Watershed Programs. The Association of 

State Dam Safety Officials respectfully requests that this Subcommittee increase 

the Administration’s proposed appropriation to $65 million of the total $120 million 

authorized in the 2002 Farm Bill which includes discretionary funds and Commodity Credit Corporation (CCC) funding. 

The Problem 

The United States Department of Agriculture (USDA) under authorities granted 

by Congress beginning in the 1940s provided technical and financial assistance to 

local sponsors and constructed small watershed dams. These dams, completed primarily under the authority of Public Law 534 and Public Law 566 provided important benefits including flood protection, municipal and rural water supplies, irrigation, recreation, water quality, sediment removal and habitat. The USDA, in partnership with these local sponsors constructed nearly 11,000 small watershed dams 

across the country in 47 states. 

Dams constructed under these USDA programs have provided local communities 

with years of critical service. They have provided flood protection for many homes 

and businesses, and the local transportation infrastructure. Many communities rely 
439 

on watershed dams for drinking water and many farmers depend on the those dams 

for necessary irrigation water to grow food and fiber. 

However, these dams are aging and many are starting to reach the end of their 

design life. Many watershed dams no longer are able to continue to provide the benefits that the local communities have counted on for so many years, such as the expected level of flood protection. Many dams are unable to continue to provide the 

same storage volume for drinking water; and many of them are so filled with sediment that they cannot provide water quality and sediment removal functions. More 

alarming is the recognition that as these dams continue to age and deteriorate they 

threaten the very same local communities that have relied on them for protection 

and for quality of life improvements. Nearly 450 small watershed dams will reach 

the end of their expected design life by 2005; and this number will increase to over 

1,800 by year 2010. 

The challenge is enormous, as the local sponsors cannot shoulder the entire burden alone. Without a fully funded Watershed Rehabilitation Program, the flood protection provided by these dams will be diminished, irrigation and drinking storage 

will be reduced and water quality will continue to decline. However, the most dramatic consequences from the aging and deterioration of these dams without their 

rehabilitation will undoubtedly be to increase the probability of a tragic failure. 

Dam failures cause lives to be lost, downstream property to be destroyed and damage to critical public infrastructure (roads, bridges, water treatment facilities). The 

cost of just one dam failure, measured in loss of life, property damage and clean 

up costs, could easily exceed the entire cost of the Watershed Rehabilitation authorization. 

Many of the small watershed dams do not have Emergency Action Plans, essential 

for saving lives in the event of a dam failure. These plans provide for surveillance 

of the dam, notification of emergency management officials, evacuation plans, and 

most importantly they identify the areas below the dam that would be flooded in 

the event of a dam failure. Without these plans, a local downstream community 

would have little chance of receiving adequate and timely warning in order to evacuate their homes and businesses. Critical to this plan is the completion of dam failure modeling to clearly map the downstream area flooded form a failure, often 

called the ‘‘danger reach’’. Rehabilitation funded under this program should include 

this, as part of the rehabilitation design and planning package. Considering the security threat alerts that so often include potential actions against dams, these plans 

are even more critical. 

Often, development, attracted by the benefits provided by the dam, has significantly altered the upstream watershed and increased runoff and sediment transport 

to the dam. In addition, it is very common to see major downstream development 

in the area below the dam, within the dam failure flood zone, which dramatically 

changes the consequences of a potential failure to now include loss of life. This significantly alters the minimum safety requirements and causes dam safety officials 

great concern. These development consequences are typically beyond the control of 

the local sponsoring organizations, yet they are responsible for compliance with the 

state dam safety standards. 

Table 1, attached to this testimony lists by state the number of USDA Watershed 

dams, the estimated number of people as risk below the dams, the infrastructure 

at risk, as well as an estimate of the number of watershed dam rehabilitation 

projects and their projected costs over the period fiscal year 2004 through fiscal year 

2009. There have been 118 watershed rehabilitation projects initiated in 20 states 

which include 18 completed rehabilitation projects and 100 projects either in the 

planning or design phase. It is clear from these 118 projects as well as the 54 

projects which requested assistance but were unable to be funded in fiscal year 

2004, just how much demand exists; and how successful this USDA program is. It 

is essential to continue this program funding at a level that recognizes this demand, 

the size of the problem and the importance of maintaining the Federal Government’s leadership role. 

Mr. Chairman, in your home state of Utah, there are 25 USDA Watershed Dams 

that provide important irrigation water, critical flood protection and many other 

benefits. Ten of these watershed dams are expected to request assistance during the 

period fiscal year 2004 through fiscal year 2009 and totaling an estimated 

$17,000,000 in rehabilitation costs. 

In Wisconsin there are 86 watershed dams built between 1956 and 1970, with 

many reaching the end of their design life over the next 10 years. Wisconsin has 

had several watershed rehabilitation success stories with 11 of the initial 118 

projects. Of these 11 projects 6 are completed and 5 have been authorized and are 

in design or construction phases. Over the period fiscal year 2004 through fiscal 
440 

year 2009 Wisconsin expects to receive another 10 requests for rehabilitation assistance costing an estimated $1.5 million. 

Example of Success 

Pilot rehabilitation projects in Wisconsin on Plum Creek, Alma-Mill Creek, Glen 

Hills Creek and Bad Axe Watershed repaired unsafe conditions, restored flood control benefits, extended the service life another 50 years and enhanced water quality. 

The Glen Hills Creek project highlights a very frequent problem as a home was constructed below the dam, threatening the home should the dam fail and requiring 

significant design modifications due to increased safety standards. The funding was 

used to relocate the home from below the dam to reduce the consequences of a failure and substantially lowering the repair costs should the home have remained. 

Request 

Mr. Chairman and Members of this subcommittee, the Association of State Dam 

Safety Officials is convinced that funding of this program as critical to the safety 

of the nation’s dams as well as the lives and property downstream. Identifying a 

funding source for rehabilitating and securing our country’s dams is a major challenge. For the 11,000 small watershed dams created through a highly successful 

program administered by the Federal Government, Congress and the Administration should reconfirm their commitment to the structures and the American people 

who depend on the continuing benefits provided by these dams. These same people 

need to be secure that the dams the United States help them build will not fail or 

diminish their function. 

ASDSO asks that the Subcommittee to view funding the Rehabilitation of Watershed Dams as a significant re-investment in the benefits of the program and an investment in the safety of these dams. Therefore, this Association respectfully requests that this Subcommittee provide additional appropriations beyond the Administration’s request to $65 million for fiscal year 2005. 

Thank you Mr. Chairman and members of the Subcommittee for this opportunity 

to submit this testimony. We look forward to working with the Subcommittee and 

staff in any way to advance the safety of dams in the United States. 
441 

TABLE 1.—USDA WATERSHED DAMS DATA 

STATE Total no. of water- shed dams 

Data from limited 2001 survey of 1500 dams 1 Estimated rehab 

projects fiscal year 

2004-fiscal year 

2009 

Estimated project 

costs fiscal year 

2004-fiscal year 

2009 Population at risk Infrastructure at risk in dollars Annual benefits in dollars 2

AK .................................................................................................................................. 0 .............................. .............................. .............................. 0 $0 AL ................................................................................................................................... 105 3,805 $19,380,000 $5,634,000 6 3,425,000 AR .................................................................................................................................. 170 245 8,655,000 2,131,743 25 43,541,000 AZ .................................................................................................................................. 25 75,560 178,330,000 28,440,000 8 31,773,000 CA .................................................................................................................................. 3 10,000 25,000,000 3,000,000 1 7,070,000 CO .................................................................................................................................. 144 55,580 70,000,000 3,743,000 6 3,800,000 CT .................................................................................................................................. 31 1,000 3,000,000 150,000 0 0 DE .................................................................................................................................. 0 .............................. .............................. .............................. 0 0 FL ................................................................................................................................... 10 .............................. .............................. .............................. 0 0 GA .................................................................................................................................. 357 5,931 1,583,258,241 17,465,239 107 158,200,000 HI ................................................................................................................................... 4 .............................. .............................. .............................. 0 0 IA ................................................................................................................................... 1,325 180 3,311,000 551,000 11 8,239,000 ID ................................................................................................................................... 3 5,000 10,000,000 675,000 0 0 IL .................................................................................................................................... 64 840 2,050,000 106,900 0 80,000 IN ................................................................................................................................... 110 1,101 38,150,000 1,344,460 0 0 KS .................................................................................................................................. 809 39 4,051,700 1,820,100 20 9,848,000 KY .................................................................................................................................. 200 12,100 16,700,000 2,902,800 16 8,808,880 LA ................................................................................................................................... 35 .............................. .............................. .............................. 20 3,525,000 MA .................................................................................................................................. 29 61,108 3,300,000 12,175,000 8 3,160,000 MD ................................................................................................................................. 16 .............................. .............................. .............................. 0 0 ME .................................................................................................................................. 16 .............................. .............................. 6,000 0 100,000 MI ................................................................................................................................... 13 .............................. .............................. .............................. 1 540,000 MN ................................................................................................................................. 44 18 380,000 29,000 3 575,000 MO ................................................................................................................................. 770 .............................. 2,829,825 1,299,810 11 1,750,000 MS .................................................................................................................................. 578 1,953 18,355,000 3,764,600 30 10,694,000 MT .................................................................................................................................. 16 365 21,000,000 2,465,900 7 4,615,000 NC .................................................................................................................................. 98 688 1,337,520 717,300 0 0 ND .................................................................................................................................. 48 250 5,500,000 1,200,000 15 14,650,000 NE .................................................................................................................................. 723 1,401 15,937,000 10,327,691 63 12,600,000 NH .................................................................................................................................. 24 .............................. .............................. .............................. 0 0 NJ ................................................................................................................................... 20 25 60,000 21,500 2 825,000 NM ................................................................................................................................. 78 2,256 154,900,000 1,333,000 30 15,752,000 NV .................................................................................................................................. 8 .............................. .............................. .............................. 0 0 NY .................................................................................................................................. 55 76,428 1,747,949 2,240,455 15 1,638,000 
442 

TABLE 1.—USDA WATERSHED DAMS DATA—Continued 

STATE Total no. of water- shed dams 

Data from limited 2001 survey of 1500 dams 1 Estimated rehab 

projects fiscal year 

2004-fiscal year 

2009 

Estimated project 

costs fiscal year 

2004-fiscal year 

2009 Population at risk Infrastructure at risk in dollars Annual benefits in dollars 2

OH .................................................................................................................................. 61 720 13,250,000 2,355,000 27 7,120,000 OK .................................................................................................................................. 2,087 5,245 27,625,000 2,823,706 257 69,762,779 OR .................................................................................................................................. 5 125 1,100,000 1,400,000 0 0 PA .................................................................................................................................. 87 14,640 414,000,000 10,735,000 6 1,143,000 PR .................................................................................................................................. 2 .............................. .............................. .............................. 0 90,000 RI ................................................................................................................................... 0 .............................. .............................. .............................. 0 0 SC .................................................................................................................................. 86 69,335 62,868,000 1,532,700 7 2,918,500 SD .................................................................................................................................. 55 0 140,000 125,000 0 0 TN .................................................................................................................................. 140 .............................. .............................. .............................. 6 250,000 TX ................................................................................................................................... 2,038 19,677 87,104,000 13,315,700 40 74,711,900 UT .................................................................................................................................. 25 .............................. .............................. .............................. 10 17,000,000 VA .................................................................................................................................. 145 1,183 17,906,216 355,201 16 11,286,000 VT ................................................................................................................................... 4 960 25,000,000 292,000 4 0 WA .................................................................................................................................. 3 .............................. .............................. .............................. 0 0 WI ................................................................................................................................... 86 292 1,623,100 444,500 10 1,462,000 WV .................................................................................................................................. 167 13,969 76,587,670 7,658,767 80 19,800,000 WY .................................................................................................................................. 13 .............................. .............................. .............................. 12 14,195,769 

TOTALS ............................................................................................................. 10,935 442,019 2,914,437,221 144,582,072 880 564,948,828 

1 This data was collected from 1,500 watershed dams in 2001. 2 The total annual benefits from all of the Watershed Dams in $1.7 billion. 
443 

PREPARED STATEMENT OF BERNARD H. BERNE, M.D., PH.D 

I am a resident of Arlington, Virginia. I serve the Food and Drug Administration 

(FDA) as a Medical Officer and as a reviewer medical device approval applications. 

I am testifying as a private individual. 

I ask your Subcommittee to deny the Administration’s request to provide funds 

for costs related to the occupancy of a new FDA Human Drugs facility in White 

Oak, Maryland. These funds are included within the $1,820,849,000 that the President’s Budget for fiscal year 2005 requests on page 421 under the heading ‘‘Department of Health and Human Services’’, ‘‘Food and Drug Administration’’, ‘‘Federal 

Funds, General and special funds’’, ‘‘Salaries and Expenses’’. The Budget states on 

page 422 under this heading that ‘‘the budget requests increased funding 

for . . . moving expenses for a new Human Drugs facility in White Oak, Maryland’’. 

The General Services Administration (GSA) is now constructing this facility. 

Please deny these funds for the following reasons: 

Economic Considerations 

FDA will need to pay rent to GSA if FDA occupies this facility. FDA’s future 

budgets, which your Subcommittee would fund, would pay these rents. The rents 

would likely be higher than rents that GSA and FDA pay to private property owners, since GSA would not need to enter into competitive bidding processes. 

Congressional authorizing committees need to evaluate the current costs of the 

consolidation and compare them to the costs of maintaining FDA’s current facilities. 

No Congressional committee has done this during the past 15 years. 

Lack of Need for Relocating FDA to White Oak Facility 

All or nearly all of FDA’s offices are presently located in satisfactory leased facilities. Some, such as my own, are in excellent buildings. There is no urgent need or 

economic reason to relocate these offices to White Oak. 

Despite this, the requested funds would support the relocation of a large number 

of offices in FDA’s Center for Drug Evaluation and Research (CDER) to White Oak. 

There is no clear need for this relocation, since it would put 20 miles between this 

office and all other FDA offices, including the Office of the Commissioner. The relocation would clearly decrease FDA’s efficiency by decreasing interactions between 

this office and related ones. 

White Oak is an unsatisfactory location for FDA’s headquarters consolidation. The 

project would promote urban sprawl. 

FDA’s White Oak facility would occupy 125 acres next to a golf course in a suburban residential neighborhood in Montgomery County, Maryland. The FDA site is 

outside of the Capital Beltway on a largely forested 750-acre property surrounded 

by heavily congested roads and highways. The site is three miles from the nearest 

Metro station, and has only infrequent bus service. 

An FDA consolidation at White Oak would bring 6,000 FDA employees to this 

Washington area suburb. Most would need to commute for much longer times and 

distances than they presently do. White Oak is more than 20 miles from most 

present FDA facilities. 

I and thousands of other FDA employees presently commute to work by Metrorail, 

as our workplaces are near Metro stations. This will be impossible at White Oak. 

FDA employees driving to White Oak will add traffic congestion and air pollution 

to the Washington Metropolitan Area. This is especially unfortunate because the 

Washington Metropolitan Area already has the second worst traffic congestion of all 

urban areas in the United States. 

FDA employee surveys have revealed widespread opposition to this relocation. 

Three years ago, a survey of those employees who would relocate first to White Oak 

showed that 70 percent opposed the move. Many stated that the relocation would 

impair FDA’s ability to regulate drugs and medical devices. 

It is clear that the location of the facility will have long-lasting adverse effects 

on FDA’s ability to recruit and retain qualified employees. Further, many more FDA 

employees will telecommute than presently do. They will rarely work at the new facility. This will greatly diminish FDA’s efficiency and will contradict a major goal 

of the FDA consolidation at White Oak. 

The Washington Metropolitan area has a number of better sites at which FDA 

can consolidate. Among these is the Southeast Federal Center in downtown Washington, D.C. This underutilized 50-acre federally-owned property is adjacent to the 

Navy Yard Metro Station. It is only one mile from the U.S. Capitol and the headquarters of the U.S. Department of Health and Human Services. 
444 

Legal Issues 

On February 23, 2001, I and a number of other FDA employees joined the Sierra 

Club and the Forest Conservation Council in a law suit that is intended to stop the 

White Oak project. For a number of reasons, FDA’s occupancy of any buildings at 

White Oak would be illegal. The Federal district court for the District of Columbia 

is presently considering this suit. 

The White Oak facility would house the Office of the Commissioner of Food and 

Drugs, as well as most other FDA headquarters offices. This would violate 4 U.S.C 

§ 72, which states: ‘‘All offices attached to the seat of government shall be exercised 

in the District of Columbia, and not elsewhere, except as otherwise expressly provided in law.’’ 4 U.S.C. § 72 is derived from the 1790 Act that established the District of Columbia as the Nation’s capital. The first Congress enacted this law, which 

President George Washington signed. 

There is no law that expressly provides that FDA’s headquarters offices shall be 

exercised outside of the District of Columbia. 

The FDA Revitalization Act (Public Law 101–635; 21 U.S.C. § 369b), authorizes 

the Secretary of HHS to award contracts to acquire property and to construct an 

operate a consolidated FDA headquarters facility. This Act does not provide the location of the consolidated facility. 

I ask Congress not to appropriate funds to support an illegal activity. The 1790 

Act had the worthy purpose of ensuring that all central offices of the Federal Government would consolidate in the Federal capital District, and not elsewhere. The 

consolidated FDA facility would be one such office that is ‘‘attached to the seat of 

government’’. 

Article 1, Section 8, of the Constitution gives Congress exclusive jurisdiction over 

the District of Columbia. Your Committee should take no action to support the location of FDA’s headquarters at a location that is outside of the District. Any such 

action would tend to vitiate this section of the Constitution, which 4 U.S.C. § 72 is 

intended to support. 

Executive Order 12072, August 16, 1978, states in Section 1–1, Subsection 101: 

‘‘Federal facilities and Federal use of space in urban areas shall serve to strengthen 

the Nation’s cities and to make them attractive places to live and work. Such Federal space shall conserve existing urban resources and encourage the development 

and redevelopment of cities.’’ 

White Oak is not in or near any city. An FDA consolidation at White Oak (which 

is in an ‘‘urban area’’, the Washington Metropolitan Area) would not strengthen any 

cities. The FDA facility would not encourage the development or redevelopment of 

any cities. 

Executive Order 12072, Section 1–1, Subsection 101, contains the word ‘‘shall’’ in 

several locations. FDA therefore can not legally locate its headquarters in suburban 

White Oak. 

Executive Order 12072 and several Federal statutes require that heads of Federal 

agencies consult with local city officials to obtain their recommendations for and objections to all proposed new Federal facilities. Neither GSA nor FDA officials ever 

consulted with officials of the District of Columbia or of the City of Rockville in 

Montgomery County, Maryland, concerning the White Oak facility. 

This lack of consultation violated Executive Order 12072 and several laws. It prevented District and Rockville officials from recommending alternative sites for the 

consolidated facility within their own jurisdictions and from objecting to the selection of the White Oak site. 

The Public Buildings Act of 1959 requires that the Committee on Environment 

and Public Works of the U.S. Senate approve prospectuses that describe the location 

and maximum costs of any large buildings that GSA may wish to construct before 

Congress can appropriate funds to design and construct such buildings. That Committee has never approved a prospectus that describes FDA’s White Oak facility. 

The Consolidated Appropriations Act, 2001 (Public Law 106–544) appropriated 

funds that GSA is presently using to construct the new FDA Human Drugs facility 

at White Oak. However, Public Law 106–544 contains the following restrictive provision at 114 Stat. 2763A–143: ‘‘Provided further, That funds available to the General Services Administration shall not be available for expenses of any construction, 

repair, alteration, or acquisition project for which a prospectus, if required by the 

Public Buildings Act of 1959, as amended, has not been approved, except that necessary funds may be expended for each project for required expenses for the development of a proposed prospectus.’’ 

The Public Buildings Act of 1959 requires a prospectus that describes FDA’s 

White Oak facility. No prospectus that described this facility had been approved before Public Law 101–58 was enacted into law. Therefore, GSA may only legally use 

the funds appropriated in these Acts for ‘‘required expenses for the development of 
445 

a proposed prospectus’’. GSA cannot legally use the funds to design and construct 

any buildings. 

Despite this prohibition, GSA is presently designing and starting to construct the 

new FDA Human Drugs facility in White Oak without an approved prospectus. This 

is illegal. 

The President’s Budget is therefore asking Congress to appropriate funds in the 

Agriculture, Rural Development, and Food and Drug Administration Appropriations 

Act, 2005, that would enable FDA to occupy new facilities at White Oak that GSA 

is now constructing illegally. Your Committee should not initiate the appropriation 

of any such funds. 

The prospectus approval process is designed to assure that Congress evaluates the 

need, location, and maximum cost for all GSA building projects. Congress has never 

done this for any of the facilities that FDA would occupy at White Oak. 

The National Environmental Policy Act (NEPA) of 1969 requires that Federal 

agencies compare in an Environmental Impact Statement (EIS) alternative locations 

for any large new Federal facility. However, the EIS for the White Oak FDA facility 

did not make any such comparisons. 

The EIS only compared the environmental impacts of an FDA consolidation at 

White Oak with the ‘‘no action’’ alternative. Following this legally inadequate comparison, GSA and FDA officials selected White Oak as the location for the facility. 

GSA and FDA officials therefore violated NEPA when they selected the White 

Oak site. Congress should not appropriate funds to support this illegal selection. 

A Federal court may prevent FDA from consolidating its facilities at White Oak 

for one or more of the above reasons. Congress should not provide funds for FDA 

to occupy the White Oak facility until the Federal courts decide whether the project 

can proceed. 

I therefore ask that your Committee not provide the requested to FDA in this legislation. Thank you. 

PREPARED STATEMENT OF THE CALAVERAS COUNTY WATER DISTRICT

Calaveras County is located on the eastside of the Central Valley of California 

and encompasses approximately 1,028 square miles of land, stretching across more 

than 50 miles of valleys, foothills, and mountain peaks. The topography ranges from 

approximately 200 feet above mean sea level (ft-msl) in the northwestern region of 

the County, to a peak height of 8,170 ft-msl near Alpine County. 

The communities of West Point, Wilseyville and Bummerville are located in the 

northeastern portion of the county in the sparsely populated higher foothills. The 

topography ranges from approximately 2,500 feet in Wilseyville to 3,200 feet in 

Bummerville. Mild summers and cold winters characterize the region, with temperatures ranging from the low 20’s to the middle 80’s. Snow accounts for a large percentage of the precipitation in the watersheds supplying the study area. 

In the fall of 1946, the Calaveras County Water District (CCWD) was organized 

under the laws of the State of California as a public agency for the purpose of developing and administering the water resources in Calaveras County. Therefore, 

CCWD is a California Special District and is governed by the California Constitution and the California Government and Water Codes. CCWD is not a part of or 

under the control of the County of Calaveras. CCWD was formed to preserve and 

develop water resources and to provide water and wastewater service to the citizens 

of Calaveras County. 

Under state law, CCWD, through its Board of Directors, has general powers over 

the use of water within its boundaries. These powers include but are not limited 

to: the right of eminent domain, authority to acquire, control, distribute, store, 

spread, sink, treat, purify, reclaim, process and salvage any water for beneficial use, 

to provide sewer service, to sell treated or untreated water, to acquire or construct 

hydroelectric facilities and sell the power and energy produced to public agencies or 

public utilities engaged in the distribution of power, to contract with the United 

States, other political subdivisions, public utilities, or other persons, and subject to 

the California State Constitution, levy taxes and improvements. 

CCWD provides water service to over 10,000 connections throughout Calaveras 

County. CCWD operates five independent treatment facilities with a combined 

treatment capacity of over 13 million gallons per day. The water facilities include 

approximately 290 total miles of transmission and distribution pipelines ranging 

from 4 to 20 inches in diameter and 31 storage tanks with capacity of over 14.5 million gallons. CCWD provides water and/or wastewater service to 65 percent of the 

residents of Calaveras County. 
446 

WEST POINT, WILSEYVILLE AND BUMMERVILLE SYSTEM HISTORY

CCWD owns and operates the domestic water system in the rural communities 

of West Point, Wilseyville, Bummerville and part of Sandy Gulch. This water system 

is located in the District’s West Point Service area, located in the Mokelumne River 

Watershed, Calaveras County, Central California, in the foothills of the Sierra Nevada Mountains. Population growth in the service area has generally averaged less 

than one percent annually over the last 15 years. This low growth rate may be attributed in part to the reduction in industry within the service area. Presently, the 

economic base of the community is principally related to retirement living with some 

of the population commuting to larger nearby communities for employment opportunities. 

The communities of West Point and Wilseyville developed over the last 150 years, 

initially as mining companies and later as logging communities. Originally, these 

areas were served water through a series of mining ditches associated with these 

activities. The decline of these industries, which were critical to the area economy, 

brought about CCWD’s purchase of the water and conveyance systems. 

The West Point water system was purchased in 1954 by CCWD from the West 

Point Ditch Company. The predecessor to Sierra Pacific Logging Company owned 

and built the Wilseyville system and sold it to CCWD in 1964. The Bummerville 

system was connected to the West Point system in 1959. Between 1964 and 1974 

the system was brought into compliance with state and Federal regulations for operation by CCWD. 

The existing water system serves 520 connections, a total population of 1,298, including a local Native American Reservation. The current facilities include two raw 

water reservoirs (Wilson Lake and the Regulating Reservoir); two raw water diversion facilities (Bear Creek gravity and Middle Fork Mokelumne pumped); one water 

treatment plant (West Point); two treated water pump stations (Bummerville and 

Upper Wilseyville); and the associated distribution and storage systems. 

The two main sources for water supply for the West Point water treatment plant 

are the Bear Creek diversion, which is a gravity source, and the pumped source 

from the Mokelumne River. Both raw sources are generally of good quality and are 

very easily treated to potable standards. Water rights for the West Point/Wilseyville 

water system are derived from existing water rights for diversion of flow from Bear 

Creek and from an agreement for diversion from the Middle Fork of the Mokelumne 

River. These provisions allow for adequate water to serve the present water customers, as well as future full buildout of the adjacent areas. In the case of drought, 

the Bear Creek supply can be supplemented with water from the Middle Fork of 

the Mokelumne River. In addition, the District maintains the 50 acre-foot Regulating Reservoir (also referred to as the West Point Reservoir), which may be called 

upon to supplement and augment supply during dry periods. 

The West Point/Wilseyville water system and related facilities were primarily constructed before 1960 and many system components are either inadequate or in need 

of replacement. Several changes have been made to the systems in response to more 

stringent regulations, which allowed the abandonment of the Wilseyville plant. In 

addition, the West Point water treatment plant and pump stations have been upgraded and an intertie has been installed between West Point and Wilseyville. 

Distribution system deficiencies are evident when evaluated against current water 

industry standards for publicly owned and operated systems. The 1996 Master Plan 

was completed to address these deficiencies. Specific recommendations were presented to bring the system into compliance with current and anticipated water industry standards. In 1998, a Master Plan Supplement provided additional analysis 

for improvements to the West Point Wilseyville, and Bummerville systems. 

West Point, Wilseyville and Bummerville have infrastructure requirements that 

far exceed their financial capabilities. However, the infrastructure is crucial to the 

health, safety, and existence of these small, rural communities. In addition, rising 

water and wastewater rates have been necessary due to new regulatory requirements and these rising rates have been difficult for the community to face. The closing of lumber mills in Calaveras and neighboring Amador County (over the last 10 

years) has also made a difficult situation worse for those dependent on that industry 

for employment, especially in this current climate of high unemployment rates. In 

an effort to begin addressing these needs at the state and local level, a $500,000 

feasibility study state grant and a $1.9 million Bear Creek state construction grant 

have recently been provided. In order to build on these state and local efforts and 

to meet the critical infrastructure needs and the needs of the community, we respectfully request assistance for the following project components: 
447 

WATER SUPPLY INFRASTRUCTURE REHABILITATION PROJECT REQUEST

The small rural communities of West Point, Wilseyville, and Bummerville are 

faced with unaffordable water system replacement costs for aging supply and distribution systems. Water pressure and fire flow are inadequate in much of the service area. The raw water storage and transmission facilities are in need of immediate 

repairs. 

Seven projects have been identified to provide the West Point water system with 

a safer and more reliable level of service. These projects include: 

—West Point Clearwell Replacement.—The upgraded West Point Water Treatment 

Plant is operational; however, the current clearwell will not provide sufficient 

contact time for compliance with disinfection regulations. This project will demolish and replace the old 500,000 gallon tank with a new 600,000 gallon steel 

tank. 

—Bummerville Treated Water Storage Tank Replacement.—Replacement of small 

redwood tank with a single 150,000 gallon steel tank. 

—Wilson Lake Embankment.—Assessment and reconstruction of a primary storage reservoir that is no longer functional. 

—West Point-Wilseyville Distribution System.—Replace the aging ‘‘backbone’’ 

transmission and distribution piping and provide a second intertie between 

West Point and Wilseyville service areas to improve fire flow and system reliability. 

—Bummerville Treated Water Distribution System.—Replacement of old, leaking, 

small-diameter piping to improve flow and fire protection. 

—Mokelumne River Intake and Pump Station.—Relocation of the pump station 

out of the flood plain, replacement of the raw water line to the treatment plant, 

and modification of the existing river diversion structure. 

—Regulating Reservoir.—Remediation projects to improve water quality problems 

at a primary storage reservoir. 

The funding we are requesting here is necessary to assist in the upgrade, reconstruction, and repair of water system infrastructure critical for basic water pressure 

and fire flow. The District, therefore, respectfully requests the Committee’s support 

for a $2,000,000 appropriation in fiscal year 2005 under the U.S. Department of Agriculture’s Rural Development Program (Rural Utility Service), so that efforts to initiate construction for the much-needed Downtown West Point Distribution System 

Improvements may move forward. 

PREPARED STATEMENT OF WINE AMERICA, THE WINE INSTITUTE, THE CALIFORNIA

ASSOCIATION OF WINEGRAPE GROWERS, AND WINEGRAPE GROWERS OF AMERICA

Dear Chairman Bennett and Senator Kohl: Our organizations are pleased to provide recommendations for the funding of important programs that greatly impact 

the wine and winegrape industry in the United States. We are attaching a description of the contributions made by this great industry. 

Recommendations: Funding for Winegrape Research 

The Viticulture Consortium 

Our organizations strongly support increasing the funding for the very successful 

Viticulture Consortium to $2.5 million. 

Due to budgetary constraints last year the funding of the Viticulture Consortium 

by the Cooperative State Research Education Extension Service (CSREES) was reduced to $1.6 million from the previous level of $1.78 million. The Consortium was 

initiated in fiscal year 1996 and is administered by Cornell University, Pennsylvania State University and the University of California (Davis). The consortium 

funds grants for state researchers in about twenty states through a competitive 

process. It is a keystone of grape related research in the United States. 

The consortium addresses unmet national research needs important to our industry. As an active partnership of Federal, State, and industry resources, the consortium enhances research coordination, collaboration, improves efficiency and eliminates duplication of effort. Explicit matching funds from both industry and state 

sources have increased dramatically in response to growing Federal support. Research proposals have been received from nearly 20 states, including California, 

Pennsylvania, Michigan, Missouri, Virginia, New York, Ohio, Michigan, Oregon, and 

Washington and are funded on a competitive basis. Research priorities are developed by a national network of key industry, research and extension representatives 

known as AVERN (American Viticulture and Enology Research Network). Because 

the consortium integrates and coordinates grape research throughout the nation it 
448 

is recognized as the most important mechanism for advancing knowledge and providing the capability for American grape growers to remain competitive in a world 

marketplace. 

Sustainable Viticulture Scientist and Grape Genetics Research Leader 

For fiscal year 2005, we are requesting that Congress increase funding by $300,000 for an ARS scientist entomologist to be part of the sustainable viticulture 

group at (Davis, California). We also request $325,000 for an ARS grape genetics 

research leader at Geneva, New York. 

ARS sponsored grape research must keep pace with the needs of a research intensive, high value crop facing global competition based on product quality. Congress 

has been building important grape research capabilities for sustainable vineyard 

practices (Davis, California) and grape genetics (Geneva, New York). 

ARS Sustainable Viticulture Center 

We are requesting $10 million to begin the first phase of this center 

Sustainable viticulture and other work at Davis, California has been a major new 

initiative for the ARS with several new positions that have been added over the last 

decade. In order to provide laboratory and green house space for these personnel 

and to properly develop an appropriate interdisciplinary team approach to sustainability a new building is required. Engineering and architectural funds were provided in the fiscal year 2004 appropriation. 

ARS Center for Grape Genetics 

We respectfully request that $10 million be provided in fiscal year 2005 to begin 

construction of the ARS Center for Grape Genetics in Geneva. 

There is a serious need to add laboratory and office space for ARS grape genetics 

research at Geneva, New York This will represent a critical investment to enable 

ARS to assume a proper role of national and world leadership in grape research. 

Engineering and architectural funds were provided in the fiscal year 2004 appropriation. 

Recommendation: Pierce’s Disease Control, Containment, and Research 

Our organizations support an increase in funding from the Animal and Plant 

Health Inspection Service for the containment and control program to $28.5 million—an increase of $6.25 million over funding for fiscal year 2004. 

We also support a continuation of CSREES funding of work on Pierce’s disease 

at the University of California in the amount of $2.235 million (the fiscal year 2003 

funding level). 

We also recommend that Congress increase Agricultural Research Service (ARS) 

funding of research on Pierce’s Disease and the GWSS by $600,000. 

Pierce’s disease, a fatal infection of grape vines by the bacterium Xyella fastidiosa 

(Xf), is being spread throughout California by the glassy winged sharpshooter 

(GWSS). GWSS was first detected in California in 1989. It has invaded much of 

Southern California and is established in the southern San Joaquin Valley. 

This vigorous and difficult-to-control insect vector, indigenous to the southeastern 

United States and northern Mexico, threatens California’s entire grape and wineproducing community. Commercial grape varieties grown in California cannot tolerate infection by the Xf bacterium and are quickly killed or rendered uneconomical. 

There is no cure for Pierce’s disease. 

The onslaught of the GWSS and its spread of Pierce’s disease has triggered a 

massive and expensive cooperative response by Federal and State agencies, California nurseries, citrus and winegrape growers to contain, control and eventually 

eradicate the GWSS in California. The risks to California agriculture presented by 

the GWSS were recognized by a USDA declaration of emergency June 23, 2000 and 

subsequent allocation of CCC funds to conduct research, manage and fight the disease. 

There are many crops and commodities threatened by the agents that cause 

Pierce’s disease, including almonds, citrus, stone fruits, alfalfa and oleander. 

Congress has appropriated money to fund GWSS and Pierce’s disease research beginning in fiscal year 2001 and every year thereafter. To date in California, 

winegrape growers have assessed themselves approximately $15 million to fund research programs to combat this deadly disease. 

Recommendation: Market Access Program 

We respectfully request that the full amount of authorized funding, $140 million, 

be provided for this program in fiscal year 2005. 

The Market Access Program (MAP) provides export assistance to over 70 different 

agricultural industries, most producing specialty crops. This assistance is frequently 
449 

the only kind of government export assistance given these producers to allow them 

to compete in world markets against highly subsidized European producers. The 

wine industry has made excellent use of the MAP program, increasing its exports 

by over 225 percent in the past 10 years. Yet, our industry has less than 6 percent 

of the world’s export market. There is still considerable potential to increase our 

share. 

Current funding for the MAP pales in comparison to the support given other 

major world producers. The Farm Bill recognized the need to increase MAP funding 

consistent with the growing exports of these specialty crop producers. The authorized funding of $140 million needs to be restored in order for momentum to be maintained. 

Recommendation: Cooperative Bio-Control Program for Vine Mealy Bug 

We respectfully request that $1.2 million be provided to address this dangerous 

invasive pest before it gets more established and spreads widely. 

The vine mealy bug, Planococcus ficus, is an exotic pest first found in the 

Coachella Valley, Riverside County in 1994. Since then, it has spread to an additional 15 counties. The pest feeds on grape (winegrapes, table grapes, and raisins), 

fig, pomegranate, avocado, date palm, apple, quince, and certain ornamental plants. 

Not only does the pest feed on sap, it also excretes large amounts of honeydew as 

it feeds, fouling the plant. The pest’s activities provide a food source for sooty mold, 

attracts ants and reduces the quality of harvested grapes. 

The vine mealy bug threatens over 900,000 acres of grapes and over $3 billion 

in derivative annual income in California. To meet this threat, a cooperative work 

group has been formed, including representatives of the grape industry, the Animal 

and Plant Health Inspection Service, the University of California, the California Department of Food and Agriculture, and California County Agricultural Commissioners. This group has developed a program that includes public education; detection, monitoring and mapping surveys; research; and a control program implementation plan. 

The California Association of Winegrape Growers was created in 1974 to be an 

advocate for California winegrape growers on state, national and international 

issues. CAWG represents the growers of more than 60 percent of the state’s annual 

tonnage of grapes crushed for wine and concentrate. WineAmerica is the national 

trade association of American wine producers representing more than 750 American 

wineries in 48 states. Wine Institute is the voluntary association of more than 700 

California wineries and affiliated businesses that represent 92 percent of California 

wine shipments and 80 percent of all U.S. wine shipments. Winegrape Growers of 

America is a federation of state winegrape grower organizations representing America’s production of grapes for wine. 

WINE FACTS

Winegrape growing contributes to the U.S. economy in diverse ways. It generates 

jobs, exports, tax revenues, tourism and, of course, outstanding wines. Wine is also 

the center of intense global competition that may seriously affect the ability of 

American vintners to compete in this very global marketplace. The industry’s future 

success will hinge on public and private policies that facilitate rather than impede 

responses to new competitive conditions. 

The U.S. grape crop, now grown in over 40 states, has more than tripled in 15 

years from $955 million in 1985 to almost $3 billion in 2000. Winegrapes have increased far faster than the overall grape crop and now represent almost two-thirds 

of the total crop. Grapes are the highest value fruit crop in the nation and the seventh largest crop overall. 

As vineyards continue to expand, so do the number of producing wineries. There 

are nearly 3,000 wineries in all fifty states. Wine production, which typically adds 

value of approximately $2–$4 for each $1 of farm gate value, is closely integrated 

with grape growing operations. Wineries with tasting rooms contribute another $4– 

$10 per $1 of farm gate value to the rural economy by selling their wine directly 

to consumers. 

The nation’s top wine producing states are (in production order): California, New 

York, Washington, and Oregon. California produces more than 90 percent of the volume. 

Wineries are almost always located in rural areas, near the source of the grapes. 

The combination of vineyards and wineries provides a stable, year-round, and flexible base of rural employment. Winery tourism is very popular and contributes significantly to the rural economy; in many cases state tourism departments feature 

their wineries as a major tourist attraction. 
450 

The economic activity directly generated by the wine industry in turn creates additional jobs, wages and economic activity as services are purchased and wages are 

spent. In aggregate, wine contributes more than $45 billion to the U.S. economy, 

along with 556,000 jobs, which account for $12.8 billion in wages and $3.3 billion 

in state and local tax revenues. 

Wineries and grape growers have made a major commitment to implement sustainable practices, which are environmentally sound, economically viable and socially responsible. Formal programs are being implemented in New York (agriculture environmental management program), California’s Central Coast Vineyard 

Team and Lodi-Woodbridge Winegrape Commission, Oregon LIVE (Low Input Viticulture and Enology) and Washington’s Walla Walla Valley Wine Alliance. Wine Institute and the California Association of Winegrape Growers have developed a California Code of Sustainable Winegrowing Practices with an accompanying 490-page 

self-assessment workbook of best management practices that is being embraced by 

growers and vintners throughout the state. 

Foreign competition is formidable. The U.S. accounts for 9.7 percent of the world 

grape production (third after Italy, France) accomplished on only 5 percent of the 

world’s vineyard acreage. 

The United States represents about 8 percent of world wine production (fourth 

after Italy, France, and Spain). Our 2003 exports of wine, at 94 million gallons, were 

about 5.6 percent of the world export market. 

Imports of wine into the United States (2003) represent about 170 million gallons, 

an increase of more than 6 percent from 2002. Imports now account for 25 percent 

of the U.S. wine market. 

PREPARED STATEMENT OF THE CALIFORNIA INDUSTRY AND GOVERNMENT CENTRAL

CALIFORNIA OZONE STUDY COALITION

On behalf of the California Industry and Government Central California Ozone 

Study Coalition, we are pleased to submit this statement for the record in support 

of our fiscal year 2005 funding request of $500,000 through the U.S. Department 

of Agriculture (USDA) Cooperative State Research, Education, and Extension Service (CSREES) for the Central California Ozone Study (CCOS). 

Most of central California does not attain federal health-based standards for ozone 

and particulate matter. The San Joaquin Valley has recently requested redesignation to extreme and is committed to updating their 1-hour ozone State Implementation Plan (SIP) in 2004, based on new technical data. In addition, the San Joaquin 

Valley, Sacramento Valley, and San Francisco Bay Area exceed the new federal 8- 

hour ozone standard. SIPs for the 8-hour standard will be due in the 2007 timeframe—and must include an evaluation of the impact of transported air pollution 

on downwind areas such as the Mountain Counties. Photochemical air quality modeling will be necessary to prepare SIPs that are approvable by the U.S. Environmental Protection Agency. 

The Central California Ozone Study (CCOS) is designed to enable central California to meet Clean Air Act requirements for ozone SIPs as well as advance fundamental science for use nationwide. The CCOS field measurement program was conducted during the summer of 2000 in conjunction with the California Regional PM10/ 

PM2.5 Air Quality Study (CRPAQS), a major study of the origin, nature and extent 

of excessive levels of fine particles in central California. This enabled leveraging of 

the efforts of the particulate matter study in that some equipment and personnel 

served dual functions to reduce the net cost. From a technical standpoint, carrying 

out both studies concurrently was a unique opportunity to address the integration 

of particulate matter and ozone control efforts. CCOS was also cost-effective since 

it builds on other successful efforts including the 1990 San Joaquin Valley Ozone 

Study. 

CCOS includes an ozone field study, data analysis, modeling performance evaluations, and a retrospective look at previous SIP modeling. The CCOS study area extends over central and most of northern California. The goal of the CCOS is to better understand the nature of the ozone problem across the region, providing a strong 

scientific foundation for preparing the next round of State and Federal attainment 

plans. The study includes five main components: 

—Developing the field study; 

—Conducting an intensive field monitoring study from June 1 to September 30, 

2000; 

—Developing an emission inventory to support modeling; 

—Developing and evaluating a photochemical model for the region; and 

—Evaluating emission control strategies for upcoming ozone attainment plans. 
451 

The CCOS is directed by Policy and Technical Committees consisting of representatives from Federal, State, and local governments, as well as private industry. 

These committees, which managed the San Joaquin Valley Ozone Study and are 

currently managing the California Regional PM10/PM2.5 Air Quality Study, are landmark examples of collaborative environmental management. The proven methods 

and established teamwork provide a solid foundation for CCOS. The sponsors of 

CCOS, representing state, local government, and industry, have contributed approximately $9.4 million for the field study. The Federal Government has contributed $4,874,000 to support some data analysis and modeling. In addition, CCOS 

sponsors are providing $2 million of in-kind support. The Policy Committee is seeking federal co-funding of an additional $2.5 million to complete the remaining data 

analysis and modeling. California is an ideal natural laboratory for studies that address agriculture-related issues, given the significant agriculture industry in the 

state. 

For fiscal year 2005, our Coalition is seeking funding of $500,000 through the U.S. 

Department of Agriculture (USDA) Cooperative State Research, Education, and Extension Service (CSREES). Domestic agriculture is facing increasing international 

competition. Costs of production and processing are becoming increasingly more critical. With the current SJV PM10 SIP and the upcoming ozone and PM2.5 SIPs, the 

agricultural industry within the study area is facing many new requirements to 

manage and reduce their air quality impacts. The identification of scientifically validated, cost-effective options for reducing the environmental impacts of tilling, 

discing, cultivation, and livestock related air emissions will contribute significantly 

to the long-term health and economic stability of local agriculture. Funding will support livestock and crop-related research that will help maintain a vital agricultural 

industry within the state. Research will be focused to measure baseline emissions, 

and to study the most economical and effective approaches for reducing the impacts 

of agriculture on air quality. These studies also have nationwide benefits. 

The San Joaquin Valley of California is one of the few areas of the country to be 

classified as extreme in failing to meet the federal Clean Air Act’s attainment standards. Agricultural production practices are considered to be a contributor to the air 

quality problem. Farmers in the San Joaquin Valley are facing, for the first time, 

obligations to obtain permits to farm from government agencies. Ongoing research 

is essential to identify scientifically validated and cost-effective options for reducing 

the environmental impacts of tilling, discing, cultivation, and livestock related air 

emissions. Research will measure baseline emissions and study the most economical 

and effective approaches to reducing the impacts of agriculture on air quality. While 

such research is critical to the long-term health and economic stability of local agriculture, it will yield state-of-the-art benefits derived from a unique agricultural 

study site that will have national application and benefit. 

There is a national need to address data gaps and California should not bear the 

entire cost of addressing these gaps. National data gaps include issues relating to 

the integration of particulate matter and ozone control strategies. Federal assistance 

is needed to effectively address these issues and CCOS provides a mechanism by 

which California pays half the cost of work that the Federal Government should 

pursue. 

We appreciate the Subcommittee’s consideration of our request. Thank you very 

much. 

PREPARED STATEMENT OF THE CALIFORNIA TABLE GRAPE COMMISSION

Mr. Chairman and Members of the Subcommittee: The California Table Grape 

Commission respectfully urges this subcommittee to fund the Market Access Program (MAP) at the $140 million level for fiscal year 2005 as approved in the 2002 

Farm Security and Rural Investment Act (FSRIA). 

The Importance of Agricultural Exports 

By passing the FSRIA, Congress-recognized the importance of agriculture to the 

U.S. economy. With increased funding for the Market Access Program, the FSRIA 

also acknowledged the vital role of exports in the long-term growth and overall wellbeing of the country’s agricultural sector. Agriculture is the only sector of the U.S. 

economy that consistently runs a trade surplus. Moreover, exports account for 25 

percent of U.S. farm cash receipts and for over $1 billion per week in sales to more 

than 100 countries. The benefit to rural U.S. economies across the country, in employment and revenue, is immense. 
452 

California Within the Broader Picture 

California, perhaps more than any other state, has benefited from the MAP program, among other Federal export assistance programs. California is the leading 

state in agricultural exports, with export shipments totaling over $6.5 billion annually. Exports represent roughly 14 percent of California’s agricultural production, 

though for many commodities, including grapes, this figure is much higher. The importance of exports to many California commodities are growing. Last year alone, 

export shipments for California walnuts, pistachios, prunes, peaches, nectarines, almonds and grapes increased considerably. This is not to mention the long-term increases accrued over the last 10 years. Federal export assistance programs such as 

MAP made these exports successes possible. 

California Table Grapes 

The California table grape industry is just one of the aforementioned industries 

that has benefited considerably from export development. Over the past 10 years, 

California table grape exports increased 58 percent by volume and nearly 70 percent 

by value. Record export shipments were achieved in each of the last 4 years. These 

records coincided with the opening of new markets such as China, Australia, Vietnam, and India. The MAP program enabled the commission to pursue export development activities in each of those markets, thereby helping the California industry 

take full advantage of these opportunities. 

MAP funds also allow the commission to support export development efforts in 

other emerging and developing markets. As a result, the California table grape industry now exports significantly larger volumes to Mexico, Malaysia, Central America, Thailand, Indonesia, Vietnam and the Middle East among others. At the same 

time, programs funded in more developed export markets such as Japan, Korea, and 

the United Kingdom enable the commission to preserve California’s position as the 

leading supplier of fresh grapes despite increased competition. The significance of 

exports to the California table grape industry cannot be overstated. Exports now account for 40 percent of production. 

The Changing Export Environment 

Based on the growth figures cited above, the California table grape industry has 

clearly benefited from the MAP program, and similar export assistance programs. 

However, global developments are creating a myriad of new challenges and opportunities for U.S. agricultural producers. Bilateral and multilateral trade agreements 

are opening markets that once prohibited the import of California table grapes and 

other U.S. agricultural products. While California benefits from access to these new 

markets, the same is true for competing grape producers in Chile, South Africa, 

Israel, and China. However, growers in many of these countries receive government 

subsidies and other supports that place California grapes at a disadvantage. Increased competition from global table grape suppliers therefore threatens the export 

gains previously made by the California table grape industry and could limit new 

opportunities in emerging markets. 

Conclusion 

Congress recognized the dynamic nature of global agricultural trade, and the 

growing challenges faced by U.S. agricultural producers, when passing the FSRIA 

in 2002. To meet the long-term needs of U.S. agricultural producers, Congress approved incremental increases in funding for the MAP program. Those long-term 

needs have not changed. If anything, the challenges and opportunities have intensified. For this reason, the commission asks Congress to again recognize the importance of U.S. agriculture and address its resource needs by allocating the full $140 

million to fund the MAP program in 2004. 

PREPARED STATEMENT OF THE COALITION ON FUNDING AGRICULTURAL RESEARCH

MISSIONS

Dear Chairman Bennett: The Coalition on Funding Agricultural Research Missions (CoFARM), representing 130,000 members from professional scientific organizations, dedicated to assuring the safe and secure availability of food, feed, and 

fiber, is united by a commitment to advance and sustain investment in our nation’s 

research portfolio. 

Recommendation 1.—We understand that the Agriculture Appropriations bill has 

many valuable and necessary components, and urge you to continue to support the 

National Research Initiative Competitive Grants Program (NRI), USDA’s premier, 

peer-reviewed, competitive grants program. We request that you build on the President’s $180 million funding request for the NRI in the fiscal year 2005 budget cycle. 
453 

A study conducted by USDA’s Economic Research Service (http://www.ers.usda.gov/ 

publications/aer735/) to study) highlights the annual rate of return to publicly fund 

agricultural research at 35 percent. 

Recommendation 2.—CoFARM requests that any new monies appropriated for the 

NRI, as in fiscal year 2004, allow the Secretary the discretion to apply up to 20 percent towards carrying out integrated research, extension and education competitive 

grants program as requested by the Administration in fiscal year 2005. 

As you lead the Congress in deliberation on funding levels for agricultural research, we urge you to build on the President’s proposal of $180 million for the NRI. 

Please consider CoFARM as a resource for information in your efforts to improve 

the agricultural research capacity of our nation. The expertise of our collective membership is available to help in your efforts. 

COFARM MEMBER SOCIETIES

American Dairy Science Association 

American Institute For Biological 

Sciences 

American Phytopathological Society 

American Society of Agricultural 

Engineers 

American Society of Agronomy 

American Society of Animal Science 

American Society for Horticultural 

Science 

American Society for Microbiology 

American Society for Nutritional 

Sciences 

American Society of Plant Biologists 

Council on Food, Agricultural and 

Resource Economics 

Crop Science Society of America 

Council of Entomology Department 

Administrators 

Federation of Animal Science Societies 

Genetics Society of America 

Institute of Food Technologists 

Poultry Science Association 

Rural Sociological Society 

Society of Nematologists 

Soil Science Society of America 

Weed Science Society of America 

PREPARED STATEMENT OF THE COALITION TO PROMOTE U.S. AGRICULTURAL EXPORTS

As members of the Coalition to Promote U.S. Agricultural Exports, we commend 

the Chairman and members of the Subcommittee for their interest and support of 

U.S. agriculture and express our appreciation for this opportunity to share our 

views. 

The Coalition to Promote U.S. Agricultural Exports is an ad hoc coalition of over 

80 organizations, representing farmers and ranchers, fishermen and forest product 

producers, cooperatives, small businesses, regional trade organizations, and the 

State Departments of Agriculture. We believe the United States must continue to 

have in place policies and programs that help maintain the ability of American agriculture to compete effectively in a global marketplace still characterized by subsidized foreign competition. 

During consideration of the 2002 Farm Bill, Congress sought to bolster U.S. trade 

expansion efforts by approving an increase in funding for the Market Access Program (MAP) and the Foreign Market Development (FMD) Program, which will begin 

to reverse the decline in funding for these important export programs that occurred 

over the last decade. For fiscal year 2005, the Farm Bill authorizes funding for MAP 

at $140 million, and FMD is authorized at $34.5 million. The Coalition strongly 

urges that both programs be funded at the full authorized levels in order to carry 

out important market development activities. 

Farm income and agriculture’s economic well-being depend heavily on exports, 

which account for one-third or more of domestic production, provide jobs for millions 

of Americans, and make a positive contribution to our Nation’s overall trade balance. In fiscal year 2004, U.S. agriculture exports are projected to reach $59 billion, 

which is still below the high of roughly $60 billion that was achieved in fiscal year 

1996. Exports could be significantly higher if it were not for a combination of factors, including continued subsidized foreign competition and related artificial trade 

barriers. U.S. agriculture’s trade surplus is also expected to be about $9.5 billion, 

down approximately 66 percent from fiscal year 1996, with imports continuing at 

record levels. In fiscal year 1999, the United States recorded its first agricultural 

trade deficit with the EU of $1 billion. In fiscal year 2004, USDA forecasts that the 

trade deficit with the EU will grow to $4.3 billion, the largest agriculture deficit the 

United States runs with any market. 

According to recent information from USDA, the European Union (EU) spends 

more than $2 billion annually on agricultural export subsidies compared to less than 

$100 million by the United States. In other words, the United States is being out-
454 

spent by more than 20 to 1 or more by the EU alone with regard to the use of export 

subsidies. 

In recent years, the EU, the Cairns group, and other foreign competitors also devoted more than $1 billion on various activities to promote their exports of agricultural, forestry, and fishery products. Information compiled by USDA also shows that 

such countries are spending over $100 million just to promote sales of their products 

in the United States. In other words, they are spending almost as much to promote 

their agricultural exports to the United States, as USDA budgets ($125 million in 

fiscal year 2004) through MAP to promote American-grown and produced products 

worldwide! 

Because market promotion is permitted under World Trade Organization (WTO) 

rules, with no limit on public or producer funding, it is increasingly seen as a centerpiece of a winning strategy in the future trade battleground. Many competitor 

countries have announced ambitious trade goals and are shaping export programs 

to target promising growth markets and bring new companies into the export arena. 

European countries are expanding their promotional activities in Asia, Latin America, and Eastern Europe. Canada, Australia, New Zealand, and Brazil have also 

budgeted significant investments in export promotion expenditures worldwide in recent years. As the EU and our other foreign competitors have made clear, they intend to continue to be aggressive in their export efforts. 

Both MAP and FMD are administered on a cost-share basis with farmers and 

other participants required to contribute up to 50 percent of their own resources. 

These programs are among the few tools specifically allowed under WTO rules to 

help American agriculture and American workers remain competitive in a global 

marketplace still characterized by subsidized foreign competition. The over 70 U.S. 

agricultural groups that share in the costs of the MAP and FMD programs fully recognize the export benefits of market development activities. In fact, they have 

sharply increased their own contributions to both programs over the past decade 

while use of USDA funds has actually dropped. Since 1992, MAP participants have 

increased their contributions from 30 percent (30 cents for every dollar contributed 

by USDA) to almost 175 percent ($1.75 in industry funds for every USDA dollar). 

For FMD, the contribution rate has risen from 76 percent to the current level of 

146 percent. By any measure, such programs have been tremendously successful 

and extremely cost-effective in helping maintain and expand U.S. agricultural exports, protect American jobs, and strengthen farm income. 

Competing in the agricultural export market carries new challenges and opportunities for U.S. agriculture. Not only is the competition becoming more intense with 

increased funding being brought to bear, but we also face a world where new trade 

agreements are being developed almost daily. The United States is also negotiating 

trade agreements with the goal of opening new market opportunities for U.S. agriculture. In addition, the opening of the Iraq market and the markets of other previously sanctioned countries will offer further opportunities and challenges. 

For all these reasons, we want to emphasize again the need to strengthen the 

ability of U.S. agriculture to compete effectively in the global marketplace. American 

agriculture is among the most competitive industries in the world, but it cannot and 

should not be expected to compete alone against the treasuries of foreign governments. As a Nation, we can work to export our products, or we can export our jobs. 

USDA’s export programs, such as MAP and FMD, are a key part of an overall trade 

strategy that is pro-growth, pro-trade and pro-job. 

Again, as members of the Coalition to Promote U.S. Agricultural Exports, we appreciate very much this opportunity to share our views and we ask that this statement be included in the official hearing record. 

PREPARED STATEMENT OF THE COLORADO RIVER BASIN SALINITY CONTROL FORUM

COLORADO RIVER BASIN SALINITY CONTROL PROGRAM, TITLE II

Forum’s Recommendation Concerning: Funding for Environmental Quality Incentives Program 

Support funding of this nationwide program at the President(s requested amount 

of $985 million for fiscal year 2005. 

Request there be designated to the Colorado River Basin Salinity Control Program 

2.5 percent of the EQIP Funding. 

The Congress concluded that the Colorado River Basin Salinity Control Program 

(Program) should be implemented in the most cost-effective way and, realizing that 

agricultural on-farm strategies were some of the most cost-effective strategies, authorized a program for the Department of Agriculture (Department) within the Colo-
455 

rado River Basin Salinity Control Act (Act). With the enactment of the Federal Agriculture Improvement and Reform Act of 1996 (FAIRA), the Congress directed that 

the Program should be implemented as one of the components of the Environmental 

Quality Incentives Program (EQIP). Since the enactment of the Farm Security and 

Rural Investment Act (FSRIA) in 2002, there is, for the first time, an opportunity 

to adequately fund the Program within the EQIP. 

The Program, as set forth in the Act, is to benefit Lower Basin water users hundreds of miles downstream from salt sources in the Upper Basin. There are very 

significant economic damages caused by high salt levels in this water source. 

Agriculturalists in the Upper Basin where the salt must be controlled, however, 

don(t first look to downstream water quality standards but realize local benefits. 

They submit cost-effective proposals to the State Conservationists in Utah, Wyoming and Colorado and offer to cost share. The Act provides that the seven Colorado 

River Basin States will also cost share in this effort, providing 30 percent of the 

funding. This has brought together a remarkable partnership. 

After longstanding urgings from the states and directives from the Congress, the 

Department has concluded that this program is different than small watershed enhancement efforts common to the EQIP. In this case, the watershed to be considered 

stretches more than 1,200 miles from the river’s headwater in the Rocky Mountains 

to the river’s terminus in the Gulf of California in Mexico. The Department has now 

determined that this effort should receive a special fund designation and has appointed a coordinator for this multi-state effort. 

The NRCS, in fiscal year 2003, earmarked $13.6 million and in fiscal year 2004 

there was earmarked $19.8 million to be used for the Program. The Forum appreciates the efforts of the subcommittee in this regard. The plan for water quality control of the Colorado River was prepared by the Colorado River Basin Salinity Control Forum (Forum), adopted by the states, and approved by the EPA. In the water 

quality plan it is required that the USDA (Federal) portion of the effort be funded 

at a level of at least $17.5 million. In fiscal year 2004, for the first time, funding 

reached this level. State and local cost-sharing is triggered by the Federal appropriation. In fiscal year 2004, it is anticipated that the states will cost share with 

about $8.4 million and local agriculture producers will add another $7.6 million. 

Over the past few years, the NRCS has designated that 2.5 percent of the EQIP 

funds be allocated to Colorado River Salinity Control. The Forum believes this is 

the appropriate future level of funding as long as it does not drop below $17.5 million. The Basin states have cost sharing dollars available to participate in on-farm 

salinity control efforts. The agricultural producers in the Upper Basin are waiting 

for their applications to be considered so that they might also cost share in the Program. 

OVERVIEW

The Program was authorized by Congress in 1974. The Title I portion of the Act 

responded to commitments that the United States made, through a Minute of the 

International Boundary and Water Commission, to Mexico with respect to the quality of water being delivered to Mexico below Imperial Dam. Title II of the Act established a program to respond to salinity control needs of Colorado River water users 

in the United States and to comply with the mandates of the then newly enacted 

Clean Water Act. This testimony is in support of funding for the Title II program. 

After a decade of investigative and implementation efforts, the Basin states concluded that the Act needed to be amended. Congress agreed and revised the Act in 

1984. That revision, while keeping the Department of the Interior as lead coordinator for Colorado River Basin salinity control efforts, also gave new salinity control 

responsibilities to the Department of Agriculture. Congress has charged the Administration with implementing the most cost-effective program practicable (measured 

in dollars per ton of salt removed). It has been determined that the agricultural efforts are some of the most cost-effective opportunities. 

Since Congressional mandates of nearly three decades ago, much has been 

learned about the impact of salts in the Colorado River system. The Bureau of Reclamation has conducted studies on the economic impact of these salts. Reclamation 

recognizes that the damages to United States’ water users alone are hundreds of 

millions of dollars per year. 

The Forum is composed of gubernatorial appointees from Arizona, California, Colorado, Nevada, New Mexico, Utah and Wyoming. The Forum has become the sevenstate coordinating body for interfacing with Congress to support the implementation 

of a program necessary to control the salinity of the river system. In close cooperation with the Federal agencies and under requirements of the Clean Water Act, 

every 3 years the Forum prepares a formal report analyzing the salinity of the Colo-
456 

rado River, anticipated future salinity, and the program necessary to keep the 

salinities at or below the levels measured in the river system in 1972 so as to control damages to downstream users. 

In setting water quality standards for the Colorado River system, the salinity concentrations measured at Imperial and below Parker and Hoover Dams in 1972 have 

been identified as the numeric criteria. The plan necessary for controlling salinity 

has been captioned the ‘‘plan of implementation.’’ The 2002 Review, Water Quality 

Standards for Salinity, Colorado River System, includes an updated plan of implementation. In order to eliminate the shortfall in salinity control resulting from inadequate Federal funding for the last several years for USDA, the Forum has determined that implementation of the Program needs to be accelerated. The level of appropriation requested in this testimony is in keeping with the agreed to plan. If adequate funds are not appropriated, state and Federal agencies involved are in agreement that damage from the higher salt levels in the water will be more widespread 

and very significant in the United States and Mexico. 

Although the Program thus far has been able to implement salinity control measures that comply with the approved plan, recent drought years have caused salinity 

levels to rise in the river. Predictions are that this will be the trend for the next 

several years. This places an added urgency for the acceleration of the implementation of the Program. 

STATE COST-SHARING AND TECHNICAL ASSISTANCE

The authorized cost sharing by the Basin states, as provided by FAIRA, was at 

first difficult to implement as attorneys for the USDA concluded that the Basin 

states were authorized to cost share in the effort, but the Congress had not given 

USDA authority to receive the Basin states’ funds. After almost a year of exploring 

every possible solution as to how the cost sharing was to occur, the states, in agreement with the Bureau of Reclamation, state officials in Utah, Colorado and Wyoming and with NRCS State Conservationists in Utah, Colorado and Wyoming, 

agreed upon a (parallel( salinity control program wherein the states’ cost sharing 

funds are being contributed and used. We are now several years into that program 

and, at this moment in time, this solution to how cost sharing can be implemented 

appears to be satisfactory. 

With respect to the states’ cost sharing funds, the Basin states felt that it was 

most essential that a portion of the Program be associated with technical assistance 

and education activities in the field. Without this necessary support, there is no advanced planning, proposals are not well prepared, assertions in the proposals cannot 

be verified, implementation of contracts cannot be observed, and valuable 

partnering and education efforts cannot occur. Recognizing these values, the ‘‘parallel’’ state cost sharing program expends 40 percent of the funds available on these 

needed support activities. Initially, it was acknowledged that the Federal portion of 

the Program funded through EQIP was starved with respect to needed technical assistance and education support. The Forum is encouraged with a recent Administration acknowledgment that technical assistance must be better funded. 

PREPARED STATEMENT OF EASTER SEALS

Easter Seals appreciates the opportunity to report on the notable accomplishments of the USDA Cooperative State Research, Education, and Extension Service 

(CSREES) AgrAbility Program and request that funding for the AgrAbility Program 

be increased to $4.6 million in fiscal year 2005. 

The AgrAbility Program is an essential, unduplicated, hands-on resource for farmers, ranchers, and farmworkers with disabilities and their families. AgrAbility is the 

only USDA program dedicated exclusively to helping agricultural producers with 

disabilities. It demonstrates the value of public-private partnership by securing donations of funds, talent, and materials to magnify the impact of a modest federal 

investment. The fiscal year 2004 appropriation of $4.147 million is funding 24 state 

projects. 

DISABILITY & AGRICULTURE

Agricultural production is one of the nation’s most hazardous occupations. According to the National Institute on Occupational Safety and Health, each year, approximately 182,500 agricultural workers sustain disabling injuries, about 5 percent of 

which permanently impair their ability to perform essential farm tasks. Tens of 

thousands more become disabled as a result of non-farm injuries, illnesses, other 

health conditions, and the aging process. Nationwide, over 13 million Americans liv-
457 

ing in rural areas have a chronic or permanent disability. Hundreds of thousands 

of farmers, ranchers, and agricultural workers who have disabilities are a vital part 

of rural America and the agricultural workforce. 

The presence of a disability jeopardizes rural and agricultural futures for many 

of these individuals. Rural isolation, a tradition of self-reliance, and gaps in rural 

service delivery systems frequently prevent agricultural workers with disabilities 

from taking advantage of growing expertise in modifying farm operations, adapting 

equipment, promoting farmstead accessibility, and using assistive technologies to 

safely accommodate disability in agricultural and rural settings. Yet, with some assistance, the majority of disabled agricultural workers can continue to earn their 

livelihoods in agriculture and participate fully in rural community life. 

AGRABILITY’S ROLE AND ACCOMPLISHMENTS

The AgrAbility Program was established under the 1990 Farm Bill in response 

to the needs of farmers, ranchers, and farmworkers with disabilities. The Farm Bill 

authorizes the Secretary of Agriculture to make grants to Extension Services for 

conducting collaborative education and assistance programs for farmers with disabilities through state projects and related national training, technical assistance, 

and information dissemination. Easter Seals is proud to be a partner with the University of Wisconsin-Extension Cooperative Extension to provide the national training and technical assistance portion of the AgrAbility Program. Thousands of people 

in states with and without state AgrAbility projects are aided through this initiative. 

AgrAbility combines the expertise of the Extension Service and disability organization staffs to provide people with disabilities working in agriculture the specialized services that they need to safely accommodate their disabilities in everyday 

farm and ranch operations. AgrAbility received strong bipartisan support during the 

2002 reauthorization of the Farm Security and Investment Act of 2002, and was extended through fiscal year 2007. The $6 million authorization level for AgrAbility 

was continued. 

Under the statute, state and multi-state AgrAbility projects engage Extension 

Service agents, disability experts, rural professionals, and volunteers to offer an 

array of services, including: identifying and referring farmers with disabilities; providing on-the-farm technical assistance for agricultural workers on adapting and 

using farm equipment, buildings, and tools; restructuring farm operations; providing 

agriculture-based education to prevent further injury and disability; and, upgrading 

the skills of Extension Service agents and other rural professionals to better promote success in agricultural production for people with disabilities. 

In 2004, USDA received an allocation from Congress of $4.147 million. These 

funds are supporting 24 state projects serving 27 states (due to several projects 

serving multiple states), the national project, and USDA–CSREES administration of 

the Program. The state projects funded with fiscal 2004 money are California, Colorado, Delaware, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New York, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, 

West Virginia, and Wisconsin. 

AgrAbility provides customized assistance to farmers, ranchers, and farmworkers 

with disabilities and their families. The nature and degree of assistance depends on 

the individual’s disability, needs, and agricultural operation. 

Between April 1991 and March 2002, AgrAbility Projects in 31 states along with 

the national project accomplished the following: 

—Provided assistance, including nearly 10,000 on-site visits, to over 11,000 farmers, ranchers, farmworkers or their family members affected by disability. 

—Educated over 200,000 agricultural, rehabilitation, and health professionals on 

safely accommodating disability in agriculture. 

—Recruited and trained more than 6,000 volunteers and peer supporters to assist 

agricultural producers with disabilities and their families. 

—Reached 9,500,000 people through more than 8,500 exhibits, displays, and demonstrations to increase awareness of the challenges affecting and resources 

available to people with disabilities working in agriculture. 

—In 2000, the National AgrAbility technical assistance and education grant was 

awarded to Easter Seals national headquarters and the University of Wisconsin-Extension Cooperative Extension. This new partnership is generating innovative and effective activities at the national level that will have a significant 

impact on the effectiveness of the state AgrAbility projects and the lives of agricultural workers with disabilities. 
458 

IMPACT OF CURRENT FUNDING LEVELS

A funding floor of $150,000 per state was set in the 1990 Farm Bill to assure that 

the state programs were appropriately resourced to meet diverse, statewide agricultural accommodation needs. In the 2002 reauthorization of the Farm Bill, the Committee reaffirmed a commitment to that funding floor of $150,000 per state. Because 

funding had not approached the $6 million authorized level prior to fiscal year 2002, 

however, state projects had only received on average slightly under $100,000 per 

state. The funding increase for AgrAbility in fiscal year 2002 provided USDA with 

the ability to fund projects at the $150,000 base level. Easter Seals strongly supports full funding of state projects to assure that they continue to be effective for 

farmers with disabilities. 

AgrAbility projects are underfunded relative to need and objective. At the current 

funding level, only a few staff can be hired to provide statewide education and assistance to farmers with disabilities, educate rural professionals, recruit volunteers, 

and work with rural businesses on disability-related issues. Rising demand for services and the great distances that must be traveled to reach farmers and ranchers 

severely strains even the most dedicated of AgrAbility’s outstanding staff. Easter 

Seals fears that failure to invest adequately in this worthwhile program will ultimately cause it to falter. 

An additional consequence of limited funding is that in every grant cycle some 

states with existing AgrAbility programs and a demonstrated need for services are 

not renewed and are forced to discontinue services to farmers with disabilities in 

that state. These states often have difficulty obtaining the access to the limited public and private funding sources that the federal seed money granted them. More 

than a dozen states have sought AgrAbility funding without success. Each of these 

states can demonstrate significant unmet needs among farm and ranch families affected by disability that AgrAbility could potentially address. The fiscal year 2005 request of $4.6 million would allow USDA to (a) continue to fund states up to the $150,000 base level and add new projects in states currently 

unserved by AgrAbility or (b) increase the budgets of currently funded projects to 

allow much-needed expansion of existing services. 

FUNDING REQUEST

The need for AgrAbility services has never been greater, and its accomplishments 

to date are remarkable by any standard. Easter Seals is proud to contribute to the 

ongoing success of the USDA–CSREES AgrAbility Program. Please support the allocation of at least $4.6 million for AgrAbility in fiscal year 2005 to ensure that this 

valuable public-private partnership continues to serve rural Americans with disabilities and their families. Thank you for this opportunity to share the successes and 

needs of the USDA AgrAbility Program. 

GRANT DISCLOSURE

Easter Seals receives the following federal grants: 

—Project ACTION.—$3.0 million from the U.S. Department of Transportation to 

help transit providers implement the Americans with Disabilities Act (ADA) 

and to promote transportation accessibility for people with disabilities; 

—AgrAbility.—$290,554 from the U.S. Department of Agriculture to promote success in agriculture for people with disabilities and their families; and 

Eater Seals’ state and local affiliated organizations, which are separately incorporated, receive funding from a variety of federal and state agencies to support their 

local programs. We do not, however, have specific information regarding their funding sources. 

PREPARED STATEMENT OF THE FEDERATION OF AMERICAN SOCIETIES FOR

EXPERIMENTAL BIOLOGY

The Federation of American Societies for Experimental Biology (FASEB) is a coalition of 22 scientific societies who together represent more than 66,000 biomedical 

research scientists. The mission of FASEB is to enhance the ability of biomedical 

and life scientists to improve, through their research, the health, well-being and productivity of all people. We appreciate the opportunity to submit testimony on the 

critical research and scientific training being conducted at the United Stated Department of Agriculture (USDA) and will primarily focus our remarks on the National Research Initiative Competitive Grants Program (NRICGP), an extramural, 

peer-reviewed program, ensuring that funds are invested in the highest quality research projects at universities throughout the nation. 
459 

Basic and applied research in agriculture establishes the scientific foundation required to provide a safe, nutritious food supply in a manner that reduces environmental pollution, promotes sustainable yields, improves human health and promotes 

the competitive position of U.S. agriculture in the global marketplace. Agricultural 

research also plays a critical role in homeland security, providing the essential 

knowledge needed to strengthen the protections of our food supply from natural or 

bioterrorist threats. NRICGP funding levels have remained far below the authorized 

level of $500 million. This level of funding limits fundamental and applied research, 

thereby threatening the progress of the U.S. agricultural sector and the associated 

economic, health and security benefits to Americans. 

NRICGP peer-reviewed research focuses on increasing productivity of crops and 

livestock, enhancing human and animal health and nutrition and ensuring food 

safety. The recent discovery of a cow with Bovine Spongiform Encephalopathy (BSE, 

or ‘‘mad cow disease’’) highlights the importance of increased investment in agricultural research. The ability to rapidly identify infected animals, a better understanding of how BSE and related diseases affect the food supply, discovering how 

prions function in healthy animals, perhaps leading to comprehension and treatment of equivalent human diseases—these are all areas that could benefit from 

NRICGP funding. Basic research into plant and animal pathogens not only prepare 

us to combat naturally occurring epidemics, such as BSE, chronic wasting disease 

(CWD) and West Nile virus, but lead us towards powerful tools to battle bioterror 

agents, as well. Guarding the U.S. food supply against the threats of bioterrorism 

is absolutely critical to the security of the nation. 

Mad cow disease is only one of numerous areas of scientific opportunity and pressing public need that justify an increase in peer-reviewed research funding at the 

USDA. According to the Centers for Disease Control and Prevention, obesity will 

soon become the leading cause of preventable death in the United States. Through 

its research programs, the USDA has historically supported human nutrition studies emphasizing the maintenance of good health. They have taken the lead as, during the past two decades, the incidence of obesity—especially among children and 

adolescents—has become a rapidly accelerating public health problem. This problem 

has been particularly striking among certain minority populations. The obesity epidemic has been directly responsible for the dramatic increase in diabetes in both 

children and adults which, if unchecked, will overwhelm our heath care system. Prevention of obesity is the key strategy, and requires both basic and applied knowledge to advance our understanding of potentially successful interventions. Projects 

funded by the NRICGP are using animal models to study the basic mechanisms of 

obesity, as well as investigating how school lunches and childhood eating patterns 

contribute to the prevalence of overweight children and adolescents. 

NRICGP funded research is breaking new ground in genomic and molecular biology. This basic research allows us to understand disease resistance in plants, antibiotic resistance in bacteria and to decipher genetic methods to augment the nutritional value of crops, thereby contributing to agricultural advancement and human 

health. Functional genomic initiatives directed toward agriculturally important organisms, including animals, plants and microbes, represent major opportunities as 

well. The International Rice Genome Sequencing Project, in which the USDA was 

the lead U.S. agency, is being completed and will soon enhance global human nutrition and health. Funding to link the NRICGP and the National Institute of Health’s 

National Human Genome Research Institute is essential to a paradigm shift from 

gene cloning to genome scale biology. The challenge is to understand the genetic 

bases for biological variation responsible for desirable health and production traits 

in plant and animal agriculture. Genomic biology is the magnet that will attract 

outstanding students to the agricultural sciences that are the foundation of ensuring 

a safe and stable food supply. 

Molecular and genomic discoveries made though projects funded by the NRICGP 

stand to have major impacts on U.S. agriculture. USDA-funded researchers have 

identified genes in wheat that may significantly boost production yields. Key factors 

that promote bacterial resistance in cattle have been identified and can be used to 

develop new agents to control infectious diseases. Scientists have elucidated the genetics of wood, which will lead to substantial improvements in quality and quantity 

produced. Genetically modified soybeans have been created that produce more oleic 

acid, a critic dietary fat for improving the human diet. These soybeans are also resistant to bean pod mottle virus, a devastating crop disease. NRICGP researchers 

have developed viruses that can deliver disease resistant genes to catfish, which reduces dependence on medicated feeds while enhancing animal health. In a similar 

but potentially higher impact discovery, antimicrobial peptides have been found in 

pigs that may kill swine pathogens without the need for conventional antibiotics. 
460 

1Federation of American Societies for Experimental Biology. 2004. Federal Funding for Biological Sciences and Related Life Sciences Research—Fiscal Year 2005. http://www.faseb.org/opa/ 

fund2005/fedfund05.pdf. 

This may decrease the risk of antibiotic-resistance infections in human acquired 

through exposure to live animals or meat. 

In addition to research, the USDA plays a vital role in development of future researchers. Training students in the agricultural sciences is critical if the United 

States is to maintain its leadership position in an increasingly competitive, global 

food and agriculture industry. Unfortunately, the number of doctorates awarded in 

agricultural sciences has decreased significantly in recent years. The National 

Needs Graduate Fellowships Program trains excellent researchers who can interact 

effectively with both agricultural producers and consumers. This program allows institutions to recruit outstanding graduate students in targeted areas of research, including plant and animal biotechnology, agricultural engineering and food science 

or human nutrition. Despite its importance, this program is funded at low levels, 

allowing only a fraction of the qualified Ph.D. applicants to be supported. Additionally, the USDA supports innovation in teaching methods and materials through the 

Higher Education Challenge Grants program. The decreasing pool of young scientists with backgrounds in agriculture, and the critical need to recruit and train 

the next generation of agricultural researchers, make it imperative that these two 

programs be supported at levels sufficient to accomplish their goals effectively. 

The best and brightest scientists in the United States are also being deterred 

from agricultural research by the current cap on indirect costs, to the detriment of 

both producers and consumers. FASEB urges that the USDA indirect costs rate be 

raised and made commensurate with the rate used by other Federal agencies. Cutting-edge research requires substantial investment in buildings and instrumentation. The USDA provides partial reimbursements for these indirect, but necessary, 

costs of research as part of grant funding. Currently the Congressionally mandated 

19 percent facilities and administrative (F&A) costs cap results in a significant disincentive for many university faculty to seek USDA funding. Additionally, an insufficient facilities reimbursement significantly impairs the ability of universities to 

meet their fixed obligations and prevents them from further investing in needed facilities in the future. However, increasing the cap on F&A costs from 19 percent 

should not come at the expense of the overall agricultural research budget and its 

competitive grant programs. 

FASEB strongly supports funding the NRICGP at the $200 million level recommended in the President’s fiscal year 2004 budget.1 Furthermore, we are concerned that the President’s fiscal year 2005 budget requests funding below this 

level. The NRICGP has been underfunded since it was created by the 1990 Food, 

Agriculture, Conservation and Trade Act with an authorized annual expenditure of 

$500 million. This limitation in funding constrains the size and duration of essential 

research projects. As a consequence of the NRICGP’s limited funding and constrictive indirect cost policies, FASEB is concerned that researchers are directing their 

efforts away from agricultural needs towards the goals of other funding programs, 

because the number of applications in several NRI areas has decreased in recent 

years. In order to achieve scientific progress in agriculture, it is crucial that young 

investigators are not discouraged from these critical areas of research. Greater investment in basic and applied agricultural research is critical, as the demand for 

a safe and nutritious food supply continues to increase. 

PREPARED STATEMENT OF FLORIDA STATE UNIVERSITY

Mr. Chairman, I would like to thank you and the Members of the Subcommittee 

for this opportunity to present testimony before this Committee. I would like to take 

a moment to briefly acquaint you with Florida State University. 

Located in Tallahassee, Florida’s capitol, FSU is a comprehensive Research I university with a rapidly growing research base. The University serves as a center for 

advanced graduate and professional studies, exemplary research, and top quality 

undergraduate programs. Faculty members at FSU maintain a strong commitment 

to quality in teaching, to performance of research and creative activities and have 

a strong commitment to public service. Among the current or former faculty are numerous recipients of national and international honors including Nobel laureates, 

Pulitzer Prize winners, and several members of the National Academy of Sciences. 

Our scientists and engineers do excellent research, have strong interdisciplinary interests, and often work closely with industrial partners in the commercialization of 
461 

the results of their research. Florida State University had over $162 million this 

past year in research awards. 

FSU recently initiated a new medical school, the first in the United States in over 

two decades. Our emphasis is on training students to become primary care physicians, with a particular focus on geriatric medicine—consistent with the demographics of our state. 

Florida State University attracts students from every county in Florida, every 

state in the nation, and more than 100 foreign countries. The University is committed to high admission standards that ensure quality in its student body, which 

currently includes some 345 National Merit and National Achievement Scholars, as 

well as students with superior creative talent. We consistently rank in the top 25 

among U.S. colleges and universities in attracting National Merit Scholars to our 

campus. At Florida State University, we are very proud of our successes as well as 

our emerging reputation as one of the nation’s top public research universities. 

Mr. Chairman, let me tell you about a two projects we are pursuing this year 

through the U.S. Department of Agriculture. 

The first project involves the reduction of agricultural crop risk. 

The Federal Government, the entity which sets crop insurance rates, needs access 

to new cost-effective ways to reduce crop risk. In the S.E. United States, El Nin ̃ o and La Nin ̃ a climate variability are major factors of crop risk. By using new methods of predicting, more appropriate and fair pricing of premiums for crop insurance 

can be set. The Southeast Climate Research Consortium, which consists of Florida 

State University, the University of Florida, the University of Miami, the Universities of Georgia, Auburn University and University of Alabama at Huntsville has 

been at the forefront of this climate prediction work. The Consortium has worked 

in Florida and throughout the Southeastern United States, with support from 

NOAA, to develop new methods to predict the consequences of climate variability. 

In this consortium, Florida State University provides the climate forecasts and 

risk reduction methodology. The University of Florida, the University of Georgia, 

and Auburn University translate this climate information into risks associated with 

production and environmental impacts and work with Extension Services in each 

state to provide information to the agricultural community. The University of Miami 

provides the economic modeling of the agricultural system and evaluate use and impacts of the products. Each university works with farmers to communicate outcomes. New tasks for fiscal year 2005 include: Assessing climate forecasts to reduce 

risks of ground water contamination from agricultural practices in the S.E. United 

States; investigating how to better manage crops to maintain or increase profitability and simultaneously reduce risks of environmental damage; and evaluating 

agricultural risks associated with water policy changes. FSU, on behalf of the FL Climate Consortium, is seeking $4 million in fiscal year 

2005 for this activity through the U.S. Department of Agriculture. 

Our second project involves the utilization of sugarcane by-products, also know as 

bagasse. 

Sugarcane has been identified as an essential world food source and is mainly 

used for sugar production. The United States produces over seven million metric 

tons sugar annually—85 percent of which is grown in Florida and Louisiana. Bagasse, a fibrous agricultural residue that is a by-product of sugarcane processing, 

is for the most part overlooked at this time. Thousands of tons of sugar industry 

waste by-products are generated annually in the form of bagasse. Florida State University, in conjunction with Louisiana State University and the University of Tennessee, are furthering development and production of industrial textile products 

from bagasse that will enhance the value and use of this potentially important agricultural commodity. Working with cane producers and cooperatives, this project will 

demonstrate mill-to-market bio-based value-added products. Previous work has demonstrated that fibers can be extracted from bagasse and formed into non-woven 

mats for significant and successful erosion control. This multi-state research project 

will scale up the previous pilot process to extract larger volumes of sugarcane fibers 

from bagasse for the production and evaluation of industrial textile products from 

the extracted fibers. 

Two prototype continuous reactors—one at Florida State University and one at 

Louisiana State University—will be used to process bagasse fibers that will be characterized and made into carded webs for spinning fibers. Processing parameters for 

carding and spinning the fibers will be optimized and dyeability of the fibers, yarns 

and mats will be investigated. The carded webs will also be subjected to a process 

that results in non-woven mats with enhanced strength. Operating conditions will 

be established and costs assessed. These products from renewable resources have industrial applications based on their biodegradability for environmental purposes. 

Additional efforts will focus on developing value-added products from sugarcane ba-
462 

1 National Council on Private Forests (NCPF). (2001). Working Paper on Farm Bill Forestry 

Title Priorities. Unpublished manuscript, p. 6. See also National Coalition for Sustaining America’s Nonfederal Forests (NCSANF). (2000). A National Investment in Sustainble Forestry: Addressing the Stewardship of Nonfederal Forestlands through Research, Education, and Extension/Outreach, p. 7. 2 Brown, Dr. Perry J. (2001). Testimony submitted to the Subcommittee on Agriculture, Rural 

Development, FDA, and Related Agencies of the House Appropriations Committee, fiscal year 

2001 CSREES Budget. Online: www.napfsc.org/creestest02.htm, p. 2. 3 National Coalition for Sustaining America’s Nonfederal Forests (NCSANF). (2000). A National Investment in Sustainble Forestry: Addressing the Stewardship of Nonfederal Forestlands 

through Research, Education, and Extension/Outreach, p. 7. 4 Brown (2001), p. 2. 

5 NCSANF, p. 16. 

6 Brown (2001), p. 1. 

7 Ibid., p. 2; NCPF, p. 6. 

gasse with production methods that ensure environmental compatibility. Results of 

this research and development will increase the economic value and potential applications for sugarcane fiber products. 

The development of new products from sugar cane bi-products can be a tremendous economic benefit for the farmers and the region. Historically, this segment of 

the agricultural economy has had a limited variety of products from the cane. This 

research will hopefully increase the marketability of cane and its enhanced bi-products in a wider range of commercial areas and applications. 

Florida State University, as project coordinator, is seeking $1.5 million in fiscal 

year 2005 for this activity through the U.S. Department of Agriculture. 

Mr. Chairman, these are just of couple of the many exciting activities going on 

at Florida State University that will make important contributions to solving some 

key concerns our nation faces today. Your support would be appreciated, and, again, 

thank you for an opportunity to present these views for your consideration. 

PREPARED STATEMENT OF THE FOREST LANDOWNERS ASSOCIATION

The Forest Landowners Association (3776 Lavista Road, Suite 250, Tucker, Georgia, 30084; telephone 404–325–2954), an association of over 10,000 private forest 

landowners throughout eighteen southern and eastern states, appreciates this opportunity to submit written testimony to the Senate Committee on Appropriations, 

Subcommittee for Agriculture, regarding appropriations for the Cooperative State 

Research, Education, and Extension Service (Department of Agriculture), and in 

particular funding for the following programs. 

—Formula Programs.—McIntire-Stennis Cooperative Forestry (proposed funding 

by administration in fiscal year 2005 Budget: $21,884,000). 

—Extension Programs.—Renewable Resources Extension Act (proposed funding by 

administration in fiscal year 2005 Budget: $4,093,000). 

Formula Programs: McIntire-Stennis Cooperative Forestry 

The Cooperative Forestry Research Program (McIntire-Stennis Act) supports longterm research and scientist training efforts at the nation’s public land-grant universities and colleges.1 The McIntire-Stennis program increases the efficiency and productivity of private forestland by providing ‘‘for cutting-edge research on productivity, technologies for monitoring and extending the resource base, and environmental quality.’’ 2 In addition, the program has assisted in the completion of over 

7,500 masters degrees and 2,200 doctoral degrees in forest resources fields.3

The program’s objectives fulfill several areas of need within the forestry community. The McIntire-Stennis Cooperative Forestry Research program: 

—‘‘Significantly enhance[s] sustainability and productivity of nonfederal forests; 

—‘‘Increase[s] the financial contributions of nonfederal forests to benefit landowners, the rural community, state and national economies, and environmental 

values; and 

—‘‘[Helps] conserve and sustain the nonfederal forests and other natural resources for future generations.’’ 4

The McIntire-Stennis program has a funding authorization of $105.0 million per 

year.5 However, the program has never been funded at its authorized level; the enacted fiscal year 2004 budget only allocated $21,755,000 for the program (approximately one-fifth of its authorized level),6 and below the fiscal year 2001 budget of 

$21,932,000. This reduced funding is even more disturbing when viewed through the 

knowledge that McIntire-Stennis funds are matched by three dollars from states 

and universities for every Federally supplied dollar provided by Congress.7
463 

8 NCSANF, p. 16. 

9 Ibid., p. 4. 

10 Brown (2001), p. 3. 11 ‘‘[RREA] funds extension efforts that are a model of partnership between the U.S.D.A. and 

State Universities and Land Grant Colleges.’’ NCPF, p. 4. 12 Brown (2001), p. 3. 

FLA recommends that Congress fully fund the McIntire-Stennis Cooperative Forestry Research program at its authorized level of $105.0 million per year. We believe 

that this funding is vital to the eventual sustainability of America’s forests. As stated in a National Coalition for Sustaining America’s Nonfederal Forests report, 

‘‘[These] funds would be used to create about 500 new campus-based faculty positions addressing forest resources needs.’’ 8 The needs addressed in the report are 

just as critical 4 years later. FLA is cognizant of the enormity of such a request; 

therefore, we would request a ten percent increase over fiscal year 2004 levels, to 

a fiscal year 2005 appropriations level of $23,930,500. 

Extension Programs: Renewable Resources Extension Act 

The Renewable Resources Extension Act (RREA) is the nation’s leading forestry 

extension program, tackling critical forestry and related natural resources extension 

and stewardship needs in states, while also addressing critical issues of forest management for productivity and environmental quality on non-Federal private 

forestlands.9 The program, administered by CREES,10 is the foundation of university outreach and extension efforts.11 RREA programs help to ‘‘(1) solve immediate 

problems; (2) transfer research technologies and new knowledge; and (3) increase 

[forest landowner] awareness of the benefits of active [forest] management.’’ 12

RREA has received consistent support from forestry organizations, including the 

National Council on Private Forests (NCPF) and the National Association of Professional Forestry Schools and Colleges (NAPFSC). However, the program is consistently funded below its congressional authorized level of $30.0 million per year; the 

enacted fiscal year 2004 budget only allocated $4,040,000 for the program. It is apparent that funding levels must be increased to fulfill the extension and outreach 

objectives of RREA. Once again, FLA is cognizant of the enormity of such a request; 

therefore, we would request a ten percent increase over fiscal year 2004 levels, to 

a fiscal year 2005 appropriations level of $4,444,000. 

The Forest Landowners Association thanks the Appropriations Subcommittee for 

Agriculture for the opportunity to submit written testimony regarding fiscal year 

2005 appropriations for the Cooperative State Research, Education, and Extension 

Service (Department of Agriculture). If the subcommittee has any questions or comments regarding this written testimony, it should contact Dr. Vernon R. Hayes, Jr., 

FLA’s government affairs director, at his office (8204 Foxhall Road, Clinton, Maryland, 20735; telephone 301–877–6898; fax 301–877–6899). 

PREPARED STATEMENT OF FRIENDS OF AGRICULTURAL RESEARCH—BELTSVILLE, INC. 

Mr. Chairman, and Members of the Subcommittee, thank you for this opportunity 

to present our statement supporting funding for the Department of Agriculture’s Agricultural Research Service (ARS), and especially for the Agency’s flagship research 

facility, the Henry A. Wallace Beltsville Agricultural Research Center (BARC), in 

Maryland. Our organization-Friends of Agricultural Research—Beltsville—is dedicated to supporting and promoting the Center’s agricultural research, outreach, and 

educational mission. 

Our testimony addresses four central themes. 

First, we begin with our highest recommendation for an item within the President’s budget—Identification, Prevention, and Control of Invasive Species. 

Second, we turn to the urgent need to continue support for specific research areas 

mandated by the Congress in fiscal years 2001, 2002, 2003, and 2004. These projects 

address critical research needs that have enormous impact. They have been strongly 

endorsed and supported by this Subcommittee and many others. We list them below 

with brief descriptions and our recommendations for continued funding. 

Third, we briefly discuss the BARC and the Maryland Technology Development 

Corporation (TEDCO) partnership for transferring technology from the laboratory to 

the marketplace. We fully support the goals and accomplishments of this special relationship. 

Last, we will address our recommendation for construction funds to complete 

Phase III of the Beltsville Human Nutrition Research Center 
464 

INVASIVE SPECIES

The President’s budget proposes a $2 million increase for invasive species research at BARC. In our view, the urgency for supporting invasive species research 

could hardly be overstated. Invasive species—insects, fungi, nematodes, and animal 

parasites—have never posed a greater threat to American agricultural security than 

they do today. 

What’s more, the threat is growing, accelerated by rising international travel and 

immigration, expanding globalization and trade, and the ominous threat of international bioterrorism. Ironically, our nation faces this growing challenge when Federal support for invasive species research has reached dangerously low levels after 

decades of decline. Resources are barely adequate to keep up current programs, 

much less adequate to cover skyrocketing demands for new research and services. 

To make matters worse, universities and others have cut back sharply also. The net 

effect is to leave America weak and vulnerable in an area that urgently needs 

strengthening. 

In November 2002, BARC convened a distinguished panel of scientists and stakeholders, headed by Dr. Peter H. Raven, Director of the Missouri Botanical Garden, 

to address these issues. They focused basically on the threat of invasive species to 

agricultural biosecurity, pest management and control, and regulation/quarantine. 

The panel noted that BARC houses personnel, collections, and information systems that are unduplicated anywhere in the world. BARC’s internationally recognized experts and collections underwrite the scientific basis for the action programs 

of the Animal and Plant Health Inspection Service, the Forest Service, and state 

departments of agriculture. BARC experts spend substantial parts of their time 

identifying alien species that action agencies have intercepted at our ports and borders. 

In the concluding remarks of its report, the panel foresees BARC as a national 

and global leader for protecting the security and productivity of American agriculture against the threat of invasive species. The panel sees BARC as a future center of unparalleled excellence providing the cohesive and responsive knowledge base 

for protecting United States and global agriculture. 

The funding increase proposed in the President’s budget is a necessary step in the 

right direction. 

CONGRESSIONALLY MANDATED PROGRAMS AT BARC

For fiscal years 2001 though 2004, Congress designated funding for the 14 BARC 

projects that we briefly describe below. Total funding for these projects was 

$7,772,585. We understand that the President’s budget for fiscal year 2005 proposes 

to eliminate all 14 projects and replace them with new projects that would receive 

$7,575,000 of total funding. Though the net difference of total proposed funding is 

relatively small, the impact on vital research would be dramatic. 

In our view, the 14 on-going projects should be funded to completion before new 

projects are added to the BARC portfolio. We would also point out that there is no 

simple way to re-assign scientists from the on-going projects to the proposed new 

projects, which are considerably different in emphasis and required scientific skills. 

We strongly recommend continued funding for the projects listed below. 

Animal Improvement Programs Laboratory.—For many years America’s dairy 

cows have steadily increased milk production at the rate of about 45 gallons per 

year. Approximately two-thirds of those increases can be traced to genetic progress. 

Much of the credit for that success stems from the cooperative national and international genetic evaluation programs of BARC’s Animal Improvement Programs 

Laboratory. The future of dairy industry will be greatly influenced by the research 

of the Animal Improvement Programs Laboratory. In recent years, the Laboratory 

staff has decreased because inflation and salary increases have consumed operating 

funds. We recommend continued funding support for the Laboratory. 

Barley Health Foods Research.—Barley contains carbohydrates called beta-glucans 

that help control blood sugar and cholesterol. We recommend continued support for 

research to determine if barley-containing foods may affect the risks of such chronic 

conditions as cardiovascular disease, obesity, and diabetes. This research is needed 

to assess the bioavailability and efficacy of food components found in barley and to 

identify foods, health practices, and attitudes associated with successful maintenance of weight loss. We recommend continuation of this funding. 

Biomineral Soil Amendments for Nematode Control.—Losses to soil nematodes 

cost farmers billions every year. The soybean cyst nematode alone can cut soybean 

yields by 30 percent, often more. Citrus and vegetable crops also are vulnerable to 

intensive nematode damage. Growers are squeezed by expanding nematode infestations, nematicide resistance, and de-registration of traditional nematicides because 
465 

of environmental concerns. BARC in cooperation with industry and others is pursuing new, more effective approaches to nematode control. Promising research lines 

include using such re-cyclable soil amendments as animal wastes, composts, and 

mineral by-products. We recommend continuing the increased funding for these 

promising approaches. 

Foundry Sand By-Products Utilization.—Municipalities and industries generate 

vast quantities of by-products. By-products, such as foundry sand from the metal 

castings industry, have potential uses in agricultural and horticultural production 

processes. The Animal Manure and By-Products Laboratory will use the funding to 

identify beneficial new uses and assess risks to human health, safety, or the environment from using foundry sand in agriculture. We recommend continuation of this 

funding. 

Poultry Diseases.—The mission of the Parasite Biology, Epidemiology, and Systematics Laboratory is to reduce the economic costs of parasites in livestock and 

poultry. Coccidiosis causes the greatest economic loss to the chicken meat industry 

from disease. But traditional chemical controls are becoming ineffective. New nonchemical control methods are needed. Funding will be used to conduct functional 

genomics and proteomics analysis of coccidia to identify potential proteins that can 

be used in diagnostic tests and as targets for potential vaccine development. We recommend continuation of this funding. 

Biomedical Plant Materials.—There is a growing need for functionally active, protective molecules for human and animal pathogens. We need them at lower cost and 

without risk to humans, animals, or the environment. Such agents include recombinant antibodies, vaccines, and enzymes. Also, we need non-contaminated, lowercost, more reliable diagnostic reagents. 

In recent years, scientists have produced biomedical reagents from plants in the 

laboratory. The potential benefits are huge. For one example, replacing costly poultry vaccine injections with edible plant-produced vaccines would substantially lower 

poultry production costs. Beltsville is uniquely equipped to develop necessary systems and to test their efficacy in cooperation with other ARS facilities working on 

livestock and poultry diseases. This is a cooperative project with the Biotechnology 

Foundation, Inc., in Philadelphia. We recommend continuation of this funding. 

National Germplasm Resources System.—This laboratory supports the national 

database that provides data storage and retrieval systems for collecting and disseminating germplasm information. It provides accurate taxonomy, transport, geographic evaluation, inventory, and cooperator information for plant and animal 

germplasm holdings nationwide. This is an ARS mission-critical activity. We recommend continuation of funding. 

Bovine Genetics.—Somatic cell nuclear transfer (cloning) technology has tremendous biomedical and agricultural potential. Yet the frequency of successful births 

from cloning has been relatively low. Many pregnancies fail before completing gestation. Funding will support collaborative research by the Gene Evaluation and Mapping Laboratory, the University of Illinois, and the University of Connecticut aimed 

at improving cloning efficiency. We recommend continuation of this funding. 

IR–4: Registration of Minor Use Pesticides.—‘‘Minor crops’’ have great economic 

value, but are not among the top ten crops like corn and soybeans that provide huge 

markets for pesticide manufacturers. Manufacturers often do not see a large enough 

market to justify the expense of doing the research needed to register a pesticide 

for a ‘‘minor crop.’’ Without the IR–4 program, growers would have fewer options 

for pest control. The Beltsville Environmental Quality Laboratory operates a minor 

crop pesticide residue laboratory. This lab vigorously enforces EPA-prescribed protocols for all experimental procedures, and prepares comprehensive final reports. New 

funds enhance the overall mission of the Agency’s IR–4 program. We recommend 

that this funding be continued. 

Nutrition monitoring system.—BARC’s Food Survey Research Group monitors food 

and nutrient intake for the nation in collaboration with HHS and the NHANES 

study (National Health and Nutrition Examination Survey). We recommend continuation of this funding. 

The approximate $500,000 of new money will enable the collection of a second day 

of dietary intake data from human subjects. This information is critical for increasing the statistical reliability of the food intake survey data. These data are important for supporting such public policy programs as school lunch, food stamps, WIC, 

senior meals programs, etc. They are also important when the Institute of Medicine’s Food and Nutrition Board (part of NAS) sets recommended intakes for essential nutrients. We recommend continuation of this funding. 

Coffee and Cocoa.—These funds support research to control a range of fungal diseases and pests that attack coffee and cacao (chocolate). More profitable production 
466 

systems for these crops will make them more attractive alternatives to some producers of coca (cocaine). We recommend continuation of this funding. 

Johne’s Disease.—This disease is also called bovine paratuberculosis. It is a contagious disease that causes chronic wasting or debilitating enteritis and eventual 

death in cattle, sheep, goats, deer, and other wild and domestic ruminants. Infected 

animals intermittently shed the microorganism into milk and feces. The research at 

BARC will provide a better understanding of the pathogenicity of the organism so 

that better diagnostic tests and vaccines can be developed. We recommend continuation of this funding. 

Food Safety.—This is funding for studying transmission of Listeria, a human 

pathogen and food safety contaminant. Certain cheeses, including some popular 

French imports, are made from fresh unpasteurized milk, and can carry Listeria. 

Listeria can make anybody sick, but it’s a particular risk for pregnant women because it can cause miscarriage or other problems. We recommend continuation of 

this funding. 

Weed Management.—These funds support a cooperative project with Rodale Institute on weed management in organic farming. Organic farming is a very rapidly 

growing sector of agriculture, and organic foods often command a price premium. 

Organic farming makes it possible for small farmers to make a living with highvalue products from a small piece of land. Weeds are one of the biggest problems 

encountered by organic farmers, and a serious threat to their economic viability. 

These research funds will improve non-chemical weed control. 

BARC–TEDCO PARTNERSHIP

The Maryland Technology Development Corporation (TEDCO) and BARC have 

created a partnership to speed the transfer and commercialization of technologies 

from BARC laboratories to the private sector. Goals include fostering new industries, creating or re-vitalizing businesses, stimulating economic growth, and creating 

new, stable jobs. 

We understand that TEDCO has approached the Congress regarding a $1 million 

appropriation to support technology transfer. The funds are needed to continue ongoing BARC–TEDCO technology transfer activities. Approximately one half of the 

appropriation would be made available to BARC laboratories to complete research 

needed to commercialize new, valued-added products made from poultry feathers. 

Potential economic and environmental benefits from the successful commercialization of products made from poultry feathers are substantial, not only for Maryland 

but well beyond. Environmentally, finding an economic outlet for waste poultry 

feathers would relieve the tremendous burden of disposing an unusable material. 

Economically, estimates predict that as many as 80 new poultry-feather plants, each 

generating 80–100 new jobs, could be created across the nation. The first such plant 

may appear on Maryland’s Eastern Shore, where there is substantial commercial interest. 

FAR–B heartily endorses support for this innovative approach to technology 

transfer and commercialization. 

BUILDINGS AND FACILITIES

Phases I and II of the three-planned phases of construction and modernization for 

the Beltsville Human Nutrition Research Center have been completed. Phases I and 

II provided for constructing two new buildings for human nutrition research. The 

new buildings are now fully functional and are contributing to the research mission 

of the Beltsville Human Nutrition Research Center. They were officially opened last 

August in a dedication ceremony at BARC. With the opening of these buildings, 

BARC now has the largest capacity for free-living volunteer studies in the United 

States. 

Phase III is for renovating the original human nutrition building, which after almost seven decades of heavy use is in poor condition. Its interior badly needs modernization. Externally, the building remains generally sound. BARC is committed to 

preserving the building’s historical exterior and appearance. Once renovated, the 

building will house the Food Composition Lab, the Nutrient Data Lab, the Food 

Surveys Research Group, and the Community Nutrition Research Group—all research. BARC then will have all of the BHRNC staff in one complex of buildings, 

all modern and meeting current needs and building standards. 

In fiscal year 2001, Congress provided $1.9 million to design the building’s interior renovation. Though the design work is about 35 percent complete, the process 

is on hold pending approval of $26 million needed for construction. BARC may not 

begin construction before all of the construction funding has been approved. Should 

Congress approve partial construction funding for fiscal year 2005, BARC will hold 
467 

the partial funding until full funding may be approved in a later appropriation. We 

commend BARC’s flexibility regarding the renovation project, and we encourage 

Congress to approve funding for Phase III. 

Mr. Chairman, that concludes our statement. We again thank you for the opportunity to present our testimony and for your generous support. 

PREPARED STATEMENT OF THE GREAT LAKES INDIAN FISH AND WILDLIFE

COMMISSION

Agency Involved.—Natural Resource Conservation Service 

Summary of fiscal year 2005 Testimony.—The Commission requests Congress support funding for conservation programs as authorized under the Farm Security and 

Rural Investment Act of 2002 including: 

—$1 billion in for the Environmental Quality Incentives Program (EQIP), and 

—$60 million for the Wildlife Habitat Incentives Program (WHIP). 

The Commission also requests Congress restore $275,000 in funding for the Wisconsin Tribal Conservation Advisory Council (WTCAC) eliminated by the Administration in fiscal year 2005. 

Disclosure of USDA Grants Contracted.—The Commission is an intertribal organization which, under the direction of its member tribes, implements federal court orders governing tribal harvests of off-reservation natural resources and the formation 

of conservation partnerships to protect and enhance natural resources within the 

1836, 1837, and 1842 ceded territories. Under the USDA’s Environmental Quality 

Incentives Program, the Commission contracted $10,000 in fiscal year 1998 and an 

additional $40,000 in fiscal year 1999. In addition, the Commission also contracted 

EQIP Education Grants funded by USDA and the University of Wisconsin Extension 

Service for $29,940 in fiscal year 1998 and $20,000 in fiscal year 2001. Under the 

WHIP program, GLIFWC contracted $2,400 in fiscal year 2003. 

Mr. Chairman, Members of the Committee, my name is James H. Schlender. I am 

the Executive Administrator of the Great Lakes Indian Fish and Wildlife Commission (Commission). Our eleven member tribal governments thank you for considering our testimony regarding programs funded by USDA’s Natural Resource Conservation Service. The Commission’s testimony stresses three major objectives: 

—provide funding for the Environmental Quality Incentives Program (EQIP) at 

$1 billion nationally and support intertribal and tribal efforts to participate in 

conservation partnerships; 

—provide funding for the Wildlife Habitat Incentives Program at $60 million nationally to support efforts to protect and enhance wildlife and fish habitats; and 

—restore funding for the Wisconsin Tribal Conservation Advisory Council 

(WTCAC) at $275,000 annually. 

Background.—The Commission is comprised of eleven sovereign tribal governments located throughout Minnesota, Wisconsin, and Michigan. The Commission’s 

purpose is to protect and enhance treaty-guaranteed rights to hunt, fish, and gather 

on inland territories ceded under the Chippewa treaties of 1836, 1837, and 1842; 

to protect and enhance treaty guaranteed fishing on the Great Lakes; and to provide 

cooperative management and protection of these resources. The Commission participates in a wide range of cooperative management activities with local, state, federal, 

and foreign governments. Some of these activities arise from court orders, while others are developed in general government-to-government dealings between tribes and 

other governments. 

EQIP Supports Tribal Partnerships to Control Purple Loosestrife in the Bad River 

and Chequamegon Bay watersheds.—Purple loosestrife (Lythrum salicaria L.) is an 

exotic perennial plant first recorded in Wisconsin in 1940. As purple loosestrife 

spread throughout wetland ecosystems, it reduced carrying capacities for muskrats, 

water birds, and mink and degraded the quality of migratory waterfowl production 

sites. 

In 1998, the Commission began a 5-year project under USDA’s Environmental 

Quality Incentives Program (EQIP) to control purple loosestrife in the Bad River 

and Chequamegon Bay watersheds. Under this project, the Commission utilized 

funding from the BIA’s Noxious Weed Program to control loosestrife on public lands 

located in the Chippewa ceded territories and utilize funding from EQIP to control 

loosestrife on private lands with land owner consent—orchards, dairy farms, etc. 

This program integration promotes conservation partnerships to protect critical 

habitat on a watershed basis including: 

—Kakagon and Bad River Sloughs—the largest, healthiest, fully functioning estuarine system in the upper Great Lakes Basin and is listed as a National Natural Areas Conservancy Landmark (National Registry 1983)—Bad River Tribe; 
468 

—Fish Creek Sloughs Refuge—an important area for waterfowl nesting/staging, 

and northern pike spawning; and Sioux River Refuge—important wetland, waterfowl staging area, and critical steel head trout spawning habitat—WI DNR; 

—Whittlesey Creek—this newly established refuge possesses critical habitat for 

salmon spawning and reintroduction of rare native brook trout strains— 

USFWS, and 

—Apostle Islands National Park—National Park Service. 

In addition to its EQIP Purple Loosestrife Control program, the Commission has 

also completed two EQIP education grants. Under these grants, the Commission: (1) 

prepared and published educational materials to prevent the spread of purple 

loosestrife, leafy spurge, and other invasive plants; (2) established an Internet GIS 

web site (i.e. see www.glifwc-maps.org) to assist landowners, state and federal agencies, non-profit conservation organizations, and tribes in developing and implementing invasive plant control strategies within watersheds; and (3) promoted cooperative control projects through technical assistance and educational materials/presentations. 

The Establishment of the Wisconsin Tribal Conservation Advisory Council and 

EQIP Funding Set-asides have Increased Program Participation by Indian Nations 

in Wisconsin.—The Wisconsin Tribal Conservation Advisory Council (WTCAC) was 

established for the purposes of: (1) identifying tribal conservation issues, (2) advising the USDA Natural Resources Conservation Service on more effective ways to deliver USDA programs, and (3) assisting the Indian Nations of Wisconsin in accessing USDA resources. This Tribal Conservation Advisory Council was organized in 

March 2001 and is the first such council formed in the country as authorized under 

the 1995 Farm Bill. 

One of the responsibilities of the WTCAC, at the request of the NRCS State Conservationist, is to review and recommend funding for conservation proposals from 

the 11 federally recognized tribes in Wisconsin. In fiscal year 2003, the WTCAC was 

allocated $440,000 for this effort and recommended numerous tribal EQIP contracts 

including: 

Supporting Tribal Aquaculture Development.—The St. Croix Tribe contracted 

$43,162 in EQIP funding to assist the tribe in installing an aquaculture effluent 

treatment system at its St. Croix Waters Aquaculture facility. St. Croix also contracted $19,918 in EQIP funding to improve water volume and quality for the 

rearing of food fish and walleye and perch fingerlings for restocking efforts on local 

lakes. 

Decommissioning Abandoned Wells.—The Bad River Tribe contracted $5,550 and 

Lac du Flambeau contracted $10,026 in EQIP funding to decommission abandoned 

wells on their Reservations that are a potential source of groundwater contamination. 

Controlling Shoreline Erosion.—The Lac du Flambeau Tribe contracted $40,000 in 

EQIP funding to provide stream bank and shoreline stabilization, critical area 

planting, tree and shrub establishment, grade stabilization structure, and heavy use 

area protection on Flambeau and Pokegama Lakes. The erosion is causing sedimentation, adverse effects on water quality, as well as aquatic and riparian habitat 

damage. 

The St. Croix Chippewa Tribe contracted $18,750 in EQIP funding to install a 

grade stabilization structure to control soil erosion upstream of the confluence of the 

Yellow River and the St. Croix River. This erosion is impairing wild rice beds downstream on the St. Croix River. 

Stream Corridor, Wetland, and Wild Rice Restoration Project.—The Sokaogon 

Chippewa Community contracted $47,780 in EQIP funding to restore the natural 

flow that was altered in Swamp Creek, remove nuisance plant species, reseed wild 

rice, remove debris from stream banks and beds, and control erosion on a tribal access road. 

Forest Restoration Project.—The Bad River Tribe contracted $40,000 in EQIP 

funding to plant white pine, red pine, balsam fir, and white spruce on 1,120 acres 

of tribal lands that, left untreated, would regenerate to aspen and increase erosion 

problems. This is the first step in promoting and restoring forest biodiversity on 

lands cut-over in the 1920’s. 

Wildlife Habitat Incentives Program (WHIP).—NRCS’s WHIP program provides a 

flexible funding resource to Wisconsin that enables local communities to form conservation partnerships between private landowners, local conservation districts, 

counties, and tribal governments. Again the WTCAC combined with a WHIP program set-aside of $33,000 in Wisconsin resulted in numerous tribal WHIP contracts 

in fiscal year 2003. Through this process NRCS was able to establish Tribal WHIP 

contracts for such diverse projects as wild rice seeding, walleye spawning habitat 

restoration, stream bank protection, and native grass seeding. 
469 

Unfortunately, the success of Wisconsin Tribes in contracting fiscal year 2003 

EQIP and WHIP funding from NRCS is not found among GLIFWC’s member tribes 

in Michigan as documented by the table below. 

GLIFWC/Member Tribes EQIP Funding Contracted fiscal year 2003 WHIP Funding Contracted fiscal year 

2003 

Michigan: 

Lac Vieux Desert ........................................ None ................................................. None 

Keweenaw Bay ........................................... None ................................................. None 

Bay Mills .................................................... None ................................................. None 

Michigan Total ....................................... $0—contracted by 3 MI GLIFWC 

tribes 

$0—contracted all MI tribes 

$0—contracted by 3 MI GLIFWC 

tribes 

$0—contracted all MI tribes 

Wisconsin: 

Bad River ................................................... $40,000 forest restoration/erosion 

control 

$5,550 decommission abandoned 

wells 

None 

Red Cliff ..................................................... Did not apply for fiscal year 2003 

projects 

$1,350 stream bank protection 

project 

St. Croix ..................................................... $43,162 aquaculture waste storage 

facility 

$2,000 aquaculture hatchery well 

project 

$18,750 erosion control project 

$10,000 walleye spawning habitat 

restoration 

Sokaogon .................................................... $47,780 stream corridor & wetland 

restoration project 

$3,000 Rice Lake wild rice seeding 

Lac Courte Oreilles .................................... Did not apply for fiscal year 2003 

projects 

$3,000 wild rice seeding 

Lac du Flambeau ....................................... $40,000 to address shoreline erosion concerns 

$10,026 decommission abandoned 

wells 

$3,000 Powell Marsh native grass 

seeding 

GLIFWC ....................................................... Did not apply for fiscal year 2003 

projects 

$1,200 Jackson Box Flowage wild 

rice seeding; 

$1,200 Manitowish River wild rice 

seeding 

Wisconsin Total ..................................... $207,268—contracted by GLIFWC 

member tribes in Wisconsin 

$440,000—allocated to 11 Tribes 

statewide 

$22,750—contracted by GLIFWC 

and 5 member tribes 

$33,000—allocated for 11 tribes 

statewide 

GLIFWC takes the following lessons from these circumstances: 

—Funding for tribal projects in Wisconsin is directly attributable to active outreach toward and integration of tribes into the budgeting process of NRCS state 

offices. 

—A tribal advisory council consisting of the tribal representatives and funded by 

NRCS can effectively link tribes with the NRCS and result in more funding directed toward tribal projects. 

—Set asides for tribal projects from NRCS state office funding allocations is critical to ensure that tribes are able to access their fair share of those allocations. 

GLIFWC requests Congress restore funding for WTCAC at $275,000 in fiscal year 

2005 thereby ensuring tribal communities in Wisconsin have the technical resources 

needed to address their conservation needs. 

PREPARED STATEMENT OF THE HUMANE SOCIETY OF THE UNITED STATES

As the largest animal protection organization in the country, we appreciate the 

opportunity to provide testimony to the Agriculture, Rural Development and Related 

Agencies Subcommittee on fiscal year 2005 funding items of great importance to The 

Humane Society of the United States and its more than 8 million supporters nationwide. 
470 

We are grateful for the Committee’s outstanding support during the past few 

years for improved enforcement by the U.S. Department of Agriculture of key animal welfare laws, and we urge you to sustain this effort in fiscal year 2005. Your 

leadership is making a great difference in helping to protect the welfare of millions 

of animals across the country, including those at commercial breeding facilities, laboratories, zoos, circuses, airlines, and slaughterhouses. As you know, better enforcement will also benefit people by helping to prevent: (1) orchestrated dogfights and 

cockfights that often involve illegal gambling, drug traffic, and human violence, and 

can contribute to the spread of costly illnesses such as Exotic Newcastle Disease and 

bird flu; (2) injuries to slaughterhouse workers from animals struggling in pain; (3) 

the sale of unhealthy pets by commercial breeders, commonly referred to as ‘‘puppy 

mills’’; (4) laboratory conditions that may impair the scientific integrity of animal 

based research; (5) risks of disease transmission from, and dangerous encounters 

with, wild animals in or during public exhibition; (6) injuries and deaths of pets on 

commercial airline flights due to mishandling and exposure to adverse environmental conditions; and (7) the spread of ‘‘mad cow’’ disease and bacterial infections 

that people can get from eating contaminated meat. 

For fiscal year 2005, we want to ensure that the important work made possible 

by the fiscal year 2004 budget is continued and that resources will be used in the 

most effective ways possible to carry out these key laws. Specific areas of concern 

are as follows: 

Office of Inspector General/$1.2 million for Animal Fighting Enforcement 

We very much appreciate the inclusion of $800,000 in fiscal year 2004 for USDA’s 

Office of Inspector General to focus on animal fighting cases. Congress enacted provisions in 2002 (as part of the Farm Bill) that were overwhelmingly supported in 

both chambers to close loopholes in the Animal Welfare Act (AWA) regarding cockfighting and dogfighting. Since 1976, when Congress first prohibited most interstate 

and foreign commerce of animals for fighting, USDA has pursued only a handful of 

dogfighting and cockfighting cases, despite rampant activity across the country. 

USDA continues to receive frequent tips from informants and requests to assist with 

state and local prosecutions, and is beginning to take seriously its responsibility to 

enforce the portion of the AWA dealing with animal fighting ventures. Dogfighting 

and cockfighting are barbaric practices in which animals are drugged to heighten 

their aggression and forced to keep fighting even after they’ve suffered grievous injuries. Animal fighting is almost always associated with illegal gambling, and also 

often involves illegal drug trafficking and violence toward people. Dogs bred and 

trained to fight endanger public safety, and some dogfighters steal pets to use as 

bait for training their dogs. Cockfighting has been linked with the outbreak of Exotic Newcastle Disease in 2002–2003 that cost taxpayers more than $200 million for 

containment and compensation, and with the death of at least two children in Asia 

this year who were exposed through cockfighting activity to avian influenza. 

Given the potential for further costly disease transmission, as well as the animal 

cruelty involved, we believe it would be a sound investment for the federal government to increase its efforts to combat illegal cockfighting and dogfighting activity, 

working closely with state and local law enforcement personnel to complement their 

efforts. We therefore respectfully request that $1.2 million be designated for the OIG 

to focus on animal fighting cases in fiscal year 2005. 

Food Safety and Inspection Service/$5 million for Humane Methods of Slaughter Act 

(HMSA) Inspectors 

We are grateful that Congress provided $5 million in fiscal year 2003, and bill 

language to sustain the initiative in fiscal year 2004, for USDA to hire at least 50 

inspectors whose sole responsibility is to ensure that livestock are treated humanely 

and rendered unconscious before they are killed. This initiative was undertaken following reports of lax enforcement of the HMSA and animals being skinned, dismembered, and scalded while still alive and conscious. We are pleased that the 

President’s budget recommends $5 million in fiscal year 2005 for enforcement of this 

law. We are quite concerned, however, that these funds are not being used by USDA 

as Congress intended. Rather than hiring new inspectors, the department has apparently opted to apply these resources broadly across its existing personnel, indicating in the explanatory notes accompanying the President’s fiscal year 2005 budget that the $5 million will cover ‘‘an estimated 63 staff years annually, distributed 

over hundreds of employees in hundreds of inspected establishments.’’ When Congress provided this funding, the goal was to establish a separate cadre of humane 

slaughter inspectors because we recognized that it was not working to have the regular food safety inspectors—those responsible for the important job of checking body 

parts and carcasses in order to protect consumer health—also responsible for com-
471 

pliance with humane slaughter requirements. We were concerned that food safety 

inspectors were often stationed far down the production line, well past where the 

animals were killed. In some cases, slaughter plants had even built barriers that 

made it impossible for food safety inspectors to see the animals while they were still 

alive. 

While we welcome any USDA efforts to ensure that every inspector maintains a 

watchful eye for humane slaughter violations, including this task as part of each 

existing inspector’s routine should not require additional funds. We therefore respectfully request that $5 million be designated in fiscal year 2005 bill language for 

USDA to hire an additional 50 inspectors who will work solely on enforcement of 

the Humane Methods of Slaughter Act through full-time ante-mortem inspection, 

particularly unloading, handling, stunning, and killing of animals at slaughter 

plants. We also request language re-stating that the mission of 17 District Veterinary Medical Specialists hired as a result of $1 million provided in the fiscal year 

2001 Supplemental should be limited to HMSA enforcement. 

APHIS/Animal Welfare Act (AWA) Enforcement 

We commend the Committee for responding over the past few years to the urgent 

need for increased funding for the Animal Care division to improve its inspections 

of approximately 10,000 sites, including laboratories, commercial breeding facilities, 

zoos, circuses, and airlines, to ensure compliance with AWA standards. Thanks to 

the Committee’s strong support, Animal Care now has 106 inspectors, compared to 

66 at the end of the 1990s. While there is certainly room for continued improvement, the Committee’s actions have made a major difference. We are pleased that 

the President’s budget contains a sustained level of support for this program in fiscal year 2005, including allowance for pay costs. We urge you to provide $16.818 

million, as recommended by the President, for Animal Welfare in fiscal year 2005. 

APHIS/Horse Protection Act Enforcement 

Congress enacted the Horse Protection Act in 1970 to end the obvious cruelty of 

physically soring the feet and legs of show horses. In an effort to exaggerate the 

high‘‘)stepping gate of Tennessee Walking Horses, unscrupulous trainers use a variety of methods to inflict pain on sensitive areas of the feet and legs for the effect 

of the leg-jerk reaction that is popular among many in the show-horse industry. 

This cruel practice continues unabated by the well-intentioned but seriously understaffed APHIS inspection program. We appreciate the Committee’s help providing 

modest increases to bring this program close to its authorized annual funding ceiling of $500,000. We hope you will provide the $497,000 requested by the President 

for fiscal year 2005. We also urge the Committee to oppose any effort to restrict 

USDA from enforcing this law to the maximum extent possible. 

Downed Animals and BSE 

We are pleased that the Bush Administration proposed an interim final rule to 

ban the use of downed cattle for human food, in the wake of the discovery of a cow 

in Washington State that was infected with Bovine Spongiform Encephalopathy 

(BSE or ‘‘mad cow’’ disease). We greatly appreciated the Committee’s help last year 

agreeing to incorporate Senator Akaka’s downer ban during floor debate on the fiscal year 2004 bill. We hope the Committee will codify the Administration’s ban— 

and extend it to other livestock besides cattle—with language barring the Food Safety and Inspection Service from spending funds to certify meat from downed livestock 

for human consumption. While the science to date has only clearly indicated BSE 

transmission from infected cows to people, downer pigs and other downer livestock 

are at a significantly higher risk of transmitting other serious and sometimes fatal 

illnesses, such as E. coli and Salmonella. It is very difficult to determine the reason 

an animal is non-ambulatory, whether illness, injury, or a combination of the two. 

Hence, it would not adequately protect public health if inspectors were required to 

distinguish downers who are injured vs. sick. As Secretary Veneman has testified 

several times before various congressional committees, USDA need not rely on 

slaughter plant testing for disease surveillance purposes. They can conduct a viable 

surveillance program at rendering plants and farms to track the potential progression of BSE in this country. 

Furthermore, a ban on use of all downers for human food provides an incentive 

for producers to treat animals humanely and prevent livestock from going down. 

Even before the administrative ban, USDA estimated that less than 1 percent of all 

cows processed annually were non-ambulatory. The downer ban encourages producers and transporters to engage in responsible husbandry and handling practices, 

so that this percentage may be reduced to levels approaching zero. As Temple 

Grandin—advisor to the American Meat Institute and others in the meat industry— 
472 

long ago explained in Meat & Poultry Magazine, ‘‘Ninety percent of all downers are 

preventable.’’ 

In addition to the downer issue, we urge the Committee to provide adequate funding to ensure meaningful enforcement by the Food and Drug Administration of its 

‘‘feed ban,’’ designed to prevent BSE-contaminated animal products from being fed 

to other animals. We are concerned that inspectors visit facilities infrequently and 

rely on self-reporting by those facilities and paperwork checking rather than firsthand evaluation of feed content and dedicated production lines. We are also concerned that FDA relies a great deal on state agencies to conduct this oversight, 

when most states face severe budget constraints that may compromise their ability 

to handle this job. Preventing the spread of BSE is vital to the nation as a whole, 

for public health, the agricultural industry, and animal welfare. Vigorous enforcement of the feed ban is an essential component of this effort. We hope adequate federal funds will be provided in fiscal year 2005 to meet this challenge. 

Again, we appreciate the opportunity to share our views and priorities for the Agriculture, Rural Development and Related Agencies Appropriation Act of fiscal year 

2005. We appreciate the Committee’s past support, and hope you will be able to accommodate these modest requests to address some very pressing problems affecting 

millions of animals in the United States. Thank you for your consideration. 

PREPARED STATEMENT OF THE INTERNATIONAL ASSOCIATION OF FISH AND WILDLIFE

AGENCIES

USDA-COOPERATIVE STATE RESEARCH, EDUCATION, AND EXTENSION SERVICE 

[In thousands of dollars] 

Program/Division 

Fiscal Year— 

2004 Enacted 2005 President’s 

Budget 

2005 IAFWA Recommended 

Research and Education: 

Formula Programs: 

McIntire-Stennis Cooperative Forestry ..................................... 21,755 21,844 1 25,000 

Special Research Grants: 

Global Change UV–B Monitoring ...................................................... 2,000 2,500 2 2,500 

National Research Initiative Competitive Grants ............................. 164,027 180,000 3 240,000 

Extension Activities: 

Formula Programs: 

Smith-Lever Formula 3(b) and (c) .......................................... 277,742 275,940 4 277,742 

Other Extension Programs: 

Renewable Resources Extension Act ................................................ 4,040 4,093 5 30,000 

Section 406 Legislative Authority: 

Water Quality .................................................................................... 11,530 12,971 6 20,000 

1 The Association strongly encourages that McIntire-Stennis Forestry Research funds be increased from the $21.755 million appropriated in the fiscal year 2004 budget to a level of $25 million. These funds are essential to the future of resource management on non-industrial private forestlands. The rapid reduction in timber harvests from public lands brings expanded opportunities for small private forest owners to play an increasingly important role in the Nation’s timber supply. In some places, these added opportunities are creating pressures and situa- tions where timber harvest on private ownerships exceeds timber growth. 2We support the $2.5 million appropriation for global change and urge that special effort to combat greenhouse gases through carbon se- questration be conducted in such a way as to not adversely impact fish and wildlife habitat. Carbon sequestration that also results in soil, 

water and wildlife conservation will maximize public benefits and minimize the need to spend separately and additionally to achieve other conservation needs. 3 There are few truly competitive programs in wildlife science and USDA NRI has a great opportunity to make a unique contribution with 

this type of program. This program will fund creative and new ideas in ways that ‘‘formula’’ funding cannot. The Association supports funding at the fiscal year 2003 level of $240 million. 4We are concerned that there is no budget line item specifically for education programs addressing water quality concerns targeted at agricultural producers. We recommend a minimum of $3.5 million be allocated for this purpose. 5 The Association strongly recommends that for fiscal year 2005 the Renewable Resources Extension Act be funded at $30 million as authorized in the 2002 Farm Bill. The RREA funds, which are apportioned to State Extension Services, effectively leverage cooperative partnerships at an average of four to one, with a focus on development and dissemination of information needed by private landowners (in rural 

and urban settings). The need for RREA educational programs is greater than ever today because of fragmentation of ownerships, urbanization, the diversity of landowners needing assistance, and increasing societal concerns about land use and its effect on soil, water, wildlife 

and other environmental factors. Even though the RREA has been proven to be effective in leveraging cooperative state and local funding, it 

has never been fully funded. 6 The Association appreciates the proposed increase in funding to $12.97 million in the budget for Water Quality Integrated Activities, but 

believes that this amount remains insufficient considering the growing public concern over water quality, particularly on agricultural land- scapes. Therefore, the Association recommends the appropriation be increased to $20 million. 
473 

USDA-NATURAL RESOURCES CONSERVATION SERVICE 

[In thousands of dollars] 

Appropriation/Activity 

Fiscal year— 

2004 enacted 2005 President’s Budget 

2005 IAFWA Rec- ommended 

Technical Assistance for CRP and WRP ........................................ ( 1 ) 92,000 2 92,000 

Environmental Quality Incentives Program (EQIP) ........................ 975,000 1,000,000 3 1,200,000 

Ground and Surface Water Conservation ...................................... 51,000 60,000 60,000 

Klamath Basin ............................................................................... 10,000 8,000 8,000 

Wetlands Reserve Program (WRP) ................................................. 4 280,000 5 295,000 ( 6 ) 

Wildlife Habitat Incentives Program (WHIP) .................................. 42,000 60,000 3 85,000 

Farm and Ranch Lands Protection Program (FRPP) ..................... 112,000 125,000 3 125,000 

Grassland Reserve Program (GRP) ................................................ 115,000 84,000 7 84,000 

Conservation Security Program (CSP) ........................................... 41,000 209,000 ........................

Technical Assistance Cost Adjustments ........................................ .............................. .............................. ( 8 ) 

EQIP ................................................................................................ ¥76,000 ¥15,000 9¥23,000 

G&SW ............................................................................................. 15,000 20,000 9 0 

Klamath Basin ............................................................................... 2,000 3,000 9 0 

WRP ................................................................................................ 18,000 ( 10 ) 9 0 

WHIP ............................................................................................... ¥7,000 ¥1,000 9 0 

FRPP ............................................................................................... ¥24,000 ¥5,000 9 0 

GRP ................................................................................................ ¥13,000 ¥2,000 9 0 

CRP ................................................................................................ 83,000 ( 10 ) ........................

1 Funding for WRP and CRP technical assistance provided from EQIP, WHIP, FRPP and GRP—see technical assistance cost adjustments 

Specific Comments 

2 The Association appreciates the efforts of the administration to address the problem of technical assistance funding for CRP and WRP by 

establishing a technical assistance account for these two programs. 3 The Association supports program funding at levels authorized by the 2002 Farm Bill. 

4 Enrollment of 189,144 acres. 

5 Enrollment of 200,000 acres. 

6 The Association appreciates the continued targeting of 200,000 acres annually for enrollment in WRP. However, we recognize that if 

200,000 acres are not enrolled every year (fiscal year 2004 limited to 189,000 acres), enrollment must increase in future years to reach the authorized level of 2,275,000 acres. Full WRP enrollment is needed if the Administration intends to achieve no-net-loss of wetlands by building on the WRP successes of the 1990’s that reduced wetland losses to 32,600 acres/year as reported in the USDA National Resource Inven- tory (NRI). 7With the estimated expenditure of $115 million in fiscal year 2004, the proposed funding level of $84 million in fiscal year 2005 will 

meet the authorized cap of $254 million for the GRP. GRP should focus on grasslands of high biodiversity that are at risk of conversion and 

that support grazing operations as directed by Congress in the Farm Bill. In addition, enrollment should increasingly focus on long-term enrollment since no more than 40 percent of authorized funding can be used for short-duration rental agreements and short-duration agreements have been emphasized to date. 8 CSP should not receive expanded funding at the expense of other conservation programs. 

9 Klamath Basin and G&SW are subsets of EQIP and we recommend that all technical assistance funding for these two programs should

come from EQIP, rather than from FRPP, WHIP and GRP. 10WRP and CRP technical assistance funded from a technical assistance account on discretionary side. 

General Comments 

The Association recommends funding of Farm Bill conservation programs at levels authorized by the 2002 Farm Bill. 

FARM SERVICE AGENCY (FSA)

An adequately funded budget for the FSA is essential to implement conservation 

related programs and provisions under FSA administration and/or in cooperation 

with the Natural Resources Conservation Service (NRCS) as a result of passage of 

the Farm Security and Rural Investment Act of 2002. The Association strongly advocates that the budget include sufficient personnel funding to service a very active 

program and strongly believes that the past erosion of staffing levels has been inconsistent with the demonstrated need of agricultural producers. Although non-Federal temporary staffing levels have been reduced due to completion of some Farm 

Bill implementation workloads, the Association is concerned that the staffing level 

of (16,301 FTE) proposed by the Administration is far too low to adequately address 

the need. 

Conservation Reserve Program (CRP).—The continued administration of CRP is a 

very significant and valuable commitment of USDA and the FSA. The Association 

applauds FSA efforts to fund and extend CRP contracts for the multiple benefits 

that accrue to the public as well as the landowner. The Association provides special 

thanks to FSA for planning another CRP general sign up for 2004 and for the continuous CRP sign-up of high value environmental practices including the bottom 

land hardwood tree initiative. The Association recommends that FSA adopt additional program options such as wildlife field borders as part of continuous CRP to 

benefit bobwhite quail and other early successional species and incentives to ensure 

enrolled acres deliver optimum soil, water, wildlife and other natural resource bene-
474 

fits through the use of more wildlife friendly cover mixes. The required management 

for CRP should also be applied to CCRP. 

The commitment of FSA to provide high wildlife benefits in CRP contracts has 

been obvious since the advent of the Environmental Benefits Index (EBI) in the 

15th sign-up. The Association applauds FSA for placing special emphasis on native 

grasses, endangered species and enlightened pine planting and management and 

urge that strong emphasis on the establishment and management of wildlife friendly cover be continued and where possible strengthened. Recurring management as 

provided in the 2002 Farm Bill, with cost share is essential to ensure continuation 

of soil, water and wildlife benefits throughout the life of the CRP contract. The Association encourages FSA to quickly develop necessary programmatic mechanisms 

as well as reimbursement for the cost of recurring management performed when 

needed to manage plant succession that continues wildlife benefits throughout the 

contract period. 

The new managed haying and grazing aspect of CRP is a permissive use that 

could provide an added benefit to participants while still achieving the natural resource purposes of the program. However, one size will not fit all when it comes to 

the wildlife purpose of CRP and it is important that FSA tailor managed haying and 

grazing to each state to ensure that the frequency (among years) and timing of 

haying and grazing is compatible with the wildlife needs in each state. 

USDA-APHIS VETERINARY SERVICES 

[In thousands of dollars] 

Appropriation/Activity 

Fiscal year— 

2004 Enacted 2005 President’s 

Budget 

IAFWA Recommended Funding Levels 

Aquaculture ................................................................................................ 178 871 871 

Brucellosis .................................................................................................. 10,244 8,861 11,000 

Chronic Wasting Disease ........................................................................... 18,522 20,067 30,067 

Import/export Invasive Species .................................................................. 11,074 15,792 15,792 

Aquaculture 

The Association supports the increased funding of Veterinary Services to a level 

of $871,000 for surveillance and eradication of farmed fish diseases, such as infectious salmon anemia and spring viremia of carp, that may threaten valuable natural 

resources. 

Brucellosis 

The Association recommends Congress restore Brucellosis funding by $2,000,000 

to a level of $11,000,000 in order to continue working collaboratively with the Greater Yellowstone Interagency Brucellosis Committee, including the states of Idaho, 

Montana, and Wyoming, as well as with other Federal agencies to eliminate brucellosis in bison and elk in the Greater Yellowstone Area. 

Chronic Wasting Disease 

The Association commends APHIS-Veterinary Services’ cooperation and funding 

for state wildlife management agencies for CWD surveillance and management in 

free-ranging deer and elk. Additionally, the Association strongly supports APHIS efforts to eliminate CWD from captive cervids in order to eliminate the risk of spread 

of the disease from these animals to free-ranging deer and elk. The Association supports increased CWD funding to a total of $20,067,000 in fiscal year 2005. However, 

this $20 Million is inadequate to effectively address management of CWD, and the 

Association urges an additional $10 million be appropriated to CWD, with a total 

of $20 Million made available to the states for surveillance and management of 

CWD in free-ranging deer and elk. 

Import/Export Invasive Species 

The Association supports increased funding to prevent the potential introduction 

and for surveillance of exotic ticks, including the tropical bont tick, in the United 

States because these ticks and the microbes they carry represent a disease threat 

to free-ranging wildlife. 
475 

USDA-APHIS WILDLIFE SERVICES 

[In thousands of dollars] 

Appropriation/Activity 

Fiscal year— 

2004 Enacted 2005 President’s 

Budget 

IAFWA Recommended Funding Levels 

Operations .................................................................................................. 71,313 71,684 89,284 

Methods Development ................................................................................ 16,999 13,876 16,999 

Aquaculture ................................................................................................ 1,042 776 1,042 

General Comments 

The Association is concerned with the Administration’s proposal to decrease overall funding for Wildlife Services (WS) activities. The Association was pleased that 

Congress provided a $200,000 increase in fiscal year 2004 to expand the Berryman 

Institute for Wildlife Damage Management at Mississippi State University, and recommends that Congress continue this support by maintaining adequate future funding levels. 

Operations 

The Administration’s proposes a program reduction of $5.5 million from fiscal year 2004 levels. This reduction is proposed to offset a $5.0 million increase in fiscal year 

2005 for a wildlife disease surveillance system. The Association strongly recommends that Congress restore the $5.5 million reduction in order to maintain existing operations and cautiously provide an additional $5.0 million to initiate the 

new surveillance system. The new wildlife disease surveillance system must be accompanied by close coordination and respect for the State’s management authority 

over resident wildlife, and Congress should direct that this relationship be institutionalized in a cooperative agreement between each state fish and wildlife agency 

and APHIS–WS. The Association also recommends that Congress provide an additional $4.6 million to continue the oral rabies vaccination program to stop the 

spread of rabies in coyotes, foxes, raccoons and other wildlife. The Association is pleased that Congress provided $1.2 million in fiscal year 2004 

to address increasing wolf conflicts in Minnesota, Wisconsin, Michigan, Arizona and 

New Mexico and recommends continued support to provide adequate funding to 

manage increasing wolf damage complaints across the country. The Association also 

supports the continuing request in the President’s Budget ($1.3 million) for wolf 

issues in Montana, Idaho, and Wyoming. 

WS Methods Development 

In 1997, the United States and European Union entered into an Understanding 

(Agreed Minute and Annex) that identified a process for developing and evaluating 

more effective and humane trapping devices used to manage certain wildlife populations (e.g. for research, for mitigating wildlife damage, to reestablish species extirpated from prior habitats, and to protect endangered species). An active research 

program is being developed at the USDA’s National Wildlife Research Center in 

Fort Collins, Colorado. The Association strongly objects to the proposed elimination 

of $3.35 million for the Methods Development program, and urges Congress to restore this funding. 

The Association recommends the Congress restore funding for research of non-lethal methods to mitigate wildlife damage and that Congress provide additional 

funding to WS to conduct research in order to better manage invasive species such 

as the brown tree snake and the Coqui frog that threaten local agriculture, fragile 

electrical systems, and threatened and endangered species in Guam and Hawaii. 

Aquaculture 

The Association recommends that Congress restore WS funding for aquaculture by increasing the budget request by $275,000 in order to continue telemetry and 

population dynamics studies on depredating wildlife species in the Southeast without placing undue strains on WS Cooperators. 

PREPARED STATEMENT OF THE INTERTRIBAL BISON COOPERATIVE

INTRODUCTION AND BACKGROUND

My name is Ervin Carlson, a Tribal Council member of the Blackfeet Tribe of 

Montana and President of the InterTribal Bison Cooperative. Please accept my sin-
476 

cere appreciation for this opportunity to submit testimony to the honorable members 

of the Department of Agriculture Appropriations Sub-Committee. The InterTribal 

Bison Cooperative (ITBC) is a Native American non-profit organization, 

headquartered in Rapid City, South Dakota, comprised of fifty-four federally recognized Indian Tribes located within 16 States across the United States. 

Buffalo thrived in abundance on the plains of the United States for many centuries before they were hunted to near extinction in the 1800s. During this period 

of history, buffalo were critical to survival of the American Indian. Buffalo provided 

food, shelter, clothing and essential tools for Indian people and insured continuance 

of their subsistence way of life. Naturally, Indian people developed a strong spiritual 

and cultural respect for buffalo that has not diminished with the passage of time. 

Numerous tribes that were committed to preserving the sacred relationship between Indian people and buffalo established the ITBC as an effort to restore buffalo 

to Indian lands. ITBC focused upon raising buffalo on Indian Reservation lands that 

did not sustain other economic or agricultural projects. Significant portions of Indian Reservations consist of poor quality lands for farming or raising livestock. 

However, these wholly unproductive Reservation lands were and still are suitable 

for buffalo. ITBC began actively restoring buffalo to Indian lands after receiving 

funding in 1992 as an initiative of the Bush Administration. 

Upon the successful restoration of buffalo to Indian lands, opportunities arose for 

Tribes to utilize buffalo for tribal economic development efforts. ITBC is now focused 

on efforts to assure that tribal buffalo projects are economically sustainable. Federal 

appropriations have allowed ITBC to successfully restore buffalo the tribal lands, 

thereby preserving the sacred relationship between Indian people and buffalo. The 

respect that Indian tribes have maintained for buffalo has fostered a serious commitment by ITBC member Tribes for successful buffalo herd development. The successful promotion of buffalo as a healthy food source will allow Tribes to utilize a 

culturally relevant resource as a means to achieve self-sufficiency. 

AMENDED LANGUAGE REQUEST TO FOOD STAMP ACT

The InterTribal Bison Cooperative respectfully requests an amendment to the Department of Agriculture’s Food Stamp Act to amend the earmark language for purchase of buffalo from ‘‘Native American producers or producer owned cooperatives’’ 

to ‘‘exclusively from Native American producers’’ in the current fiscal year 2004 

amount of $4,000,000. Specifically, ITBC requests the following amended language 

to the Food Stamp Act: 

For necessary expenses to carry out the Food Stamp Act (7 U.S.C. 2011 et seq.), $26,289,692,000, of which $2,000,000,000 shall be placed in reserve for use only in 

such amounts and at such times as may become necessary to carry out program operations: Provided, That of the funds made available under this heading and not already appropriated to the Food Distribution Program on Indian Reservations 

(FDPIR) established under section 4(b) of the Food Stamp Act of 1977 (7 U.S.C. 

2013 (b)), $4,000,000 shall be used to purchase bison and/or bison meat for the 

FDPIR and other food programs on the reservations, exclusively from Native American bison producers: Provided further, That all bison purchased shall be labeled according to origin and the quality of cuts in each package: Provided further, That the 

Secretary of Agriculture shall make every effort to enter into a service contract, 

with an American Indian Tribe, Tribal company, or an Inter Tribal organization, for 

the processing of the buffalo meat to be acquired from Native American producers: 

Provided further, That funds provided herein shall be expended in accordance with 

section 16 of the Food Stamp Act: Provided further, That this appropriation shall 

be subject to any work registration or workfare requirements as may be required 

by law: Provided further, That funds made available for Employment and Training 

under this heading shall remain available until expended, as authorized by section 

16(h)(1) of the Food Stamp Act. 

PREVENTATIVE HEALTH CARE INITIATIVE

The Native American Indian population currently suffers from the highest rates 

of Type 2 diabetes. The Indian population further suffers from high rates of cardio 

vascular disease and various other diet related diseases. Studies indicate that Type 

2 diabetes commonly emerges when a population undergoes radical diet changes. 

Native Americans have been forced to abandon traditional diets rich in wild game, 

buffalo and plants and now have diets similar in composition to average American 

diets. More studies are needed on the traditional diets of Native Americans versus 

their modern day diets in relation to diabetes rates. However, based upon the current data available, it is safe to assume that disease rates of Native Americans are 

directly impacted by a genetic inability to effectively metabolize modern foods. More 
477 

specifically, it is well accepted that the changing diet of Indians is a major factor 

in the diabetes epidemic in Indian Country. 

Approximately 65–70 percent of Indians living on Indian Reservations receive 

foods provided by the USDA Food Distribution Program on Indian Reservations 

(FDPIR) or from the USDA Food Stamp Program. The FDPIR food package is composed of approximately 58 percent carbohydrates, 14 percent proteins and 28 percent fats. Indians utilizing Food Stamps generally select a grain-based diet and 

poorer quality protein sources such as high fat meats based upon economic reasons 

and the unavailability of higher quality protein sources. 

Buffalo meat is low in fat and cholesterol and is compatible to the genetics of Indian people. ITBC intends to promote buffalo meat on Indian Reservations as a 

healthy source of protein. First, ITBC is developing a preventative health care initiative to educate Indian families of the health benefits of buffalo meat. ITBC believes that incorporating buffalo meat into the FDPIR program will provide a significant positive impact on the diets of Indian people living on Indian Reservations. 

Further, ITBC is exploring methods to make small quantities of buffalo meat available for purchase in Reservation grocery stores. A healthy diet for Indian people 

that results in a lower incidence of diabetes will reduce Indian Reservation health 

care costs and result in a savings for taxpayers. 

ITBC GOALS AND INITIATIVES

In addition to developing a preventative health care initiative, ITBC intends to 

continue with its buffalo restoration efforts and its Tribal buffalo marketing initiative. 

In 1991, seven Indian Tribes had small buffalo herds, with a combined total of 

1,500 animals. The herds were not utilized for economic development but were often 

maintained as wildlife only. During ITBC’s relatively short 10-year tenure, it has 

been highly successful at developing existing buffalo herds and restoring buffalo to 

Indian lands that had no buffalo prior to 1991. Today, through the efforts of ITBC, 

over 35 Indian Tribes are engaged in raising over 15,000 buffalo. All buffalo operations are owned and managed by Tribes and many programs are close to achieving 

self-sufficiency. ITBC’s technical assistance is critical to ensure that the current 

Tribal buffalo projects are sustainable within their Tribal communities. Further, 

ITBC’s assistance is critical to those Tribes seeking to start a buffalo restoration effort. 

Through the efforts of ITBC, a new industry has developed on Indian reservations 

utilizing a culturally relevant resource. Hundreds of new jobs directly and indirectly 

revolving around the buffalo industry have been created. Tribal economies have benefited from the thousands of dollars generated and circulated on Indian Reservations. 

ITBC has also been strategizing to overcome marketing obstacles for Tribally 

raised buffalo. ITBC is presently assisting the Assiniboine and Gros Ventre Tribes 

of the Fort Belknap Reservation, who recently purchased a U.S.D.A. approved meatprocessing plant, with a coordination scheme to accommodate the processing of 

range-fed Tribally raised buffalo. 

CONCLUSION

ITBC has proven highly successful since its establishment to restore buffalo to Indian Reservation lands to revive and protect the sacred relationship between buffalo 

and Indian Tribes. Further, ITBC has successfully promoted the utilization of a culturally significant resource for viable economic development. 

ITBC has assisted Tribes with the creation of new jobs, on-the-job training and 

job growth in the buffalo industry resulting in the generation of new money for Tribal economies. ITBC is actively developing strategies for sustainable Tribal buffalo 

operations. Finally, and most critically for Tribal populations, ITBC is developing 

a preventive health care initiative to utilize buffalo meat as a healthy addition to 

Tribal family diets. 

ITBC strongly urges you to support its request for the amended language as specifically provided above to the Food Stamp Act to allow $4,000,000 for the purchase 

of Native American produced buffalo and buffalo meat, to improve the diet of Tribal 

members. 
478 

PREPARED STATEMENT OF THE OKLAHOMA FARMERS UNION

INVASIVE SPECIES AFFECTING ANIMALS AND PLANTS IMPORTED RED FIRE ANT ARS- RESEARCH

Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to 

submit testimony with respect to the increasing invasive species of the red imported 

fire ant. I am an agriculture producer in southern Oklahoma, employed with the 

Oklahoma Farmers Union and a 19-year advocate for research initiatives to combat 

this growing problem impacting both agriculture and the daily lives of citizens in 

impacted states and counties. Oklahoma Farmers Union is a general farm organization representing over 100,000 families in the State of Oklahoma. 

My work on the issues goes back to the 1980’s as the red imported fire ant as 

a House Agriculture Appropriations Subcommittee associate staff member, later as 

an agriculture producer/research cooperator and now as an association representative and participant in numerous committees and fire ant conferences and meetings. 

The Red Imported Fire Ant Problem 

The imported fire ants now inhabit more than 320 million acres in the southern 

United States and Puerto Rico. The average densities of fire ant populations in the 

United States are more than 5 times higher than in their native South America, 

where natural enemies keep the fire ant population under control. Imported fire 

ants destroy many other ground-inhabiting arthropods and other small animals, reducing the biological diversity in many areas. Fire ants cause a multitude of problems for humans, domestic animals, and agriculture. Between 30 percent and 60 

percent of the people in the infested areas are stung each year. More than 200,000 

persons per year may require a physician’s aid for fire ant stings. Anaphylaxis occurs in 1 percent or more of those people as a result of bites. The fire ant impact on the American economy is approximately $5.5 billion dollars 

per year. Agriculture producers are economically hurt with the loss of animals due 

to stings, shorting of electrical equipment due to ant buildup in switch boxes, damage to farm equipment from ant mounds in pastures and fields and personal discomfort and risk to life from frequent exposure and contact with the ants in the normal 

course of working on the farm or ranch. According to data from Dr. Curt Lard with 

Texas A&M University, the estimated impact of fire ants on different states is: $1.3 

billion in Florida, $1.2 billion in Texas, $210 million in South Carolina, $164 million 

in Mississippi and $18 million in Oklahoma. 

This past year in the State of Oklahoma we saw the spread of fire ants during 

research surveys in counties where citizens had reported possible fire ant mounds. 

Surveys and sampling was done and fire ants were found for the first time in five 

additional counties for a total of 13 counties of which 8 counties are completely infested. Future surveys to determine expansion will be hampered this year given the 

fiscal year 2004 APHIS budget reduced funding to the states for this purpose. The 

focus will now shift to educational outreach only on a requested basis. 

The Research Solution 

The lead research agency on the national level for this issue is the USDA-Agricultural Research Service with most work centered at the Center for Medical, Agricultural and Veterinary Entomology in Gainesville, Florida. I have the highest respect 

and admiration for the scientists, the administration and the methods of basic and 

applied research utilized by this agency and this research location. 

I and others have advocated for many years the need to increase funding for the 

site where key research for red imported fire ants is conducted and from where field 

activities across the United States is directed. We are delighted to see that the 

President’s fiscal year 2005 budget request includes $5 million for Invasive Species 

Affecting Animals and Plants. As ARS Acting Administrator Dr. Edward B. 

Knipling indicated in his testimony to the committee, the red imported fire ant is 

a growing problem that ‘‘has steadily spread through all the Gulf States and is now 

reported in Southern California and New Mexico. 

The proposed increase will allow ARS to target its research with respect to the 

fire ant by studying its genomics and developing more effective pesticides and biological control agents. Additionally, this will allow ARS to continue in concert with 

the aforementioned to continue to develop biologically-based integrated pest management components. The latter has shown a marked impact on fire ant research 

locations but more work must be continued in this area to identify more cold-hardy 

species that can be utilized in more northern environments where the advancing fire 

ant line continues to spread. 

To date, the researchers in the USDA–ARS Imported Fire Ant Research Unit in 

Gainesville, FL, have continued to search for new biological control agents that 
479 

could be used as self-sustaining bio-control agents against the imported fire ants. 

Biological control agents are the only long-term and self-sustaining solution for the 

fire ant problem in the United States. 

Self-sustaining biological control agents cause direct mortality and/or stress, reducing the ecological dominance of fire ants and can be useful in natural habitats 

where pesticide use is not tolerated. The successful establishment of biological control agents of fire ants would be a major benefit throughout the southern United 

States. Biological control has the potential to offer long-term suppression of fire ants 

over large areas in the United States and save millions of dollars annually by reducing the use of pesticides. 

Biological control agents could also help slow the spread of these pests into other 

susceptible states, such as Kentucky, Maryland, Virginia, Delaware, New Mexico, 

Arizona, Nevada, other parts of California, and up the Pacific Coast. 

For long-term success, investment in genomics research to develop more effective 

pesticides and pathogens is crucial if biological controls are to be fully effective. 

New developments in fire ant biological control 

I’m excited about new developments In fire ant biological control. The protozoan 

Vairimorpha invictae, a specific pathogen of fire ants in South America, is being 

tested in quarantine in Gainesville, FL. This disease should be released in the field 

in the coming years. 

A new isolate of the fire ant pathogen Thelohania solenopsae is being tested in 

quarantine in Gainesville, FL. This isolate may be better adapted to black and hybrid fire ants, than the present isolate found in the United States. It may also have 

a more detrimental effect on the ants than the United States isolate. Scientists hope 

to have this new isolate released in the field in the coming years. 

Viruses have been identified from fire ant populations in Florida. Molecular biology studies may reveal opportunities for the use of these viruses as biological agents 

against fire ants. Besides the viruses, during the past 3 years, three other new diseases of fire ants have been identified from ants in Florida. These discoveries serve 

as indications that new diseases can be identified in the South American range of 

the fire ants, and developed for use in the biological control of U.S. fire ants. 

Three different species of the fire ant decapitating flies have been released so far 

in the United States. Two species are established in Florida and South Carolina. 

One species is established in other southeastern states. New decapitating fly species 

are being tested in quarantine in Gainesville, FL, and should be ready for field release in the coming months. Other species will be collected in South America, tested 

in quarantine. 

Area-wide suppression of fire ants research programs are being conducted at locations In Florida, Texas, Mississippi, Oklahoma, and South Carolina. These research 

efforts combine both biological and chemical methods to achieve an integrated pest 

management approach. 

Conclusion and Request for Funding 

Much progress has been made but to continue this aggressive, results-oriented research at the same or perhaps excelled pace, it is imperative that additional funding 

be directed—preferably in permanent base funding to the Gainesville, FL location. 

On behalf of the producers and consumers who make up the membership of the 

Oklahoma Farmers Union, we support the Administration’s $5 million research initiative contained in the ARS budget for further targeted research for Invasive Species Affecting Animals and Plants. 

Thank you for this opportunity. I would appreciate the Subcommittee’s consideration of this most important issue. 

PREPARED STATEMENT OF THE MID-AMERICA INTERNATIONAL AGRI-TRADE COUNCIL

(MIATCO) AND FOOD EXPORT USA—NORTHEAST

As Executive Director of MIATCO (Mid-America International Agri-Trade Council) and Food Export USA—Northeast, I am pleased to offer this written testimony 

as to how Market Access Program funds are being optimized to help Midwest and 

Northeast U.S. food and agricultural exporters extend their reach and penetration 

of foreign markets resulting in incremental business, enhanced export sales, and 

new jobs here in the United States. 

Secretary Veneman has outlined that expanding trade is the Administration’s top 

priority for U.S. agriculture. Continued support for the trade promotion through the 

Market Access Program is critical part of that effort. 
480 

The MAP is designed to focus on these high-value products. There are approximately 70 non-profit industry groups across this country representing all sectors of 

agriculture that participate in this program. 

The 50 state departments of agriculture participate in MAP through four State 

Regional Trade Groups (MIATCO, Food Export USA—Northeast, SUSTA and 

WUSATA). These groups coordinate the export promotion efforts of the states, and 

focus on assisting smaller food and agricultural processor. 

While remaining separate trade non-profit trade associations, MIATCO and Food 

Export USA—Northeast are strategically and operationally aligned in order optimize cost efficiencies while leveraging cross-regional opportunities abroad. 

MIATCO and Food Export USA—Northeast contract with 14 overseas in-market 

representatives to provide promotional support and to help local importers and buyers more fully leverage all of our resources 

In combination with significant state and private investment, MAP funding allows 

MIATCO and Food Export USA—Northeast to focus on three key areas of exporter 

assistance: 

—Education & Outreach 

—Market Entry 

—In-Market Promotion 

Education & Outreach 

MIATCO and Food Export USA reach out to both existing and potential exporters 

of food and agriculture products through numerous communications vehicles including a bi-monthly newsletter, The Global Food Marketertm, monthly email updates 

and periodic broadcast faxes. Our current combined database includes 12,000 U.S. 

food and agricultural suppliers. 

Another key Education & Outreach initiative is our Food Export Helplinetm, a 

free service that helps companies in secondary market research and in achieving export readiness by addressing regulations and pricing challenges inherent in selling 

to foreign buyers. 

Market Entry 

Once an export company has decided to pursue a specific foreign market, 

MIATCO and Food Export USA—Northeast provide assistance in a number of ways, 

including: —Distributor Development Service.—Providing assistance with primary market research specific to a market (country) and a United States supplier particular 

product’s. —Food Show PLUS!TM.—Enhancing specific tradeshow participation with translation of their promotional material, interpreters, publicity, buyer introductions, 

guided retail tours, etc. —Buyers Missions.—Bringing foreign buyers to the United States to meet with 

suppliers in the Midwest and Northeast. —Trade Missions.—Facilitating export company visits with potential foreign market buyers through organized trips, tours etc. —Trade Lead Service.—A new initiative which provides to U.S. suppliers prequalified, product-specific leads in foreign markets. 

In-Market Promotion 

Helping exporters successfully promote and sell their agricultural products once 

they’ve penetrated a foreign market is a key component to our overall support. 

Through participation in our Branded Program, qualified small companies can receive reimbursements of up to 50 percent of eligible international marketing expenses such as trade show participation, advertising, public relations, promotions, 

marketing and point-of-sale material and label modifications (as necessary by local 

regulations). 

The MAP focuses on value-added agricultural products, including branded foods. 

Overseas consumers, like those here in the United States tend to buy product based 

on brand names. By promoting brand names that contain American agricultural ingredients, we build long-term demand for our products. These value-added product 

support jobs and encourage investment in our own processing industries. 

Following are examples of testimonials of our current participants: 

—‘‘Our ability to build solid foundations for long-term export growth is greatly dependent on the funding we receive from MIATCO’s Branded Program. It goes 

a long way towards helping us set up effective marketing campaigns in many 

of our overseas markets’’. Garrett Smith, Vice President of Sales, American Popcorn Company. 

—‘‘Food Export USA—Northeast has done a great job helping us export and exposing us to international markets. We used funds from the Branded Program 
481 

to hold products demos in other countries and to attend food shows. The product 

sampling has helped us facilitate a great deal of business in Singapore.’’ Marty 

Margherio, President, M&V Global Foods. 

The MAP also stimulates private investment. While the MAP requires that companies match all federal dollars on a one-for-one basis, in fact most companies spend 

much more than that. Last year, participants in our programs contributed an additional $2.58 for each MAP dollar invested in our programs. 

As foreign market opportunities shift and change, MIATCO and Food Export 

USA’s programs and services have never been more important to midwestern and 

northeastern food, agricultural, and wood exporters. 

American products are seen worldwide as high quality and safe products. Selling 

higher quality products requires promotion. The MAP is an investment in promotion 

that pays off. It is for this reason that we support funding for MAP in fiscal year 

2005 at the $140 million level legislated in the Farm Security and Rural Investment 

Act (FSRIA) of 2002. We also urge the subcommittee to support a strong USDA Foreign Agricultural Service (FAS), our partner in promoting increased U.S. agricultural exports. 

Following are our results for the fiscal year from October 2002 through the end 

of September 2003. 

Thank you. 

MIATCO Food Export 

USA—Northeast 

Total Number of U.S. Export Companies Participating in Programs ..................................... 632 360 

Number of New Distributor Relationships Established .......................................................... 1,000 274 

Number of Companies with Resulting ‘‘First-Time’’ Export Sales in a Market .................... 153 85 

Actual Reported Increases in Export Sales As Result of Program Participation .................. $84,630,356 $41,394,170 

Total Private Investment Generated Through Program Participation .................................... $19,754,462 $8,482,566 

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF PROFESSIONAL FORESTRY

SCHOOLS AND COLLEGES (NAPFSC) 

The Growing Importance of NonFederal Forest Lands 

Society continues to place diverse and increasing demands on the nation’s 740 

million acres of forest (nearly one-third of the U.S. land base). This acreage includes 

the public lands and the more than 400 million acres of private forest lands now 

providing most of the nation’s forest-based products. However, forest ownerships 

face many pressures including fires, floods, insect and disease losses, urbanization, 

fragmentation, and missed employment and economic opportunities. Countering the 

threats and achieving the full promise of these forests will require an enhanced effort from the combined research and outreach activities of the USDA Forest Service 

and our nation’s public universities. Ten million landowners, their families, their 

communities, forest based industries, more than a million primary forest products 

industry employees, and many millions of resource users and consumers have a 

major stake in the promise of these lands. Fortunately, the full promise CAN be 

achieved with well-planned and carefully executed investments in research and education. This message from the National Association of Professional Forestry Schools 

and Colleges (NAPFSC) describes key parts of such a plan including recommendations for the fiscal year 2005 budget. 

Investing in USDA Cooperative State Research, Education, and Extension Service 

(CSREES) Programs 

Priority 1: The Cooperative Forestry Research (McIntire-Stennis) Program.—Is the 

foundation of forest resources research and scientist education efforts at universities. The program provides cutting-edge research on productivity, technologies for 

monitoring and extending the resource base, and environmental quality—efforts 

that are critically important since universities provide a large share of the nation’s 

research. Program funding is currently at $21.755 million and matched more than 

three times by universities with state and nonFederal funds. NAPFSC recommends 

$25 million for fiscal year 2005 with the increase targeted at: 

—Sustainable and productive forest management systems.—For private lands to 

address issues of global change, international competition and economic growth; 

—Forest health and risk.—To address fire, pest species, and other disturbances 

affecting domestic resource security, downstream impacts, and restoration of 

complex systems; 
482 

—Assessing social values and tradeoffs.—To identify realistic policy options, economic impacts, and to inform decisions, at all levels of government, with effective science; and —New biobased products, improved processing technologies, and utilization of 

small trees.—To extend the forest resource and enhance environmental quality; 

In the long run, it is important to advance this program to its full authorization— 

50 percent of the funding for USDA Forest Service R&D. NAPFSC requests this 

support with direction to focus on new or existing approved projects to achieve rapid 

progress on one or more of these research targets in each school’s state, region, or 

nationally. Portions of this funding will also be used to educate critically needed 

new scientists. 

Priority 2: The National Research Initiative Competitive Grants Program (NRI).— Is a significant source of funding for basic and applied research on forest resources 

including their management and utilization. This program is currently funded at 

$164 million of which approximately 10 percent goes to successful forestry research 

proposals. NAPFSC supports the Administration’s efforts to increase the funding for 

the NRI to $180 million providing at least an additional $10 million is directed to 

research on: —Woody plant systems.—Including genetic improvement and increased tree 

growth rates and yields, and improved utilization; —Managed forest ecosystems.—Including issues of forest health, productivity, economic sustainability, and restoration; and 

—Assessing alternative management systems.—With emphasis on risk analysis, 

geospatial analysis including landscape implications, and associated decision 

support systems. 

Priority 3: The Renewable Resources Extension Program (RREA).—Is the foundation of outreach and extension efforts at universities. This program is critically important today since universities provide a large share of the nations outreach and 

extension. Audiences for the products of outreach and extension are as diverse as 

the stakeholders. The highest priority are the owners of nonFederal forest lands and 

those involved in implementing forest management. After cuts in 2004, the program 

is currently funded at $4.04 million. We urge restoration of funding to the fiscal 

year 2003 level of $4.516 million. NAPFSC further recommends focusing this program on: 

—Best management practices.—Together with information on programs, services, 

and benefits of natural resources management and planning to integrate water, 

wildlife, timber, fish, recreation, and other products and services; 

—Risk management/forest health.—Approaches addressing management of fire, 

insects and diseases, invasive species, fragmentation, and other disturbances at 

local to larger scales for working forests and landscapes; 

—Opportunities for economic development.—For individuals and communities including landowner cooperatives and other organizations linked to professional 

services and marketing, and conservation strategies to address local issues 

within the framework of landowner’s objectives. 

In the long run, it is important to advance this program to its full $30 authorization. NAPFSC further recommends focusing this funding to achieve rapid progress 

on one or more of these extension targets in each school’s state, region, or nationally. 

Partner Programs 

USDA Forest Service R&D.—NAPFSC recommends strengthening Forest Service 

research to address the full complexity of forest systems and their importance to society including issues of global change and the domestic security. At the same time, 

we see the most direct routes to this strengthening being through increased ties to 

university forestry research programs, for example through the funding of cooperative agreements and competitive grant programs. Forest Service R&D funding of Cooperative agreements with universities has become a very effective way to engage 

university science capability. Additionally, this vehicle is critically important to the 

training 3 of eventual agency scientists and in achieving the necessary critical mass 

for major research problems. Funding to schools through such mechanisms also improves agency linkages to stakeholders and the technology transfer capability within 

universities. Competitive grants are a means of improving targeted basic and multidisciplinary research. However, cooperative agreement funding has fallen from near 

20 percent of the R&D budget to less than 10 percent today. Consequently, NAPFSC 

urges Forest Service R&D to: 

—Increase cooperative agreement opportunities, incrementally over the next 5 

years, to attain a percentage of the total research budget that returns to historic levels of approximately 20 percent. In the fiscal year 2005 budget we rec-
483 

ommend an increase of $5 million in the share of Forest Service research dollars 

committed by the Forest Service for cooperative agreements. This increase 

would reverse the downward trend in the percentage of funds utilized for cooperative agreements and would move toward a better balance between internal 

Forest Service research and external collaboration with research universities. 

—Establish a major external competitive grant program in forest and natural resources research to engage the broader research community in addressing critical research and outreach needs. In the fiscal year 2005 budget we recommend 

designation of $10 million for this purpose, eventually building to $40 million. 

Recommended target areas of research are those noted above for the NRI in the 

USDA CSREES. 

—Additionally, we see it important to elevate research university linkages by assigning staff responsibility for advocacy and oversight of this key partnership 

and associated funding. 

USDA Forest Service State & Private Forestry (S&PF).—Has strong formal linkages to state forestry agencies. However, there is no formal link between S&PF and 

the forestry school based research, extension, and technology transfer capabilities in 

states. NAPFSC believes such a link would greatly strengthen cooperation among 

S&PF, state forestry agencies, forestry schools, industry, and landowners in states. 

Also, such a link would greatly improve the targeting, timeliness, and effectiveness 

of technology transfer focused on state needs relating to stewardship. Consequently, 

NAPFSC proposes the creation of a technology transfer line under Cooperative Forestry Programs in the agency’s budget. We further urge this line be funded at $5 

million and suggest staff be directed to establish criteria for grant and cooperative 

programs by consulting with university forestry and related natural resources 

schools and other educational or technology transfer entities. Criteria may include 

linkage to state forestry agency efforts, ties to basic and applied research, addressing critical state needs, and multi-school or multi-state cooperation. Suggested 

themes for this new line include productivity improvement, critical forest management information and analysis, and forest fire. 

The National Fire Plan (USDA and USDI).—Has become a major area of activity 

for Federal agencies and partners. This billion-dollar program also has significant 

research and technology transfer needs. NAPFSC believes important elements of 

these needs can best be accomplished through the existing research, extension and 

technology transfer capabilities of forestry schools. Consequently NAPFSC urges the 

addition of a science, education, and technology transfer line under Wildland Fire 

Management to effect this role. 

USDI Cooperative Ecosystem Studies Units (CESUs).—The seventeen new CESUs 

are proving to be a cost-effective means of engaging university science and training 

capabilities regionally to achieve Federal agency goals. However, schools cannot 

carry the cost of partnering and information sharing activities themselves. Consequently, NAPFSC recommends $1.275 million in support of the CESU program in 

the U.S. Department of Interior. We suggest this funding under the Department’s 

CESU cooperative/joint venture agreements with CESU host universities to provide 

research, technical assistance, and education consistent with the mission of these 

units. This would provide $75,000 annually to each host institution and $75,000 for 

the national office for the purposes of partnering activities to support essential conservation and information sharing through websites and other technologies. This 

funding could be placed within the National Park Service under external programs 

on behalf of all the Federal agencies involved with the CESU program. Annual work 

plans would be developed by the host universities and participating Federal agencies per guidelines established by the CESU Council. 

Other Competitive Grant Programs (NASA, NSF, DOE, & EPA).—Competitive 

grant programs in non-USDA science agencies have been very important to the 

progress of forest resources research efforts in universities. We urge the Administration and Congress to recognize the importance and effectiveness of these programs 

in efforts to address the issues of nonFederal forests. Specifically we urge programs, 

subprograms, and funding that can compliment and supplement USDA research 

programs, notably in the areas of remote sensing and information technologies, 

basic tree biology, ecosystem structure and function, climate change, water resources management, and the social sciences underpinning natural resources and 

environmental management. 

Agenda 2020.—The American Forest and Paper Association has proposed a program of research to address our nation’s needs for wood and fiber products and 

issues of industry and national competitiveness. Scientists from NAPFSC schools 

have played a key role in research addressing this agenda. We seek support for the 

base programs, cooperative agreements and competitive grants noted above to make 

this agenda a continued success story. 
484 

Workforce Needs.—The changing makeup of our society and a looming shortage 

in forest science research capacity also argue for including the full range of partners 

as stakeholders, and notably including 1890 and 1994 institutions and others serving minorities. 

Summary.—The plan and investments outlined here are substantial, but the potential savings and returns are far greater. NAPFSC urges cooperation at Federal, 

State, and university levels to make this investment and its promise a reality. 

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF STATE DEPARTMENTS OF

AGRICULTURE

My name is Gene Hugoson, Commissioner of the Minnesota Department of Agriculture and President of the National Association of State Departments of Agriculture (NASDA). I present my statement on behalf of my fellow commissioners, secretaries and directors from the 50 states and four U.S. territories. 

Fund Specialty Crop Block Grant Program 

We respectfully ask that the Senate provide funding for a block grant program 

in the fiscal year 2005 Agricultural Appropriations Bill. Congress first approved a 

specialty crop block grant program in 2001 (H.R. 2213, Public Law 107–25). Congress chose States to administer the $159.4 million block grant program which was 

directed at the specialty crop industry to address difficult circumstances caused by 

disease, low prices, and lack of funding in several areas including: research, promotion, and inspection. NASDA members believe that this block grant program has 

improved the specialty crop industry’s ability to sustain, expand and enhance their 

production systems. 

The program provided state block grants to assist the specialty crop industry, not 

in the traditional manner of farm assistance programs, but through a focus on 

projects to improve the industry’s competitiveness. The demands for the grant funds 

were overwhelming; more than 3,900 requests for grant funding were made totaling 

$1.52 billion. 

State Departments of Agriculture took advice from their local constituency groups 

and ultimately made investments in more than 1,400 projects in significant issue 

areas including marketing, nutrition, education, research, pest and disease programs, and food safety. We would like to point out that an important factor in many 

states’ grant funding criteria was commitment to matching funds. Together, states 

and grant recipients contributed more than $45 million in matching funds. 

Knowing that Congress would have a keen interest in the success of the 2001 

block grant program, we surveyed the states and compiled a progress report. It is 

available on NASDA’s website at www.nasda.org or copies can be requested from 

NASDA’s office. Each member of the subcommittee will be provided their own copy 

of the report. 

We would like to bring to your attention that current legislation in the U.S. House 

of Representatives, H.R. 3242, ‘‘The Specialty Crop Competitiveness Act of 2003,’’ 

provides $470 million for a specialty crop block grant program. NASDA supports the 

passage of this legislation. 

Changing Times 

As you know, times are changing in the agriculture industry. No longer are bulk 

commodities the only crops that come to mind when people think about American 

agriculture. In the early 1900’s, bulk commodities like wheat, corn, and cotton were 

the dominant crops grown on the majority of America’s farms. While bulk commodities will always remain essential components of America’s agricultural industry, 

today specialty crops have grown significantly in economic importance. During the 

last century, farmers and ranchers have become much more diversified and more 

involved with marketing their products from the farmgate to the consumer. 

Specialty Crops—A Strong Economic Engine 

The contribution of the specialty crop industry to the economic health of the 

United States and to our agricultural economy becomes clear when you consider the 

cash receipts the industry generates. For the year 2002, the United States Department of Agriculture’s Economic Research Service (ERS) reported that, ‘‘Vegetables, 

Fruit and Nuts, All other Crops, and Hay’’ generated $57.7 billion in cash receipts. 

This figure is important as it outpaces the cash receipts generated by the remaining 

plant crops. In 2002, ‘‘Oil Crops, Tobacco, Cotton, Feed Crops, and Food Grains’’ 

generated $45.7 billion in cash receipts. 
485 

The Challenges—Low Income & Trade Deficit 

As times have changed, so have the needs of farmers and ranchers in our country. 

Specialty crop growers are faced with a variety of challenges—many of them 

brought about by the diversity of the specialty crop industry. Just like any farmer 

or rancher, specialty crop growers face the risk of their crop being destroyed by a 

pest, disease or natural disaster. But they also carry additional risk due to compliance with ever changing regulatory requirements, high labor costs, high fuel costs 

and exotic pest pressures while competing on a non-level playing field against imports from outside the United States. 

The USDA ERS reported in ‘‘Agriculture Economy Improves in 2003’’ that specialty crop producers should expect lower than average income: ‘‘Producers of specialty crops (vegetables, fruits, nursery products) are especially susceptible to higher 

energy and labor costs (the fastest rising expense categories in 2003). Lower average 

income is expected for these farms, since modest gains in receipts will not be enough 

to compensate for higher expenses.’’ 

However, not all growers in other sectors are experiencing the same challenges. 

The report stated, ‘‘The financial condition of U.S. farmers and other agricultural 

stakeholders is expected to improve in 2003. Net farm income, a measure of the sector’s profitability, is forecast to be up $17 billion (49 percent) from the $35.6 billion 

earned in 2002 and about 10 percent above the 10-year average.’’ 

While we recognize the importance of global trade in agricultural commodities and 

recognize the complexity of the global economy, we are alarmed at the disparity between the explosive growth in importation of specialty crops into the United States 

versus the relatively flat growth in the exportation of our products to other countries. The USDA’s Foreign Agricultural Service’s ‘‘Foreign Agricultural Trade of the 

United States’’ reports that for the period 1997–2002 that: 

—Imports—increased 39 percent to a total of $14.7 billion in 2002; while, 

—Exports—increased 6.5 percent to a total of $11.7 billion in 2002. 

While these trends certainly raise questions regarding ‘‘fair trade’’, it’s also important to emphasize the issue of ‘‘safe trade.’’ Can our industry remain competitive 

when they are asked to absorb the cumulative risk of introduction of unwanted foreign pests and diseases imported on foreign commodities that are deemed to be 

‘‘safe?’’ 

Block Grants—An Investment in Critical Infrastructure 

It’s time for the public sector to realize the value of specialty crops and make long 

term investments in the competitiveness of the industry. Public investment in critical infrastructure will benefit not only the economy but public health and the environment. This investment can be used to support on-going research that is furthering the development of new varieties of specialty crops and contributing to advances in fighting foreign pests and diseases brought in by imports. It will help continue statewide marketing and promotion campaigns that are increasing the consumption of fruits and vegetables across the nation. It will help maintain competitive prices, both domestically and internationally. And more importantly, Federal resources will support nutritional education programs in our schools which will give 

our children the tools to make healthy eating choices ? helping us all battle the obesity epidemic that is affecting each and every one of our states. 

Farmers and ranchers need government policies that make it possible for them 

to remain competitive. When farmers earn a profit, they are better equipped to 

adapt to change. These changes bring better results for the environment, for workers, for consumers and for the economy. Everyone benefits from the support of specialty crops. I ask you to please take a minute to think about what you want agriculture to look like in the next 5, 10 or even 25 years. We can shape that vision 

today by committing to a long-term investment in our specialty crop producers and 

ensuring they continue to feed the nation and the world. 

The State Departments of Agriculture are ready to continue this important dialog 

and be a part of the solution in keeping specialty crops producers competitive and 

viable. Thank you for the opportunity to express NASDA’s strong support for the 

Specialty Crop Block Grant Program. 

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF STATE FORESTERS

INTRODUCTION

The National Association of State Foresters (NASF) is pleased to provide testimony on the U.S. Department of Agriculture (USDA) budget request for fiscal year 

2005. Representing the directors of state forestry agencies from all fifty states, eight 
486 

U.S. territories, and the District of Columbia, our testimony centers around those 

Deputy Areas most relevant to the long term forestry operations of our constituents: 

Natural Resources and Environment and Research, Education, and Economics. We 

believe the USDA budget for fiscal year 2005, which offers opportunities for advancing the sustainable management of private forestland nationwide, can be strengthened through our recommendations. 

FARM BILL CONSERVATION PROGRAMS

NASF believes that the conservation programs enacted in the 2002 Farm Bill are 

integral for protecting water quality, erodible soils, wildlife habitat, and wetlands 

associated with agricultural and forestry operations. Trees and forestry practices are 

often the best solution to many of the conservation challenges arising from these 

operations. We support the continued funding and development of the Environmental Quality Incentives Program (EQIP) by providing $1.2 billion for fiscal year 

2005, full funding for the Conservation Reserve Program (CRP), $85 million for the 

Wildlife Habitat Improvement Program (WHIP), targeting of 250,000 acres under 

the Wetlands Reserve Program (WRP), $150 million for the Emergency Watershed 

Program (EWP), and $26 million for the Conservation Security Program (CSP). 

These programs are important for landowners with both forest and agricultural 

land, as well as farmers who wish to plant trees for conservation purposes on their 

agricultural lands. Nearly two-thirds of the land in the United States is forested, 

the majority of which is privately owned. NASF recommends that the Subcommittee 

encourage the Secretary of Agriculture and the NRCS to reinforce the importance 

of including and expanding forestry practices in EQIP and the other Farm Bill Conservation Programs. 

USDA RESEARCH AND EXTENSION PROGRAMS

NASF recommends funding the Cooperative Forestry Research (McIntire-Stennis) Program (CFR) at $25 million, the National Research Initiative Competitive Grants 

Program (NRI) at $180 million, and the Renewable Resources Extension Program 

(RREA) at $4.5 million. The proposed increase in CFR will help the program continue to serve as the cornerstone of forest research in universities, providing knowledge central to sound management from environmental, economic, and social perspectives. NASF supports the funding provided in the Administration’s fiscal year 

2005 budget for NRI and encourages more funds be targeted to forestry research. 

A small increase in RREA funding will improve the program’s ability to address critical extension and stewardship needs. 

CONCLUSION

The National Association of State Foresters seeks the Subcommittee’s support for 

a USDA fiscal year 2005 budget that will make sure the conservation needs of private landowners—both forest and agriculture—are met. Thank you for the opportunity to provide our testimony. 

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF UNIVERSITY FISHERIES

AND WILDLIFE PROGRAMS

The National Association of University Fisheries and Wildlife Programs 

(NAUFWP) appreciates the opportunity to submit testimony concerning the fiscal 

year 2005 budgets for the U.S. Department of Agriculture. NAUFWP represents approximately 55 university programs and their 440 faculty members, scientists, and 

extension specialists and over 9,200 undergraduates and graduate students working 

to enhance the science and management of fisheries and wildlife resources. 

NAUFWP is interested in strengthening fisheries and wildlife education, research, 

extension, and international programs to benefit wildlife and their habitats on agricultural and other private land. 

The following table summarizes NAUFWP’s recommendations: 

[In thousands of dollars] 

USDA Agency/Program 

Fiscal year— 

2004 Enacted 2005 President’s 

Budget 

2005 NAUFWP 

Recommended 

Coop. St. Research, Education, and Extension Serv.: 

Hatch Act .......................................................................................... 179,085 180,148 180,148 

Renewable Resources Extension Act ................................................ 4,040 4,093 15,000 
487 

[In thousands of dollars] 

USDA Agency/Program 

Fiscal year— 

2004 Enacted 2005 President’s 

Budget 

2005 NAUFWP 

Recommended 

McIntire-Stennis Cooperative Forestry .............................................. 21,755 21,844 30,000 

Natural Resources Inventory ............................................................. 164,027 180,000 180,000 

Natural Resources Conservation Service: 

Forest Land Enhancement Program ................................................. 10,000 ........................ 80,000 

Technical Service Provider training .................................................. ........................ ........................ 100 

Conservation Program Monitoring and Evaluation ........................... ........................ ........................ 1,000 

Cooperative State Research, Education and Extension Services 

Hatch Act.—The Hatch Act supports agricultural research in the states at college 

and university agriculture experiment stations. Experiment stations conduct research, investigations, and experiments that relate directly to the establishment and 

maintenance of an effective agricultural industry and promote a sound and prosperous agricultural and rural life. These stations are essential for their work on food 

and fiber systems, environmental impacts of these systems, and resource issues relating to the future of agriculture in each state and the nation. We support the administration’s request for this base program in fiscal year 2005. 

Renewable Resources Extension Act.—We strongly recommend that the Renewable Resources Extension Act be funded at $15 million in fiscal year 2005. RREA funds, 

which are apportioned to State Extension Services, leverage (at an average of 4:1) 

cooperative partnerships with a focus on development and dissemination of information needed by private landowners. The need for RREA educational programs is 

greater than ever today due to fragmentation of ownerships, urbanization, and increasing societal concerns about land use and its impact on soil, water, air, and 

wildlife. Though RREA has been proven to be effective in leveraging cooperative 

state and local funding, it has never been fully funded. 

McIntire-Stennis.—We encourage Congress to increase McIntire-Stennis Coopera- tive Forestry funds to $30 million. These funds are essential to the future of resource management on non-industrial private forestlands, supporting state efforts in 

forestry research to increase the efficiency of forestry practices and to extend the 

benefits that come from forest and related rangelands. McIntire-Stennis calls for 

close coordination between state colleges and universities and the Federal Government, and is essential for providing research background for other Acts, such as 

RREA. 

National Research Initiative.—National Research Initiative Competitive Grants 

(NRI) are open to academic institutions, federal agencies, and private organizations 

to fund research on improving agricultural practices, particularly production systems that are sustainable both environmentally and economically, and to develop 

methods for protecting natural resources and wildlife. Innovative grant programs 

such as NRI help broaden approaches to land management, such as integrating timber and wildlife management on private lands. We request $180 million for National 

Research Initiative Competitive Grants in fiscal year 2005. 

Natural Resources Conservation Service 

Forest Land Enhancement Program (FLEP).—The Forest Land Enhancement Program was created through the 2002 Farm Bill to provide financial, technical, educational, and related assistance to promote sustainable management of non-industrial private forestlands. The program is authorized at $100 million for 2002–2007, 

to be distributed through state forestry agencies. We request restoration of the full 

funding balance, $80 million, for this program in fiscal year 2005. 

Technical Service Provider Training.—NRCS is building a Technical Service Provider program of certified professionals who can assist the agency in delivering conservation services to agricultural producers. Training will be needed to effectively 

prepare Technical Service Providers to assist these producers. NAUFWP recommends that Congress direct NRCS to appropriate $100,000 for a pilot training 

program at a university in cooperation with professional societies (Society for Range 

Management, The Wildlife Society, American Fisheries Society) and the USDA Cooperative State Research, Education, and Extension Service that subsequently can 

be used at land grant universities and colleges across the country to train Technical 

Service Providers. This program is critical to the effective delivery of Farm Bill Conservation Programs. 

Conservation Program Monitoring and Evaluation.—Monitoring Farm Bill conservation programs and evaluating their progress toward achieving Congressionally 
488 

1 National C–FAR seeks to increase awareness about the value of, and support for, food and 

agricultural research. For example, National C–FAR circulates a series of one-page Research 

Success Profiles highlighting some of the many benefits already provided by public investment 

in food and agricultural research. Each provides a contact for more information. Profiles released to date are titled ‘‘Anthrax,’’ ‘‘Mastitis,’’ ‘‘Penicillin,’’ ‘‘Witchweed,’’ and ‘‘Making Wine.’’ 

The Profiles can be accessed at http://www.ncfar.org/research.asp. 

established objectives for soil, water, and wildlife will enable NRCS to ensure successful program implementation and effective use of appropriated funds. Thus far, 

limited monitoring efforts have been focused on soil and water achievements, and 

NRCS and the Agricultural Research Service have done all the evaluations. It is important for assessments to address wildlife and habitat impacts, and for external 

parties to be included to ensure credibility and objectivity. We recommend Congress 

direct $1 million toward a pilot watershed-based monitoring and evaluation project 

that can serve as a model for conservation program assessment nationwide. 

Thank you for considering the views of university fisheries and wildlife scientists. 

We look forward to working with you and your staff to ensure adequate funding for 

wildlife conservation. 

PREPARED STATEMENT OF THE NATIONAL COALITION FOR FOOD AND AGRICULTURAL

RESEARCH

Dear Chairman Bennett, Ranking Member Kohl and Members of the Subcommittee: On behalf of the National Coalition for Food and Agricultural Research 

(National C–FAR), we are pleased to submit comments in strong support of enhanced public investment in food and agricultural research, extension and education 

as a critical component of Federal appropriations for fiscal year 2005 and beyond. 

INTEREST OF NATIONAL C–FAR

National C–FAR serves as a forum and a unified voice in support of sustaining 

and increasing public investment at the national level in food and agricultural research, extension and education. National C–FAR is a nonprofit, nonpartisan, consensus-based and customer-led coalition established in 2001 that brings food, agriculture, nutrition, conservation and natural resource organizations together with 

the food and agriculture research community. A list of current members is provided 

as Exhibit 1. More information about National C–FAR is available at http:// 

www.ncfar.org.1

DEMONSTRATED VALUE OF PUBLIC INVESTMENTS IN FOOD AND AGRICULTURAL

RESEARCH, EXTENSION AND EDUCATION

Public and private investments in U.S. agricultural research have paid huge dividends to the United States and the world, especially in the latter part of the 20th 

century. However, these dividends are the result of past investments in agricultural 

research. 

If similar research dividends are to be realized in the future, then the nation must 

commit to a continuing investment that reflects the long-term benefits of food and 

agricultural research. 

Food and agricultural research to date has helped provide the United States with 

an agricultural system that consistently produces high quality, affordable food and 

natural fiber, while at the same time: 

—Creating Jobs and Income.—The food and agricultural sector and related industries provide over 20 million jobs, about 17 percent of U.S. jobs, and account 

for nearly $1 trillion or 13 percent of GDP. 

—Helping Reduce the Trade Deficit.—Agricultural exports average more than $50 

billion annually compared to $38 billion of imports, contributing some $12 billion to reducing the $350 billion trade deficit in the nonagricultural sector. 

—Providing many Valuable Aesthetic and Environmental Amenities to the Public.—The proximity to open space enhances the value of nearby residential property. Farmland is a natural wastewater treatment system. Unpaved land allows 

the recharge of the ground water that urban residents need. Farms are stopovers for migratory birds. Farmers are stewards for 65 percent of non-Federal 

lands and provide habitat for 75 percent of wildlife. 

—Sustaining Important Strategic Resources.—This nation’s abundant food supply 

bolsters national security and eases world tension and turmoil. Science–based 

improvements in agriculture have saved over a billion people from starvation 

and countless millions more from the ravages of disease and malnutrition. 
489 

Publicly financed research is a necessary complement to private sector research, 

focusing in areas where the private sector does not have an incentive to invest, 

when (1) the pay-off is over a long term, (2) the potential market is more speculative, (3) the effort is during the pre-technology stage; and (4) where the benefits are 

widely diffused. Public research also helps provide oversight and measure long-term 

progress. Public research also acts as a means to detect and resolve problems in an 

early stage, thus saving American taxpayer dollars in remedial and corrective actions. 

By any standard, the contribution of publicly supported agricultural research to 

advances in food production and productivity and the resulting public benefits are 

well documented. For example, an analysis by the International Food Policy Research Institute of 292 studies of the impacts of agricultural research and extension 

published since 1953 (Julian M. Austin, et al, A Meta-Analysis of Rates of Return 

to Agricultural Research, 2000) showed an average annual rate of return on public 

investments in agricultural research and extension of 81 percent! 

NATIONAL C–FAR URGES ENHANCED FEDERAL FUNDING FOR FOOD AND AGRICULTURAL

RESEARCH, EXTENSION AND EDUCATION

National C–FAR appreciates the longstanding support this Subcommittee and the 

full Committee have demonstrated through funding food and agricultural research, 

extension and education programs over the years that have helped the U.S. food and 

agricultural sector be a world leader and provide unprecedented value to U.S. citizens, and indeed the world community. 

National C–FAR is deeply concerned that shortfalls in food and agricultural research funding in recent years jeopardize the food and agricultural community’s continued ability to maintain its leadership role and more importantly respond to the 

multiple, demanding challenges that lie ahead. Federal funding of food and agricultural research, extension and education has been flat for over 20 years, while support for other Federal research has increased substantially. At the same time, public 

funding of agricultural research in the rest of the world during the same time period 

has reportedly increased at a nearly 30 percent faster pace. This reduced public investment in food and agricultural research may be the result of the U.S. food and 

agricultural system working so well that the sector is a victim of its own success. 

However, societal demands and expectations placed upon the food and agricultural 

system are ever-changing and growing. Simply stated, Federal funding has not kept 

pace with identified priority needs. 

National C–FAR is deeply concerned that shortfalls in food and agricultural research funding in recent years jeopardize the food and agricultural community’s continued ability to maintain its leadership role and more importantly respond to the 

multiple, demanding challenges that lie ahead. 

National C–FAR believes it is imperative to lay the groundwork now to respond 

to the many challenges and promising opportunities ahead through Federal policies 

and programs needed to promote the long-term health and vitality of food and agriculture for the benefit of both consumers and producers. Stronger public investment 

in food and agricultural research, extension and education is essential in producing 

research outcomes needed to help bring about beneficial and timely solutions to 

multiple challenges. Multiple examples, such as those listed below, serve to illustrate current and future needs that arguably merit enhanced public investment in 

research: 

—Strengthened bio-security is a pressing national priority. There is a compelling 

need for improved bio-security and bio-safety tools and policies to protect 

against bio-terrorism and dreaded problems such as foot-and-mouth and ‘‘mad 

cow’’ diseases and other exotic plant and animal pests, and protection of range 

lands from invasive species. 

—Food-linked health costs are high. Some $100 billion of annual U.S. health costs 

are linked to poor diets, obesity, food borne pathogens and allergens. Opportunities exist to create healthier diets through fortification and enrichment. 

—Research holds the key to solutions to environmental issues related to global 

warming, limited water resources, enhanced wildlife habitat, and competing demands for land and other agricultural resources. 

—There was considerable debate during the last farm bill reauthorization about 

how expanded food and agricultural research could enhance farm income and 

rural revitalization by improving competitiveness and value-added opportunities. 

—Energy costs are escalating, dependence on petroleum imports is growing and 

concerns about greenhouse gases are rising. Research can enhance agriculture’s 

ability to provide renewable sources of energy and cleaner burning fuels, se-
490 

quester carbon, and provide other environmental benefits to help address these 

challenges, and indeed generate value-added income for producers and stimulate rural economic development. 

—Population and income growth are expanding the world demand for food and 

improved diets. World food demand is projected to double in 25 years. Most of 

this growth will occur in the developing nations where yields are low, land is 

scarce, and diets are inadequate. Without a vigorous response demand will only 

be met at a great global ecological cost. 

—Regardless of one’s views about biotechnology and genetic resources, an effective 

publicly funded research role is needed for oversight and to ensure public benefits. 

Finally, there is a continuing need to build the human capacity of expertise to 

conduct quality food and agricultural research and education, and to implement research outcomes in the field and laboratory where such outcomes benefit consumers 

and others who need the research results. The food and agricultural sciences face 

the same daunting task of supplying the nation with the next generation of scientists and educators that many of the scientific disciplines face today. If these basic 

needs are not met, then the nation will face a shortage of trained and qualified individuals. 

Public investment in food and agricultural research, extension and education of 

today and the future must simultaneously satisfies needs for food quality and quantity, resource preservation, producer profitability and social acceptability. National 

C–FAR supports the public funding needed to help assure that these needs are met. 

A Sense of the Congress resolution endorsed by National C–FAR to double research funding within 5 years was incorporated into the 2002 Farm Bill that was 

enacted into law. However, the major commitment to expanded research has not yet 

materialized. National C–FAR urges the Subcommittee and Committee to fund the 

Administration’s request for food and agricultural research for fiscal year 2005, and 

to augment this funding level to the maximum extent practicable, as an important 

first step toward building the funding levels needed to meet identified food and agricultural research needs. 

CONCLUSION

In conclusion, National C–FAR restfully submits that— 

—The food and agricultural sector merits Federal attention and support; 

—Food and agricultural research, extension and education have paid huge dividends in the past, not only to farmers, but to the entire nation and the world; 

—There is an appropriate and recognized role for Federal support of research and 

education; 

—Recent funding levels for food and agricultural research, extension and education have been inadequate to meet pressing needs; and 

—Federal investments in food and agricultural research should be enhanced in 

fiscal year 2005 and beyond. 

National C–FAR appreciates the opportunity to share its views and stands ready 

to work with the Chair and members of this Committee in support of these important funding objectives. 

PREPARED STATEMENT OF THE NATIONAL COMMODITY SUPPLEMENTAL FOOD

PROGRAM (CSFP) ASSOCIATION

Mr. Chairman and subcommittee members, I am Kathleen Devlin, President of 

the National Commodity Supplemental Food Program (CSFP) Association. Our Association of state and local CSFP operators works diligently with the Department 

of Agriculture Food, Nutrition and Consumer Service to provide a quality nutritionally balanced commodity food package to low income persons aged sixty and older, 

and low income mothers, infants, and children. The program, which was authorized 

in 1969, serves approximately 536,000 individuals every month in 32 states, 2 Tribal Organizations and the District of Columbia. 

—Within the last 5 years, CSFP has added 10 new States to the Program serving 

113,792 new program participants, the vast majority being low-income seniors. 

—Of special note is the unprecedented growth of this program in fiscal year 2003, 

during which an additional 84,160 people were served. 

—This unprecedented growth was the direct result of the fiscal year 2003 Conference Report that said: ‘‘The conferees expect the Department to make the full 

amount of these budgetary resources available to support participation and 

caseload. The intention of the conferees is to ensure at a minimum that the 
491 

final caseload in September 2003 can be maintained in 2004, while meeting the 

requirements to protect the states that joined the program in 2003.’’ —The fiscal year 2005 President’s Budget has proposed $98 million for the CSFP. 

This is a 13 percent cut to the program and will require 69,941 low-income seniors be removed from receiving much needed nutritious commodities. This follows a 19 percent increase in participation among existing CSFP states provided last year as a direct result of Congressional Directives set forth by Conferees in the Conference Report. 

The CSFP’s 35 years of service stands as testimony to the power of partnerships 

between community and faith-based organizations, private industry and government 

agencies. The CSFP offers a unique combination of advantages unparalleled by any 

other food assistance program: 

The CSFP specifically targets our nation’s most nutritionally vulnerable populations: the young children and the low-income seniors. 

The CSFP provides a monthly selection of food packages specifically tailored to 

the nutritional needs of the population we serve. Each eligible participant in the 

program is guaranteed [by law] a certain level of nutritional assistance every 

month in addition to life-changing nutrition education. 

The CSFP purchases foods at wholesale prices, which directly supports the farm- ing community. The average food package for fiscal year 2004 is $13.20, and the 

retail cost would be approximately $50.00. 

The CSFP involves the entire community in the problems of hunger and poverty. 

Thousands of volunteers as well as many private companies donate money, 

equipment, and most importantly time to deliver food to homebound seniors. 

These volunteers not only bring food but companionship and other assistance 

to seniors who might have no other source of support. 

The Senate Agriculture Appropriations Sub-Committee has consistently been supportive of CSFP, acknowledging it as a cost-effective way of providing nutritional 

supplemental food packages to low income eligible seniors, mothers and children. 

This year, your support is needed urgently to prevent unprecedented 69,941 low-income participants from being removed from this vital nutrition program. 

COMMODITY SUPPLEMENTAL FOOD PROGRAM

NATIONAL CSFP ASSOCIATION CASELOAD & BUDGET REQUEST FOR FISCAL YEAR 2005

$134 MILLION REQUESTED

Fiscal year 2005 Caseload Slots, Including Seven New States.—660,599 Slots 

Fiscal year 2005 Funding Request.—$134.0 million 

Base Caseload Requirements Existing States.—535,756 Slots 

Total Cost Per Caseload Slot.—$158.40 ($13.20 blended monthly food package 

cost × 12 months) ∂ $53.53 = $211.93 per slot = $113.5 million 

Expansion in Current States.—100,343 Slots 

$118.80 ($13.20 blended monthly food package cost × 9 months) ∂ $40.14 

($158.40 prorated for 9 months) = $158.94 per slot = $15.9 million 

New States.—24,500 Slots 

Arkansas—5000; Delaware—2500; Oklahoma—5000; Maine—3000; Virginia— 

3000; Utah—3000; Wyoming—3000 and this would equal an additional 

$118.80 ($13.20 blended monthly food package cost × 9 months) ∂ $40.14 

($158.40 prorated for 9 months) = $158.94 per slot = $3.9 million 

Estimated USDA Costs for Procuring Commodities.—$.8 million 

Note: The National CSFP Association would like to bring to your attention a comparison between the CSFP FFY 2004 Appropriation & FFY 2005 Proposed Appropriation. —FFY 2004.—$98.9 million Appropriation ∂ (approximately) $11.295 million cash 

carryover ∂ (estimated) $6 million Commodity Inventory = Total Program Re- sources fiscal year 2004 of $116 Million —FFY 2005.—President’s Proposed $98 Million (loss of 85,728 or 16 percent of the 

national caseload) 

—Total Program Resources in fiscal year 2005 of $104.8 million (loss of 69,941 

senior slots or 13 percent national caseload) 

RESTORE SENIOR INCOME GUIDELINES TO 185 PERCENT OF POVERTY

Current income eligibility for senior clients is 130 percent of the poverty income 

guidelines, as opposed to 185 percent of poverty as originally established in 1981. 

We proposed that they be re-established to 185 percent of poverty to be consistent 

with CSFP women, infants and children and other Federal nutrition programs. 

Many seniors are struggling with high housing, medical, and utility costs, and at 
492 

the lower poverty guideline, the slightest inflation increase in Social Security income renders many seniors ineligible for CSFP. 

PREPARED STATEMENT OF THE NATIONAL COUNCIL OF FARMER COOPERATIVES

Thank you, Mr. Chairman, and members of the Subcommittee. The National 

Council of Farmer Cooperatives (NCFC) appreciates this opportunity to submit its 

views regarding the fiscal year 2005 agriculture appropriations bill, and respectfully 

requests this statement be made part of the official hearing record. 

AMERICA’S FARMER COOPERATIVES

NCFC is the national trade association representing America’s farmer cooperatives. There are nearly 3,000 farmer cooperatives across the United States whose 

members include a majority of our Nation’s more than 2 million farmers. They exist 

for the mutual benefit of their farmer members and provide them with increased 

opportunity to improve their income from the marketplace and compete more effectively in the global marketplace. 

These farmer owned businesses handle, process and market virtually every type 

of agricultural commodity grown and produced, along with many related products; 

manufacture, distribute and sell a variety of farm inputs; and provide credit and 

related financial services, including export financing. Earnings derived from these 

activities are returned by farmer cooperatives to their farmer members on a patronage basis thereby enhancing their overall income. 

America’s farmer cooperatives also provide jobs for nearly 300,000 Americans with 

a combined payroll over $8 billion, further contributing to our Nation’s economic 

wellbeing. Many of these jobs are in rural areas where employment opportunities 

are sometimes limited. 

FISCAL YEAR 2005 BUDGET PROPOSAL AND RECOMMENDATIONS

The administration’s fiscal year 2005 budget proposal with regard to USDA recommends maintaining support and funding for basic farm and commodity programs 

as contained in the 2002 Farm Bill. We commend the administration for its recommendation as these programs represent an important safety net for producers 

and should continue to be fully funded. There are also a number of other important 

programs within USDA that should be given a high priority as summarized below. 

USDA Farmer Cooperative Programs 

There is a long history of congressional support for public policy to enhance the 

ability of farmers to join together in cooperative self-help efforts to improve their 

overall income from the marketplace, capitalize on new market opportunities, and 

to compete more effectively in the global marketplace. 

USDA’s Rural Business-Cooperative Service (RB–CS) mission area includes responsibility for carrying out a variety of programs to help achieve such objectives, 

including research, education and technical assistance for farmers and cooperatives. 

Since the elimination of a separate agency with responsibility for such programs, 

it is our understanding that funding for such purposes has generally been provided 

through the salary and expense budget relating to rural development. 

For fiscal year 2005, the administration’s budget proposal provides $666 million 

in both budget authority and program level for salaries and expenses for the rural 

development mission area, compared to $627 million for fiscal year 2004. Since 

there is no separate line item relating to programs in support of cooperative selfhelp efforts by farmers and their cooperatives, we believe Congress should include 

as it has in the past specific language directing that funding and resources to carry 

out such programs be given a high priority. 

Value-Added Agricultural Product Market Development Grants 

USDA’s Value-Added Agricultural Product Market Development Grants Program 

is aimed at encouraging and enhancing farmer participation in value-added businesses, including through farmer cooperatives, to help them capture a larger share 

of the value of their production and improve their overall income from the marketplace. It also helps promote economic development and create needed jobs in rural 

areas. 

The program is administered on a matching basis, thereby doubling the impact 

of such grants and helping encourage needed investment. As a cost-share program, 

it has served as an excellent example of an effective public-private partnership that 

has been extremely successful by any measure. 
493 

The 2002 Farm Bill significantly expanded this important program to a level of 

$40 million. In fiscal year 2004, the program was reduced to $15 million. For fiscal 

year 2005, the administration’s budget proposal recommends the program be maintained with a slight increase to $16 million. While this represents a significant 

change from last year’s budget proposal, which we are pleased to see, we continue 

to believe this important program should be fully funded at $40 million. 

Commodity Purchase Programs 

USDA annually purchases a variety of commodities for use in domestic and international feeding programs, including the school lunch program. NCFC strongly supports such programs to: (1) meet the food and nutrition needs of eligible consumers 

and (2) help strengthen farm income by encouraging orderly marketing and providing farmers with an important market outlet, especially during periods of surplus 

production. 

In addition to providing needed funding for such programs, it is important to ensure that farmers who choose to cooperatively market their production and related 

products, as well as their cooperatives, are not limited or excluded, but remain fully 

eligible under such programs. This is consistent with USDA’s historical mission in 

support of such cooperative efforts and essential to ensure the continued availability 

of high quality products on a competitive basis. 

B&I Loan Guarantee Program and Farmer Cooperatives 

One of the major challenges facing farmer cooperatives in helping farmers capture 

more of the value of what they produce beyond the farm gate is access to equity 

capital. In approving the 2002 Farm Bill, Congress made a number of changes to 

USDA’s Business and Industry (B&I) guaranteed loan program to better meet the 

needs of farmer cooperatives and their farmer members. These included changes to 

allow farmers to qualify for guaranteed loans for the purchase of stock in both new 

and existing cooperatives to provide the equity capital needed to encourage more involvement and participation in value-added activities. 

For fiscal year 2005, the administration’s budget proposal provides an overall program level of $738 million, which represents a slight increase over fiscal year 2004. 

Accordingly, we recommend that funding be not less than this level. 

Rural Business Investment Program 

The Rural Business Investment Program was authorized under the 2002 Farm 

Bill to help foster rural economic development by encouraging and facilitating equity 

investments in rural business enterprises, including farmer cooperatives. 

In fiscal year 2004, program funding was limited to $4 million for the development of regulations and review of applications. We understand, however, that such 

regulations remain pending. While the fiscal year 2005 budget proposal would provide an increase to $11 million, this is still well below the level authorized in the 

2002 Farm Bill. Again, providing improved access to equity capital is essential if 

farmers are going to be able to capitalize on value-added business opportunities 

through cooperative self-help efforts. For these reasons, we urge that the program 

be fully funded as authorized and that USDA be encouraged to complete the rulemaking process in order for it to be fully implemented as Congress intended. 

International and Export Programs 

USDA’s export programs are vital to helping maintain and expand U.S. agricultural exports, counter subsidized foreign competition, meet humanitarian needs, 

protect American jobs, and strengthen farm income. We believe such programs 

should be fully funded and aggressively implemented to achieve these important objectives. 

The administration’s fiscal year 2005 budget proposal would provide an overall increase in U.S. international and export programs. At the same time, however, it 

would reduce or freeze several key programs. 

In particular, we are very concerned over the proposal to freeze USDA’s Market 

Access Program (MAP) at $125 million instead of allowing it to increase to $140 million as provided under the 2002 Farm Bill. The program, which is administered on 

a cost-share basis, continues to be tremendously effective in encouraging and promoting U.S. agricultural exports. At a time when our foreign competitors are spending nearly as much to promote their products in just the U.S. domestic market as 

the United States is spending world-wide, clearly now is not the time to engage in 

any unilateral reduction in our export programs. As a member of the Coalition to 

Promote U.S. Agricultural Exports, we urge that funding be provided at $140 million as authorized, together with $34.5 million for the Foreign Market Development 

program as recommended. 
494 

Again, it is extremely important that USDA’s export programs continue to be fully 

funded, including the Export Credit Guarantee Programs, the Export Enhancement 

Program, Dairy Export Incentive Program, Technical Assistance for Specialty Crops, 

Food for Progress, as well as Public Law 480 and other food assistance programs, 

including McGovern-Dole. 

Finally, we also want to take this opportunity to urge support to ensure there is 

adequate funding and resources for USDA’s Foreign Agricultural Service to continue 

to effectively carry-out such programs and to provide the technical assistance and 

support needed to help maintain and expand U.S. agricultural exports. 

Agricultural Research 

Another important area of emphasis when it comes to enhancing the global competitiveness of farmer cooperatives and American agriculture is research. NCFC endorses the recommendations of the National Coalition for Food and Agricultural Research, which has set an objective of doubling Federal funding over the next 5 years. 

Conservation Programs 

The administration’s fiscal year 2005 budget proposal includes funding for a variety of conservation and related programs administered by USDA’s Natural Resources Conservation Service (NRCS). Many of these programs were significantly 

expanded under the 2002 Farm Bill and provide financial and technical assistance 

to help farmers and others who are eligible to develop and carry out conservation 

and related activities to achieve important environmental goals. 

NRCS is also the lead technical agency within USDA offering ‘‘on-farm’’ technical 

and financial assistance. We strongly support such programs, including technical assistance activities that may be carried out in partnership with the private sector involving farmer cooperatives. Farmer cooperatives have invested heavily in developing the technical skills of their employees to help their farmer members address 

environmental concerns. It is estimated that 90 percent of all members of the Certified Crop Advisor (CCA) program, for example, are employed by the private sector 

and majority of those are employed by farmer cooperatives. 

Conclusion 

Thank you again, Mr. Chairman and members of the Subcommittee, for the opportunity to share our views. We appreciate this statement being included in the 

official hearing record. 

PREPARED STATEMENT OF THE NATIONAL POTATO COUNCIL

My name is Dwight Horsch. I am a potato farmer from Idaho and current Vice 

President, Legislative/Government Affairs for the National Potato Council (NPC). 

On behalf of the NPC, we thank you for your attention to the needs of our potato 

growers. 

The NPC is the only trade association representing commercial growers in 50 

states. Our growers produce both seed potatoes and potatoes for consumption in a 

variety of forms. Annual production is estimated at 437,888,000 cwt. with a farm 

value of $3.2 billion. Total value is substantially increased through processing. The 

potato crop clearly has a positive impact on the U.S. economy. 

The potato is the most popular of all vegetables grown and consumed in the 

United States and one of the most popular in the world. Annual per capita consumption was 136.5 pounds in 2003, up from 104 pounds in 1962 and is increasing 

due to the advent of new products and heightened public awareness of the potato’s 

excellent nutritional value. Potatoes are considered a nutritious consumer commodity and an integral, delicious component of the American diet. 

The NPC’s fiscal year 2005 appropriations priorities are as follows: 

The NPC recognizes the difficult budget situation that the Congress is facing and 

has carefully targeted its fiscal year 2005 priorities. 

Potato Research 

Cooperative State Research Education and Extension Service (CSREES) 

The NPC supports an appropriation of $1.75 million for the Special Potato Grant 

program for fiscal year 2005. The Congress appropriated $1.417 million in fiscal 

year 2004, a decrease from the fiscal year 2003 level of $1.584 million. This has 

been a highly successful program and the number of funding requests from various 

potato-producing regions is increasing. 

—The NPC also urges that the Congress, once again, include Committee report 

language as follows: 
495 

—‘‘Potato research.—The Committee expects the Department to ensure that funds 

provided to CSREES for potato research are utilized for varietal development 

testing. Further, these funds are to be awarded competitively after review by 

the Potato Industry Working Group.’’ 

Agricultural Research Service (ARS) Report Language 

The NPC urges that the Congress once again add Committee report language urging the ARS to work with the NPC on how overall research funds can best be utilized for grower priorities. 

ARS–CSREES Overall Funding 

Congressionally Mandated Potato Research 

The NPC urges that the Congress reject the Administration’s budget request to 

rescind all fiscal year 2004 Congressional increases for research projects. 

Foreign Market Development 

Market Access Program (MAP) 

The NPC also urges that the Congress maintain the spending level for the Market 

Access Program (MAP) at its authorized level of $140 million for fiscal year 2005 

and not support the Administration’s budget request to cap this valuable export program at the fiscal year 2004 level of $125 million. 

Food Aid Programs 

McGovern Dole 

The Administration has requested $75 million for the McGovern-Dole Food International Food Aid Program. The Administration requested and the Congress provided $50 million in fiscal year 2004. The NPC supports an appropriation of at least 

$100 million in fiscal year 2005. 

Pest and Disease Management 

Animal and Plant Health Inspection Service (APHIS) 

Golden Nematode Quarantine.—The NPC supports $985,000 which is the Administration’s fiscal year 2005 budget request. The Congress appropriated $792,000 in 

fiscal year 2004. 

Pest Detection.—The NPC supports $45 million in fiscal year 2005, which is the 

Administration’s budget request. The Congress appropriated $24 million in fiscal 

year 2004. Now that the Agriculture Quarantine Inspection (AQI) program is within 

the new Homeland Security Agency, this increase is essential for the Plant Protection and Quarantine Service’s (PPQ) efforts against potato pests and diseases such 

as Ralstonia. 

Trade Issues Resolution and Management.—The NPC supports $16 million for this 

program which is the Administration’s budget request. The Congress appropriated 

$12.4 million in fiscal year 2004. However, language must be included that designates all or a part of such increase for plant protection and quarantine activities. 

As new trade agreements are negotiated, the agency must have the necessary staff 

and technology to detect and to deal with the threat of pests and diseases. The NPC 

relies heavily on APHIS–PPQ resources to resolve phytosanitary trade barriers. 

Funding Pest Eradication Programs.—The NPC supports having the Congress 

once again include language to prohibit the issuance of a final rule that shifts the 

costs of pest and disease eradication and control to the states and cooperators. 

Agricultural Statistics 

National Agricultural Statistics Service (NASS) 

The NPC supports sufficient funds and guiding language to assure that the potato 

objective yield and grade and size surveys are continued. The fiscal year 2004 Omnibus Bill included the following language:—‘‘The conferees also expect that both the 

potato objective yield survey and the potato size and grade survey will be continued.’’ 

PREPARED STATEMENT OF THE NATIONAL RURAL HOUSING COALITION

Mr. Chairman and members of the House Subcommittee on Agriculture, my name 

is Robert Rapoza and I am the executive secretary of the National Rural Housing 

Coalition. 

The National Rural Housing Coalition (the Coalition) has been a national voice 

for rural low-income housing and community development programs since 1969. 
496 

Through direct advocacy and policy research, the Coalition has worked with Congress and the Department of Agriculture to design new programs and improve existing programs serving the rural poor. The Coalition also promotes a non-profit delivery system for these programs, encouraging support for rural community assistance 

programs, farm labor housing grants, self-help housing grants, and rural capacity 

building funding. The Coalition is comprised of approximately 300 members nationwide. We hope to work with you to assure that the voices of rural America are heard 

and its needs met. Our concerns are focused on rural housing and rural water and 

sewer systems. 

A disproportionate amount of the Nation’s substandard housing is in rural areas. 

Rural households are poorer than urban households, pay more of their income for 

housing that their urban counterparts, and are less likely to receive governmentassisted mortgages. They also have limited access to mortgage credit and the secondary mortgage market, making them prime targets for predatory lending. Rural 

America needs programs that focus on the issues facing it. The Rural Housing Service of Rural Development provides many of these needed programs. 

According to the 2000 Census, there are 106 million housing units in the United 

States. Of that, 23 million, or 23 percent, are located in non-metro areas. Many nonmetro households lack the income for affordable housing. The 2000 Census reveals 

that 7.8 million of the non-metro population is poor, 5.5 million, or one-quarter of 

the non-metro population, face cost overburden, and 1.6 million of non-metro housing units are either moderately or severely substandard. 

Renters in rural areas are the worst housed individuals and families in the country. Thirty-five percent of rural renters are cost-burdened, paying more than 30 percent of their income for housing costs. Almost one million rural renter households 

suffer from multiple housing problems, 60 percent of whom pay more than 70 percent of their income for housing. The Section 515 rural rental housing loan program 

at USDA serves low and very-low income families with safe affordable housing. 

Although issues around rental housing are of vital concern, homeownership is the 

principal form of housing in rural America. However, there are a number of obstacles to improving homeownership in rural areas including high rates of poverty and 

poor quality of housing. According to a 1999 Economic Research Service report, the 

poverty rate in rural America was 15.9 percent, compared to 13.2 percent in urban 

areas. 

Rural residents also have limited access to mortgage credit. The consolidation of 

the banking industry that accelerated throughout the 1990s has had a significant 

impact on rural communities. Mergers among lending institutions have replaced 

local community lenders with large centralized institutions located in urban areas. 

Aside from shifting the locus of loan making, this has resulted in the diminishment 

of a competitive environment that, in the past, encouraged rural lenders to offer 

terms and conditions that were attractive to borrowers. 

RURAL HOUSING SERVICE

Rural Rental Housing Program 

Although we often talk about the surge in homeownership and all of its benefits, 

not all us are or are prepared to be homeowners. USDA’s Rural Housing Service 

Section 515 rural rental housing program is invaluable to low-income residents in 

rural areas. The portfolio contains 450,000 rented apartments in Section 515 developments. The delinquency rate is a low 1.6 percent. The average tenant income is 

little more than $9,000, which is equal to only 30 percent of the Nation’s rural median household income. Sixty percent of the tenants are elderly or disabled and onequarter are minority. 

The Federal Government’s current investment in rural rental housing is at its 

lowest level in more than 25 years. In fact, last year and this year the Administration’s budget included no funding for rural rental housing production. Over the last 

15 years, Congress and Administrations of both parties have engaged in unwise 

budget cutting of rural rental housing. Lending has declined from over $500 million 

a year in 1994 to $114 million in fiscal year 2003 and 2004. As a result, there is 

little production of new rental housing in rural areas. 

As Congress considers future policy for rural housing, it faces two challenges regarding rural rental housing. The first is to maintain the existing stock of Section 

515 units. The second is to increase the production of affordable rental housing 

units in rural communities. The current portfolio of Section 515 units represents an 

important resource to low-income families in rural America. At a time of declining 

Federal resources for rental housing, it is hard to envision a time in which Federal 

policy will finance the development of a large number of rental housing developments. It is important to preserve the existing stock. 
497 

RHS is facing an aging Section 515 portfolio. Of the 17,000 developments across 

the country, close to 10,000 are more than 20 years old. To maintain those projects, 

it will take an investment of Federal funds for restoration. That appears to be the 

focus of the Administration’s request for $60 million for servicing the existing portfolio. 

The Housing Act of 1987 regulated rural rental housing principally financed 

under Section 515. This legislation placed a low-income use restriction on Section 

515 and also established financial incentives to owners to maintain their properties 

for low-income housing. In general, at the end of the initial 20-year use restriction, 

an owner could seek an incentive to extend long-term low-income use, or sell the 

project to a nonprofit organization or public body that would operate the housing 

for low-income use. 

A principal source of financing for incentives was the Section 515 and the use of 

these funds for equity loans authorized under Section 515. Roughly two-thirds of the 

Section 515 portfolio is regulated under the 1987 Act. The lack of adequate funding 

for incentives has raised a great concern among the owners. For the most part, the 

law limits their options of seeking incentives or selling to a nonprofit organization 

or public body. The demand for incentives is estimated at approximately $100 million for equity loans alone. But cuts in Section 515 have limited the ability of the 

USDA to implement a good preservation program. However, as Congress and the 

Administration reduced funding for Section 515, USDA reduced preservation funding to only about $5 million per year. 

Section 521 rental assistance is used in conjunction with Section 515 to help families who cannot afford even their reduced rent. In recent years, mostly in response 

to an escalating number of expiring contracts, appropriations for rental assistance 

have gone up. 

In the fiscal year 2004 appropriations conference report and the fiscal year 2005 

budget Congress and the Administration have reduced the term on expiring rental 

assistance contracts from 5 years to 4 years. One possible result of this is to pile 

larger appropriations for rental assistance to the out years. 

This policy may solve a short term budget need but does not address the need 

for rental assistance for the 90,000 low income households living in section 515 

units paying more than 30 percent of income for rent. It also does not provide any 

assistance for the few newly constructed units financed under section 515. 

We urge the Committee to provide at least $250 million for section 515 loans and 

allocate at least $100 million of that amount for preservation and rehabilitation of 

rural rental housing. We also urge the Committee to restore rental assistance contracts to 5 years and restore funding that is adequate to meet the needs of preservation and new construction commitments contained in the appropriation of $250 million for section 515. 

Section 502 Single Family Direct Loan Program 

In recent years, the major trend in rural housing has been to guarantee home 

ownership loans. The fiscal year 2005 level for guarantees is approximately $2.75 

billion. This program serves families with incomes at 125 percent of median, substantially higher than that of direct loans. 

To qualify for the direct loan program, borrowers must have very low or low incomes but be able to afford mortgage payments. Also, applicants must be unable to 

obtain credit elsewhere, yet have reasonable credit histories. The average income of 

households assisted under Section 502 is $18,500. About 3 percent of households 

have annual incomes of less than $10,000. Since its inception, Section 502 has provided loans to almost 2 million families. 

Under Section 502 home ownership, the current loan level totals $1.367 billion. 

This will provide subsidized, direct loan financing for about 15,000 units. Under this 

program, families receive a subsidized loan for a period of 33 years. There is unprecedented demand for section 502 direct loans in 2003; RHS closed 13,222 loans totaling $1.037 billion. However, at the end of the fiscal year the agency had on hand 

over 33,000 applications from qualified families totaling over $2.5 billion. 

The fiscal year 2004 lending level for Section 502 direct loans is $1.366 billion, 

the largest in several years. These additional funds are important in the Administration effort to improve minority home ownership. However, this higher level will 

only address about 50 percent of the demand on hand in RHS offices across the 

country. 

The fiscal year 2005 request reduces section 502 lending to $1.1 billion, a reduction of over $250 million. This cut is due to an increase in subsidy rates without 

a corresponding increase in section 502 direct budget authority. 

The section 502 program is an extremely low cost program. For Direct 502, USDA 

will finance about 15,300 for a budget authority cost of $8,170 per unit. 
498 

We urge the Committee to restore section 502 to loans to the current rate $1.367 

million. 

Non-Profit Organizations 

With dramatic program reductions and continued strength in the Nation’s real estate market, the private sector delivery system is no longer dominant as it was 

when funding levels were higher, and in many rural communities does not even 

exist. In some rural areas, non-profits have picked up the slack and pursued a multiple funding strategy. Skilled local organizations meld Federal, State, local and private resources together to provide affordable financing packages to low-income families. But there is not a dedicated source of Federal support to promote a non-profit 

delivery system for rural housing. 

As one way to improve its programs, USDA has expanded its cooperation with 

non-profit housing and community development organizations. Two successful programs are Mutual and Self-Help Housing and the Rural Community Development 

Initiative. 

Under Mutual and Self-Help Housing, with the assistance of local housing agencies, groups of families eligible for Section 502 loans perform approximately 65 percent of the construction labor on each other’s homes under qualified supervision. 

This program, which has received growing support because of its proven model, has 

existed since 1961. The average number of homes built in each year over the past 

3 years has been approximately 1,500. The budget request is for $34 million. We 

support this request. 

The Rural Community Development Initiative (RCDI) program enhances the capacity of rural organizations to develop and manage low-income housing, community 

facilities, and economic development projects. These funds are designated to provide 

technical support, enhance staffing capacity, and provide pre-development assistance—including site acquisition and development. RCDI provides rural community 

development organizations with some of the resources necessary to plan, develop, 

and manage community development projects. Using dollar-for-dollar matching 

funds and technical assistance from 19 intermediary organizations, some $12 million in capacity building funds were distributed to 240 communities. This valuable 

program is also at risk in the budget request this year—it has been eliminated. For 

fiscal year 2005, we recommend $6 million for the Rural Community Development 

Initiative to continue level funding for fiscal year 2002. 

Farm Labor Housing 

Two additional rental housing programs specifically address the needs of farm laborers. Migrant and seasonal farmworkers are some of the Nation’s most poorly 

housed populations. The last documented national study indicated a shortage of 

some 800,000 units of affordable housing for farmworkers. 

Farmworker households are also some of the least assisted households in the Nation. Some 52 percent of farmworker households’ incomes are below the poverty 

threshold, four times the national household poverty rate, and 75 percent of migrant 

farmworkers have incomes below the poverty line. Yet little more than 20 percent 

of farmworker households receive public assistance; most commonly food stamps, 

rarely public or subsidized housing. 

There are only two Federal housing programs that specifically target farmworkers 

and their housing needs: Sections 514 and 516 of the Housing Act of 1949 (as 

amended). Borrowers and grantees under Rural Housing Service Sections 514 and 

516 receive financing to develop housing for farmworkers. Section 514 authorizes 

the Rural Housing Service to make loans with terms of up to 33 years and interest 

rates as low as 1 percent. Section 516 authorizes RHS to provide grant funding 

when the applicant will provide at least 10 percent of the total development cost 

from its own resources or through a 514 loan. 

Non-profit housing organizations and public bodies use the loan and grant funds, 

along with RHS rural rental assistance, to provide units affordable to eligible farmworkers. These funds are used to plan and develop housing and related facilities for 

migrant and seasonal farmworkers. 

Rural Utility Service 

Hundreds of rural communities nationwide do not have access to clean drinking 

water and safe waste disposal systems. According to the 2000 Census, approximately 1.9 million people lack indoor plumbing and basic sanitation services, including potable water and sewer. According to 1999 EPA Safe Drinking Water Needs 

Survey, $48 billion will be required over the next 20 years to ensure that communities under 10,000 have safe drinking water supplies. According to EPA’s 2000 

Clean Water Needs Survey $16 billion is required over the next 20 years to provide 

wastewater treatment facilities communities under 10,000, and over 19,000 waste-
499 

water facilities will be needed for these communities. In all, small communities will 

need to identify some $64 billion in order to meet their water and wastewater needs. 

Many projects that the Rural Utilities Service funds are under consent order from 

the state EPA office for immediate action. The problems that the agency deals with 

range from communities and systems that are out of compliance with health and 

pollution standards, to communities without sewer systems where raw sewage runs 

in ditches after a heavy rainfall. Because so much time and money are spent on critical needs, the state offices spend less time on prevention. The programs and communities do not have enough resources to address issues before they become larger 

problems. 

The issue of affordability moves to the forefront with waste disposal systems, 

which are generally more expensive than water systems. Waste systems naturally 

succeed water systems—with central water comes indoor plumbing, washing machines, dishwashers, etc., all of which eventually require an efficient wastewater disposal system. Low-income communities often already pay as much as they can afford for water service alone and are unable to manage the combined user fees for 

water and waste. According to EPA data, ratepayers of small rural systems are 

charged up to four times as much per household as ratepayers of larger systems. 

In some extreme situations, some households are being forced out of homeownership 

because they cannot afford rising user costs. 

Small water and wastewater systems lack the economies of scale needed to reduce 

costs on their own. In order for communities to cut back on project costs and have 

affordable rates, operation and maintenance are typically underestimated in the 

budgets for many new systems. This often results in limited or no capital improvement accounts for future upgrades and expansions needed for community development including stabilization of local small business, affordable housing development, 

and other needed industrial development. 

USDA’s Rural Utilities Service (RUS) is the primary Federal force in rural water 

and waste development, providing loans and grants to low-income communities in 

rural areas. The agency assists low-income rural communities that would not otherwise be able to afford such services. Nearly all the communities RUS served last 

year had median household income below that state non-metro median household 

income. 

In providing these important services, the program also protects public health and 

promotes community stabilization and development. Aging municipal sewage systems alone are responsible for 40,000 overflows of raw sewage each year. The overflows cause health hazards including gastrointestinal problems and nausea, as well 

as long-term damage to the environment. Businesses and industries are unable or 

reluctant to locate in areas without functioning water and sewer systems. But with 

the assistance of RUS, communities are able to have the services they need so that 

their health and economies may benefit. 

Through Federal and State initiatives, RUS is working to confront the challenges 

faced by rural communities. With increasingly restricted time and money, state offices are using other resources such as leveraged funds and technical assistance 

from the Rural Community Assistance Program (RCAP). Funds are being leveraged 

through HUD’s Community Development Block Grant program and the EPA’s State 

Revolving Loan Funds, as well as some private lenders. RCAP provided services to 

over 2000 communities last year in 50 States, including Puerto Rico and leveraged 

over $200,000,000 in additional funding for water and wastewater infrastructure 

projects in the communities served. The RCAP program has proven to be an effective and efficient way of ensuring that small rural communities receive the information, technical assistance, and training needed to provide for the water and waste 

disposal needs of their residents. 

We urge the Committee to restore funding to the fiscal year 2004 rate. 

Other Federal Agencies 

Other Federal agencies have not picked up the slack in providing assistance for 

rural areas. Rural households have limited access to mortgage credit and the secondary mortgage market. Rural households are less likely to receive governmentassisted mortgages than their urban counterparts. According to the 1995 American 

Housing Survey, only 14.6 percent of non-metro residents versus 24 percent of metro 

residents receive Federal assistance. Moreover, poor rural renters do not fair as well 

as poor urban renters in accessing existing programs. Only 17 percent of very lowincome rural renters receive housing subsidies, and, overall, only 12 percent of HUD 

Section 8 assistance goes to rural areas. Only 7 percent of Federal Housing Administration (FHA) assistance goes to non-metro areas. On a per-capita basis, rural 

counties fared worse with FHA, receiving only $25 per capita versus $264 per capita 

in metro areas. Programs such as HOME, CDBG and FHA may have the intention 
500 

of serving rural areas, but fail to do so to the appropriate extent. One of the few 

programs at HUD targeted to rural areas is the Rural Housing and Economic Development (RHED) program. The budget proposes to eliminate the program. 

Mr. Chairman and members of the Committee, we look to you for continued support of the efforts of Rural Development. These programs are vital to the survival 

of our small communities nationwide. They address the most basic needs of affordable housing and clean water that still exist all over the country. 

We appreciate your past support and your attention to this matter. 

PREPARED STATEMENT OF THE NATIONAL RURAL TELECOM ASSOCIATION

SUMMARY OF TESTIMONY REQUESTS

Project involved: Telecommunications lending programs administered by the 

Rural Utilities Service of the U.S. Department of Agriculture 

Actions proposed: 

—Supporting loan levels for fiscal year 2005 in the amounts requested in the 

President’s budget for 5 percent direct, cost of-money and guaranteed loans and 

the associated subsidy, if required, to fund those programs at the requested levels. Supporting Rural Telephone Bank loans in the same amount, as contained 

in the fiscal year 2004 Agriculture Appropriations Act. Opposing the budget recommendation to not fund new Rural Telephone Bank loans in fiscal year 2005. 

—Supporting continued funding, as requested in the President’s budget, in the amount of $25 million in grant authority designated for distance learning and 

medical link purposes. —Supporting the budget request for $331 million in direct loans for broadband 

facilities and internet service access provided through discretionary funding. 

—Supporting elimination of the restriction on retirement of Rural Telephone 

Bank Class A stock, as requested in the President’s budget. Supporting an extension of the prohibition against the transfer of Rural Telephone Bank excess 

funds to the general fund as well as the requirement that Treasury pay interest 

on all Bank funds deposited with it. Opposing the proposal contained in the 

budget to transfer funds from the unobligated balances of the liquidating account of the Rural Telephone Bank for the bank’s administrative expenses. 

Mr. Chairman, Members of the Committee: My name is John F. O’Neal. I am 

General Counsel of the National Rural Telecom Association. NRTA is comprised of 

commercial telephone companies that borrow their capital needs from the Rural 

Utilities Service of the U.S. Department of Agriculture (RUS) to furnish and improve telephone service in rural areas. Approximately 1000, or 71 percent of the nation’s local telephone systems borrow from RUS. About three-fourths of these are 

commercial telephone companies. RUS borrowers serve almost 6 million subscribers 

in 46 states and employ over 22,000 people. In accepting loan funds, borrowers assume an obligation under the act to serve the widest practical number of rural users 

within their service area. 

Program Background 

Rural telephone systems have an ongoing need for long-term, fixed rate capital 

at affordable interest rates. Since 1949, that capital has been provided through telecommunications lending programs administered by the Rural Utilities Service and 

its predecessor, the Rural Electrification Agency (REA). 

RUS loans are made exclusively for capital improvements and loan funds are segregated from borrower operating revenues. Loans are not made to fund operating 

revenues or profits of the borrower system. There is a proscription in the Act 

against loans duplicating existing facilities that provide adequate service and state 

authority to regulate telephone service is expressly preserved under the Rural Electrification Act. 

Rural telephone systems operate at a severe geographical handicap when compared with other telephone companies. While almost 6 million rural telephone subscribers receive telephone service from RUS borrower systems, they account for only 

four percent of total U.S. subscribers. On the other hand, borrower service territories total 37 percent of the land area—nearly 1.5 million square miles. RUS borrowers average about 6 subscribers per mile of telephone line and have an average 

of more than 1,000 route miles of lines in their systems. 

Because of low-density and the inherent high cost of serving these areas, Congress 

made longterm, fixed rate loans available at reasonable rates of interest to assure 

that rural telephone subscribers, the ultimate beneficiaries of these programs, have 

comparable telephone service with their urban counterparts at affordable subscriber 

rates. This principle is especially valid today as the United States endeavors to de-
501 

ploy broadband technology and as customers and regulators constantly demand improved and enhanced services. At the same time, the underlying statutory authority 

governing the current program has undergone significant change. In 1993, telecommunications lending was refocused toward facilities modernization. Much of the 

subsidy cost has been eliminated from the program. In fact, most telecommunications lending programs now generate revenue for the government. The subsidy 

that remains has been targeted to the highest cost, lowest density systems in accordance with this administration’s stated objectives. 

We are proud to state once again for the record that there has never been a default in the RUS/REA telephone program! All loans have been repaid in accordance 

with their terms, over $11 billion in principal and interest at the end of the last 

fiscal year. 

Need for RUS Telecommunications Lending Continues 

The need for rural telecommunications lending is great today, possibly even greater than in the past. Technological advances make it imperative that rural telephone 

companies upgrade their systems to keep pace with improvements and provide the 

latest available technology to their subscribers. And 2 years ago, Congress established a national policy initiative mandating access to broadband for rural areas. 

But rapid technological changes and the inherently higher costs to serve rural areas 

have not abated, and targeted support remains essential. 

Competition among telephone systems and other technological platforms has increased pressures to shift more costs onto rural ratepayers. These shifts led to increases in both interstate subscriber line charges and universal service surcharges 

on end users to recover the costs of interstate providers’ assessments to fund the 

Federal mechanisms. Pressures to recover more of the higher costs of rural service 

from rural customers to compete in urban markets will further burden rural consumers. There is a growing funding crisis for the statutory safeguards adopted in 

1996 to ensure that rates, services and network development in rural America will 

be reasonably comparable to urban telecommunications opportunities. 

The FCC and the states have yet to honor the balance Congress achieved in the 

1996 policy, as regulators (a) radically revise the mechanisms for preserving and advancing universal service, (b) interpret the Act’s different urban and rural rules for 

how incumbent universal service providers and their competitors connect their networks and compensate each other (c) respond to pressures to deregulate. Regulators 

continue to give new entrants advantages at the expense of statutory universal service provisions. The FCC appears to remain committed to further extending its wholly inadequate way to measure the costs of modern, nationwide access to telecommunications and information. The FCC needs to reorder its priorities to ensure 

that rural Americans are not denied the ongoing network development and new 

services the Act requires. 

Expanded Congressional Mandates for Rural Telecommunications 

Considerable loan demand is being generated because of additional mandates for 

enhanced rural telecommunications standards contained in the authorizing legislation. We are, therefore, recommending the following loan levels for fiscal year 2005 

and the appropriation of the associated subsidy costs, if required, to support these 

levels: 

5 percent Direct Loans ........................................................................................................................................ $145,000,000 

Cost-of-Money Loans ............................................................................................................................................ 250,000,000 

Guaranteed Loans ................................................................................................................................................ 100,000,000 

Rural Telephone Bank Loans ............................................................................................................................... 175,000,000 

Total ........................................................................................................................................................ 670,000,000 

These are essentially the same levels established in the fiscal year 2004 appropriations act for the 5 percent direct, cost-of-money and Rural Telephone Bank loan 

programs and the same amounts for 5 percent direct, cost-of-money and guaranteed 

loans as requested in the President’s budget for fiscal year 2005. The authorized levels of loans in each of these programs were substantially obligated in fiscal year 

2003 and the administration estimates that authorized program levels will be fully 

met in fiscal year 2004. We believe that the needs of this program balanced with 

the minimal cost to the taxpayer make the case for its continuation at the stated 

levels. 
502 

Rural Telephone Bank Loans 

The administration again proposes to not fund new Rural Telephone Bank (RTB) 

loans in fiscal year 2005. 

The Rural Telephone Bank was established by Congress in 1971 to provide supplemental financing for rural telephone systems with the objective that the bank ultimately would be owned and operated by its private shareholders. Privatization of 

the RTB began in 1995 under the current law and the retirement of Class A government stock is proceeding annually at the rate of approximately $25 million per year. 

The Bank has now retired over 32 percent of the government’s $592 million investment, leaving a current balance of $400 million. As pointed out in our testimony 

in previous years, not funding new loans in the next fiscal year could actually impede privatization of the Bank since the law requires that the Bank annually retire 

government stock at the rate of at least 5 percent of the amount of Class B stock 

sold in connection with new loans. If no new loans were made, there would be no 

minimum requirement for retirement of additional government stock. We are supporting the administration request to eliminate the 5 percent annual restriction on 

the retirement of government stock giving it additional flexibility to accelerate privatization of the bank. No additional incentives are necessary. In the meantime, 

while the administration develops a comprehensive plan for bank privatization, we 

believe the direct loan program should continue, at existing levels, without disruption. 

The current loan level of $175 million has remained the same for many years. As 

a matter of fact, after factoring in the eroding effect of inflation, loan levels over 

the years have actually been reduced systematically. Despite this fact, we believe 

that the $175 million level is adequate to meet current program needs and strikes 

a cost effective balance for the taxpayer. If no bank loans were made in fiscal year 

2005, the budgetary outlay savings would be minimal because RTB loans are funded 

over a multi-year period. Moreover, if administration interest rate predictions are 

accurate, RTB loans will generate revenue for the government because of the minimum statutory interest rate of 5 percent! 

Broadband Loans Under the 2002 Farm Act (Public Law 101–171) 

The administration is recommending again this year that the mandatory funding 

of loans for the deployment of broadband technology in rural areas provided in the 

recent farm act in the amount of $20 million (new section 601(j)(1)(A) of the Rural 

Electrification Act of 1936) be rescinded in fiscal year 2005 and in its place the 

budget requests $9.9 million in new discretionary authority for these purposes. 

Given the fact that the program is operating in fiscal year 2004 with carry over balances from mandatory authority of $38.8 million and discretionary authority of $13 

million, providing $2.2 billion in loan levels in fiscal year 2004, we do not object to 

this reduction for next year. We are, therefore, supporting the administration’s 

budget request of $9.9 million for this program that will provide approximately $331 

million in loan levels for fiscal year 2005. 

Specific Additional Requests 

—Eliminate the Restriction on Retirement of Class A Government Stock in the 

Rural Telephone Bank (RTB) but Continue the Prohibition Against Transfer of 

RTB Funds to the General Fund and Require the Payment of Interest by Treasury 

The Administration has recommended in the budget that the 5 percent annual 

statutory restriction on the retirement of Class A government stock in the Rural 

Telephone Bank be eliminated. The association supports that proposal. However, we 

urge the Committee in the general provisions of the bill to continue the prohibition 

against the transfer of any unobligated balance in the bank’s liquidating account, 

in excess of current requirements, to the general fund of the Treasury along with 

the requirement that the bank receive interest on those deposited funds. The private 

Class B and C stockholders of the Rural Telephone Bank have a vested ownership 

interest in all assets of the bank including its funds and Congress should assure 

that their rights are protected. Previous appropriations acts (fiscal years 1997 

through 2004) have recognized the ownership rights of the private Class B and C 

stockholders of the bank by prohibiting a similar transfer of the bank’s excess unobligated balances which otherwise would have been required under the Federal credit 

reform act. 

The current statutory provision, also contained in previous years’ appropriations 

acts, that requires Treasury to pay interest on bank funds deposited with it should 

be continued in fiscal year 2005 in the same general provision of the bill. 

—Reject Budget Proposal to Transfer Funds from RTB Liquidating Account for 

Administrative Costs 
503 

The President’s budget proposes that the bank assume responsibility for its administrative costs by a transfer of funds from the unobligated balances of the bank’s 

liquidating account rather than through an appropriation from the general fund of 

the Treasury. This recommendation is contrary to the specific language of Sec. 

403(b) of the RTB enabling act and would require enactment of new authorizing legislation as a prerequisite to an appropriation. It would not result in budgetary savings and has been specifically rejected by this Committee in previous years. No new 

justification is contained in this year’s budget and once again we request its rejection. 

—Loans and Grants for Telemedicine, Distance Learning and Internet Access 

We support the continuation in fiscal year 2005 of the $25 million in grant authority provided in the President’s budget for medical link and distance learning 

purposes. The purpose of these grants is to accelerate deployment of telemedicine 

and distance learning technologies in rural areas through the use of telecommunications, computer networks, and related advanced technologies by students, teachers, medical professionals, and rural residents. 

Conclusion 

Thank you for the opportunity to present the association’s views concerning this 

vital program. The telecommunications lending programs of RUS continue to work 

effectively and accomplish the objectives established by Congress at a minimal cost 

to the taxpayer. 

PREPARED STATEMENT OF THE NATIONAL TELECOMMUNICATIONS COOPERATIVE

ASSOCIATION

SUMMARY

NTCA makes the following fiscal year 2005 funding recommendations with regard 

to the Rural Utilities Service Telecommunications Loan Program and related programs. 

—Support the provisions of the President’s budget proposal calling for the required subsidy to fully fund the RUS Telecommunications Loan Program’s 

Hardship Account at a $145 million level, Cost of Money Account at a $250 million level, and the Guaranteed Account at a $120 million level. 

—Reject the provisions of the President’s budget proposal calling for zero funding 

for the Rural Telephone Bank (RTB). Instead, provide the required subsidy to 

fully fund the bank at last fiscal year’s $175 million level. 

—Support an extension of language that temporarily sets aside the 7 percent interest rate cap on loans made through the RUS Cost of Money fund. 

—Support an extension of the restriction against RTB Liquidating Account funds 

from being transferred into the general Treasury. 

—Support an extension of language prohibiting the expenditure of RTB Liquidating Account funds to provide for the subsidy or operational expenses of the 

bank. 

—Reject the provisions of the President’s budget proposal calling for funding the 

Rural Broadband Access Loan and Loan Guarantee Program to be funded 

through discretionary funding and instead funded at a level consistent with authorizing language and reject efforts to sweep carryover balances. 

—Support the provision of the President’s budget funding Distance Learning and 

Telemedicine Grants. 

—Preserve RBCS Rural Development Grant and Loan Programs as well as the 

Rural Economic Development Loan and Grant Program. 

BACKGROUND

NTCA is a national association representing more than 560 small, rural, cooperative and commercial, community-based local exchange carriers (LECS) located 

throughout the Nation. These locally owned and operated LECS provide local exchange service to more than 2.5 million rural Americans. While serving close to 40 

percent of the geographic United States, NTCA members serve only 4 percent of the 

country’s access lines. Since the creation of the RUS Telecommunications Loan Program, more than 80 percent of NTCA’s member systems have been able to utilize 

the Federal program to one degree or another. 

NTCA’s members, like most of the country’s independent LECS, evolved to serve 

high-cost rural areas of the Nation that were overlooked by the industry’s giants as 

unprofitable. On average, NTCA members have approximately 6 subscribers per 

mile of infrastructure line, compared with 130 for the larger urban-oriented LECs. 
504 

This results in an average plant investment per subscriber that is 38 percent higher 

for NTCA members compared to most other systems. 

Congress recognized the unique financing dilemma confronting America’s small 

rural LECS as early as 1949, when Congress amended the Rural Electrification Act 

(REA) to create the Rural Electrification Administration Telephone Loan Program. 

Today, this program is known as the RUS Telecommunications Loan Program. 

Through the years Congress has periodically amended the REA to ensure that original mission—to furnish and improve rural telephone service—was met. In 1971, the 

Rural Telephone Bank (RTB) was created to as a supplemental source of direct loan 

financing. In 1973, the RUS was provided with the ability to guarantee Federal Financing Bank (FFB) and private lender notes. In 1993, Congress established a 

fourth lending program—the Treasury Cost of Money account. In 2002, Congress 

again met the changing demands of the telecommunications industry with the establishment of the Rural Broadband Access Loan and Loan Guarantee Program. 

RUS HELPS MEET INFRASTRUCTURE DEMANDS

While the RUS has helped the subscribers of NTCA’s member systems receive 

service that is comparable or superior to that available anywhere in the Nation, 

their work is far from complete. As the Telecommunications Act of 1996 and other 

Federal policies continue to evolve, and as policymakers and the public alike continue to clamor for the deployment of advanced telecommunications services, the 

high costs associated with providing modern telecommunications services in rural 

areas will not diminish. 

RUS telecommunications lending has stimulated billions of dollars in private capital investment in rural communications infrastructure. In recent years, on average, 

less than a few million in Federal subsidy has effectively generated $690 million in 

Federal loans and guarantees. For every $1 Federal funds that was invested in 

rural communications infrastructure, $4.50 in private funds was invested. 

In addition, two other RUS-related programs are making a difference in rural 

America. Formerly known as the Zero Interest Loan and Grant Program, the Rural 

Economic Development Grants Programs, and the Rural Economic Development 

Loans Programs are now managed by the Rural Business Cooperative Service. The 

two programs provide funds for the purpose of promoting rural economic development and job creation projects, including for feasibility studies, start-up costs, incubator projects and other expenses tied to rural development. 

NTCA’S FISCAL YEAR 2005 APPROPRIATIONS RECOMMENDATIONS

Fully Fund The Entire RUS Telecommunications Loan Program 

It is imperative that the entire RUS Telecommunications Loan Program be funded 

at the following levels: 

Hardship Account ................................................................................................................................................. $145,000,000 

Cost of Money/Treasury Account .......................................................................................................................... 250,000,000 

Guaranteed Account ............................................................................................................................................. 120,000,000 

Rural Telephone Bank Account ............................................................................................................................ 175,000,000 

Included in the Farm Bill (Public Law 107–171) was authorization of the Rural 

Broadband Access Loan and Loan Guarantee program. Built upon a record of strong 

demand during its pilot status, congressional language was explicit in its intent to 

assist in broadband deployment in the smallest and most rural communities in the 

United States. In 2003, USDA and RUS officials unveiled the regulations and were 

able make available $1.4 billion in loans (fiscal year 2002 and 2003 funds). An appropriate level of funding must be maintained in this program to meet the continually growing needs of advanced telecommunications services across the United 

States. 

Additionally, to support the operations of the RUS, it is critical that Congress provide at least $41.562 million in administrative appropriations the president’s budget 

proposal envisions. 

Reject the President’s Proposal To Provide Zero RTB Funding 

The president’s budget contains a proposal recommending the Rural Telephone 

Bank should not be funded in fiscal year 2005. In presenting last year’s budget, the 

administration stated that the RTB had outgrown its need and usefulness. NTCA 

adamantly disagrees as the demand for advanced telecommunications services continues to grow and our members continue to meet this demand. To this end, we believe the president’s decision to zero out funding for the RTB is without merit. 
505 

NTCA remains committed to privatization and this transition to a private entity 

will require legislative changes to the Rural Electrification Act. NTCA believes this 

should occur with minimal disruptions to existing capital markets. In light of this 

fact, as well Congress’ decision to reject the president’s previous proposal to zero out 

RTB funding, we urge Congress to again reject this ill-conceived proposal and instead fully fund the bank at its regular $175 million annual level. 

Extend Removal Of the Interest Rate Cap On Treasury-Rate Loans. 

NTCA is also requesting that Congress again include language removing the 7 

percent interest rate cap on Treasury-rate loans. This provision has been included 

in recent appropriations measures to prevent the potential disruption of the program in the case where interest rates exceed 7 percent and insufficient subsidy cannot support authorized lending levels. 

Prohibit The Transfer Of Unobligated RTB Liquidating Account Balances 

NTCA also recommends that Congress continue the prohibition against the transfer of any unobligated balances of the Rural Telephone Bank liquidating account to 

the general fund of the Treasury. This language has routinely been included in annual appropriations measures since the enactment of the Federal Credit Reform Act 

(FCRA, Public Law 101–508) that allows such transfers to potentially occur. Restatement of this language will ensure that the RTB’s private class B & class C 

stockholders are not stripped of the value of their statutorily mandated investment 

in the Bank. 

While USDA has worked with the industry to ensure an RTB privatization that 

does not harm the rural telecommunications sector, NTCA remains concerned about 

the Office of Management and Budget and the Department of Treasury. The industry is well aware of the difficulties that have occurred as part of the joint USDAOMB-Treasury Privatization Task Force. NTCA remains extremely skeptical of 

OMB and Treasury’s good faith efforts and has worked very closely with the RTB 

Directors and the RUS Administrator through the privatization process. We believe 

that OMB and Treasury have yet to fully engage on the issue of privatization and 

work with USDA. For these reasons, we believe language extending the prohibition 

of more than 5 percent of Class A stock to be retired, must be included. 

Prohibit RTB From Self Funding Subsidy and Administrative Costs 

NTCA urges Congress to maintain its prohibition against unobligated RTB Liquidating Account Balances being used to cover the bank’s administrative and operational expenses for the following reasons: (1) such action would require amending 

the REA, (2) the proposal appears to be in conflict with the intent of the FCRA, (3) 

the proposal will not result in Federal budgetary savings, (4) it is unnecessary to 

the determination of whether the bank could operate independently, and thus would 

amount to wasting the resources of the bank which could be put to better use upon 

its complete privatization. 

Reject the President’s Proposal to fund the Rural Broadband Access Loan and Loan 

Guarantee Program through discretionary funding and reject efforts to sweep 

carryover balances 

Acting on the tremendous demand for advanced rural telecommunications, the 

Congress authorized the Rural Broadband program as part of the 2002 Farm Bill 

and provided for $100 million for the program until 2007. The mandate from Congress was to provide loans to the most underserved areas of rural America. Since 

enactment, RUS has received over $1 billion in loan applications and has struggled 

to approve loans and meet the demand. Accordingly, we believe the President’s proposal to sweep carryover balances do not recognize the current demand for funding 

and is NTCA believes the President’s budget request to cancel the $20 million in 

mandatory funding, and instead fund through discretionary spending, should be rejected and the Rural Broadband Access Loan and Loan Guarantee Program should 

be funded consistent with congressional authorization. 

NTCA’s annual member survey shows our members are offering broadband (200 

kbps) to 70 percent of their customer base, members have expressed interest in 

using the Broadband program to augment broadband availability to their ‘‘last mile’’ 

customers. While we are concerned about the number of loans approved by RUS, 

NTCA believes that calls for statutory or regulatory changes are extremely premature. 

Support the President’s request for Distance Learning and Telemedicine grants 

The DLT grant program has had tremendous success in rural America and NTCA 

believes such grants add to NTCA members long standing efforts to their local communities. For NTCA’s 50 years, our members have utilized the Rural Utilities Serv-
506 

ice to provide basic telephone service, advanced telecommunications services, and 

economic development to rural America. Our members have also been prudent stewards of the taxpayer funds and are extremely concerned about the loan defaults 

within the DLT Loan program. While extremely well-intended, the DLT Loan program has yet to live up to the high level of expectations envisioned by Congress. 

Consistently, DLT Loan levels falling significantly short of authorized loan levels. 

NTCA believes that overwhelmingly those entities interested in the DLT program, 

lack the legal authority to secure loans and are dependant upon grants. NTCA believes such taxpayer’s funds could be better spent in rural America. 

Preserve RBCS Rural Development Grant and Loan Programs as well as the Rural 

Economic Development Loan and Grant Program 

These loans and grants, which are administered at the local level by rural telephone and electric systems, help fund economic and community development—business expansion and start-up, community facilities, schools and hospitals, emergency 

vehicles, etc.—in some of the most rural areas of the country. Our member companies have used a variety of these programs to further their economic commitment 

to the community and we are extremely supportive of these programs and Congress 

to ensure adequate funding is at levels that meets the expandingdemand for the 

programs. 

CONCLUSION

The RUS Telecommunications Loan Program bears a proud record of commitment, 

service and achievement to rural America. Never in its entire history has the program lost a dollar to abuse or default—unparalleled feat for any government-sponsored lending program. Cleary such a successful program should remain in place to 

continue ensuring rural Americans have the opportunity to play a leading role in 

the information age in which we live. After all, an operational and advanced rural 

segment of the Nation’s telecommunications infrastructure is critical to truly ensuring that the national objective of universal telecommunications service is fulfilled. 

We look forward to working with you to accomplish this objective. 

PREPARED STATEMENT OF THE NATIONAL TREASURY EMPLOYEES UNION

Mr. Chairman, Senator Byrd, and Members of the Subcommittee, I am pleased 

to present the testimony of the National Treasury Employees Union (NTEU) concerning the fiscal year 2005 appropriation for the Food and Drug Administration 

(FDA). 

NTEU represents more than 150,000 Federal employees across the Federal Government, including the employees who work at the Food and Drug Administration. 

I want to thank you for giving me the opportunity to present testimony on behalf 

of these dedicated men and women who work to ensure the safety of our food, drugs, 

cosmetics, and medical devices. It has been the FDA employees, day in and day out, 

who have responded to the call of the American people to ensure that our food supply is safe and that more effective drugs and medical products are brought to consumers quickly. In fact, the FDA regulates more than $1 trillion worth of products 

that account for about 25 cents out of every dollar of American consumer spending. 

The FDA is staffed with experts in an extraordinary range of fields. Microbiologists, 

chemists, consumer safety officers, and others are working around the clock testing, 

approving, and regulating new drugs, robotics, and other medical devices, that will 

not only improve the health conditions for millions of Americans, but in many cases 

actually save lives. They are working to ensure that the food we eat is safe and free 

of disease-causing contaminants, and working to ensure that new food products, 

food additives, and dietary supplements pose no threat to our health. 

And the FDA employees who work in the field offices and laboratories located 

throughout the country have developed valuable working relationships with top scientists, health officials, and local industries. These employees help protect consumers from mislabeled foods, food borne diseases, defective medical devices, or unsafe cosmetics or drugs. And they work very closely with Customs, USDA, and others at our borders and ports, to inspect and test imported foods and drugs. 

FDA would be one of the last parts of government where one would want to hire 

employees on the cheap. When I talk with our NTEU members at FDA, I am 

amazed not only at the professionalism and extraordinary talent and quality of 

these employees, but their commitment to public service. Scientists, chemists, and 

professionals of every sort tell me that they prefer working in public service. However, they also tell me that if forced to choose between public service or, for example, being able to send their children to college, they would reluctantly feel forced 
507 

to accept a position in the private sector in order to obtain such legitimate desires. 

I know this Subcommittee has the wisdom to see that FDA remain the employer 

of choice for dedicated, trustworthy professionals interested in working in public 

service. 

Employees at the FDA, both professionals and administrative staff, lag behind 

their private sector peers in compensation. In fiscal year 2004, the Administration 

proposed a 2.0 percent pay raise for Federal employees on the GS scale. Congress 

rejected this miserly pay adjustment and legislated a 4.1 percent increase. It would 

have been wiser fof the Administration to have included the assumption of a fair 

pay raise in their fiscal year 2004 budgeting. However, better late than never, they 

have included funding in this year’s FDA budget to fund the fiscal year 2004 4.1 

percent pay raise. Yet, once again, the FDA budget submitted to Congress assumes 

only a 1.5 percent pay adjustment for fiscal year 2005. NTEU has called upon Congress to provide Federal employees with a 3.5 percent pay raise, reflecting the historic parity between civilian and military pay. We will be working for this parity 

in Congress and believe that the FDA budget should reflect this more appropriate 

amount. 

The Administration’s Budget proposal also provides funding for relocation costs to 

the White Oak facility. During fiscal year 2005, 1,700 drug review personnel will 

be relocated to the White Oak facility. The Administration has asked for $20.6 in 

new budget authority and $10 million in PDUFA user fees for relocation expenses. 

NTEU strongly supports this request. Consolidation of the various FDA facilities in 

the Washington metropolitan area is sensible and will add obvious improvements 

to FDA operations. However, NTEU opposes any plans to consolidate certain out of 

region field laboratories, particularly the St. Louis laboratory, with the White Oak 

facility. As the President of NTEU, I can tell you that these highly skilled employees 

will not relocate to White Oak. The result of such out of region consolidation will 

be the loss of these prized professionals. This is not in the public interest. In past 

years, the Congress has included a provision directing FDA management not to to 

close these field laboratories. NTEU would ask that Congress again do so this year. 

I want to mention, Mr. Chairman, that while on the above matter we have a disagreement with management at FDA, on a host of other issues, labor and management at FDA have been successful in working together to find win-win solutions and 

to jointly address very real problems FDA faces. NTEU and FDA management have 

negotiated a number of innovative and cutting edge initiatives to make sure the 

agency has the best and brightest employees available. It would be a shame if after 

such collaboration, these initiatives suffered from inadequate funding. NTEU and 

FDA have negotiated a Student Loan Repayment Program. This has been designed 

to aid FDA’s recruitment and retention. Permanent and term employees with at 

least 3 years remaining on their appointment are eligible. Employees must remain 

at FDA for 3 years to receive this benefit. It allows FDA to repay part or all of a 

federally insured student loan. 

NTEU has also negotiated with FDA management a program of Quality Step Increases (QSIs) which provide incentives and recognition for excellence and has reformed several other awards and special pay provisions so to better achieve agency 

goals and retain quality employees. All of these initiatives need sufficient and improved funding. 

Thank you for giving NTEU the opportunity to share our views on the FDA budget for fiscal year 2005. We thank this subcommittee for its support of FDA programs 

in the past, and we urge you to work with the Administration to provide FDA with 

the staffing and resources necessary to protect and improve the health of the American public. 

PREPARED STATEMENT OF THE NATIONAL TURFGRASS EVALUATION PROGRAM

Mr. Chairman and Members of the Subcommittee: On behalf of the National 

Turfgrass Evaluation Program (NTEP), I appreciate the opportunity to provide the 

Subcommittee with the turfgrass industry’s perspective in support of the continuation of the $55,000 appropriation for the National Turfgrass Evaluation Program 

(NTEP), included in ARS’s baseline within the President’s fiscal year 2005 budget 

request for the Agricultural Research Service (ARS). Also, I appreciate the opportunity to present to you the turfgrass industry’s need and justification for continuation of the $490,000 appropriated in the fiscal year 2004 budget for the full-time 

turfgrass scientist position within ARS. In addition, I appreciate the consideration 

of an additional appropriation of $5,400,000 for the first installment on the $32.4 

million National Turfgrass Research Initiative developed by ARS and the turfgrass 
508 

industry with twelve new research scientist positions at ARS stations across the 

country. 

Justification of $55,000 Appropriation Request for Program Support 

Once again, NTEP and the turfgrass industry come to the appropriations process to request continuation of the $55,000 basic program support in the ARS budget for 

NTEP’s activities at Beltsville. We appreciate the Subcommittee’s continuation of 

this amount as in previous fiscal years, and hope that you will agree with us that 

this request is justified for the ensuing fiscal year. 

The National Turfgrass Evaluation Program (NTEP) is unique in that it provides 

a working partnership that links the Federal Government, turfgrass industry and 

land grant universities together in their common interest of turfgrass cultivar development, improvement and evaluation. NTEP provides unbiased information on 

turfgrass cultivar adaptations, disease and insect resistance and environmental 

stress tolerance to home owners, sod producers, sports turf and parks managers, 

golf course superintendents and highway vegetation managers. 

Turfgrass provides multiple benefits to society including child safety on athletic 

fields, environmental protection of groundwater, reduction of silt and other contaminants in runoff, and green space in home lawns, parks and golf courses. Therefore, 

by cooperating with NTEP, USDA has a unique opportunity to take positive action 

in support of the turfgrass industry. While the vast majority of the USDA’s funds 

have been and will continue to be directed toward traditional ‘‘food and fiber’’ segments of U.S. agriculture, it is important to note that turfgrasses (e.g., sod production) are defined as agriculture in the Farm Bill and by many other departments 

and agencies. It should also be noted that the turfgrass industry is the fastest growing segment of U.S. agriculture, while it receives essentially no Federal support. 

There are no subsidy programs for turfgrass, nor are any desired. 

For the past 75 years, the USDA’s support for the turfgrass industry has been 

modest at best. The turfgrass industry’s rapid growth, importance to our urban environments, and impact on our daily lives warrant more commitment and support 

from USDA. USDA’s support of NTEP at the $55,000 level does not cover all costs. 

In fact, NTEP represents an ideal partnership of the public and private sectors in 

terms of program cost sharing. Therefore, it is essential that the USDA maintain 

its modest financial support of NTEP. 

Justification of $490,000 Appropriation Request for the existing ARS Scientist Position and related support activities 

NTEP and the turfgrass industry are requesting the Subcommittee’s support for $490,000 to continue funding for the full-time scientist staff position at ARS, focusing on turfgrass research, that was appropriated in the fiscal year 2004 budget, and 

in the two previous budget cycles. 

A new turfgrass research scientist position within USDA/ARS was created by 

Congress in the fiscal year 2001 budget. Additional funding was added in fiscal year 

2002 with the total at $490,000. A research scientist was hired, and is now working 

at the ARS, Beltsville, MD center. A research plan was developed and approved by 

ARS. This scientist has used the funding for a full-time technician, equipment and 

supplies to initiate the research plan and for collaborative research with universities. We have an excellent scientist in place and he is making good progress in 

establishing a solid program. At this point, losing the funding for the position would 

be devastating to the turf industry as significant research has begun. 

Justification of $5,400,000 Appropriation Request for the first installment on the National Turfgrass Research Initiative: 12 ARS scientist positions at ARS installations around the United States 

The turfgrass industry also requests that the Subcommittee appropriate an addi- tional $5,400,000 for the first installment on the $32.4 million National Turfgrass 

Research Initiative. This Initiative has been developed by USDA/ARS in partnership 

with the turfgrass industry. We are asking for twelve priority research positions at 

nine locations across the United States. These twelve positions address the most 

pressing research needs, namely water use/efficiency and environmental issues. 

The USDA needs to initiate and maintain ongoing research on turfgrass development and improvement for the following reasons: —The value of the turfgrass industry in the United States is $40 billion annually. 

There are an estimated 50,000,000 acres of turfgrass in the U.S. Turfgrass is 

the number one or two agricultural crop in value and acreage in many states 

(e.g., MD, PA, FL, NJ, NC). 

—As our society becomes and more urbanized, the acreage of turfgrass will increase significantly. In addition, state and local municipalities are requiring the 

reduction of water, pesticides and fertilizers on turfgrass. However, demand on 
509 

recreational facilities will increase while these facilities will still be required to 

provide safe turfgrass surfaces. 

—Currently, the industry spends about $10 million annually on turfgrass research. However, private and university research programs do not have the 

time nor resources to identify completely new sources of beneficial genes for 

stress tolerance. ARS turfgrass scientists will enhance the ongoing research currently underway in the public and private sectors. 

—Water management is a key component of healthy turf and has direct impact 

on nutrient and pesticide losses into the environment. Increasing demands and 

competition for potable water make it necessary to use water more efficiently. 

Also, drought situations in many regions have limited the water available and 

therefore, have severely impacted the turf industry as well as homeowners and 

young athletes. Therefore, new and improved technologies are needed to monitor turf stresses and to schedule irrigation to achieve the desired quality. Technologies are also needed to more efficiently and uniformly irrigate turfgrasses. 

Drought tolerant grasses need to be developed. In addition, to increase water 

available for irrigation, waste water (treated and untreated) must be utilized. 

Some of these waste waters contain contaminants such as pathogens, heavy 

metals, and organic compounds. The movement and accumulation of these contaminants in the environment must be determined. 

—USDA conducted significant turfgrass research from 1920–1988. However, since 

1988, no full-time scientist has been employed by USDA, Agricultural Research 

Service (ARS) to conduct turfgrass research specifically. 

The turfgrass industry has met on several occasions with USDA/ARS officials to 

discuss the new turfgrass scientist position, necessary facilities, and future research 

opportunities. In January 2002, ARS held a customer workshop to gain valuable 

input from turfgrass researchers, golf course superintendents, sod producers, lawn 

care operators, athletic field managers and others on the research needs of the 

turfgrass industry. As a result of the workshop, ARS and the turfgrass industry 

have developed, the National Turfgrass Research Initiative. The highlights of this 

strategy are below: 

NATIONAL STRATEGY FOR ARS TURFGRASS RESEARCH

Research Objectives.—Conduct long-term basic and applied research to provide 

knowledge, decision-support tools and plant materials to aid in designing, implementing, monitoring and managing economically and environmentally sustainable 

turfgrass systems including providing sound scientifically based information for use 

in the regulatory process. 

Research Focus.—To make a significant contribution in developing and evaluating 

sustainable turfgrass systems, ARS proposes developing research programs in six 

major areas: 

Component I. Water Management Strategies and Practices 

Rationale.—New and improved technologies are needed to monitor turf stresses 

and to schedule irrigation to achieve desired turf quality but with greater efficiency 

or using other water sources. 

Component II. Germplasm: Collection, Enhancement and Preservation 

Rationale.—Grasses that better resist diseases, insects, drought, traffic, etc. are 

desperately needed. Also, a better understanding of the basic biology of turfgrass 

species is essential. 

Component III. Improvement of Pest Management Practices 

Rationale.—New tools and management practices are needed to adequately control weeds, diseases, insects and vertebrate pests while reducing input costs and 

pesticide use. 

Component IV. The Environment: Understanding and Improvement of Turfgrass’ 

Role 

Rationale.—The need is great to quantify the contribution of turf systems to water 

quality and quantify of vital importance in addressing the potential role of turf systems in environmental issues. 

Component V. Enhancement of Soil and Soil Management Practices 

Rationale.—Research is needed to characterize limitations to turf growth and development in lessthan optimum soils and to develop cost-effective management practices to overcome these limitations. 
510 

Component VI. Integrated Turf Management 

Rationale.—To develop needed tools for turf managers to select the best management practices for economic sustainability as well as environmental protection. 

ARS, as the lead agency at USDA for this initiative, has graciously devoted a significant amount of time to the effort. Like the industry, ARS is in this research endeavor for the long-term. To ARS’s credit, the agency has committed staff, planning 

and technical resources to this effort. However, despite ARS’s effort to include a 

budget request in the overall USDA budget request, USDA—at higher levels—has 

not seen fit to include this research as a priority. Thus, the industry is left with 

no alternative but to come directly to Congress for assistance through the appropriations process. 

The role and leadership of the Federal Government and USDA in this research 

are justifiable and grounded in solid public policy rationale. ARS is poised and prepared to work with the turfgrass industry in this major research initiative. However, ARS needs additional resources to undertake this mission. 

The turfgrass industry is very excited about this new proposal and wholeheartedly 

supports the efforts of ARS. Since the customers at the workshop identified 

turfgrass genetics/germplasm and water quality/use as their top priority areas for 

ARS research, for fiscal year 2005, the turfgrass industry requests that the following positions be established within USDA/ARS: 

Position 1: Component I: Water: Agricultural Engineer—Irrigation Southwest—Phoenix, AZ ........................... $450,000 

Position 2: Component II: Germplasm: Molecular Biologist Southwest—Lubbock, TX ...................................... 450,000 

Position 3: Component IV: Environment: Agricultural Engineer—Fate & Transport Southwest—Phoenix, AZ 450,000 

Position 4: Component I: Water: Stress Physiologist—Salinity Southwest—Riverside, CA ............................... 450,000 

Position 5: Component II: Germplasm: Geneticist—Stress Transition Zone—Beltsville, MD ............................ 450,000 

Position 6: Component I: Water: Agricultural Engineer—Irrigation Transition Zone—Florence, SC ................. 450,000 

Position 7. Component IV: Environment: Agricultural Engineer—Fate & Transport Northeast—University 

Park, PA ........................................................................................................................................................... 450,000 

Position 8: Component III: Pest Management: Weed Scientist Northeast—University Park, PA ....................... 450,000 

Position 9: Component IV: Environment: Agricultural Engineer—Fate & Transport North Central—Ames, 

IA ...................................................................................................................................................................... 450,000 

Position 10: Component III: Pest Management: Pathologist Transition Zone—Beltsville, MD .......................... 450,000 

Position 11: Component II: Germplasm: Geneticist—Biodiversity Upper West—Logan, UT .............................. 450,000 

Position 12: Component III: Pest Management: Entomologist North Central—Wooster, OH ............................. 450,000 

TOTAL ...................................................................................................................................................... 5,400,000 

For this research we propose an ARS-University partnership, with funding allocated to ARS for in-house research as well as in cooperation with university partners. We are asking for $300,000 for each ARS scientist position with an additional 

$150,000 attached to each position to be distributed to university partners. We are 

also asking that the funding be given to ARS and then distributed by ARS to those 

university partners selected by ARS and industry representatives. 

[In millions of dollars] 

FUNDING BREAKDOWN: 

ARS Scientist Positions ($300,000 ea. × 12) ............................................................................................ 3,600,000 

University Cooperative Research Agreements ($150,000 ea. × 12) (administered by ARS) .................... 1,800,000 

TOTAL REQUEST ...................................................................................................................................... 5,400,000 

In conclusion, on behalf of the National Turfgrass Evaluation Program and the 

turfgrass industry across America, I respectfully request that the Subcommittee continue the vital $55,000 appropriation for the National Turfgrass Evaluation Program (NTEP) as well as the $490,000 appropriated in fiscal year 2004 for the new 

turfgrass scientist position within the Agricultural Research Service. I also request 

that the Subcommittee appropriate an additional $5,400,000 for twelve new 

turfgrass scientist positions within ARS. 

Thank you very much for your assistance and support. 
511 

PREPARED STATEMENT OF THE NEW MEXICO INTERSTATE STREAM COMMISSION

SUMMARY

This Statement is submitted in support of appropriations for the Department of 

Agriculture’s Colorado River Basin salinity control program. Until last year, the salinity control program had not been funded in recent years at the level necessary 

to control salinity with respect to water quality standards. Also, inadequate funding 

of the salinity control program negatively impacts the quality of water delivered to 

Mexico pursuant to Minute 242 of the International Boundary and Water Commission. Adequate funding for the Environmental Quality Incentives Program (EQIP), 

from which the Department of Agriculture funds the salinity program, is needed to 

implement salinity control measures. The Farm Security and Rural Investment Act 

(FSRIA) of 2002 authorized a funding level of at least $1 billion for EQIP in fiscal 

year 2005. I urge the Subcommittee to support funding from Commodity Credit Corporation (CCC) of $1 billion to be appropriated for EQIP. I request that the Subcommittee designate 2.5 percent of the EQIP appropriation, but at least $17.5 million, for the Colorado River Basin salinity control program. I request that adequate 

funds be appropriated for technical assistance and education activities directed to 

salinity control program participants. 

STATEMENT

The seven Colorado River Basin states, in response to the salinity issues addressed by Clean Water Act of 1972, formed the Colorado River Basin Salinity Control Forum (Forum). Comprised of gubernatorial appointees from the seven Basin 

states, the Forum was created to provide for interstate cooperation in response to 

the Clean Water Act, and to provide the states with information to comply with Sections 303 (a) and (b) of the Act. The Forum has become the primary means for the 

seven Basin states to coordinate with Federal agencies and Congress to support the 

implementation of the salinity control program. 

The Colorado River Basin salinity control program was authorized by Congress 

in the Colorado River Basin Salinity Control Act of 1974. Congress amended the Act 

in 1984 to give new responsibilities to the Department of Agriculture. While retaining the Department of the Interior as the lead coordinator for the salinity control 

program, the amended Act recognized the importance of the Department of Agriculture operating under its authorities to meet the objectives of the salinity control 

program. Many of the most cost-effective projects undertaken by the salinity control 

program to date have occurred since implementation of the Department of Agriculture’s authorization for the program. 

Bureau of Reclamation studies show that damages from the Colorado River to 

United States water users are about $300,000,000 per year. Damages are estimated 

at $75,000,000 per year for every additional increase of 30 milligrams per liter in 

salinity of the Colorado River. It is essential to the cost-effectiveness of the salinity 

control program that Department of Agriculture salinity control projects be funded 

for timely implementation to protect the quality of Colorado River Basin water delivered to the Lower Basin States and Mexico. 

Congress concluded, with the enactment of the Federal Agriculture Improvement 

and Reform Act of 1996 (FAIRA), that the salinity control program could be most 

effectively implemented as a component of the Environmental Quality Incentives 

Program (EQIP). The salinity control program, since the enactment of FAIRA, has 

not been funded at an adequate level to protect the Basin State-adopted and Environmental Protection Agency approved water quality standards for salinity in the 

Colorado River until fiscal year 2004. Appropriations for EQIP have been insufficient to adequately control salt loading impacts on water delivered to the downstream states, and to Mexico pursuant to Minute No. 242 of the International 

Boundary and Water Commission, United States and Mexico. 

EQIP subsumed the salinity control program without giving adequate recognition 

to the responsibilities of the Department of Agriculture to implement salinity control 

measures per Section 202(c) of the Colorado River Basin Salinity Control Act. The 

EQIP evaluation and project ranking criteria target small watershed improvements 

that do not recognize that water users hundreds of miles downstream are significant 

beneficiaries of the salinity control program. Proposals for EQIP funding are ranked 

in the states of Utah, Wyoming and Colorado under the direction of the respective 

State Conservationists without consideration of those downstream, particularly outof-state, benefits. 

Following recommendations of the Basin States, the Department of Agriculture’s 

Natural Resources Conservation Service (NRCS) designated the Colorado River 

Basin an ‘‘area of special interest’’ including earmarked funds for the salinity control 
512 

program. The NRCS concluded that the salinity control program is different from 

the small watershed approach of the EQIP program. The watershed for the salinity 

control program stretches almost 1,200 miles, from the headwaters of the river 

through the salt-laden soils of the Upper Basin to the river’s termination at the Gulf 

of California in Mexico. NRCS is to be commended for its efforts to comply with the 

Department of Agriculture’s responsibilities under the Colorado River Basin Salinity 

Control Act of 1974. Irrigated agriculture in the Upper Basin realizes significant 

local benefits of the salinity control program and agricultural producers have succeeded in submitting cost-effective proposals to NRCS. 

However, the Basin States, including New Mexico, were very dismayed that funding for EQIP has been inadequate since the enactment of FAIRA in 1996. Several 

years of inadequate Federal funding for the Department of Agriculture resulted in 

the Forum finding that the salinity control program needs acceleration to maintain 

the water quality criteria of the Colorado River water quality standards for salinity. 

Since the enactment of FSRIA in 2002, an opportunity to adequately fund the salinity control program exists for the first time since the enactment of FAIRA. 

State and local cost sharing is triggered by and indexed to the Federal appropriation. The requested funding of at least $17.5 million for fiscal year 2005 will continue to be needed each year for at least the next few fiscal years. 

The Department of Agriculture projects have proven to be the most cost-effective 

component of the salinity control program. The Department of Agriculture has indicated that a more adequately funded EQIP program would result in more funds 

being allocated to the salinity program. The Basin States have cost sharing dollars 

available to participate in on-farm salinity control efforts. The agricultural producers in the Upper Basin are willing to cost-share their portion and waiting for 

adequate funding for their applications to be considered. 

I urge the Congress to appropriate at least $1 billion from the CCC in fiscal year 

2005 for EQIP. Also, I request that Congress designate 2.5 percent of the EQIP appropriation, but at least $17.5 million, for the Colorado River Basin salinity control 

program. 

Finally, I request that adequate funds be appropriated to NRCS technical assistance and education activities for the salinity control program participants, rather 

than requiring the NRCS to borrow funds from CCC for these direly needed and 

under funded support functions. Recent history has shown that inadequate funding 

for NRCS technical assistance and education activities has been a severe impediment to successful implementation of the salinity control program. The Basin States 

parallel funding program, implemented as a means of cost sharing with NRCS, expends 40 percent of the states’ funds available to meet the needs of NRCS for technical assistance and education activities. I urge the appropriation of adequate funds 

for these essential activities. 

PREPARED STATEMENT OF THE NEZ PERCE TRIBE

The Nez Perce Tribe requests the following funding amounts for fiscal year 2005, 

which are specific to the Nez Perce Tribe: 

—$253,000 through the United States Department of the Agriculture, Animal 

Plant, Health Inspection Service, Plant Protection and Quarantine Program to 

support its efforts to combat noxious weed infestations using biological control 

technologies. Biological control of weeds utilizes the weeds’ natural enemies to 

reduce the target weeds’ ability to compete with desired vegetation. Use of biological control of weeds in the western United States has been employed since 

the 1940s to reduce weed densities on range and wildlands where cultural and 

chemical control methods are not economically practical or feasible. Although biological control has been utilized for many years, there are limited agents available for widespread distribution. As a result, the transfer of biological control 

technology to the users has been slow. 

Through this appropriation, the Nez Perce Bio-Control Center will continue to 

manage and establish nurseries to increase biological control organisms, mainly insects, for distribution throughout the Pacific Northwest. In addition, this funding 

will assist in identifying weed infestations, monitor the impacts of biocontrol, and 

provide annual technology transfer workshops to our partners in Federal and State 

agencies and other private landowners/managers regionally. The program will continue ongoing research efforts developed through collaborative partnerships with 

USDA staffs, local universities and regional experts. 

The Nez Perce Tribe’s strong cultural tie to natural resources creates a good foundation from which to build such a program. Biological control offers long-term management of invasive weeds that cannot be controlled by other means. As biological 
513 

control organisms reduce the weeds’ competitive edge over desirable and native 

vegetation, both Tribal and non-tribal users of the region’s wild land resources will 

benefit. The problems created by noxious weeds cannot be fixed quickly. The Nez 

Perce Tribe is viewing solutions to this problem from a long-term perspective and 

are asking for a similar commitment from Congress and the Department of Agriculture. 

PREPARED STATEMENT OF THE NORTHWEST INDIAN FISHERIES COMMISSION

Mr. Chairman and Members of the Committee, I am Billy Frank, Jr., Chairman 

of the Northwest Indian Fisheries Commission (NWIFC), and on behalf of the twenty-Western Washington member Tribes, I submit this request for appropriations to 

support the research, sanitation and marketing of Tribal shellfish products. We request the following: 

—$500,000 to support seafood marketing costs which will assist the Tribes in fulfilling the commercial demands for their shellfish products both domestically 

and abroad; 

—$1,000,000 to support water and pollution sampling, sampling and research for 

paralytic shellfish poisoning and coordination of research projects with State 

agencies; and, 

—$1,000,000 to support data gathering at the reservation level for the conduct of 

shellfish population surveys and estimates. 

Treaty Shellfish Rights 

As with salmon, the Tribes’ guarantees to harvest shellfish lie within a series of 

treaties signed with representatives of the Federal Government in the mid-1850s. 

In exchange for the peaceful settlement of what is today most of Western Washington, the Tribes reserved the right to continue to harvest finfish and shellfish at 

their usual and accustomed grounds and stations. The Tribes were specifically excluded from harvesting shellfish from areas ‘‘staked or cultivated’’ by non-Indian 

citizens. Soon after they were signed, the treaties were forgotten or ignored. 

The declining salmon resource in the Pacific Northwest negates the legacy Indian 

people in Western Washington have lived by for thousands of years. We were taught 

to care for the land and take from it only what we needed and to use all that we 

took. 

We depended on the gifts of nature for food, trade, culture and survival. We knew 

when the tide was out, it was time to set the table because we live in the land of 

plenty; a paradise complete. Yet, because of the loss of salmon habitat, which is attributable to overwhelming growth in the human population, a major pacific coastal 

salmon recovery effort ensues. Our shellfish resource is our major remaining fishery. 

At least ninety types of shellfish have been traditionally harvested by the Tribes 

in Western Washington and across the continent Indian people have called us the 

fishing Tribes because of our rich history of harvesting and caring for finfish and 

shellfish. Our shellfish was abundant and constituted a principal resource of export, 

as well as provided food to the Indians and the settlers, which greatly reduced the 

living expenses. 

Shellfish remain important for subsistence, economic, and ceremonial purposes. 

With the rapid decline of many salmon stocks, due to habitat loss from western 

Washington’s unrelenting populous growth, shellfish harvesting has become a major 

factor in Tribal economies. 

The Tribes have used shellfish in trade with the non-Indian population since the 

first white settlers came into the region a century and a half ago. Newspaper accounts from the earliest days of the Washington Territory tell of Indians selling or 

trading fresh shellfish with settlers. Shellfish harvested by members of western 

Washington’s Indian Tribes is highly sought after throughout the United States and 

the Far East. Tribal representatives have gone on trade missions to China and other 

Pacific Rim nations where Pacific Northwest shellfish—particularly geoduck—is in 

great demand. Trade with the Far East is growing in importance as the Tribes 

struggle to achieve financial security through a natural resources-based economy. 

Treaty language pertaining to Tribal shellfish harvesting included this section: 

‘‘The right of taking fish at usual and accustomed grounds and stations is further 

secured to said Indians, in common with all citizens of the United States; and of 

erecting temporary houses for the purposes of curing; together with the privilege of 

hunting and gathering roots and berries on open and unclaimed lands. Provided, 

however, that they not take shell-fish from any beds staked or cultivated by citizens.’’ 
514 

Treaty with the S’Klallam, January 26, 1855 

In exchange for the peaceful settlement of what is today most of western Washington, the Tribes reserved the right to continue to harvest finfish and shellfish at 

all of their usual and accustomed grounds and stations. The Tribes were specifically 

excluded from harvesting shellfish from areas ‘‘staked or cultivated’’ by non-Indian 

citizens. 

Tribal efforts to have the Federal Government’s treaty promises kept began in the 

first years of the 20th Century when the United States Supreme Court ruled in 

United States v. Winans, reaffirming that where a treaty reserves the right to fish 

at all usual and accustomed places, a state may not preclude Tribal access to those 

places. 

Sixty years later, the Tribes were again preparing for battle in court. After many 

years of harassment, beatings and arrests for exercising their treaty-reserved rights, 

western Washington Tribes took the State of Washington to Federal court to have 

their rights legally re-affirmed. In 1974, U.S. District Court Judge George Boldt 

ruled that the Tribes had reserved the right to half of the harvestable salmon and 

steelhead in western Washington. 

The ‘‘Boldt Decision,’’ which was upheld by the U.S. Supreme Court, also re-established the Tribes as co-managers of the salmon and steelhead resources in western 

Washington. As a result of this ruling, the Tribes became responsible for establishing fishing seasons, setting harvest limits, and enforcing Tribal fishing regulations. Professional biological staffs, enforcement officers, and managerial staff were 

assembled to ensure orderly, biologically-sound fisheries. 

Beginning in the late 1970s, Tribal and state staff worked together to develop 

comprehensive fisheries that ensured harvest opportunities for Indians and non-Indians alike, and also preserved the resource for generations to come. 

It was within this new atmosphere of cooperative management that the Tribes 

sought to restore their treaty-reserved rights to manage and harvest shellfish from 

all usual and accustomed areas. Talks with their state counterparts began in the 

mid-1980s, but were unsuccessful. The Tribes filed suit in Federal court in May 

1989 to have their shellfish harvest rights restored. 

The filing of the lawsuit brought about years of additional negotiations between 

the Tribes and the state. Despite many serious attempts at reaching a negotiated 

settlement, the issue went to trial in May 1994. 

In 1994, District Court Judge Edward Rafeedie upheld the right of the treaty 

Tribes to harvest 50 percent of all shellfish species in their usual and accustomed 

fishing areas. Judge Rafeedie also ordered a shellfish Management Implementation 

Plan that governs Tribal/state co-management activities. After a number of appeals, 

the U.S. 9th Circuit Court of Appeals let stand Rafeedie’s ruling in 1998. Finally, 

in June 1999, the U.S. Supreme Court denied review of the District court ruling, 

effectively confirming the treaty shellfish harvest right. 

Assist the Tribes in Marketing Efforts to Fulfill the Demands for their Shellfish 

Products, $500,000 

Shellfish harvested by members of Western Washington Indian Tribes are of extreme quality and are highly sought after throughout the United States, Europe and 

the Far East. Unfortunately, because Tribes are not centrally organized and it is 

the individual Tribal fisher who harvests the resource, such markets have never 

fully materialized. 

We request $500,000, which will assist the Tribes in promoting our shellfish products, both in domestic and international markets. Tribes anticipate the need to provide necessary health training to harvesters, possibly develop cooperative seafood 

ventures, develop marketing materials and engage in actual marketing operations. 

Specific earmarked funding from the Committee can jump start Tribal efforts in 

these areas. We also anticipate participating in intertribal consortiums that generally promote Tribal products, and urge the Committee to support necessary funding for those efforts. Funding from the Committee will allow the Tribes to realize 

the fair value for their product, help employ more Tribal members, and allow the 

Tribes to fulfill their treaty rights. 

Water and Pollution Sampling, Sampling and Research for Paralytic Shellfish Poisoning and Coordination of Research Projects with State and Federal Agencies, 

$1,000,000 

Shellfish growing areas are routinely surveyed for current or potential pollution 

impacts and are classified based on the results of frequent survey information. No 

shellfish harvest is conducted on beaches that have not been certified by the Tribes 

and the Washington Department of Health. Growing areas are regularly monitored 
515 

for water quality status and naturally-occurring biotoxins to protect the public 

health. 

However, both Tribal and non-Indian fisheries have been threatened due to the 

lack of understanding about the nature of biotoxins, especially in subtidal geoduck 

clams. Research targeted to better understand the nature of biotoxins could prevent 

unnecessary illness and death that may result from consuming toxic shellfish, and 

could prevent unnecessary closure of Tribal and non-Indian fisheries. 

Data Gathering at the Reservation Level for the Conduct of Shellfish Population Surveys and Estimates, $1,000,000 

Very little current data and technical information exists for many of the shellfish 

fisheries now being jointly managed by state and Tribal managers. This is particularly true for many free-swimming and deep-water species. This lack of information 

can not only impact fisheries and the resource as a whole, but makes it difficult to 

assess 50/50 treaty sharing arrangements. Additionally, intertidal assessment methodologies differ between state and Tribal programs, and can lead to conflicts in management planning. 

Existing data systems must be enhanced for catch reporting, population assessment and to assist enhancement efforts. Research on methodology for population assessment and techniques also is critical to effective management. 

Onsite beach surveys are required to identify harvestable populations of shellfish. 

Regular monitoring of beaches is also necessary to ensure that the beaches remain 

safe for harvest. Additional and more accurate population survey and health certification data is needed to maintain these fisheries and open new harvest areas. This 

information will help protect current and future resources and provide additional 

harvest opportunities. 

Conclusion 

We ask that you give serious consideration to our needs. We are available to discuss these requests with committee members or staff at your convenience. Thank 

you. 

LETTER FROM THE OCEANIC INSTITUTE

WAIMANALO, HAWAII, March 24, 2004. 

Hon. ROBERT BENNETT, 

Chairman, Subcommittee on Agriculture, Committee on Appropriations, U.S. Senate, 

Washington, DC. 

DEAR MR. CHAIRMAN: We would like to bring to your attention the success of the 

U.S. Marine Shrimp Farming Consortium and the value to the nation in increasing 

the current funding level from $3.746 million to $6 million. 

The Consortium consists of institutions from seven states: University of Southern 

Mississippi/Gulf Coast Research Laboratory, Mississippi; The Oceanic Institute, Hawaii; Tufts University, Massachusetts; Texas Agricultural Experiment Station, 

Texas; Waddell Mariculture Center, South Carolina; University of Arizona, Arizona; 

and Nicholls State University, Louisiana. These institutions have made major advances in technology to support the U.S. shrimp farming industry, and the program’s excellent performance has been recognized by the USDA in its recent program reviews. The Consortium is at a point of opportunity to make significant contributions to building the U.S. industry, reducing the trade deficit, and satisfying 

increasing consumer demand for shrimp. Seafood imports constitute the second largest trade deficit item for the United States at $7.1 billion and shrimp represents 

half of this deficit. 

The Consortium, in cooperation with private industry, industry associations and 

government agencies, has generated new technologies for producing premium quality marine shrimp at competitive prices. To date, the program has: (1) established 

the world’s first and currently most advanced breeding and genetic selection program for marine shrimp; (2) completed pioneering research and development of advanced diagnostic tools for disease screening and control; (3) described the etiology 

of shrimp diseases associated with viral pathogens; (4) fostered shrimp production 

at near-shore, desert, and inland/rural farm sites; (5) played a lead role in the Joint 

Subcommittee on Aquaculture’s efforts to assess the threat of foreign and viral 

pathogens; (6) supplied the U.S. industry with genetically improved and disease-resistant shrimp stocks; (7) developed advanced technology biosecure shrimp production systems to protect both cultured and native wild stocks from disease; and (8) 

developed new feed formulations to minimize waste generation. 
516 

While exceptional progress has been made, the emerging industry is immature 

and continually confronted with new challenges. It depends on the U.S. Marine 

Shrimp Farming Program for high-health and genetically improved stocks, disease 

diagnosis and production technologies. There is a growing realization that our advanced biosecure shrimp production systems will allow the expansion of shrimp 

farming away from the environmentally sensitive coastal zone and into near-shore, 

inland/rural, and desert sites. 

As a result of these efforts, investor confidence is increasing—notably, within the 

last 3 years, new shrimp farm startups have begun in Mississippi, Hawaii, Texas, 

Arizona and South Carolina, and are being considered in other states. Importantly, 

these new production technologies produce the highest quality shrimp at world competitive prices, consume U.S. grains as feed, and pose no threat to the environment. 

Shrimp farming is the newest agricultural industry for the United States. Alloca- tion of $6 million per year for the next few years to work in cooperation with the 

private sector to support and build this new industry, with its associated jobs and 

economic benefits, is in the best interests of the nation. 

Sincerely, 

THOMAS E. FAREWELL, 

President and CEO, The Oceanic Institute. 

WILLIAM E. HAWKINS, 

Executive Director, University of Southern Mississippi, Gulf Coast Research 

Laboratory. 

COLIN KALTENBACH, 

Vice Dean and Director, Agricultural Experiment Station, University of Arizona. 

BOBBY R. EDDLEMAN, 

Resident Director of Research, Texas A&M University, Agricultural Research & 

Extension Center. 

JOSEPH MCMANUS, 

Associate Dean of Finance, Tufts University. 

CRAIG L. BROWDY, 

Marine Scientist, Marine Resources Research Institute, South Carolina Department 

of Natural Resources. 

MARILYN B. KILGEN, 

Head, Department of Biological Sciences, Nicholls State University. 

PREPARED STATEMENT OF THE U.S. MARINE SHRIMP FARMING CONSORTIUM, THE

OCEANIC INSTITUTE, GULF COAST RESEARCH LABORATORY, TUFTS UNIVERSITY, WADDELL MARICULTURE CENTER, TEXAS AGRICULTURAL EXPERIMENT STATION, UNIVERSITY OF ARIZONA, AND NICHOLLS STATE UNIVERSITY

Mr. Chairman, we greatly appreciate the opportunity to provide testimony to you 

and the Subcommittee, to thank you for your past support, and to discuss the 

achievements and opportunities of the U.S. Marine Shrimp Farming Program 

(USMSFP), funded under the Federal initiative, Shrimp Aquaculture. 

We bring to your attention the success of the U.S. Marine Shrimp Farming Consortium and its value to the nation. The Consortium consists of institutions from 

seven states: the University of Southern Mississippi/Gulf Coast Marine Laboratory, 

Mississippi; The Oceanic Institute, Hawaii; Tufts University, Massachusetts; Texas 

Agricultural Experiment Station, Texas A&M University, Texas; Waddell 

Mariculture Center, South Carolina; the University of Arizona, Arizona; and 

Nicholls State University, Louisiana. These institutions, which oversee the 

USMSFP, have made major advances in technology development and services to 

support the U.S. shrimp farming industry. The USDA in its program reviews has 

recognized the program’s excellent scientific performance, output, and multi-state 

collaborative efforts. The Consortium is at the crossroads of contributing to major 

growth of the U.S. industry, consolidating its competitive advantages, and satisfying 

consumers’ demands for safe and wholesome seafood products. Shrimp is the number one consumed seafood product in the United States, yet contributes to a $3.2 

billion trade deficit, second only to the import of oil for the deficit contributed by 

natural resource products. 

Accomplishments 

The Consortium, in cooperation with private industry, industry associations and 

government agencies, has generated new technologies for producing safe and premium quality marine shrimp at competitive prices. To date, the program has: (1) 

established the world’s first and currently most advanced breeding and genetic se-
517 

lection program for marine shrimp; (2) completed pioneering research and development of advanced diagnostic tools for disease screening and control; (3) described 

the etiology of shrimp diseases associated with viral pathogens; (4) fostered shrimp 

production at near-shore, inland/rural farm, and even desert sites; (5) served a lead 

role in the Joint Subcommittee on Aquaculture’s efforts to assess the threat of globally transported shrimp pathogens; (6) served on the Office of International 

Epizootics, recommending country-of-origin labeling of imported shrimp products to 

combat the spread of exotic disease pathogens, subsequently adopted by the USDA 

in its 2002 Farm Bill; (7) supplied the U.S. industry with selectively bred and disease-resistant shrimp stocks; (8) developed advanced technology for biosecure 

shrimp production systems to protect both cultured and native wild stocks from disease; and (9) developed new feed formulations to minimize waste generation and enhance the use of domestic grains and oilseed products. These substantial accomplishments advance the continued growth of the domestic industry, place an important emphasis on environmental sustainability, address concerns for the safety and 

quality of our seafood supply, and increase market competitiveness. 

Judging from the state of the industry today, USMSFP efforts continue to have 

measurable positive effect. Coastal farming continues to lead in the production of 

cultured shrimp in the United States, and inland farming has added new dimensions and growth to the industry. Improvements in farm management practices, 

coupled with the widespread use of disease-resistant stocks, have resulted in bumper crops for the industry over the last several years. The year 2003 resulted in the 

largest harvest ever for U.S. farmers of near 13 million pounds. This represents over 

a three-fold increase in domestic production with the last 5 years, averaging over 

25 percent growth of the industry per annum. 

Industry Vulnerability 

While exceptional progress has been made, this emerging industry is continually 

confronted with new challenges. The industry depends on the USMSFP for leadership and innovative technology development. As a result of development of highhealth and improved stocks, disease diagnosis, new feeds, and new production technologies and farming approaches, the domestic industry has maintained relative stability, while other countries have had major losses in their production due to diseases and environmental problems. Disease losses due to exotic viruses in Asia and 

Latin America during the past 5 years have approached $6 billion USD. There have 

been no outbreaks of notifiable viruses in the United States over the last 4 years, 

with a commensurate increase in shrimp production over the same period. With reliable production in place, we have also seen a commensurate geographic expansion 

of the industry within the United States from three to seven states in the last 10 

years. A broader industry base, while increasing production through the addition of 

new farms, also provides additional protection to the industry by geographically isolating different regional sectors in the event of disease outbreaks or natural disaster. Significant amounts of shrimp are now being produced in Texas, South Carolina, Florida, Hawaii, Arizona, Alabama, and Arkansas. Several other states are 

now beginning to explore production with the newer technologies being developed. 

While significant progress has been made in risk assessment and risk management with visible success, the industry and the USMSFP must remain constantly 

vigilant and proactive to further improve global competitiveness. In addition to providing significant input on the development of national and international regulatory 

standards for shrimp farmers, important service work for governmental agencies 

and NGOs keeps us continuously apprised of new developments pertaining to 

emerging regulations so that USMSFP research plans can be kept proactively responsive to dynamic shifts in industry needs. 

The overwhelming threat facing the U.S. marine shrimp farming industry today 

is in the surge of foreign imports that have severely lowered market prices for 

shrimp. Average U.S. farm gate prices have fallen over 25 percent within the last 

2 years, constraining profitability and plans for industry expansion. Domestic production estimates for 2005 are decidedly lower, as farmers have already opted not 

to stock as many ponds and acreage as previously projected. Inquiries into unfair 

trading practices impacting the U.S. shrimp industry have begun. Concerns also 

have been heightened over food safety issues associated with unregulated use of 

antibiotics and fecal-borne contaminants due to questionable production practices in 

certain countries. Further, due to disease outbreaks worldwide, several foreign countries have switched production to the dominant species in the United States, eroding 

a previous competitive advantage. While it is important that a level playing field 

be created through reexamination of trade and food safety issues, more technologically advanced and innovative approaches are now critically needed to leverage 

U.S. industry gains, create competitive advantage, and improve profitability. Inno-
518 

vative ways need to be sought to offset low prices and to distinguish and add value 

to the domestic product to provide a competitive edge in the marketplace and to ensure the safety of the domestic seafood supply. 

Industry Independence 

As a result of the work of the Consortium, investor confidence is increasing despite recent price trends. In addition to supporting today’s industry, our advanced 

biosecure shrimp production systems are now developed to the point for further expansion of shrimp farming into near-shore, inland/rural and desert sites away from 

the environmentally sensitive coastal zone. We now have in place the economic models that will appropriately direct research to ensure economic viability taking in consideration all associated biological, regional, and economic risk factors. Importantly, 

these new production technologies produce the highest quality and safest shrimp, 

utilize U.S. grain and oilseed products for feed production, and do not pose any 

threat to the environment. There is hidden value in the domestic industry that can 

be exploited to gain competitive edge, offset declining prices, and ensure the quality 

and safety of shrimp for the consumer. Clearly, the U.S. shrimp farming industry 

has emerged solid from near collapse in the early 1990s, and appears well poised 

for a new phase of growth provided the technologies and innovations are in place 

to support a larger, more diverse, and more competitive domestic industry for the 

new millennium. 

To support existing efforts and technology transfer and plans for new dimensions 

to the research to address recent profitability issues, an increase in the current 

funding level from $3.746 million to $6 million is requested. The increase will support an enhanced profile for: application of molecular biotechnologies to maintain 

the United States lead in disease monitoring and genetic selection efforts; development and application of sophisticated techniques for genetic selection of advanced 

and specialized lines of shrimp for U.S. exploitation; expansion of work to determine 

the mechanisms of disease immunity in shrimp for protection of both farmed and 

wild shrimp stocks; demonstration, validation, and commercialization of high density, biosecure farming systems to provide advanced, competitive production technologies particularly applicable to the United States; and determination of market 

and product quality issues for food safety assurances, and development of U.S. label 

to leverage existing standards for high quality production. In addition to these needed technological innovations, increased funding will support new efforts to promote 

institutional innovations that will enable expansion and vertical integration of the 

domestic industry, including examination of regulatory impediments to shrimp 

aquaculture; the effect of farm insurance; development of cooperatives; and the 

socioeconomics of existing and advanced, high density production systems. 

Mr. Chairman, the U.S. shrimp farming industry and our Consortium deeply appreciate the support of the Committee and respectfully ask for a favorable consideration of this request. 

CEATECH USA, INC, 

Honolulu, Hawaii, February 2, 2004. 

Dr. ANTHONY OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Consortium, The Oceanic Institute, 

Waimanalo, HI. 

DEAR TONY: We appreciate the past provision of a broodstock line from OI for 

evaluation under commercial scale. Those animals were used to produce seed that 

were stocked into two production ponds for the assessment of growth performance 

during this year. 

The outcome of these production trials have been discussed between James 

Sweeney and Shaun Moss, manager of OI’s shrimp research program. Both individuals see benefit from additional evaluations. 

We continue to look forward to a site visit to Ceatech’s farm by you and your scientists to discuss further collaborative research activities. We strongly support such 

technical exchange, and look forward to making arrangements to accomplish it. 

Thank you for your support. 

Sincerely, 

PAUL BIENFANG, PH.D, 

Senior Vice President. 
519 

DARDEN RESTAURANTS, 

Orlando, Florida, February 23, 2004. 

Dr. ANTHONY C. OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

Hawaii. 

Dear DR. OSTROWSKI: I am writing this letter in support of the U.S. Marine 

Shrimp Farming Program and Oceanic Institute’s continued efforts in the development of a United States based shrimp farming industry. 

Shrimp farming has become a large and growing global business. In 2003, shrimp 

consumption in the United States hit and all time high of 3.7 pounds per capita, 

surpassing Tuna as the number one seafood consumed in the United States. This 

is directly the result of technological advances made in shrimp aquaculture, and 

lays a solid foundation for the future of the shrimp business. 

However, there is much work to be done. It will be challenging for the U.S. industry to compete based on current technology with many foreign producers of shrimp 

which have land, labor and construction costs much lower than the United States. 

The opportunity in shrimp farming in the United States is huge, but will require 

further research to make it practical and sustainable. 

The U.S. shrimp farming industry will need to compete based on advanced technology which allows it to overcome some of the land and labor cost disadvantages. 

The U.S. industry can also differentiate itself in quality and freshness. This means 

that systems to grow shrimp year round which offer rapid delivery of fresh, never 

frozen shrimp are also key to the future of this business in the United States. 

Oceanic Institute recognizes these two needs and opportunities and is already 

working on the science to achieve them. Stock enhancement programs are also an 

area that Oceanic Institute. Is expert in developing and can be part of the solution 

faced by our Gulf and Atlantic shrimp fishing industry. 

We at Darden Restaurants, support the research being done by the U.S. Marine 

Shrimp Farming Program and Oceanic Institute, and believe that new and exciting 

business opportunities for United States based aquaculture operations will evolve 

from your continued research. 

Sincerely, 

BILL HERZIG, 

Vice President Seafood, Regional & Capital Equipment Purchasing. 

HARLINGEN SHRIMP FARMS, LTD., 

Los Fresnos, TX, February 13, 2004. 

Dr. TONY OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

HI. 

DEAR DR. OSTROWSKI: At your request I am writing a letter of support for the 

U.S. Marine Shrimp Farming Program (USMSFP) so that our U.S. government can 

renew funding for this valuable program I am proud to note that Texas had a record 

production year in 2003, with approximately nine million pounds of farmed shrimp 

produced. Unfortunately, our good production was offset by the lowest shrimp prices 

the United States has seen in decades, resulting in financial losses for some producers and marginal profits for the rest. U.S. shrimp farmers have had an especially 

tough time competing with imports from foreign producers. Many of the costs for 

labor, insurance and taxes as well as costs associated with permitting and compliance with regulations on discharge water quality are greatly reduced or not encountered in other countries. The U.S. shrimp farmers need innovative research from the 

USMSFP, which will allow our industry to stay competitive. 

I believe that the good production of farmed shrimp in Texas last year was, to 

a great extent, a direct result of benefits received over the years through the 

USMSFP. The use of domesticated, specific pathogen free (SPF) brood lines as well 

as the diagnostic services, required to monitor and maintain pathogen free production practices have been a major advantage for U.S. producers. Research on shrimp 

disease continues and information regarding the occurrence and characteristics of 

these diseases can be utilized to increase and maintain biosecure production practices on U.S. farms. 

It is especially important that research objectives, which directly benefit and bolster the profitability of existing, open pond production systems, which are the mainstay of U.S. marine shrimp farming must be prioritized at this time. I encourage 

the U.S. government to continue to support the USMSFP and am hopeful that the 
520 

resulting research can benefit the profitability of U.S. shrimp farming, which can 

help to reduce the huge shrimp trade deficit. 

Sincerely, 

FRITZ JAENIKE, 

General Manager. 

HIGH HEALTH AQUACULTURE, INC., 

FEBRUARY 6, 2004. 

Dr. ANTHONY C. OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

HI. 

DEAR TONY: I am writing to express my support for the U.S. Marine Shrimp 

Farming Program. Its efforts in shrimp science have contributed to the expansion 

of the U.S. shrimp farming industry. 

The global shrimp industry is facing difficult times. The U.S. industry is poised 

to lead the way through the Consortium’s top-flight science. 

Let me know if you need any further information. 

Best regards, 

JIM WYBAN, PH.D., 

President. 

KONA BAY MARINE RESOURCES, INC., 

Honolulu, HI, March 10, 2004. 

Dr. ANTHONY C. OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

HI. 

DEAR DR. OSTROWSKI: I am writing in support of the U.S. Marine Shrimp Farming Program (USMSFP). The program is essential to the continued growth and 

health of a domestic shrimp industry. The USMSFP has been instrumental in the 

development of SPF shrimp, the development of disease control strategies and helping shrimp farmers to improve their farming practices. 

Continued full funding from the U.S. government is critical to maintaining and 

building upon the good work done thus far by USMSFP. 

Best regards, 

BRIAN GOLDSTEIN, 

President. 

LOWCOUNTRY SEAFARMS, LLC, 

Beaufort, SC, March 10, 2004. 

Dr. ANTHONY C. OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

HI. 

DEAR DR. OSTROWSKI: This letter is in support of the efforts of the U.S. Marine 

Shrimp Farming Program. I have followed the research work done by the USMSFP 

over the years. The results of that work, and that of the Waddell Mariculture Research and Development Center in Bluffton, SC, were instrumental in my planning 

our project to be located here in SC. 

As our project is to entail the use of super-intensive closed-loop raceway production systems, the development of lines of SPF shrimp and work in disease control 

methods and water management techniques by the USMSFP are especially valuable. We will be following new developments as they occur. 

We hope to see your continued support to the shrimp farming industry in the 

United States. 

Regards, 

MILLS ROOKS, 

CEO. 
521 

SOUTHERN STAR, INC., 

Rio Hondo, Texas, February 6, 2004. 

Dr. ANTHONY C. OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

HI. 

DEAR TONY: Thanks for your thinking of my opinion. Basically, I still think American shrimp farmers are working fine. The government regulation did not bother us 

too much. The system we used is good enough. American shrimp farmers only 

produce 0.5 percent of market needs. That is the reason we are affected by the market so much when overseas shrimps flood in with cheaper price. 

The reason overseas has lower cost is because of their facilities full utilized. In 

Texas valley, we may have chance to grow two crops. Anywhere else is one crop 

only. Under this weather condition, we are not compatible. 

There are three things you can help us: 

—Find another species that can grow faster and last longer which will be accepted 

by government agents. 

—Find a new line of P. Vannamei which can tolerate the water temperature colder. 

—Ask government to buy P/L from private hatcheries for releasing into gulf which 

will help shrimpers. 

Should you have any question, please feel free to call me. 

Truly yours, 

FELIX FU, 

Vice President. 

SWIMMING ROCKFISH AND SHRIMP FARM, 

Meggett, SC, March 23, 2004. 

Dr. ANTONY C. OSTROWSKI, 

Waimanalo, HI. 

DEAR OSTROWSKI: I write today in support of the U.S. Marine Shrimp Farming 

Program. I do so as a consumer, stakeholder, and surviving member of North American entrepreneurs still engaged in shrimp farming. I say surviving because the 

numbers of shrimp farmers, at least in South Carolina, has drastically declined. The 

decline, I believe, is because of the USMSFP and its past good works. I understand 

that statement, supporting the organization that has caused the decline in my industry, is confusing and seemingly contradictory . . . so please read on and allow 

me to explain. 

American shrimp farmers, as well as harvesters of wild stocks, are in financial 

trouble today primarily because of the low price of shrimp worldwide. In great measure, this is due to the advances in pond culture attributable to the research conducted by USMSFP partner organizations and to the dissemination and subsequent 

use of the information gained to the world. In other words, the USMSFP programs 

have been so extraordinarily successful that shrimp has moved from a high dollar 

luxury status to nearly a commodity staple item. 

My current support for the USMSFP stems from the fact that the program is now 

moving toward hyper-intensive production technology with concomitant genetics research that ultimately will enable surviving and new American entrepreneurs to be 

competitive again at home. It is my hope that future work will marry native species, 

particularly east coast white shrimp production, with the developing extreme density production systems. This seems to me to be the least environmentally risky and 

best marketing strategy for coastal production. 

With my best wishes for your continuing achievements, I offer my support for 

your continued funding. 

Sincerely, 

Richard B. Eager. 

ZEIGLER BROS., INC., 

Gardnes, PA, February 23, 2004. 

Dr. ANTHONY C. OSTROWSKI, 

Director, U.S. Marine Shrimp Farming Program, The Oceanic Institute, Waimanalo, 

HI. 

DEAR DR. OSTROWSKI: We are most pleased, again this year, to write a letter of 

support for the U.S. Marine Shrimp Farming Program. By this letter, we are asking 
522 

Congress to continue expanded support for this important program for U.S. Aquaculture. 

In my letter last year, which is attached, we indicated many reasons why this program is important to U.S. aquaculture and to businesses like ourselves. We recommend that you attach these two letters. 

For the past 2 years, we have received additional benefits from the U.S. Marine 

Shrimp Farming Program through its contribution of technical knowledge to intensive shrimp farming. This is especially important to our company for as you know, 

we are one of four members of a consortium which received a very large ATP grant 

for the development of very high intensive re-cycle shrimp farming, known as the 

BioZest System. Scientific and technical information available through your program has allowed us to proceed with feeds development at a more rapid rate bringing intensive shrimp farming closer to economic feasibility for the United States. 

If we can provide additional support in any way for this most important program, 

please advise. 

Very truly yours, 

THOMAS R. ZEIGLER, PH.D., 

President & CEO. 

PREPARED STATEMENT OF THE ORGANIZATION FOR THE PROMOTION AND

ADVANCEMENT OF SMALL TELECOMMUNICATIONS COMPANIES (OPASTCO) 

Summary of Request 

The Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) seeks the Subcommittee’s support for fiscal year 

2005 loan levels for the telecommunications loans program and Rural Telephone 

Bank (RTB) program administered by the Rural Utilities Service (RUS) in the following amounts: 

[Millions of dollars] 

5 percent hardship loans .................................................................................................................................... 145 

Treasury rate loans .............................................................................................................................................. 250 

Guaranteed loans ................................................................................................................................................. 100 

RTB loans ............................................................................................................................................................. 175 

In addition, OPASTCO requests the following action by the Subcommittee: (1) a 

prohibition on the transfer of unobligated RTB funds to the general fund of the 

Treasury and a requirement that interest be paid on these funds; and (2) funding 

of the distance learning, telemedicine, and broadband grant and loan programs at 

sufficient levels. 

General 

OPASTCO is a national trade association of more than 550 small telecommunications carriers serving primarily rural areas of the United States. Its members, 

which include both commercial companies and cooperatives, together serve over 3.5 

million customers in 47 states. Approximately half of OPASTCO’s members are RUS 

or RTB borrowers. 

Perhaps at no time since the inception of the RUS (formerly the REA) has the 

telecommunications loans and RTB programs been so vital to the future of rural 

America. The telecommunications industry is at a crossroads, both in terms of technology and public policy. Rapid advances in telecommunications technology in recent 

years have begun to deliver on the promise of a new ‘‘information age.’’ Both Federal 

and State policymakers have made deployment of advanced telecommunications 

services a top priority. However, without continued support of the telecommunications loans and RTB programs, rural telephone companies will be hard pressed 

to build the infrastructure necessary to bring their communities into this new age, 

creating a bifurcated society of information ‘‘haves’’ and ‘‘have-nots.’’ 

Contrary to the belief of some critics, RUS’s job is not finished. Actually, in a 

sense, it has just begun. We have entered a time when advanced services and technology—such as broadband, fiber-to-the-home, high-speed packet and digital switching equipment, and digital subscriber line technology—are expected by customers in 

all areas of the country, both urban and rural. Unfortunately, the inherently higher 

costs of upgrading the rural wireline network, both for voice and data communications, has not abated. 

Rural telecommunications continues to be more capital intensive and involves 

fewer paying customers than its urban counterpart. Nationally, the average popu-
523 

lation density in areas served by rural carriers is only about 13 persons per square 

mile. This compares to a national average population density of 105 persons per 

square mile in areas served by non-rural carriers. The FCC’s February 2002 report 

on the deployment of advanced telecommunications capability noted that a positive 

correlation persists between population density and the presence of subscribers to 

high-speed services. The report stated that there are high-speed subscribers in 97 

percent of the most densely populated zip codes but in only 49 percent of the zip 

codes with the lowest population densities. In order for rural telephone companies 

to modernize their networks and provide consumers with advanced services at reasonable rates, they must have access to reliable low-cost financing. 

The relative isolation of rural areas increases the value of telecommunications 

services for these citizens. Telecommunications enables applications such as highspeed Internet connectivity, distance learning, and telemedicine that can alleviate 

or eliminate some rural disadvantages. A modern telecommunications infrastructure 

can also make rural areas attractive for some businesses and result in revitalization 

of the rural economy. For example, businesses such as telemarketing and tourism 

can thrive in rural areas, and telecommuting can become a realistic employment option. 

While it has been said many times before, it bears repeating that RUS’s telecommunications loans and RTB programs are not grant programs. The funds loaned 

by RUS are used to leverage substantial private capital, creating public/private 

partnerships. For a very small cost, the government is encouraging tremendous 

amounts of private investment in rural telecommunications infrastructure. 

Most importantly, the programs are tremendously successful. Borrowers actually 

build the infrastructure and the government is reimbursed with interest. There has 

never been a default in the history of the telecommunications lending programs. 

The Telecommunications Act of 1996 has Heightened the need for the RUS and RTB 

Loan Programs 

The Telecommunications Act of 1996 only increases rural telecommunications carriers’ need for RUS assistance in the future. The forward-looking Act defines universal service as an evolving level of telecommunications services that the FCC 

must establish periodically, taking into account advances in telecommunications and 

information technologies and services. RUS has an essential role to play in the implementation of the law, as it will compliment high-cost support mechanisms established by the FCC, thus enabling rural America to achieve the federally mandated 

goal of rural/urban service and rate comparability. 

1A $175 Million Loan Level should be maintained for the RTB Program 

As previously discussed, the RTB’s mission has not been completed as rural carriers continue to rely on this important source of supplemental financing in order 

to provide their communities with access to the next generation of telecommunications services. Pursuant to Section 305(d)(2)(B) of the Rural Electrification (RE) 

Act, Treasury rate loans are to be made concurrently with RTB loans. Thus, if lending is not authorized for the RTB, the overall telecommunications loans program 

will be significantly reduced, to the detriment of rural Americans. The ongoing need 

for the RTB program makes it essential to establish a $175 million loan level for 

fiscal year 2005. 

The Prohibition on the Transfer of any Unobligated Balance of the RTB Liquidating 

Account to the Treasury and requiring the Payment of Interest on these Funds 

should be Continued 

OPASTCO urges the Subcommittee to reinstate language prohibiting the transfer 

of any unobligated balance of the RTB liquidating account to the Treasury or the 

Federal Financing Bank which is in excess of current requirements and requiring 

the payment of interest on these funds. As a condition of borrowing, the statutory 

language establishing the RTB requires telephone companies to purchase Class B 

stock in the bank. Borrowers may convert Class B stock into Class C stock on an 

annual basis up to the principal amount repaid. Thus, all current and former borrowers maintain an ownership interest in the RTB. As with stockholders of any concern, these owners have rights which may not be abrogated. The Subcommittee’s inclusion of the aforementioned language into the fiscal year 2005 appropriations bill 

will ensure that RTB borrowers are not stripped of the value of this required investment. 

The Distance Learning, Telemedicine, and Broadband Programs should Continue to 

be Funded at Adequate Levels 

In addition to RUS’s telecommunications loans and RTB programs, OPASTCO 

supports adequate funding of the distance learning, telemedicine, and broadband 
524 

grant and loan programs. Through distance learning, rural students gain access to 

advanced classes which will help them prepare for college and jobs of the future. 

Telemedicine provides rural residents with access to quality health care services 

without traveling great distances to urban hospitals. In addition, the broadband program will allow more rural communities to gain high-speed access to the Internet 

and receive other advanced services. In light of the Telecommunications Act’s purpose of encouraging deployment of advanced technologies and services to all Americans—including schools and health care providers—sufficient targeted funding for 

these purposes is essential in fiscal year 2005. 

Conclusion 

The development of the nationwide telecommunications network into an information superhighway, as envisioned by policymakers, will help rural America survive 

and prosper in any market—whether local, regional, national, or global. However, 

without the availability of low-cost RUS funds, building the information superhighway in communities that are isolated and thinly populated will be untenable. 

By supporting the RUS telecommunications programs at the requested levels, the 

Subcommittee will be making a significant contribution to the future of rural America. 

PREPARED STATEMENT OF PEOPLE FOR THE ETHICAL TREATMENT OF ANIMALS (PETA) 

Dear Chairman Bennett, Ranking Member Kohl, and Members of the Subcommittee: People for the Ethical Treatment of Animals (PETA) is the world’s largest animal rights organization, with 800,000 members and supporters. We greatly 

appreciate this opportunity to submit testimony regarding the fiscal year 2005 appropriations for the Food and Drug Administration (FDA). Our testimony will focus 

on four chemical tests allowed or required by the FDA to be conducted on animals. 

As you may know, the FDA requires substances such as drugs, medicated skin 

creams, and others to be tested for their rates of skin absorption, skin irritation, 

phototoxicity, and/or pyrogenicity (potential to cause fever). Traditionally, these 

tests involve smearing chemicals on animals’ shaved backs (often causing painful lesions), or injecting a substance into an animal’s bloodstream (often causing breathing problems, organ failure, or fatal shock). 

Fortunately, there are non-animal test methods that are just as effective, if not 

more so. Various tissue-based methods have been accepted in Europe as total replacements for skin absorption studies in living animals. Government regulators in 

Canada accept the use of a skin-patch test in human volunteers as a replacement 

for animal-based skin irritation studies (for non-corrosive substances free of other 

harmful properties). The Organization for Economic Cooperation and Development 

(OECD), of which the United States is a key member, has accepted a cell culture 

test for light-induced (‘‘photo’’) toxicity, and a test using donated human blood has 

been validated in Europe as a total replacement for animal-based fever, or 

pyrogenicity, studies. 

However, the FDA continues to require the use of animals for all four of these 

endpoints, despite the availability of non-animal tests. 

We respectfully request that the subcommittee include the following report language: ‘‘The Commissioner of the FDA is required to report to Congress no later 

than December 1, 2004, regarding the use of in vitro methods using skin from a variety of sources (e.g. human cadavers) for skin absorption studies, human volunteer 

clinical skin-patch tests (for chemicals first determined to be non-corrosive and free 

of other harmful properties) for skin irritation studies, the 3T3 Neutral Red Uptake 

Phototoxicity Test for phototoxicity studies, and the in vitro Human Pyrogen Test 

for pyrogenicity studies. The Commissioner should describe the reasons for which 

the agency has delayed accepting the aforementioned methods for regulatory use as 

total replacements for their animal-based counterparts, exactly what steps the agency is taking to overcome those delays, and a target date by which the agency intends 

to accept these methods for regulatory use.’’ 

Animal tests cause immense suffering 

Traditionally, the rate at which a chemical is able to penetrate the skin has been 

measured by shaving the backs of rats and smearing the substance on them for an 

exposure period of up to 24 hours. They are eventually killed, and their skin, blood, 

and excrement are analyzed. A similar method is used to test for skin irritation, except it usually done to rabbits, who are locked in full-body restraints. A test chemical is applied to their shaved backs, and the wound site is then covered with a 

gauze patch for normally four hours. A chemical is considered to be an irritant if 

it causes reversible skin lesions or other clinical signs, which heal partially or to-
525 

tally by the end of a 14-day period. Phototoxic chemicals cause inflammation of the 

skin when applied to skin that is subsequently exposed to sunlight or ultraviolet radiation. To test for phototoxicity, a similar body-restraint, shaved-back procedure is 

used, but this time it is mice and guinea pigs who are the subjects, and they are 

kept restrained for several days while enduring the pain, swelling, and sores that 

develop on their skin. Pyrogenicity is the potential of a substance to cause fever and 

inflammation. Once again, the traditional pyrogenicity test method involves locking 

rabbits in full-body restraints. After having a test substance injected into their 

bloodstream, the rabbits can suffer fever, breathing problems, circulatory and organ 

failure, and fatal shock. Animals used in the above tests are not given any painkillers. 

These tests have never been proven to be relevant to humans 

None of the animal tests currently used for skin absorption, irritation, 

phototoxicity, or pyrogenicity has ever been scientifically validated for its reliability 

or relevance to human health effects. Animal studies yield highly variable data and 

are often poor predictors of human reactions. For example, one study, which compared the results of rabbit skin irritation tests with real-world human exposure information for 65 chemicals, found that the animal test was wrong nearly half (45 

percent) of the time in its prediction of a chemical’s skin damaging potential (Food 

& Chemical Toxicology, Vol. 40, pp. 573–92, 2002). For phototoxicity, the animalbased tests have never even been codified into a standardized test guideline, meaning that the protocols can vary widely from laboratory to laboratory, rendering the 

results virtually uninterpretable. There are well-documented drawbacks to the rabbit pyrogen test, including marked differences in sensitivity between species and 

strains of rabbits. 

Validated methods exist which do not harm animals 

Fortunately, test methods have been found to accurately predict skin absorption, 

irritation, phototoxicity and pyrogenicity without harming animals. 

The absorption rate of a chemical through the skin can be measured using skin 

from a variety of sources (e.g. human cadavers). The reliability and relevance of 

these in vitro methods have been thoroughly established through a number of international expert reviews, and have been codified and accepted as an official test 

guideline of the OECD. 

Instead of animal-based skin irritation studies, government regulators in Canada 

accept the use of a skin-patch test using human volunteers. (The chemical is first 

determined to be non-corrosive and free of other harmful properties before being 

considered for human studies.) 

A cell culture test has been validated in Europe and accepted at the international 

level as a total replacement for animal-based phototoxicity studies. The 3T3 Neutral 

Red Uptake Phototoxicity Test involves exposing cells to a test chemical in the presence and absence of light, and cell viability is measured by the degree to which they 

are able to absorb the dye, neutral red. This method is the only test for phototoxicity 

that has been accepted as an official test guideline of the OECD, yet the FDA continues to use thousands of animals to test for phototoxicity. 

Using human blood donated by healthy volunteers, an in vitro pyrogen test has 

been validated in Europe as a total replacement for animal-based pyrogenicity studies. 

Non-animal test methods can save time, money, and yield more useful results 

Tissue culture methods to test for skin absorption allow researchers to study a 

broader range of doses, including those at the actual level of exposure that occurs 

in the occupational or ambient environment, which is not possible with the animalbased method. According to the European Centre for the Validation of Alternative 

Methods, the in vitro Human Pyrogen Test out-performs the rabbit-based test, and 

does so at one-fifth of the labor cost and less than one-tenth of the labor cost. 

Many non-animal methods can yield results with greater sensitivity and at a 

lower cost than animal-based methods. Protocols are more easily standardized, and 

the variations among strains and species are no longer a factor. 

The FDA continues to require the use of animals 

Despite the ethical, financial, efficiency, and scientific advantages of the above 

non-animal methods, the FDA continues to require and accept the unnecessary use 

of animals in tests for skin absorption, irritation, phototoxicity, and pyrogenicity. 

Summary 

Non-animal methods are available now to replace animal-based methods to test 

substances for skin absorption, irritation, phototoxicity, and pyrogenicity. There sim-
526 

ply is no excuse for continuing to cause animals to suffer when non-animal tests 

are available. 

We therefore hereby request, on behalf of all Americans who care about the suffering of animals in toxicity tests, that you please include language in the report 

accompanying the fiscal year 2005 Agriculture, Rural Development, Food and Drug 

Administration and Related Agencies bill stating that: 

‘‘The Commissioner of the FDA is required to report to Congress no later than 

December 1, 2004, regarding the use of in vitro methods using skin from a variety 

of sources (e.g. human cadavers) for skin absorption studies, human volunteer clinical skin-patch tests (for chemicals first determined to be non-corrosive and free of 

other harmful properties) for skin irritation studies, the 3T3 Neutral Red Uptake 

Phototoxicity Test for phototoxicity studies, and the in vitro Human Pyrogen Test 

for pyrogenicity studies. The Commissioner should describe the reasons for which 

the agency has delayed accepting the aforementioned methods for regulatory use as 

total replacements for their animal-based counterparts, exactly what steps the agency is taking to overcome those delays, and a target date by which the agency intends 

to accept these methods for regulatory use.’’ 

PREPARED STATEMENTS OF THE PICKLE PACKERS INTERNATIONAL, INC. 

The pickled vegetable industry strongly supports and encourages your committee 

in its work of maintaining and guiding the Agricultural Research Service. To accomplish the goal of improved health and quality of life for the American people, the 

health action agencies of this country continue to encourage increased consumption 

of fruits and vegetables in our diets. Accumulating evidence from the epidemiology 

and biochemistry of heart disease, cancer and diabetes supports this policy. Vitamins (particularly A, C, and folic acid) and a variety of antioxidant phytochemicals 

in plant foods are thought to be the basis for correlation’s between high fruit and 

vegetable consumption and reduced incidence of these debilitating and deadly diseases. The problem is that many Americans choose not to consume the variety and 

quantities of fruits and vegetables that are needed for better health. 

As an association representing processors that produce over 87 percent of the tonnage of pickled vegetables in North America, it is our goal to produce new products 

that increase the competitiveness of U.S. agriculture as well as meet the demands 

of an increasingly diverse U.S. population. The profit margins of growers continue 

to be narrowed by foreign competition. Likewise, the people of this country represent an ever-broadening array of expectations, tastes and preferences derived from 

many cultural backgrounds. Everyone, however, faces the common dilemma that 

food costs should remain stable and preparation time continues to be squeezed by 

the other demands of life. This industry can grow by meeting these expectations and 

demands with reasonably priced products of good texture and flavor that are high 

in nutritional value, low in negative environmental impacts, and produced with assured safety from pathogenic microorganisms and from those who would use food 

as a vehicle for terror. With strong research to back us up, we believe our industry 

can make a greater contribution to better product cost, diets and better health. 

Many small to medium sized growers and processing operations are involved in 

the pickled vegetable industry. We grow and process a group of vegetable crops, including cucumbers, peppers, carrots, onions, garlic, cauliflower, cabbage (Sauerkraut) and Brussels sprouts, that are referred to as minor’ crops. None of these 

crops is in any ‘‘commodity program’’ and as such, do not rely upon taxpayer subsidies. However, current farm value for just cucumbers, onions and garlic is $2.3 billion with an estimated processed value of $5.8 billion. These crops represent important sources of income to farmers, and the processing operations are important employers in rural communities around the United States. Growers, processing plant 

employees and employees of suppliers to this industry reside in all 50 states. To realize its potential in the rapidly changing American economy, this industry will rely 

upon a growing stream of appropriately directed basic and applied research from 

four important research programs within the Agricultural Research Service. With 

strong research to back us up, we believe our industry can make a greater contribution to better diets and better health. 

VEGETABLE CROPS RESEARCH LABORATORY, MADISON, WISCONSIN

First, I would like to thank the Committee for $200,000 additional funding it provided the fiscal year 2002 budget to carry out field and processing research vital 

to the membership of PPI. However, to continue this important work it is necessary 

for the Congress restore this funding in fiscal year 2005, since the funds were not 
527 

included in the budget sent to the Congress. The USDA/ARS Vegetable Crops Research Unit at the University of Wisconsin is the only USDA research unit dedicated to the genetic improvement of cucumbers, carrots, onions and garlic. Three scientists in this unit account for approximately half of the total U.S. public breeding 

and genetics research on these crops. Their past efforts have yielded cucumber, carrot and onion cultivars and breeding stocks that are widely used by the U.S. vegetable industry (i.e., growers, processors, and seed companies). These varieties account for over half of the farm yield produced by these crops today. All U.S. seed 

companies rely upon this program for developing new varieties, because ARS programs seek to introduce economically important traits (e.g., virus and nematode resistance) not available in commercial varieties using long-term high risk research 

efforts. The U.S. vegetable seed industry develops new varieties of cucumbers, carrots, onions, and garlic and over twenty other vegetables used by thousands of vegetable growers. The U.S. vegetable seed, grower, and processing industry, relies upon 

the USDA/ARS Vegetable Crops Research Unit for unique genetic stocks to improve 

varieties in the same way the U.S. health care and pharmaceutical industries depend on fundamental research from the National Institutes of Health. Their innovations meet long-term needs and bring innovations in these crops for the United 

States and export markets, for which the United States has successfully competed. 

Past accomplishments by this USDA group have been cornerstones for the U.S. vegetable industry that have resulted in increased profitability, and improved product 

nutrition and quality. 

Both consumers and the vegetable production and processing industry would like 

to see fewer pesticides applied to food and into the environment in a cost-effective 

manner. Scientists in this unit have developed a genetic resistance for many major 

vegetable diseases. Perhaps the most important limiting factor in the production of 

cucumbers has been its susceptibility to disease. New research progress initiated in 

the 1990s and continuing today in Madison has resulted in cucumbers with improved pickling quality and suitability for machine harvesting. Viral and fungal diseases threaten much of the U.S. cucumber production. New sources of genetic resistance to these diseases have recently been mapped on cucumber chromosomes to provide a ready tool for our seed industry to significantly accelerate the development 

of resistant cultivars for U.S. growers. Likewise, new cultivar resistances to environmental stress like cold, heat and salt stress discovered by these scientists will help 

cucumber growers produce a profitable crop where these stressful conditions occur. 

The development of DNA markers that are associated with traits for tolerance of 

biological stress will help public and private breeders more efficiently develop 

stress-resistant varieties because selection for improved varieties can be done in the 

laboratory as well as in the field saving time and the costly expenses associated 

with field testing. Nematodes in the soil deform carrot roots to reduce yield from 

10 percent to over 70 percent in major production areas. A new genetic resistance 

to nematode attack was recently discovered and found to almost completely protect 

the carrot crop from one major nematode. This genetic resistance assures sustainable crop production for growers and reduces pesticide residues in our food and environment. Value of this genetic resistance developed by the vegetable crops unit is 

estimated at $650 million per year in increased crop production, not to mention environmental benefits due to reduction in pesticide use. This group improved both 

consumer quality and processing quality of vegetables with a resulting increase in 

production efficiency and consumer appeal. This product was founded on carrot 

germplasm developed in Madison, Wisconsin. Carrots provide approximately 30 percent of the U.S. dietary vitamin A. With new carrots that have been developed, nutritional value of this crop has tripled, including the development of nutrient-rich 

cucumbers with increased levels of provitamin A. Using new biotechnological methods, a system for rapidly and simply identifying seed production ability in onions 

has been developed that reduces the breeding process up to 6 years. A genetic map 

of onion flavor and nutrition will be used to develop onions that are more appealing 

and healthy for consumers. Garlic is a crop familiar to all consumers, but it has not 

been possible to breed new garlic varieties until a new technique for garlic seed production was recently developed and is now being bred like other crops. 

There are still serious vegetable production problems, which need attention. For 

example, losses of cucumbers, onions, and carrots in the field due to attack by 

pathogens and pests remains high, nutritional quality needs to be significantly improved and U.S. production value and export markets could certainly be enhanced. 

Genetic improvement of all the attributes of these valuable crops are at hand 

through the unique USDA lines and populations (i.e., germplasm) that are available 

and the new biotechnological methodologies that are being developed by the group. 

The achievement of these goals will involve the utilization of a wide range of biological diversity available in the germplasm collections for these crops. Classical plant 
528 

breeding methods combined with bio-technological tools such as DNA marker-assisted selection and genome maps of cucumber, carrot and onion will be the methods 

to implement these genetic improvements. With this, new high-value vegetable 

products based upon genetic improvements developed by our USDA laboratories can 

offer vegetable processors and growers expanded economic opportunities for United 

States and export markets. 

U.S. FOOD FERMENTATION LABORATORY, RALEIGH, NORTH CAROLINA

The USDA/ARS Food Fermentation Laboratory in Raleigh, NC is the major public 

laboratory that this industry looks to as a source for new scientific information and 

development of new processing concepts related to fermented and acidified vegetables. This industry has a critical need for an increased level of food safety research 

do to the recognition that there are acid tolerant food pathogens, including E. coli, 

listeria and salmonella, that can survive and cause illness in acid foods like apple 

and orange juice. We need to determine the extent to which the acidified foods we 

produce are vulnerable to these pathogens. If vulnerabilities are found to exist, practical means must be found to assure that these pathogens are killed, while maintaining the quality of our products that our customers expect. The Food Fermentation Laboratory has unique capabilities in this area because the scientists are very 

knowledgeable with the processing operations used in this industry and the practical problems processors must deal with in making high quality products from cucumbers, peppers, cabbage and other vegetables. Scientists from this laboratory 

have been working cooperatively with the industry and with FDA to develop new 

guidelines for filing safe processes to assure that acid tolerant pathogens are killed 

in current products. These new guidelines are currently being implemented. The scientists are actively engaged in research projects to develop improved approaches to 

eliminate these food pathogens from fermented and acidified vegetable products. 

However, success will require sustained effort as we learn more about the ways in 

which these pathogens can enter our food supply and discover new approaches to 

eliminating them from our products. PPI thanks the Congress for $270,000 additional funding it provided in the fiscal year 2004 budget so that a microbial physiologist can be hired into this unit to carry out this research, which is critical for 

the membership of PPI. However, to continue this important work it is necessary 

for the Congress restore this funding in fiscal year 2005, since the funds were not 

included in the budget sent to the Congress. 

The competitive environment from world markets in which our processors operate 

today requires that research on new processing techniques and product quality 

issues must also be maintained and enhanced. Over the years this laboratory has 

been a source for innovations in this industry, which have helped us remain competitive in the current global trade environment. We expect the research done in 

this laboratory to lead to new processing and product ideas that will increase the 

economic value of this industry and provide consumers with high quality, more 

healthful vegetable products. In addition to the newer challenges, this industry 

needs better technology for waste minimization related to salt and organic waste 

generated in our processing plants. 

This laboratory is conducting research on cucumbers, peppers, cabbage, 

sweetpotatoes, and other produce. A restructuring technology has been developed 

that offers a potential for development of convenient to use sweetpotato products 

that are high in nutritional value. Minimal processing techniques for refrigerated 

products from cucumbers and sweetpotatoes are also under development. Continued 

technological advancement must occur so that U.S. farmers and processors can meet 

competition from emerging countries that often have less strict environmental 

standards and lower labor costs. To enhance the processing and waste minimization 

research of this unit we request creation of a new position for a Food Process Engineer to work with the Food Technologists and Microbiologists in the unit to design 

and improve processes and packaging systems that are used for acidified, fermented, 

and minimally processed vegetables. 

SUGARBEET AND BEAN RESEARCH UNIT, EAST LANSING, MICHIGAN

USDA/ARS Cucumber Sanitation and Vegetable Post Harvest Quality and Food 

Safety Engineering Research is a component of the Sugarbeet and Bean Research 

Unit, East Lansing, Michigan. The Vegetable Post Harvest Quality Research Program is the only Federally funded research program that uses engineering principles and technology to address post harvest sanitation and food quality of vegetable concerns on a sustained and programmatic basis. The goals of this research 

are reflected in the Mission Statement of the CRIS, which is to apply engineering 

solutions to ameliorate post harvest losses of pickling cucumbers from soil borne 
529 

plant pathogens and develop new wash water systems for ensuring the sanitation 

of cucumbers from rot type pathogens. 

The Vegetable Post Harvest Quality Research CRIS is severely under funded and 

because of the shortage of base funds no full time scientist (SY) is working on the 

critical problems facing the industry. In fiscal year 2000, a postdoctoral research associate worked to address the chlorine dioxide problem and initiated the dump tank 

treatment experiments. However, the postdoctoral resigned to take another position. 

In 2003, the Vegetable Post Harvest Quality Research CRIS hired another 

postdoctoral research associate to explore alternative methodologies via genetics and 

genomics to maintain long-term food safety and sustainable production of pickling 

cucumbers. Goals of this 2-year project are to: (1) Develop genomic infrastructure 

for pickling and other cucumbers by developing genomic and cDNA libraries; (2) Determine the nucleotide sequence code for as many pickling cucumber genes to be 

represented as Expressed Sequence Tags as practical; (3) Examine changes in gene 

expression during fruit development and in response to attack by fruit rotting 

pathogens; and (4) Develop genetic intervention strategies to combat fruit rot caused 

by Phytophthora capsici. These goals dovetail with recent infrastructure and equipment investments in both breeding and genomic responsibilities of the Sugarbeet 

CRIS. Phytophthora fruit rot is the most serious threat to Michigan growers since 

symptoms are not generally evident until after harvest, Phytophthora fruit rot can 

render entire lots of pickling cucumbers worthless during the 3 days of transport 

and handling just before to processing. Effective disease management is currently 

unavailable, and the disease is spreading rapidly throughout Michigan cucumber 

and snap bean growing regions. 

Post harvest rotting is a major concern to the pickled vegetable industry. Growers 

and processors go to great lengths to sanitize the surface of vegetable produce 

through a variety of methods including washing, spraying, brushing, chemical treatments, etc. These sanitizing systems may be losing effectiveness, and they can also 

be costly to implement and maintain and may be environmentally hazardous. New 

equipment and systems need to be developed, tested, and evaluated in order to ensure produce safety for all growers, retailers, and consumers. New pickling cucumber germplasm that is resistant to its major post-harvest pathogens is urgently 

needed. Such germplasm is currently unavailable, and understanding the basic biology of the infection processes is needed to transfer information from model plant 

genomes for practical application in limiting post-harvest loss of pickling cucumbers. 

This CRIS urgently needs an additional $100,000 in Federal appropriations to 

conduct the critical research at the scope expected for a permanent scientist to solve 

basic problems and make an impact on the cucumber industry. 

U.S. VEGETABLE LABORATORY, CHARLESTON, SOUTH CAROLINA

The research program at the USDA/ARS, U.S. Vegetable Laboratory in Charleston, SC addresses established national problems in vegetable crop production and 

protection with emphasis on the southeastern United States. This research program 

is internationally recognized for its accomplishments, which have resulted in development of over 150 new vegetable varieties and lines along with the development 

of many new and improved disease and pest management practices. This laboratory’s program currently addresses 14 vegetable crops including those in the cabbage, cucumber, and pepper families, which are of major importance to the pickling 

industry. The mission of the laboratory is to (a) develop disease and pest resistant 

vegetable crops and (b) develop new, reliable, environmentally sound disease and 

pest management programs that do not rely on conventional pesticides. 

Continued expansion of the Charleston program is crucial. Vegetable growers 

must depend heavily on synthetic pesticides to control diseases and pests. Cancellation and/or restrictions on the use of many effective pesticide compounds are having 

a considerable influence on the future of vegetable crop production. Without the use 

of certain pesticides, growers will experience crop failures unless other effective, 

non-pesticidal control methods are found quickly. The research on improved, more 

efficient and environmentally compatible vegetable production practices and genetically resistant varieties at the U.S. Vegetable Laboratory continues to be absolutely 

essential. This gives U.S. growers the competitive edge they must have to sustain 

and keep this important industry and allow it to expand in the face of increasing 

foreign competition. 

FUNDING NEEDS FOR THE FUTURE

It remains critical that funding continue to maintain the forward momentum in 

pickled vegetable research the United States now enjoys and to increase funding 

levels as warranted by planned expansion of research projects to maintain United 
530 

States competitiveness. We also understand that discretionary funds are now used 

to meet the rising fixed costs associated with each location. Additional funding is 

needed at the Wisconsin and South Carolina programs for genetic improvement of 

crops essential to the pickled vegetable industry, and at North Carolina and Michigan for development of environmentally-sensitive technologies for improved safety 

and value to the consumer of our products. The fermented and acidified vegetable 

industry is receptive to capital investment in order to remain competitive, but only 

if that investment is economically justified. The research needed to justify such capital investment involves both short term (6–24 months) and long term (2–10 years 

or longer) commitments. The diverse array of companies making up our industry assumes responsibility for short-term research, but the expense and risk are too great 

for individual companies to commit to the long-term research needed to insure future competitiveness. The pickled vegetable industry currently supports research efforts at Wisconsin and North Carolina and anticipates funding work at South Carolina and Michigan as scientists are put in place. Donations of supplies and processing equipment from processors and affiliated industries have continued for many 

years. 

U.S. Vegetable Laboratory, Charleston, South Carolina 

The newly constructed laboratory-office building at the U.S. Vegetable Laboratory 

was occupied in April 2003. Design of the accompanying greenhouse and headhouse 

research space is underway using the funds appropriated for this purpose in fiscal 

year 2003. In fiscal year 2004, construction of the headhouse component was funded, 

but $10.9 million is still needed to construct the greenhouses. This new facility replaces and consolidates outmoded laboratory areas that were housed in 1930s-era 

buildings and trailers. Completion of the total research complex will provide for the 

effective continuation and expansion of the excellent vegetable crops research program that has been conducted by the Agricultural Research Service at Charleston 

for over 60 years. It is most critical to the mission of the U.S. Vegetable Laboratory 

that the fiscal year 2003 and fiscal year 2004 appropriated funds for expansion of 

the Charleston research staff be maintained in fiscal year 2005. In addition, new 

funds are still needed to hire additional scientists to expand the research program. 

An Entomologist is needed to facilitate development of host resistance and new 

management approaches to a wider range of established insect pests of vegetable 

crops; a Molecular Biologist is needed to develop and utilize molecular techniques 

for pathogen and pest population studies necessary to development of new management approaches and resistant genetic stocks. Both of these new scientific positions 

will greatly contribute to the accomplishment of research that will provide for the 

effective protection of vegetable crops from disease and pests without the use of conventional pesticides. Each of these positions requires a funding level of $330,000 for 

their establishment. 

Appropriations to restore new scientific staff needed Current status from fiscal year 2003 and 2004 

New funds needed $770,000.00 

Entomologist .................................................................................................. Needed .................................... $330,000 

Molecular Biologist ........................................................................................ Needed .................................... 330,000 

Total new funds ............................................................................... ................................................. 660,000 

Food Fermentation Laboratory, Raleigh, North Carolina 

With the additional funds provided in the fiscal year 2004 budget, current base 

funding for four scientists at the laboratory is $1,183,000. However, the $270,000 

increase that raised fiscal year 2004 funds to this level are not in the fiscal year 

2005 budget submitted to congress. Thus, restoration of the $270,000 is urgently requested. An additional $317,000 is needed to create a new position for a Food Process Engineer, and to fully fund the unit scientists, clerical and technical help, including graduate and post-doctorate students. 

Scientific Staff Current Status Funds Needed 

Microbiologist ............................................................................................. Active .................................... $300,000 

Chemist ...................................................................................................... Active .................................... 300,000 

Food Technologist/Biochemist ................................................................... Active .................................... 300,000 

Microbial Physiologist ................................................................................ Hiring process initiated ........ 270,000 

Food Process Engineer ............................................................................... Needed .................................. 300,000 
531 

Scientific Staff Current Status Funds Needed 

Total funding required ................................................................. ............................................... 1,500,000 

Current funding ............................................................................ ............................................... ¥1,183,000 

Proposed reduction ....................................................................... ............................................... 270,000 

Additional funding needed ........................................................... ............................................... 621,000 

Vegetable Crops Research Laboratory Unit, Madison, Wisconsin 

Current base funding for three scientists is $832,400, of which $200,000 was 

added in fiscal year 2002. An additional $245,400 is needed to fully fund the scientists and support staff, including graduate students and post-doctorates. 

Scientific Current status Funds needed 

Geneticist ....................................................................................................... Active ...................................... $300,000 

Horticulturist .................................................................................................. Active ...................................... 300,000 

Geneticist ....................................................................................................... Active ...................................... 300,000 

Total required ................................................................................... ................................................. 900,000 

Current funding ................................................................................ ................................................. ¥832,400 

Proposed reduction ........................................................................... ................................................. 200,000 

Additional funding needed ............................................................... ................................................. 267,600 

A temporary addition of $200,000 was provided to enhance the research effort of 

this program in fiscal year 2002, and we greatly appreciate that additional support, 

but that addition is being proposed for reduction in fiscal year 2004. Thus, the restoration of the funds proposed for reduction, is urgently requested. We request a 

$267,600 permanent addition this year to sustain the long-term research of this 

group. 

Sugarbeet And Bean Research Unit, East Lansing, Michigan 

A $100,000 increase in the current base funding level of the CRIS would permit 

ARS to recruit a full-time scientist (SY) to programmatically investigate the complex 

nature cucumber sanitation and vegetable post harvest quality. 

Scientifc staff Current status Funds needed 

Post Doctorate to full SY ............................................................................... Active ...................................... $200,000 

Total Required ................................................................................................ ................................................. 300,000 

Additional funding needed ............................................................................ ................................................. 100,000 

Thank you for your consideration of these needs and your expression of support 

for the USDA/ARS. 

PREPARED STATEMENT OF THE RED RIVER VALLEY ASSOCIATION

Mr. Chairman and members of the Committee, I am Wayne Dowd, and I am 

pleased to represent the Red River Valley Association as its President. Our organization was founded in 1925 with the express purpose of uniting the citizens of Arkansas, Louisiana, Oklahoma and Texas to develop the land and water resources 

of the Red River Basin. 

The Resolutions contained herein were adopted by the Association during its 79th 

Annual Meeting in Bossier City, Louisiana on February 19, 2004, and represent the 

combined concerns of the citizens of the Red River Basin Area as they pertain to 

the goals of the Association. 

As an organization that knows the value of our precious water resources we support the most beneficial water and land conservation programs administered 

through the Natural Resources Conservation Service (NRCS). We understand that 

attention and resources must be given to our national security; however, we cannot 

sacrifice what has been accomplished on our Nation’s lands. NRCS programs are a 
532 

model of how conservation programs should be administered and our testimony will 

address the needs of the Nation as well as our region. The President’s fiscal year 2005 budget for NRCS indicates a decrease of $216 

million from what Congress appropriated in fiscal year 2004. In reality, NRCS is 

taking a major decrease in program funding and staff years. Inadequate Technical 

Assistance (TA) funding for mandatory support to CCC Farm Bill programs compounds this reduction of direct funding. The fiscal year 2005 budget reflects a serious shortfall in services for landowner assistance that will not be available in fiscal 

year 2005. This is also reflected in the fact that NRCS manpower for fiscal year 

2005 would have to decrease by 1,450 staff years if the President’s budget is implemented. This is unacceptable. 

This means that NRCS assistance to landowners will not be adequately funded, 

to the detriment of the Nation and our natural resources. We would like to address 

several of the programs administered by NRCS. Failure to adequately fund these 

initiatives would reduce assistance to those who want it and the resources that need 

protection. 

Conservation Operations.—This has been in steady decline, in real dollars, over 

the past several years. It has occurred partly as a result of funds being reduced 

from Conservation Operations to balance increases in technical assistance for mandatory conservation financial assistance programs. The President’s budget included $710.4 million, which is a decrease of $142.6 million from fiscal year 2004. This is the largest 1 year cut made by any administration 

in recent memory. We request a total of $930 million be appropriated for Conservation Operations 

for NRCS to meet the demands it faces today. 

Conservation Technical Assistance is the foundation of technical support and a 

sound, scientific delivery system for voluntary conservation to the private users and 

owners of lands in the United States. It is imperative that we provide assistance 

to all working lands’ not just those fortunate few who are able to enroll in a Federal 

program. Working lands are not just crops and pasture (commodity staples) but includes forests, wildlife habitat and coastal marshes. The problem is that NRCS personnel funded from mandatory programs’ can only provide technical assistance to 

those enrolled in these programs, leaving the majority of the agricultural community without technical assistance. We recommend that adequate funding, for technical assistance, be placed in ‘‘Conservation Technical Assistance’’, and allow NRCS 

to provide assistance to everyone. 

We do not support the use of third party vendors for technical assistance as a replacement of career NRCS public servants, but they may be utilized ‘‘in addition to’’. 

We have to address the question of quality assurance and administration for these 

programs. Why establish a new process that will ultimately cost more than using 

the in-house expertise that now exists and has proven to be successful? We believe 

third party vendors can be made available only after NRCS staffing is brought up 

to levels commensurate with the increase in workload caused by the Farm Bill, not 

to replace NRCS staffing. 

Watershed and Flood Prevention Operations (Public Laws 566 & 534).—We are 

greatly disappointed that the President’s Budget provided only $40.2 million for watershed operations. There is no doubt that this is a Federal responsibility, in conjunction with a local sponsor. We ask our legislators to support the local sponsors 

in this national issue. This funding level is too low to support a national program, 

as important as this one. 

We are very appreciative for the funding level of $87 million enacted in the fiscal 

year 2004 appropriations bill. It is reassuring to know that both the House and Senate realize the importance of this program to the agricultural community. 

There are many new projects, which are awaiting funds for construction under 

this program. We strongly recommend that a funding level of $200 million be appropriated for Watershed Operations Programs, Public Law 534 ($20 million) and Public Law 566 ($180 million). 

The Red River has proven, through studies and existing irrigation, to be a great 

water source for ‘‘supplemental’’ irrigation. The two projects mentioned below, will 

use existing, natural bayous to deliver water for landowners to draw from. The majority of expense will be for the pump system to take water from the Red River to 

the bayous. This project will provide the ability to move from ground water dependency to surface water, an effort encouraged throughout the Nation. Both will enhance the environmental quality and economic vitality of the small communities adjacent to the projects. 

—Walnut Bayou Irrigation Project, AR.—This project received $300,000 in the fiscal year 2004 appropriations. Plans and specifications have been completed and 

it is ready to proceed into the construction phase. An irrigation district has been 
533 

formed and they are prepared to take on the responsibility to generate the income for the O&M required to support this project. We request that $4,000,000 

be appropriated for this specific project in fiscal year 2005. —Red Bayou Irrigation Project, LA.—The plans and specifications will be completed in fiscal year 2004 making this project ready for construction in fiscal 

year 2005. An irrigation district has been formed and is prepared to collect 

funds to support the O&M for this proposed system. We request that $2,500,000 

be specifically appropriated to begin construction in fiscal year 2005. 

Watershed Rehabilitation.—More than 10,400 individual watershed structures 

have been installed nationally. They have contributed greatly to conservation, environmental protection and enhancement, economic development and the social well 

being of our communities. More than half of these structures are over 30 years old 

and several hundred are approaching their 50-year life expectancy. Today you hear 

a lot about the watershed approach to resource management. These programs offer 

a complete watershed management approach and should continue for the following 

reasons: —They protect more people and communities from flooding now than when they 

were first constructed. 

—Their objectives and functions sustain our Nation’s natural resources for future 

operations. 

—They are required to have local partners and be cost shared. 

—The communities and NRCS share initiatives and decisions. 

—They follow NEPA guidelines and enhance the environment. 

—They often address the need of low income and minority communities. 

—The benefit to cost ratio for this program has been evaluated to be 2.2:1. 

What other Federal program can claim such success? 

There is no questioning the value of this program. The cost of losing this infrastructure exceeds the cost to reinvest in our existing watersheds. Without repairing 

and upgrading the safety of existing structures, we miss the opportunity to keep our 

communities alive and prosperous. It would be irresponsible to dismantle a program 

that has demonstrated such great return and is supported by our citizens. We cannot wait for a catastrophe to occur where life is lost to decide to take on this important work. 

A 1999 survey, conducted in 22 states, showed that 2,200 structures are in need of immediate rehabilitation at an estimated cost of $543 million. The President’s 

budget neglects the safety and well being of our community needs by placing only 

$10.1 million for this program. This is drastically lower than the levels authorized 

in the 2002 Farm Bill. We request that $65 million be appropriated to provide financial and technical assistance to those watershed projects where sponsors are prepared to commence rehabilitation measures, as directed in the 2002 Farm Bill. 

Watershed Survey and Planning.—In fiscal year 2004 $10.6 million was appropriated to support this extremely important community program. NRCS has become 

a facilitator for the different community interest groups, state and Federal agencies. 

In our states such studies are helping identify resource needs and solutions where 

populations are encroaching into rural areas. The Administration decided to fund 

this program with only $5.1 million. We strongly disagree with this low level and 

ask Congress to fund his important program at the appropriate level. As our municipalities expand, the water resource issue tends to be neglected until a serious problem occurs. Proper planning and cooperative efforts can prevent problems and insure that water resource issues are addressed. We request this program be funded 

at a level of $35 million. 

We request that the following two studies be specifically identified and funded in 

the fiscal year 2005 appropriations bill. 

—Maniece Bayou Irrigation Project, AR.—This is a project in its initial stage of 

planning. An irrigation district is being farmed to be the local sponsor. This 

project transfers water from the Red River into Maniece Bayou where landowners would draw water for supplemental irrigation. We request that $200,000 

be appropriated to initiate the plans and specifications. 

—Lower Cane River Irrigation Project, LA.—The transfer of water from the Red 

River to the Lower Cane River will provide opportunities for irrigation and economic development. Funds are needed to initiate a Cooperative River Basin 

Study. We request that $350,000 be appropriated for this study. 

Emergency Watershed Protection Program.—This program has traditionally been 

funded through Emergency Supplemental Appropriations and administered by 

NRCS through its Watershed and Flood Prevention Operations. It has traditionally 

been a zero budget line item, because it relies on a supplemental appropriation. 

As our populations expand and shift, land use changes and intensifies. Impacts 

of severe weather events are becoming more intense on our communities, rivers and 
534 

related eco-systems. These major weather events will have an adverse impact requiring urgent NRCS assistance. It is important that NRCS is prepared for a rapid 

response, not waiting for legislative action to provide funds for emergency work. 

With some funds available, they would be able respond immediately to an emergency when it occurs and not have to wait for an emergency supplemental to be 

passed. We request that $20 million be appropriated as ‘‘seed’’ funding to allow NRCS to 

react to an emergency while the full need is determined and added through a supplemental appropriation. 

Resource Conservation and Development (RC&D).—This has always been a wellreceived program by the Administration. Their budget proposal of $50.8 million is 

adequate to accomplish the needs of the Nation and we support this level of funding. 

Mandatory Accounts (CCC) Technical Assistance (TA).—Request for assistance 

through the CCC programs has been overwhelming. Requests far exceed the available funds and place an additional workload on NRCS’s delivery system. Adequate 

funding for TA must be provided at the full cost for program delivery. This includes 

program administration, conservation planning and contracting with each applicant. 

Congress, in the 2002 Bill, wisely increased conservation programs each year. This 

increased investment with the multi-year CCC programs will increase the NRCS 

workload; therefore, NRCS must receive the TA funds to administer these programs. 

The mandatory CCC programs for fiscal year 2005 have been appropriated at a 

level of $3.9 billion. Only $465 million (12 percent) has been allocated in TA for 

NRCS. Historically 19 percent of total program cost has been required. NRCS will 

have to fund this TA requirement at a level of $741 million. The short fall will no 

doubt leave program monies unexpended because NRCS will not have enough funds 

to service the multiyear contracts written to date under this and the previous farm 

bill plus service the fiscal year 2005 program applicants. This makes landowners the 

real losers. 

We request that the CCC Program budget TA in the fiscal year 2005 Appropriations Bill at the full cost of technical assistance, for each program, which must be 

at least $741 million (19 percent). 

Over 70 percent of our land is privately owned. This is important in order to understand the need for NRCS programs and technical assistance. Their presence is 

vital to ensuring sound technical standards are met in conservation. These programs not only address agricultural production, but sound natural resource management. Without these programs and NRCS properly staffed to implement them, many 

private landowners will not be served adequately to apply conservation measures 

needed to sustain our natural resources for future generations. 

There have been new clean water initiatives, but why do we ignore the agency 

that has a proven record for implementing watershed conservation programs? Congress must decide; will NRCS continue to provide the leadership within our communities to build upon the partnerships already established? It is up to Congress to 

insure NRCS is properly funded and staffed to provide the needed assistance to our 

taxpayers for conservation programs. 

All these programs apply to the citizens in the Red River Valley and their future 

is our concern. The RRVA is dedicated to work toward the programs that will benefit our citizens and provide for high quality of life standards. We therefore request 

that you appropriate the requested funding within these individual programs, to insure our Nation’s conservation needs are met. 

I thank you for the opportunity to present this testimony on behalf of the members of the Red River Valley Association and we pledge our support to assist you 

in the appropriation process. Please direct your comments and questions to our Executive Director, Richard Brontoli, P.O. Box 709, Shreveport, LA 71162, (318) 221– 

5233, E-mail: redriverva@hotmail.com. 

Grant Disclosure.—The Red River Valley Association has not received any Federal 

grant, sub-grant or contract during the current fiscal year or either of the two previous fiscal years. 

PREPARED STATEMENT OF THE SOCIETY OF AMERICAN FORESTERS

The Society of American Foresters (SAF) represents approximately 17,000 forestry 

professionals in all sectors of the profession. SAF members pledge to use their conservation ethic to ensure the continued health and use of forest ecosystems and the 

present and future availability of forest resources to benefit society. The programs 

of the Natural Resource Conservation Service (NRCS), the U.S. Department of Agriculture (USDA) research budget, and the Cooperative State Research, Education 

and Extension Service (CSREES) contribute to the achievement of these ideals by 
535 

supporting education, research, and technology associated with the practice of forestry and the stewardship and sustainability of this country’s forest resources. 

Through these Agencies, partnerships are built with other government entities, universities, and private organizations to advance forest management objectives on 

both public and private forest land to improve the management of these valuable 

resources. Federal appropriations facilitate these collaborative partnerships. 

Renewable Resources Extension Act Program (RREA) 

Forest resource management is increasingly complex, as we place increasing demands on our forest resources, the number of family forest landowners grow while 

the total acreage these families own decreases, urban sprawl and development pressures persist, and forest health issues persist on both public and private forest 

lands. Family forest owners need information and assistance to be able to address 

these problems. 

Current budget deficits demand we leverage the most value from every dollar invested. Research funding is no exception. Outreach and extension, which assists in 

the translation of research findings to solve real world problems, greatly increases 

the value of our research investment. Through the RREA program, much needed 

outreach and extension is provided at universities around the country. These efforts 

utilize research findings, making investments in research increasingly important. 

When Congress reauthorized the RREA program in the 2002 Farm Bill, legislation was included to create a new Sustainable Forestry Outreach Initiative (SFOI). 

SFOI would capitalize on and coordinate private sector initiatives aimed at achieving sustainable forestry. The program will assist landowners in understanding the 

broad array of choices before them, and facilitate their use of one or more of these 

programs designed to improve forest management. 

SAF strongly supports increased funding for the Renewable Resources Extension 

Act program and the Sustainable Forestry Outreach Initiative for fiscal year 2005. 

We would like to see the program funded at the recently authorized level of $30 million. Though we are asking for a modest increase, we believe there is great potential 

for success with the RREA and SFOI programs. 

The Natural Resource Conservation Service (NRCS) 

Through NRCS, family forestland owners can receive assistance for a variety of 

conservation practices, influencing the stewardship of these valuable resources. Several programs administered by NRCS are key to assisting family forest owners, including the Environmental Quality Incentives Program, the Wildlife Habitat Incentives Program, the Conservation Reserve Program, and the Wetlands Reserve Program. We strongly support full funding for these programs and will continue to 

work with NRCS to address family forest owner needs through these programs. 

With the passage of the 2002 Farm Bill, NRCS responsibilities have greatly increased. However, the proposed budget for fiscal year 2005 does not reflect these increases, and instead decreases funding for Conservation Operations to $710 million. 

We recommend increasing this funding to at least that of the fiscal year 2004 enacted level, $848 million. This will better enable the Agency to meet the increasing 

demands for the technical expertise and address critical resource concerns on private lands. 

The proposed budget creates a separate account to fund conservation technical assistance for two Farm Bill programs, the Conservation Reserve Program and the 

Wetlands Reserve Program. We hope this solution will resolve the issues associated 

with technical assistance and allow implementation of all the 2002 Farm Bill programs at authorized levels without compromising the delivery of these important 

programs to millions of private landowners in need of assistance. 

Forestry Research 

As populations grow, the demands we place on our forest resources, both tangible 

and intangible, continue to increase. Forestry Research is crucial to enable forest 

managers to make decisions and continue to sustainably meet the demands on our 

forest resources. This research provides new and innovative ways to manage forests 

and address the environmental, social, and economic concerns that forest managers 

are faced with. The SAF believes forestry research should be funded through both 

public and private investments. Two programs within the USDA budget provide 

public funding for forestry research: The Cooperative Forestry Research (McIntire 

Stennis) Program and the National Research Initiative. 

The Cooperative Forestry (McIntire-Stennis) Research Program supports university-based research on critical forestry issues and is an important part of the collaborative forestry research effort among Federal, state, and private sector scientists. The SAF supports increasing funding for this program to $30 million. The 

research accomplished with this funding is critical to the development of new infor-
536 

1 ‘‘Preliminary Census Results Give First Look at Changing Face of Agriculture’’. USDA Release No. 0063.04 

mation and technologies that increase not only the efficiency and productivity of forest management on all forest ownerships for the full range of forest benefits, but 

also provide information for developing natural resource management policy. 

McIntire-Stennis research funds are granted directly to public colleges and universities on a matching basis, leveraging more than three state and university dollars 

for every Federal dollar. This program has provided funding for research demands 

that have not been met through other private and public sector programs. We believe at least $30 million is justified to meet these needs. 

The National Research Initiative (NRI), a competitive grant program, provides 

funding for research on various issues in the biological and environmental sciences 

arena. Through this program, grants are awarded on a matching basis to university 

researchers in biological, environmental, and engineering sciences to address critical 

problems in agriculture and forestry. The SAF strongly supports the increase in 

funding proposed in the fiscal year 2005 budget, and recommends this funding be 

allocated with an increased focus on renewable natural resource areas. We strongly 

believe this combination of formula-based and competitive-based research funding to 

be appropriate if we are to maintain the long-term stability and focus required in 

forestry research, and to foster new and innovative thinking characteristic of competitive grants. 

Thank you for your consideration. 

PREPARED STATEMENT OF THE U.S. AGRICULTURAL EXPORT DEVELOPMENT COUNCIL

U.S. agricultural exporters want to compete on a level playing field. However, foreign governments continue to manipulate markets and production which means U.S. 

agricultural exporters need Washington’s support to overcome this inequity. The 

record shows that U.S. agriculture takes this public-private partnership very seriously and contributes significant amounts of its own resources to the effort. 

Further, U.S. agriculture and the U.S. Department of Agriculture (USDA) are 

using strategic planning, program evaluation, quantifiable goals, and a competitive 

award process to ensure that taxpayer’s money is being used in a way which generates the biggest returns for the U.S. economy and its 850,000 citizens who depend 

on a healthy agricultural export sector for their livelihood. 

The U.S. Agricultural Export Development Council (USAEDC) respectfully urges 

this subcommittee to fully support fiscal year 2005 export promotional efforts at the 

level legislated in the Farm Security and Rural Investment Act (FSRIA) of 2002: 

the Foreign Market Development (FMD) Program at a level of $34.5 million and the 

Market Access Program (MAP) at a level of $140 million. We also urge the subcommittee to support a strong USDA Foreign Agricultural Service (FAS), our partner in promoting increased U.S. agricultural exports. 

First and foremost, it is important to revisit the role agricultural exports play in 

the health of our national economy and the well being of our citizenry. Every $1 

billion in agricultural exports supports approximately 15,000 United States direct 

and indirect jobs. With our $56.2 billion in agricultural exports in 2003, this means 

a successful U.S. agriculture export effort was responsible for 850,000 jobs. (These 

figures do not include forestry or fishery products which increase export sales by 

an additional $7.9 billion or 120,000 jobs.) Agricultural exports play an important 

role in every region of the country, including the South (117,000 jobs), the Pacific 

Northwest (53,000 jobs), and the Midwest (305,000 jobs). Ninety percent of America’s agricultural operations are still run by individuals or families and most are 

still small farms.1

These jobs not only ensure family incomes, but also help grow the national tax 

base, increasing revenue to the Treasury and contributing in no small way to the 

reduction of our rising national debt. At a time when job creation is at a minimum, 

everything that can be done to maintain this sector is vital. Without a healthy agricultural export sector, we all lose. 

Ensuring the long-term vitality of U.S. agricultural exports is one of the missions 

of the U.S. Agricultural Export Development Council (USAEDC). A national, nonprofit, private sector trade association funded solely by its members, USAEDC’s 75 

members are U.S. farmer cooperatives, agricultural trade associations and state regional trade groups that in turn represent the interests of farmers, agribusinesses 

and manufacturers in every state of the Union. Our members represent producers 

of both bulk and high-value processed products, including grains, fruits and vegeta-
537 

bles, cotton, livestock, dairy products, seeds, fish, wood products, wine, poultry, 

nuts, and rendered products, among others. 

Our members continually strive to ensure the United States remains one of the 

most active agricultural exporting countries in the world. We proudly produce 

among the world’s highest quality and valued products as evidenced by our ability 

to be one of the few sectors of the U.S. economy to consistently run a positive balance of trade. In 2003, U.S. agriculture racked up a record year in exports: over $1 

billion per week in sales to more than 100 countries. Put another way, every 60 

minutes, nearly $6.5 million of U.S. agricultural products were consigned for export. 

Why Trade is Important to U.S. Agriculture 

Demand.—96 percent of the world’s food consumers live outside of the United 

States. 

Supply.—Farm production far exceeds United States demand/consumption. 

Capacity.—United States productivity is increasing due to improvements in technology and science. 

Market.—Two-thirds of the world’s purchasing power is outside of the United 

States. 

Sales.—Export market sales are growing at twice the rate of domestic sales. 

Export market sales account for over $1 billion per week to over 100 countries. 

Jobs.—Trade supports 850,000 badly needed jobs, 60 percent of which are in 

urban areas. 

Farm Income.—Trade generates 25 percent of farm cash receipts. 

Dependency.—Trade is one of the most export-dependent industries in the United 

States as domestic consumption levels off. 

Business.—Trade supports small businesses that employ three of four workers. 

Local Impact.—$1 of exports creates $1.50 in economic activity 

Production.—One of every three cropland acres is grown for export. 

Economy.—Agriculture is the only sector that posts a trade surplus year after 

year. 

The Potential for Future Growth 

U.S. agricultural exports reached $56.2 billion in 2003. The largest single markets 

were Canada and Japan, followed closely by Mexico. Trade with Canada has grown 

186 percent in the past 10 years and with Mexico by 200 percent for the same period. While China represents only 3 percent of exports today, trade has grown 700 

percent in 10 years and likely to continue apace. 

Projections show that the vast majority of world population growth will take place 

in developing countries. The middle class in key emerging markets is expected to 

grow by 600 million by 2006. This transition from a subsistence existence to ‘‘middle 

class’’ creates increased demand for quantity, quality and diversity of food. United 

States trade in high value products has increased sharply, another indicator of the 

growing buying power of our customers. China and India have been identified as 

the two nations that will grow the most exponentially and outstrip all others. The 

potential value to U.S. agricultural exports and the overall economy is clear and the 

means to access these markets with changing consumer tastes and preferences must 

be supported. As trade liberalization occurs, greater market development and marketing activities must be undertaken by U.S. agricultural groups to capture these 

new market opportunities and consumer demands. U.S. agriculture needs to be 

poised to take advantage of these opportunities. 

But Some Things Stand in Our Way 

U.S. agriculture has done well in a climate where international conditions remain 

extremely competitive. Foreign governments still bolster agricultural production, to 

the competitive disadvantage of the United States in foreign markets. The European 

Union alone currently spends more than $2 billion annually on agricultural export 

subsidies compared to less than $100 million by the United States, outspending the 

United States by more than 20 to 1. With the accession of additional countries into 

the EU, more and more countries will turn their attention to support for agricultural production for both their domestic and export markets. Through their spending and production decisions, foreign governments continue to strengthen traditional, and create new, competitors for U.S. exports. 

United States exporters also face ongoing unreasonably high tariffs in those markets that have been identified as the ‘‘growth’’ markets of the future. Regionally, 

South Asia’s tariffs are at 118 percent and the average agricultural tariff worldwide 

is 62 percent. The WTO and Regional Trade Agreements are working to break down 

these ‘‘classic’’ barriers but even when success is achieved, new non-tariff barriers 

are often substituted, impeding what could be significantly higher exports. 
538 

2 ‘‘Don’t Be Salesmen’’, The Economist, Jan. 2, 1997. 

Many countries have turned to sanitary and phytosanitary (S/PS) requirements 

as market entry barriers to U.S. agricultural products. Although said by their proponents to be based on sound science and thus objective, many of these S/PS barriers are in actuality an attempt to use practices that are not universally accepted 

to establish import regimes which effectively halt or severely restrict U.S. imports. 

The recent BSE (beef) and AI (poultry) incidents are cases in point. 

A myriad of other types of non-tariff barriers exist which prevent U.S. agriculture 

from reaching the exports levels of which it is capable. FAS, the ally of agricultural 

exports, and its overseas offices have compiled information on numerous cases of 

foreign assistance for agricultural production as well as barriers to trade. The National Trade Estimate of the Office of the U.S. Trade Representative catalogues this 

loss to U.S. agricultural exports from unfair foreign competition. Despite a significant commitment of their own resources, the United States private sector cannot 

overcome such extensive barriers alone. 

A U.S. Public-Private Partnership is Necessary and Appropriate 

American agriculture is 21⁄2 times more reliant on trade than the general economy; every effort should be made to insure its access to the world marketplace. 

Given the magnitude of the challenge, it would be unrealistic to expect either the 

United States private sector or the United States public sector to be able solely to 

overcome the barriers to foreign trade that U.S. agriculture faces. Since 1954, U.S. 

agriculture has worked successfully with the U.S. Government to remedy instances 

of foreign unfair competition and overcome market access barriers that have prevented U.S. exports from realizing their potential. To those who say there is no appropriate role for Washington in this fight, former U.S. Under Secretary of Commerce Jeffrey Garten, now dean of the Yale School of Management, sums up the 

situation quite well: ‘‘In the best of worlds, governments ought to get out of this 

business [of export promotion] altogether. But the marketplace is corrupted by the 

presence of government. So do you sit on the side and pontificate about Adam 

Smith, or do you enter the fray?’’ 2 Mr. Garten argues that Washington must enter 

into the battle or risk losing more U.S. jobs. 

USDA proposes funding a number of programs for U.S. agriculture which help the 

sector overcome these foreign trade barriers and market distortions. USAEDC commends the actions of this subcommittee in the past to fund these programs. We 

strongly support efforts by this Congress, as provided for in the Food Security and 

Rural Investment Act of 2002, to again provide a dynamic arsenal of programs to 

boost the efforts of U.S. agricultural producers to maintain current, and establish 

new, markets around the world. It is essential that the full range of USDA’s export 

programs be fully funded and aggressively implemented this coming year, including 

the Foreign Market Development (FMD) program at $34.5 million and the Market 

Access Program (MAP) at $140 million. 

Nowhere is the record of success of the public-private partnership more evident 

than in the FMD and MAP programs. USAEDC members consider these programs 

the ‘‘heavy artillery’’ in the USDA arsenal. These complementary programs have 

been instrumental in our record export performance. The Foreign Market Development Program is aimed at long-term marketing efforts, i.e., making infrastructural 

changes to foreign markets through training and educational efforts among members of the foreign trade and developing long-standing relationships with the trade. 

Successful efforts result in a modification of the foreign market structure so that 

U.S. products become an available, attractive, well understood alternative to other 

sources of competing products. FMD activities help the foreign importer, processor, 

and retailer to understand not only how to properly store, handle, process, and market the U.S. product, but also to appreciate its unique characteristics, high quality, 

and reliability of supply. 

The Market Access Program (MAP) complements the FMD program. Where FMD 

is aimed at building market relations, MAP is aimed at building market access and 

presence. Where FMD targets the importers/processors/retailers, MAP targets the 

end-user—the consumer. Through activities such as nutrition seminars, in-store promotions, contests, advertising, cooking demonstrations and the like, MAP participants create or capitalize on new trends in foreign consumption and increase the 

consumers’ awareness and level of comfort with the imported U.S. product. MAP 

provides the small United States branded companies and the United States specialty crops with the necessary funds to assist them in their efforts to gain their 

fair share in the global marketplace. 

The FMD program helps create new markets for U.S. agricultural exports.—For 

example, the American Soybean Association (ASA) has convinced three Malaysian 
539 

companies to produce full fat soybean meal (FFSBM) from imported U.S. soybeans 

for the local swine and poultry diets. Using FMD funds, ASA provided technical 

data, carried out team visits to other FFSBM facilities and conducted seminars on 

FFSBM benefits at feedmill and farm level, creating awareness and demand for 

FFSBM. As a result of ASA’s work, the three companies purchased 20,000 metric 

tons of U.S. soybeans valued at $6 million. The potential market for FFSBM in Malaysia is estimated at 200,000 MT, valued at $79 million per year. In a similar vein, 

the U.S. Wheat Associates (USWA) used FMD funds to demonstrate to Brazilian 

bakers potential wheat blends and end-use qualities of U.S. wheat. Through a special education and training program, USWA brought new baking techniques to a 

miller who grinds one million metric tons of wheat per year and has 15 percent of 

the flour market in Brazil. This company saw that using 40 percent of United States 

hard winter wheat in the flour blend—instead of 100 percent Argentine—would improve the final product. An initial sale of 25,000 MT of U.S. wheat is expected to 

lead to even more sales as more Brazilian bakers take part in the education and 

training sessions. 

The MAP program helps build market penetration for U.S. agricultural exports.— One example of this is the California Tree Fruit Agreement (CTFA). Faced with the 

required perennial renegotiations of the California growers’ access agreement with 

Mexico, CTFA used grower assessments and MAP funds to craft an aggressive advertising and in-store promotion campaign that was ready to launch as soon as the 

agreement was inked. This resulted in a record 2.3 million cartons (26,422 metric 

tons) of peaches, plums and nectarines, valued at $19 million in just a 4 month period. Similarly, a Missouri-based firm has partnered with the Mid-America International Agri-Trade Council (MIATCO) to export feed additives for livestock. 

Through a technically-oriented promotional campaign to educate and attract new 

customers, sales to Korea and Japan recently jumped 212 percent and 270 percent 

respectively. The company has a fermentation processing plant in Iowa, feed plants 

in Indiana and Nebraska, sources its yeast from Illinois, and purchases soymeal 

from farms throughout the Midwest, providing jobs to countless individuals. 

Numerous examples of other FMD and MAP program ‘‘success stories’’ are available on-line at www.usaedc.org. Therefore, USAEDC strongly supports an FSRIA 

2002 funding level of $34.5 million for FMD and $140 million for MAP for fiscal year 

2005. These amounts represent the levels that the House and Senate Agriculture 

Committees believed to be essential to the growth and maintenance of U.S. agricultural export markets. 

It is important to realize that the program participants contribute their industry’s 

money and manpower to participate in these programs. Contributions are requirements of both the FMD and MAP programs; no one is getting a ‘‘free ride.’’ Thus, 

the program participants have just as much, if not more, impetus to conduct responsible and effective FMD and MAP marketing programs. In fiscal year 2002, MAP 

participant contributions were 176 percent of total MAP dollars spent and FMD cooperator contributions were 146 percent of total FMD dollars spent. Another way 

to view this is that U.S. agriculture contributed $1.76 for every MAP program dollar 

spent and $1.46 for every FMD dollar expended. These numbers clearly illustrate 

the private sector’s strong belief in and commitment to the essential nature of the 

FMD and MAP programs, and that the public-private partnership approach is effective. 

U.S. agriculture is also active on other fronts to maximize opportunities for export 

increases, working with Washington in the trade policy arena. U.S. trade policy efforts have met with success in opening new markets to U.S. agricultural products. 

However, trade policy alone is not enough. Bringing down barriers to trade is only 

truly effective at increasing U.S. agricultural exports when followed by intensive 

marketing efforts. The FMD and MAP programs help U.S. agriculture do just that. 

Fine Tuning of the FMD and MAP Programs has Enhanced Effectiveness 

USAEDC members are as concerned as everyone in America about the ballooning 

federal budget deficit and the long-term fiscal health of this country. The public-private partnership in the FMD and MAP programs allows us to be proactive, increasing U.S. agricultural exports beyond that which U.S. agricultural interests would be 

able to do on their own. Increased exports generate increased tax revenues throughout the system and reduce farm payments as producers rely increasingly on the 

marketplace for their revenue. 

Annual independent evaluations are required by USDA to determine the past impact and future direction of their marketing programs. This evaluation is in addition 

to that conducted independently by many of the associations themselves as part of 

their own strategic planning. Program evaluations are reviewed jointly by USDA 

and program participants to determine the appropriate promotional programs for 
540 

particular markets in the future and to demonstrate that program participants are 

serious about getting the best possible return on FMD and MAP funds. 

The programs have gone through a series of reforms that have resulted in application and allocation criteria being much more widely known and transparent for all 

potential applicants. Other changes in response to General Accounting Office and 

Office of Management and Budget recommendations to ensure the best possible return to the U.S. taxpayer and the U.S. Treasury have been executed. FAS is to be 

commended for its work in implementing these changes as well as its continuing 

efforts to support efforts by U.S. agriculture to expand our exports. A continued 

strong and well-funded FAS is an important part of our successful public-private 

partnership. Without a strong overseas presence that is supported in Washington 

by sufficient staff with access to adequate technology, success in the global marketplace will be much more difficult to achieve. USAEDC supports the fiscal year 2005 

request of the President for full FAS funding at $148 million. 

The U.S. Agricultural Export Development Council (USAEDC) appreciates this 

opportunity to submit written testimony in support of an aggressive United States 

effort in fiscal year 2005 to increase U.S. agricultural exports, specifically with an 

FMD program funded at $34.5 million, and an MAP program funded at $140 million. 

MEMBERS OF THE U.S. AGRICULTURAL EXPORT DEVELOPMENT COUNCIL (USAEDC)

Alaska Seafood Marketing Institute 

Almond Board of California 

American Forest & Paper Association 

American Peanut Council 

American Seafood Institute 

American Seed Trade Association 

American Sheep Industry Association 

American Soybean Association 

Blue Diamond Growers 

California Agricultural Export Council 

California Asparagus Commission 

California Cherry Advisory Board 

California Cling Peach Growers Advisory 

Board 

California Dried Plum Board 

California Kiwifruit Commission 

California Pistachio Commission 

California Strawberry Commission 

California Table Grape Commission 

California Tomato Commission 

California Tree Fruit Agreement 

California Walnut Commission 

Catfish Institute 

Cherry Marketing Institute 

Chocolate Manufacturers Association 

Cotton Council International 

Cranberry Marketing Committee 

Florida Department of Citrus 

Florida Tomato Committee 

Food Export USA—Northeast 

Ginseng Board of Wisconsin 

Hop Growers of America 

Intertribal Agriculture Council 

Leather Industries of America 

Mid-America International Agri-Trade 

Council 

Mohair Council of America 

National Association of State 

Departments of Agriculture 

National Dry Bean Council 

National Hay Association 

National Honey Board 

National Renderers Association 

National Sunflower Association 

National Watermelon Promotion Board 

New York Wine & Grape Foundation 

North American Export Grain 

Association, Inc. 

North American Millers’ Association 

Northwest Horticultural Council 

Northwest Wine Coalition 

Oregon Seed Council 

Organic Trade Association 

Pear Bureau Northwest 

Pet Food Institute 

Popcorn Board 

Produce Marketing Association 

Raisin Administrative Committee 

Southern U.S. Trade Association 

Texas Produce Export Association 

U.S. Apple Export Council 

U.S. Dairy Export Council 

U.S. Grains Council 

U.S. Hide, Skin & Leather Association 

U.S. Highbush Blueberry Council 

U.S. Livestock Genetics Export, Inc. 

U.S. Meat Export Federation 

U.S. Rice Producers Association 

U.S. Wheat Associates United Fresh 

Fruit & Vegetable Association 

United States Potato Board 

USA Dry Pea & Lentil Council 

USA Poultry & Egg Export Council 

USA Rice Federation 

Washington Apple Commission 

Washington State Fruit Commission 

Western United States Agricultural 

Trade Association Wine Institute 

PREPARED STATEMENT OF THE U.S. APPLE ASSOCIATION

The U.S. Apple Association (U.S. Apple) appreciates the opportunity to provide 

this testimony on behalf of our nation’s apple industry. 
541 

Our testimony will focus on the following three areas: the Market Access Program 

(MAP); Food Quality Protection Act (FQPA) implementation; Cooperative State Research, Extension and Education Service (CSREES) and Agricultural Research Service (ARS) funding. 

U.S. Apple is the national trade association representing all segments of the apple 

industry. Members include 36 state and regional apple associations representing the 

7,500 apple growers throughout the country as well as more than 500 individual 

firms involved in the apple business. Our mission is to provide the means for all 

segments of the U.S. apple industry to join in appropriate collective efforts to profitably produce and market apples and apple products. 

Market Access Program (MAP) 

U.S. Apple encourages Congress to appropriate $140 million in MAP funds, the 

level authorized in the farm bill for fiscal 2005. 

The apple industry receives $3.2 million annually in export development funds 

from the U.S. Department of Agriculture’s (USDA) Market Access Program (MAP). 

These funds are matched by grower dollars to promote apples in more than 20 countries throughout the world. Since this program’s inception in 1986, the U.S apple 

industry has expanded fresh apple exports by nearly 150 percent, due in large part 

to the foreign promotions made possible by MAP. One-quarter of U.S. fresh apple 

production is exported, with an annual value of approximately $370 million. 

Strong MAP funding is critical to the U.S. apple industry’s efforts to maintain and 

expand exports, and to increase grower profitability. Congress recognized the importance of MAP by authorizing increased funding in the 2002 farm bill. Over the past 

2 years, congressional appropriations have kept pace with the farm bill’s authorized 

level. 

Food Quality Protection Act (FQPA) Implementation 

U.S. Apple urges full funding for the following U.S. Department of Agriculture 

(USDA) administered programs to mitigate the negative impact of FQPA implementation on apple growers. —$16 million for the Pesticide Data Program, administered by the Agricultural 

Marketing Service (AMS); —$8.0 million for the National Agricultural Statistics Service (NASS) pesticideusage surveys; —$2.0 million for the Office of Pest Management Policy administered by the Agricultural Research Service (ARS); —$3.7 million for minor-use registration of crop protection tools (IR–4) administered by ARS; —$7.2 million for area-wide IPM research administered by ARS; 

—$13.5 million for the Integrated Pest Management Research Grant Program administered by the Cooperative State Research, Extension and Education Service 

(CSREES); —$10.8 million for minor-use registration of crop protection tools (IR–4) administered by CSREES; and —$12.5 million for the Pest Management Alternatives Program, Regional Pest 

Management Centers, Crops at Risk and Risk Avoidance and Mitigation Program also administered by CSREES. 

National Tree Fruit Technology Roadmap 

U.S. Apple urges the Committee to support the apple industry’s efforts to improve 

its competitiveness by providing increased federal funding for the development and 

application of new technologies as outlined below. 

Dramatic change in the global apple market over the past decade is threatening 

the livelihood of U.S. apple growers and the viability of the U.S. apple industry. Low 

cost producers of apples in the People’s Republic of China, South Africa and Eastern 

Europe are displacing our domestic industry worldwide. A race to survive is now underway among global apple competitors, and for the first time in its history, U.S. 

industry success is not guaranteed. In response to this competitive threat, the apple 

industry is seeking federal support of a National Tree Fruit Technology Roadmap 

that invests in development of new technologies to automate orchards and fruit handling operations, optimize fruit quality, nutritional value and safety. 

Each of the following research positions is part of an integrated approach to solving critical research problems that will help make the industry more competitive. 

The broad-based need to solve these problems requires systematic work across a 

number of problem areas simultaneously in different locations. Therefore, it is critically important that each of these programs is fully funded. 

Postharvest Quality Research—East Lansing, Mich.—U.S. Apple proposes increasing USDA, Agricultural Research Service (ARS) funding at the East Lansing, Mich. 
542 

postharvest fruit quality research laboratory by $350,000 for fruit postharvest technology research to better evaluate internal fruit quality characteristics, such as 

sugar content and fruit firmness. While this research is already underway in a limited capacity, the increase is needed to expand the capability of the lab to make faster progress in solving complex research issues. 

National Research Initiative—Sensor And Automation Research.—U.S. Apple proposes increasing funding in the National Research Initiative program in USDA 

CSREES by $1,000,000 for automation and sensor research, and establishment of 

$2,000,000 special grants program for fruit quality instrumentation. This research 

will develop sensors that help growers sense and respond to insect and disease pests 

and temperature extremes that reduce the value of apple production. It will have 

additional applications in processing and packing operations to improve fruit quality 

and food safety. 

Apple Rootstock Breeding Program—Geneva, N.Y.—U.S. Apple proposes increasing 

funding for the USDA, ARS apple rootstock breeding program in Geneva, N.Y. by 

$350,000. This research will focus on rootstock improvements that make apple trees 

more resistant to diseases or pests that may reduce pesticide use and lead to development of more productive and efficient apple trees. 

Genetics Of Fruit Quality Program—Wenatchee, Wash.—U.S. Apple proposes increasing funding at the USDA, ARS Wenatchee, Wash. facility by $350,000 for new 

genetics of fruit quality research. This research will provide the fundamental scientific knowledge that will allow development of new apple varieties that are juicier, 

sweeter and more nutritious and attractive to consumers. 

National Research Initiative—Genomics, Genetics And Plant Breeding.—U.S. 

Apple proposes increasing funding in the CSREES National Research Initiative program in the area of apple, cherry and peach genomics by $2,500,000. This research 

will provide essential genomics and genetics research that will help solve production 

problems that result in lower profitability and help develop better apple varieties 

for consumers. 

Other Research Requests: 

Temperate Fruit Fly Research Position—Yakima, Wash. 

U.S. Apple requests continued funding of $300,000 to conduct critical research at 

the USDA ARS laboratory in Yakima, Wash. on temperate fruit flies, a major pest 

of apples. 

The Yakima, Wash., USDA ARS facility is conducting research critical to the crop 

protection needs of the apple industry. FQPA implementation has reduced the number of pesticides currently available to growers for the control of pests, such as cherry fruit fly and apple maggot. Left unchecked, these temperate fruit flies can be devastating. Thus, research is needed to develop alternative crop protection methods as 

growers struggle to cope with the loss of existing tools. While Congress appropriated 

$300,000 last fiscal year for this critical research, the administration’s proposed 

budget for fiscal 2005 rescinds this funding. 

Post Harvest Quality Research Position—East Lansing, Mich. 

U.S. Apple urges Congress to maintain baseline funding of $309,600 in the USDA 

ARS fiscal year 2005 budget for the postharvest quality research position in East 

Lansing, Mich., and to increase funding for this program by $350,000 to make faster 

progress in solving complex research problems. This increase is a specific request 

as part of the industry’s National Tree Fruit Technology Roadmap initiative. 

The East Lansing, Mich., USDA ARS facility is conducting research critical to the 

future survival of the apple industry. Using a series of new sensing technologies, 

researchers at this facility are developing techniques that would allow apple packers 

to measure the sugar content and firmness of each apple before it is offered to consumers. Research indicates consumer purchases will increase when products consistently meet their expectations, suggesting consumers will eat more apples once this 

technology is fully developed and employed by our industry. While Congress appropriated $309,600 last fiscal year for this critical research, the administration’s proposed budget for fiscal 2005 rescinds this funding. This is a request not only to preserve funding for this program, but also to expand it by appropriating an additional 

$350,000 in research funding. 

The U.S. Apple Association thanks the committee for this opportunity to present 

testimony in support of the U.S. apple industry’s federal agricultural funding requests. 
543 

PREPARED STATEMENT OF THE UNITED STATES TELECOM ASSOCIATION

Summary of Request 

Project Involved.—Telecommunications Loan Programs Administered by the Rural 

Utilities Service of the U.S. Department of Agriculture. 

Actions Proposed.—Supporting RUS loan levels and the associated funding subsidy, if required, for the hardship program, cost of money and loan guarantee programs in fiscal year 2005 in amounts requested in the President’s budget. Opposing 

the Administration’s proposal to not fund Rural Telephone Bank loans in fiscal year 

2005. Supporting Rural Telephone Bank loans in the same amount as contained in 

the fiscal year 2004 Appropriations Act. Also supporting an extension of the language removing the 7 percent interest rate cap on cost of money loans. Also supporting an extension of the prohibition against the transfer of Rural Telephone 

Bank funds to the general fund as well as the requirement that Treasury pay interest on all Bank funds deposited with it. Opposing the proposal contained in the 

budget to transfer funds from the unobligated balances of the liquidating account 

of the Rural Telephone Bank for the Bank’s administrative expenses. Supporting 

continued funding, as requested in the President’s budget, in the amount of $25 million for distance learning and telemedicine loan and grant authority. Supporting $20 

million in mandatory funding for direct loans for broadband deployment. 

I am Walter B. McCormick, Jr., President and CEO of the United States Telecom 

Association (USTA), the Nation’s oldest trade organization for the local exchange 

carrier industry. USTA’s carrier members provide a full array of voice, data and 

video services over wire and wireless networks. I submit this testimony in the interests of the members of USTA and their subscribers. 

USTA members firmly believe that the targeted assistance offered by a strong 

RUS telecommunications loan program remains essential to a healthy and growing 

rural telecommunications industry that contributes to the provision of universal 

telecommunications service. We appreciate the strong support this Committee has 

provided for the telecommunications program since its inception in 1949 and look 

forward to a vigorous program for the future. 

A Changing Industry 

We are now more than 8 years out from passage of the Telecommunications Act 

of 1996, a landmark piece of legislation in its time, and calls are multiplying for 

the Act to be revisited to address today’s reality of intermodal competition. The current system of government-managed competition in the telecom industry is a tremendous obstacle to investment, economic growth and jobs creation which are important to all Americans, but particularly for those living in telecom-dependent 

rural America. The financial markets recognize that the current system of inequitable government-managed competition cannot stand. That recognition is reflected 

in the availability and pricing of capital to telecommunications entities. Dramatic 

changes in technology, such as Voice Over Internet Protocol (VOIP), and the wide 

use of wireless service to the point of market parity, have caused great uncertainty 

for carriers serving the most challenging areas of our Nation. During these changing 

times, access to a reliable source of capital such as the RUS loan programs is key 

to the system upgrades which will enable rural areas to experience the economic 

growth and job creation that a freely competitive market with ready access to fairly 

priced capital can provide. 

The need for modernization of the telecommunications technology employed by 

RUS borrower rural telecommunications companies has never been greater. In addition to upgrading to next generation networks to allow new services to be extended 

to rural subscribers, it is critically important that rural areas be included in the nationwide drive for greater bandwidth capacity. In order to provide higher speed data 

services, such as Digital Subscriber Line (DSL) connections to the Internet, outside 

plant must be modernized and new electronics must be placed in switching offices. 

With current technology, DSL services cannot be provided to customers located on 

lines more than a few miles from the switching office. Rural areas have a significant 

percentage of relatively long loops and are therefore particularly difficult to serve 

with higher speed connections. Rural telecommunications companies are doing their 

best to restructure their networks to shorten loops so that DSL may be provided, 

but this is an expensive proposition and may not be totally justified by market conditions. However, these services are important for rural economic development, distance learning and telemedicine. RUS-provided financial incentives for additional investment encourage rural telecommunications companies to build facilities which 

allow advanced services to be provided. The externalities measured in terms of economic development and human development more than justify this investment in 

the future by the Federal Government. 
544 

Greater bandwidth and switching capabilities are crucial infrastructure elements 

which will allow rural businesses, schools and health care facilities to take advantage of the other programs available to them as end users. The money spent on having the most modern and sophisticated equipment available at the premises of businesses, schools or clinics is wasted if the local telecommunications company cannot 

afford to build facilities that quickly transport and switch the large amounts of data 

that these entities generate. RUS funding enhances the synergies among the FCC 

and RUS programs targeted at improving rural education and health care through 

telecommunications. 

The RUS program helps to offset regulatory uncertainties related to universal 

service support, interstate access revenues and interconnection rules with a reliable 

source of fairly priced, fixed-rate long term capital. After all, RUS is a voluntary 

program designed to provide incentives for local telecommunications companies to 

build the facilities essential to economic growth. 

RUS endures because it is a brilliantly conceived public-private partnership in 

which the borrowers are the conduits for the Federal Government benefits that flow 

to rural telephone customers, the true beneficiaries of the RUS program. The government’s contribution is leveraged by the equity, technical expertise and dedication 

of local telecommunications companies. The small amount of government capital involved is more than paid back through a historically perfect repayment record by 

telecommunications borrowers, as well as the additional tax revenues generated by 

the jobs and economic development resulting from the provision and upgrading of 

telecommunications infrastructure. RUS is the ideal government program—it generates more revenues than it costs, it provides incentives where the market does not 

for private companies to invest in infrastructure promoting needed rural economic 

development, it allows citizens to have access to services which can mean the difference between life and death, and it has never lost a nickel of taxpayer money. 

Recommendations 

For fiscal year 2005, this Committee should set the loan levels and necessary associated subsidy amounts for the hardship, RUS cost of money and guaranteed telecommunications loan programs consistent with the levels recommended in the President’s budget. These levels would maintain our members’ ability to serve the Nation’s telecommunications needs, maintain universal service and bring advanced 

telecommunications services to rural America. 

USTA strenuously objects to the recommendation in the Administration’s budget 

to not fund Rural Telephone Bank loans in fiscal year 2005. The proposal is fundamentally flawed. The RTB’s mission is far from complete. Loans made today are 

to provide state of the art telecommunications technology in rural areas. If no bank 

loans were made in fiscal year 2005, the budgetary outlay savings would be minimal, because RTB loans are funded over a multiyear period. Moreover, because of 

the minimum statutory interest rate of 5 percent, the RTB stands an excellent opportunity of actually generating a profit for the government! 

The Administration budget proposes that funds be transferred from the unobligated balances of the Bank’s liquidating account to fund the Bank’s administrative 

expenses, instead of those expenses being funded through an appropriation from the 

general fund of the Treasury. This proposal would not result in budgetary savings. 

As it has in previous years, this Committee should specifically reject this recommendation. 

For a number of years, through the appropriations process, Congress has eliminated the 7 percent ‘‘cap’’ placed on the insured cost-of-money loan program. The 

elimination of the cap should continue. Although the prospects for this happening 

in fiscal year 2005 seem remote at this time, if long term Treasury interest rates 

exceeded the 7 percent ceiling contained in the authorizing act, the subsidy would 

not be adequate to support the program at the authorized level. This would be extremely disruptive and hinder the program from accomplishing its statutory goals. 

Accordingly, USTA supports continuation of the elimination of the seven percent cap 

on cost-of-money insured loans in fiscal year 2005. The Committee should also continue to protect the legitimate ownership interests of the Class B and C stockholders 

in the Bank’s assets by continuing to prohibit a ‘‘sweep’’ of any unobligated balance 

in the bank’s liquidating account that is in excess of current requirements funds 

into the general fund. 

Recommended Loan Levels 

USTA recommends that the telephone loan program loan levels for fiscal year 

2005 be set as follows: 
545 

[Millions of dollars] 

RUS Insured Hardship Loans (5 percent) ............................................................................................................ 145 

U.S. Insured Cost-of-Money Loans ....................................................................................................................... 250 

Rural Telephone Bank (RTB) Loans ..................................................................................................................... 175 

Loan Guarantees .................................................................................................................................................. 100 

Total ........................................................................................................................................................ 670 

Loans and Grants for Telemedicine and Distance Learning 

USTA supports the continuation of $25 million for distance learning and telemedicine, as provided in the President’s budget. As we move into the Information Age 

with the tremendous potential of the Internet to increase productivity, economic development, education and medicine, such funds can help continue the historic mission of RUS to support the extension of vital new services to rural America. 

Broadband Loans Under the 2002 Farm Act (Public Law 101–171) 

Congress has recognized the tremendous potential of broadband technology to enhance human and economic development in rural areas by providing mandatory 

funding of loans for the deployment of such technology in rural areas. This funding 

was included in the 2002 Farm Act in the amount of $20 million. USTA urges the 

provision of full funding for this program as authorized in the Farm Act. The capital 

intensive nature of the telecommunications industry, particularly with respect to 

implementation of broadband, requires a stable and predictable source of capital. 

Conclusion 

Our members take pleasure and pride in reminding the Committee that the RUS 

telecommunications program continues its perfect record of no defaults in over a 

half century of existence. RUS telecommunications borrowers take seriously their 

obligations to their government, their Nation and their subscribers. They will continue to invest in our rural communities, use government loan funds carefully and 

judiciously, and do their best to assure the continued affordability of telecommunications services in rural America. Our members have confidence that the Committee 

will continue to recognize the importance of assuring a strong and effective RUS 

Telecommunications Program through authorization of sufficient loan levels. 

PREPARED STATEMENT OF THE UNIVERSITY OF SOUTHERN MISSISSIPPI AND THE

MISSISSIPPI POLYMER INSTITUTE

Mr. Chairman, distinguished Members of the Subcommittee, I would like to thank 

you for this opportunity to provide testimony describing ongoing research and commercializing efforts of The University of Southern Mississippi (USM) and the Mississippi Polymer Institute. I am very grateful to the Subcommittee for its leadership 

and the continued support of the Institute and its work. This testimony will include 

an update on the progress of the Institute since my testimony of approximately 1 

year ago. During the past year, our efforts have focused principally on two commercialization thrusts. One effort involves our novel, agricultural-based inventions in 

emulsion polymerizations, and the other is to produce a commercial quality, formaldehyde-free, soybean derived adhesive for composite board materials, i.e., 

particleboard. During the past year, we have continued to refine the adhesive and 

have prepared lab scale particleboards that meet commercial specifications. It is my 

strong belief that additional research can expand the commercial use of the products 

and technology this project has produced. However, much more needs to be done in 

order to exploit the many uses of our novel technology. I will discuss the progress 

made with the two inventions separately in order to offer more clarity. 

In the case of castor and soy oils, we have designed and synthesized novel vegetable oil macromonomers (VOMM) or polymer building blocks that offer state-of-theart technology. The success of the technology depends on the use of agricultural materials as a building block of emulsion-derived polymers and offers opportunities for 

using ag-derived materials as a raw material in the polymer industry. The process 

technology for synthesizing VOMMs has been revised to produce more than 95 percent conversion of the oil to VOMM. Thus, the revised, and now accepted, synthetic 

procedure affords an acceptable and useful polymerizable VOMM. Our previous synthetic efforts to prepare emulsion or latex polymers containing significant amounts 

of VOMM monomers (>20 percent by weight) were complicated by synthetic and stability issues. However, during the past year, we have been successful in developing 

latexes with VOMM content as high as 30 percent by weight by modifying the emul-
546 

sion recipe and process parameters. Currently, these high VOMM latexes are being 

evaluated for a variety of applications, but particularly in coating formulations. Furthermore, significant progress has been made in the synthesis of novel VOMMs that 

copolymerize more readily with commercial monomers. The new VOMMs provide 

latexes with improved stability and reduced yellowing on aging. The fundamental 

scientific principles regarding its mode of action have been confirmed, yet additional 

data must be collected as more of these novel monomers, or polymer building blocks, 

are being designed and synthesized. 

Our sustained efforts to patent the technology developed in this project has resulted in a total of eight patents, including one international patent. Seven patent 

applications are pending with the U.S. Patent Office and more applications will certainly be submitted during the coming year. 

Another novel application for vegetable oils is the development of derivatives for 

use in ultraviolet (UV) curable coatings using thiol-ene chemistry. Castor and soybean oil derivatives were synthesized and crosslinked with commercial thiols in UV 

curable formulations. The coatings produced showed excellent flexibility but lower 

hardness values than the controls. Research efforts are in progress to synthesize derivatives that will improve product hardness while retaining other coating properties. 

Commercial nail polishes contain very high amount of solvents which constitute 

volatile organic compounds (VOCs) and negatively impact the environment. Novel 

VOMM-based latexes have been designed for use in nail polishes. Previous latexes 

prepared for this application gave poor adhesion to the fingernail and were easily 

chipped during use. Nail polishes formulated with the new and improved latex 

emulsions have given consistent adhesion to the fingernail even after one week of 

application. Rheology studies are in progress to achieve optimum flow and leveling 

properties of the finished product. Nail polishes constitute a low-volume, high-profit 

niche market. Presently, there are no low-VOC waterborne products with sufficient 

adhesion to fingernails. 

VOMM-based emulsions have been formulated as coatings for paper coating applications and show promising results in screening tests. At this writing, additional 

paper coating testing equipment has been ordered for more definitive performance 

testing. 

We have successfully synthesized a soybean oil acrylate monomer (SAM) for incorporation into a permanent press treatment to replace the castor oil acrylate monomer (CAM). Warmkraft, a Mississippi-based company, has tested the new latex and 

will begin using the soy-based latex this year in their permanent press treatment 

for use on the U.S. Marines military uniforms. The U.S. Air Force has received 

7,500 permanent pressed uniforms for field tests by military personnel. This novel 

product increases military uniform durability by 30∂ percent and minimizes laundry costs creating a significant savings for service personnel and the DOD. Research 

efforts are now being directed to providing antimicrobial properties to the military 

uniform treatment formulation to add protection for combat forces. 

In summary, commercialization efforts have continued over the past year with waterborne architectural coatings and polymer for textile treatments. Patents have 

been approved; new patent applications have been submitted; several toll manufacturing runs have been completed; new coatings have been designed, manufactured, 

formulated, and tested; and formulation efforts have been directed toward the generation of high performance, low odor, and low VOC coatings. We are optimistic that 

commercialization and sales of these ag-derived products will expand over the next 

year. 

In yet another of our novel ag based technologies, we have developed formaldehyde-free adhesives for use in particleboard composites. The developmental adhesive 

is composed of 80∂ percent soy protein isolate (SPI) and lab produced 

particleboards made with this formaldehyde-free adhesive meet or exceed industry 

performance requirements as defined by ANSI standards for M–S grade boards. Efforts are underway to reduce the water content of the current adhesive to decrease 

dry time and increase line speeds. The new adhesive is scheduled for scale-up to 

quantities required for commercial scale testing. A leading particleboard manufacturer has requested a commercial trial of the adhesive and we plan to complete the 

trial in the 2nd quarter of 2004. Kenaf and wood flour are being investigated as alternative sources of wood furnish in our composites. Additional novel soybean oilbased derivatives are also being investigated in an effort to continue to improve the 

performance properties of the composite particleboards even further. These developments represent major technical advancements during the past year. 

A vegetable oil based waterborne, waterproofer polymer has been developed and 

formulated into wood stain and coating systems. The weathering characteristics of 

this product are currently being evaluated. The material functions as a waterproofer 
547 

yet is carried in water. However, after application to the intended substrate, typically wood or cementitious products, the material becomes hydrophobic and highly 

water resistant. VOC emission regulations need to be tightened to facilitate the 

movement towards new, environmentally friendly, products. We will continue our efforts to promote the use of ag-based products offering improved environmental attributes, i.e., high performance accompanied by low odor and low VOCs. 

In 1983, the Mississippi Legislature authorized the Polymer Institute at USM to 

work closely with emerging industries and other existing polymer-related industries 

to assist with research, problem solving, and commercializing efforts. The institute 

has maintained that thrust during the past year with much success. In fact, while 

manufacturing jobs alone in Mississippi have declined over the past 10 years, manufacturing jobs in the plastics sector have risen 45 percent and continue to rise. 

The Institute provides industry and government with applied or focused research, 

development support, and other commercializing assistance. This effort complements existing strong ties with industry and government involving exchange of 

information and improved employment opportunities for USM graduates. Most importantly, through basic and applied research coupled with developmental and commercializing efforts of the Institute, the School of Polymers and High Performance 

Materials continues to address national needs of high priority. 

The focus of our work has been the development of a technology platform that will 

lead to the commercialization of alternative agricultural crops in the polymer industry. The polymer industry is the single largest consumer of petroleum chemical 

intermediates in the world. However, petroleum resources are in finite supply, are 

non-biodegradable in many cases, and therefore do not represent a sustainable economic development alternative for the polymer industry. The theme of our work is 

to develop high performance, and environmentally friendly technology utilizing agriculturally produced intermediates. In this way, we as a Nation can improve our environment, reduce our dependence on imported petroleum, and keep America’s farmlands in production. As farm products meet the industrial needs of the American 

society, rural America is the benefactor. Heretofore, this movement to utilize alternative agricultural products as industrial raw materials has received some attention 

but much less than opportunities warrant. Your decisions are crucial to the accomplishment of these goals as funding from this Subcommittee has enabled us to implement and maintain an active group of university-based polymer scientists whose 

energies are devoted to commercializing alternative crops. We are most grateful to 

you for this support, and ask for your continued commitment. 

The faculty, the University, and the State of Mississippi are strongly supportive 

of the Mississippi Polymer Institute and its close ties with industry. Most faculty 

maintain at least one industrial contract as an important part of extramural research efforts. 

Polymers, which include fibers, plastics, composites, coatings, adhesives, inks, and 

elastomers, play a key role in the materials industry. They are used in a wide range 

of industries including textiles, aerospace, automotive, packaging, construction, medical prosthesis, and health care. In the aerospace and automotive applications, reduced weight and high strength make them increasingly important as fuel savers. 

Their non-metallic character and design potentials support their use for many national defense purposes. Moreover, select polymers are possible substitutes for socalled strategic materials, some of which come from potentially unreliable sources. 

As a polymer scientist, I am intrigued by the vast opportunities offered by American agriculture. As a professor, however, I continue to be disappointed that few of 

our science and business students receive training in the polymer-agricultural discipline as it offers enormous potential. The University of Southern Mississippi, the 

School of Polymers and High Performance Materials, and the Mississippi Polymer 

Institute are attempting to make a difference by showing others what can be accomplished if appropriate time, energy, and resources are devoted to the understanding 

of ag-based products. 

I became involved in the polymer field 40 years ago and since that time, have 

watched its evolution where almost each new product utilization offered the opportunity for many more. Although polymer science as a discipline has experienced expansion and a degree of public acceptance, alternative agricultural materials continue to be an underutilized national treasure for the polymer industry. There is 

less acceptance of petroleum-derived materials today than ever before, and consequently the timing is ideal for agricultural materials to make significant inroads 

as environmentally friendly, biodegradable, and renewable raw materials. These agricultural materials have always been available for our use, yet society for many 

reasons has not recognized their potential. 

U.S. agriculture has made the transition from the farm fields to the kitchen tables, but America’s industrial community continues to be frightfully slow in adopt-
548 

ing ag-based industrial materials. The prior sentence was included in my last three 

testimonies but continues to ring true, even as I write this report. However, we are 

making progress and we must persist. We must aggressively pursue this opportunity and in doing so: 

—Intensify United States efforts to commercialize alternative crops and dramatically reduce atmospheric VOC emissions and odor. The result will be much 

cleaner and less noxious air for all Americans. 

—Reduce United States reliance on imported petroleum. 

—Maintain a healthy and prosperous farm economy. 

—Foster new cooperative opportunities between American farmers and American 

industry. 

—Create advanced polymer technology-based manufacturing jobs that can not be 

easily exported to other countries. 

Mr. Chairman, your leadership and support are deeply appreciated by the entire 

University of Southern Mississippi community. While I can greatly appreciate the 

financial restraints facing your Subcommittee, I feel confident that further support 

of the Mississippi Polymer Institute will continue dividends of increasing commercialization opportunities of agricultural materials in American industry. Advances 

in polymer research are crucial to food, transportation, housing, and defense industries. Our work has clearly established the value of ag products as industrial raw 

materials and we must move it from the laboratories to the industrial manufacturing sector. Only then can the United States enjoy a cleaner and safer environment which these technologies offer, as well as new jobs, and expanded opportunities for the U.S. farmer. We are most grateful for the support you have provided 

in the past. The funding you have provided has allowed laboratory work to be conducted, pilot commercial manufacturing to be completed, and limited sales of products derived from this technology. However, additional funds are needed to make 

these technologies cost effective while maintaining the high performance standards 

of which we are accustomed. Pilot scale processes are necessary to move this technology into the market place and this will be the principal focus of our upcoming 

work. Of course, while working to achieve commercialization, continued technology 

advancement will be in effect, as will basic research on those topic areas where 

knowledge is required. 

Since our testimony last year we have reached new levels of commercializing efforts in that we have manufactured final and finished products for sale. Indeed, the 

technology has matured and marketing and sales must move parallel with continued commercial development of new products. Thus, we are in need of additional 

resources to take these technologies to the market place and to continue our developments of other exciting technologies. We therefore respectfully request $1.5 million in Federal funding to more fully exploit the potentials of commercializing the 

technologies described herein. We have shown that we can be successful, yet we 

need additional resources in order to optimize the potential of this technology. Our 

efforts will be recognized as instrumental in developing a ‘‘process’’ for commercialization of new ag-based products. That is, we will have taken a technology from 

the ‘‘idea’’ stage to commercialization in several market areas. The development of 

this process, and to show it successful, is extremely important to all entrepreneurs 

who believe in ag-based products. Thank you Mr. Chairman and Members of the 

Subcommittee for your support and consideration. 

PREPARED STATEMENT OF THE UPPER MISSISSIPPI RIVER BASIN ASSOCIATION

The Upper Mississippi River Basin Association (UMRBA) is the organization created in 1981 by the Governors of Illinois, Iowa, Minnesota, Missouri, and Wisconsin 

to serve as a forum for coordinating the five States’ river-related programs and policies and for collaborating with Federal agencies on regional water resource issues. 

As such, the UMRBA has an interest in the budget for the U.S. Department of Agriculture’s conservation programs and technical assistance. 

Prior to enactment of the Farm Security and Rural Investment Act of 2002, conservation spending was lower in constant dollars than during the depths of the 

Great Depression. In passing the 2002 Farm Bill, Congress made a bold, multi-year 

commitment to reinvigorate agricultural conservation in this country. In particular, 

the Farm Bill recognized the importance of providing adequate funding levels and 

balancing programs that remove land from production with those that support 

sound practices on working lands. There was also explicit recognition that the 

USDA’s conservation programs and technical assistance are crucial alternatives to 

a totally regulatory approach to addressing agriculture-related water quality impairments. Now, as the Nation faces an increasingly difficult budget climate, it is essen-
549 

tial that Congress maintain its commitment to the vision for agricultural conservation articulated in the Farm Bill. This will involve not only providing adequate 

funding, but also ensuring effective administration and geographic distribution of 

those resources. 

Of particular importance to the UMRBA is funding for the Conservation Reserve 

Program (CRP), Wetlands Reserve Program (WRP), Environmental Quality Incentives Program (EQIP), and Conservation Security Program (CSP). Taken together, 

these four Commodity Credit Corporation-funded programs provide an invaluable 

means for the USDA to work with landowners, local conservation districts, and the 

States to maintain agricultural productivity while protecting the Nation’s soil and 

water resources. Moreover, they do this in a voluntary, non-regulatory fashion. CRP, 

WRP, EQIP, and CSP will be key non-regulatory elements in the States’ efforts to 

address agricultural sources of water quality impairment through the Total Maximum Daily Load program. Successful application of conservation programs to this 

region’s water quality problems will also help address the growing national concern 

with hypoxia in the Gulf of Mexico, which has been linked to nutrient loads from 

agriculture and other sources. As stewards of some of the Nation’s most productive 

agricultural lands and important water resources, the five States of the Upper Mississippi River Basin believe these programs are vital. Strong farmer interest and 

state support demonstrate the region’s commitment to the objectives of these programs. In fiscal year 2003, non-NRCS sources contributed $88.3 million in financial 

assistance and $27.9 million in technical assistance to help plan and implement natural resource conservation systems in the five basin States, with almost 94 percent 

of this money coming from state government. 

Conservation Reserve Program 

Under President Bush’s fiscal year 2005 budget request, funding for the CRP 

would increase modestly to $1.96 billion. While this increase is certainly welcome, 

it is not adequate to fund the expanded CRP provided for in the 2002 Farm Bill. 

The CRP acreage cap is now 39.2 million acres. Yet, as of January 2004, only 34.6 

million acres were enrolled in the program, below even the program’s previous cap. 

In the most recently completed general sign-up, USDA was able to accept less than 

half of the acreage offered for enrollment. 

Since its inception, enhancements to the CRP have increased its effectiveness in 

improving water quality, soil conservation, and habitat. These same enhancements, 

which include noncompetitive enrollment for filter strips, riparian buffers, and similar measures, as well as establishment of the Conservation Reserve Enhancement 

Program (CREP), have made the program more flexible and thus more attractive 

to farmers. Most recently, USDA announced a new continuous sign-up for 500,000 

acres of bottomland hardwood trees. Targeted toward the Mississippi, Missouri, and 

Ohio Rivers, this initiative offers a valuable tool in floodplain restoration efforts on 

some of this Nation’s most important rivers. 

In Illinois, Iowa, Minnesota, Missouri, and Wisconsin, CRP general sign-up enrollment currently totals 5.5 million acres, or approximately 17 percent of the national 

total. All five States also have active CREP programs tailored to meet their priority 

conservation needs. Current CREP enrollment in the UMRB States is approximately 

233,000 acres, or 42 percent of the national total. These rates of participation clearly 

demonstrate the importance of the CRP and CREP in the Nation’s agricultural 

heartland and reflect the compatibility of these programs with agricultural productivity. 

Wetlands Reserve Program 

Equally pressing is the need to provide sufficient resources for the WRP. The 2002 

Farm Bill more than doubled the WRP acreage cap to almost 2.3 million acres, with 

a goal of enrolling 250,000 acres annually. Yet the President’s fiscal year 2005 budget proposes $295 million for the WRP. While a slight increase from fiscal year 2004, 

this would be enough to enroll only about 200,000 acres, or 80 percent of the authorized enrollment rate. Since the WRP’s establishment in 1996, its easements have 

proven to be important tools for restoring and protecting wetlands in agricultural 

areas. This is clearly evident from the overwhelming landowner response and the 

resulting improvements to water quality and habitat. At the end of fiscal year 2003, 

WRP enrollment in Illinois, Iowa, Minnesota, Missouri, and Wisconsin totaled more 

than 273,000 acres, or 18 percent of the national total. In fiscal year 2003 alone, 

landowners in the five States enrolled more than 43,000 acres in the WRP. However, there were eligible, but unfunded, applications to enroll another 147,000 acres 

from the five States in fiscal year 2003. This represents 20 percent of the national 

backlog of applications for that year. As with the CRP and CREP, the WRP is a 
550 

vital tool in the agricultural conservation toolbox. The UMRBA continues to support 

funding the WRP at a level sufficient to fully enroll the program as authorized. 

Environmental Quality Incentives Program 

The CRP and WRP have been extremely effective in helping Midwest farmers to 

protect land and water resources by curtailing production on some of their most sensitive land. And there are certainly many more opportunities to make good use of 

the CRP and WRP in the region. However, it is also essential to support sound conservation practices on the far greater amount of land that remains in production. 

EQIP is the USDA’s largest and most effective means of assisting farmers and 

ranchers to implement conservation practices on land currently in production. EQIP 

assistance can, for example, help operators balance the new dynamics of livestock 

production with the need to protect soil and water resources. 

Like many other conservation programs, EQIP funding has not kept pace with demand. In fiscal year 2003, the backlog of unmet requests for EQIP assistance in Illinois, Iowa, Minnesota, Missouri, and Wisconsin alone was estimated at $249.1 million. This is more than 3 times the $74.1 million in EQIP funding actually allocated 

to the five States in fiscal year 2003, and is 8 percent of the Nation’s total unfunded 

EQIP applications. While this is a slight decrease from the level of unmet need in 

fiscal year 2002, it is not clear whether there is modest progress in addressing the 

backlog or whether farmers are simply increasingly disinclined to submit applications to an over-subscribed program. The 2002 Farm Bill authorizes EQIP at $1.2 

billion for fiscal year 2005, but the President is proposing to fund the program at 

only $1.0 billion. The UMRBA urges Congress to maintain EQIP at its full authorized level, while recognizing that, even at full funding, there will likely be significant numbers of unfunded EQIP applications. 

Conservation Security Program 

Newly authorized in the 2002 Farm Bill, the CSP also focuses conservation efforts 

on working lands. A tiered program, it encourages landowners to implement advanced, cost-effective measures. The States are concerned that several early developments may limit the CSP’s ultimate effectiveness. First, USDA still has yet to finalize its implementation rule for the program. As a result, little, if any, CSP enrollment will be possible in fiscal year 2004. Of greater long term significance, the fiscal 

year 2003 omnibus spending measure capped the CSP at $3.77 billion over 10 years. 

Congress has since lifted that restriction. However, in his fiscal year 2005 budget, 

the President assumes that the program will be limited to $4.4 billion in financial 

and technical assistance through 2010. This approach would represent a substantial 

shift in a program that Congress and the Administration agreed in the 2002 Farm 

Bill to fund without a fixed cap through the Commodity Credit Corporation. It remains to be seen what the ultimate level of landowner interest will be in the CSP, 

but the States are reluctant to have the program reduced so dramatically prior to 

its implementation. 

Conservation Technical Assistance 

The UMRBA has consistently expressed the States’ concern with the adequacy of 

funding and staffing levels for conservation technical assistance. With the expansion 

of conservation programs under the 2002 Farm Bill, the issue has become both more 

complicated and more important. For fiscal year 2005, the President is proposing 

a $138 million, or almost 19 percent, decrease in the Conservation Operations Technical Assistance account. This is the funding that supports NRCS’s voluntary conservation planning with landowners. It addresses critical concerns including nutrient management and other water quality issues. 

The President’s budget also includes a revised version of his previous proposal for 

a new Farm Bill Technical Assistance account. Under the new proposal, this account 

would fund technical assistance for the Conservation Reserve Program and the Wetlands Reserve Program. In fiscal year 2005, the President is requesting $92 million 

for this new account, which would be subject to annual appropriations. The States 

certainly recognize that adequate technical assistance is absolutely essential to the 

success of the USDA’s conservation programs, and believe that it is important to 

address the strain that funding CRP and WRP technical assistance from other conservation programs has placed on those programs. However, the States do not believe that the President’s proposal reflects Congressional intent in the 2002 Farm 

Bill. Instead, the States share the perspective of many Members that the intent was 

to fund the necessary technical assistance for the various conservation programs 

separately, through mandatory funding rather than annual appropriations. The 

UMRBA urges that sufficient resources for technical assistance be provided using 

an approach consistent with this intent. 
551 

Watershed Programs 

The UMRBA is pleased that the President has once again budgeted for three critical watershed programs—i.e., Watershed and Flood Prevention Operations, Watershed Surveys and Planning, and the Watershed Rehabilitation Program—for which 

he did not request any funds in fiscal year 2003. However, the President’s requests 

still fall far below recent funding levels for these programs. The three programs all 

provide significant local, regional, and national benefits in the areas of erosion, sediment, and flood damage reduction; conservation; water supply; and development. 

They are soundly within USDA’s tradition of working with States and local communities to enhance rural America. Specifically, the budget proposal includes only 

$40.2 million for Watershed and Flood Prevention Operations, an important 

proactive program for which Congress approved $86.3 million in fiscal year 2004. 

Even at the more generous appropriated levels from recent years, the Watershed 

and Flood Prevention Operations program falls far short of meeting demand. In fiscal year 2004, there are $191.2 million in Public Law 534 and Public Law 566 flood 

control projects ready for construction, and the total project backlog is estimated at 

$1.557 billion. The 2002 Farm Bill authorized significant new funding for the Watershed Rehabilitation Program, through which the NRCS assists local sponsors in 

rehabilitating aging Public Law 534 and Public Law 566 structures. Of the more 

than 11,000 such structures nationwide, more than 1,800 will reach the end of their 

design life by 2010. A 1999 estimate put national rehabilitation needs at $543 million, with needs in Illinois, Iowa, Minnesota, Missouri, and Wisconsin accounting for 

more than 10 percent of the total. These are very real needs, with very real potential public health and safety implications. This important program received $29.8 

million in fiscal year 2004, but would be funded at only $10.1 million in fiscal year 

2005 under the President’s plan. Also of concern, the Watershed Surveys and Planning account would be reduced by more than half under the President’s budget. The 

President’s fiscal year 2005 request of $5.1 million for Watershed Surveys and Planning compares with pending projects totaling $18.8 million in fiscal year 2004. The 

States urge Congress to provide adequate funding for these three important watershed programs. 

PREPARED STATEMENT OF THE USA RICE FEDERATION

This is to convey the rice industry’s request for fiscal year 2005 funding for selected programs under the jurisdiction of your respective subcommittees. The USA 

Rice Federation appreciates your assistance in making this a part of the hearing 

record. 

The USA Rice Federation is a federation of U.S. rice producers, millers and allied 

businesses working together to address common challenges, advocate collective interests, and create opportunities to strengthen the long-term economic viability of 

the U.S. rice industry. USA Rice members are active in all major rice-producing 

states: Arkansas, California, Florida, Louisiana, Mississippi, Missouri, and Texas. 

The U.S.A. Rice Producers’ Group, the USA Rice Council, and the U.S.A. Rice Millers’ Association are charter members of the USA Rice Federation. 

USA Rice understands the budget constraints the committee faces when developing the fiscal year 2005 appropriations bill. We appreciate your past support for 

initiatives that are critical to the rice industry and look forward to working with 

you to meet the continued needs of research, food aid and market development in 

the future. 

A healthy U.S. rice industry is also dependent on the program benefits offered by 

the 2002 Farm Security and Rural Investment Act of 2002. We oppose any attempts 

to modify the support levels provided by this vital legislation through more restrictive payment limitations or other means and encourage the committee to resist such 

efforts during the appropriations process. 

USA Rice’s top priority for 2004 is to regain market access in our former number 

one export market, Iraq. We realize the Committee’s limitations on this issue but 

encourage you to seek opportunities to increase U.S. agricultural exports to the 

Iraqi people. Whether through increased MAP and FMD funds for market development or other means, we seek U.S. rice sales to Iraq and urge all options be exhausted. 

A list of the programs the USA Rice Federation supports for Appropriations in 

fiscal year 2005 are as follows: 
552 

Funding Priorities 

Research and APHIS 

The Dale Bumpers National Rice Research Center should receive continued funding at the fiscal year 2004 approved level. This center conducts research to help 

keep the U.S. rice industry competitive in the global marketplace by assuring high 

yields, superior grain quality, pest resistance, and stress tolerance. 

The Western Regional Research Center should receive continued funding at fiscal 

year 2004 levels for operating funds. In addition, we support $3.4 million in construction funds for Phase 3 of the modernization project. The center has already 

completed 25 percent of the modernization project and we feel it is vitally important 

to complete the remaining updates to this facility. 

For APHIS-Wildlife Services, we encourage the committee to fund the Louisiana 

blackbird control project at $333,000. This program annually saves rice farmers in 

southwest Louisiana over $4,000 per farm, or $2.9 million total. No increases have 

been provided to the program since 1994 and inflation is reducing the overall impact. A slight increase from the $150,000 baseline is justified. 

Market Access 

Exports are critical to the U.S. rice industry. Historically, 40–60 percent of annual 

U.S. rice production has been shipped overseas. Thus, building healthy export demand for U.S. rice is a high priority. 

The Foreign Market Development program allows USA Rice to focus on importer, 

food service, and other non-retail promotion activities around the world. For fiscal 

year 2005, FMD should be fully funded at $34.5 million, consistent with the President’s Budget request. 

The Market Access Program allows USA Rice to concentrate on consumer promotion and other activities for market expansion around the world. For fiscal year 

2005, MAP should be funded at $140 million as authorized by the 2002 Farm Security and Rural Investment Act of 2002. This is $15 million above the President’s 

Budget request. 

In addition, the Foreign Agricultural Service should be funded to the fullest degree possible to ensure adequate support for trade policy initiatives and oversight 

of export programs. These programs are critical for the economic health of the U.S. 

rice industry. 

Food Aid 

We encourage the committee to fund Public Law 480 Title I at fiscal year 2004 

levels. This program is our top food aid priority and we support continued funding 

in order to meet international demand. 

For Public Law 480 Title II we support a slight increase in the program over fiscal year 2004 levels due to increased freight costs and higher commodity prices. We 

encourage the committee to fund Title II at $1.2 billion in order to ensure consistent 

tonnage amounts for the rice industry. 

USA Rice supports continued funding at fiscal year 2004 levels for Food for 

Progress. Funding for this program is important to improve food security for food 

deficit nations. 

The Global Food for Education Initiative is a proven success and it is important 

to provide steady, reliable funding for multi year programming. USA Rice supports 

$100 million for this education initiative because it efficiently delivers food to its 

targeted group, children, while also encouraging education, a primary steppingstone for populations to improve economic conditions. 

Other 

Farm Service Agency.—We encourage the Committee to provide adequate funding 

so the agency can deliver essential programs and services. The Agency has been 

hard hit by staff reductions and our members fear a reduction in service if sufficient 

funds are not allocated. 

Please feel free to contact us if you would like additional information about the 

programs we have listed. Significant background information is available for all of 

the programs we have referenced, however, we understand the volume of requests 

the committee receives and have restricted our comments accordingly. 

Thank you for consideration of our recommendations. 

PREPARED STATEMENT OF VERIPRIME, INC. 

Mr. Chairman and Members of the Committee, it is a tremendous pleasure and 

a privilege to provide testimony on this important topic on behalf of VeriPrime, a 
553 

member-owned and member-operated cooperative. I would like to offer the insights 

of our members, which may be helpful as Congress and the USDA address these 

issues. 

As a practicing veterinarian I work closely with feedyards and ranchers. I see 

about a million head of cattle each year in my practice. As a businessman I helped 

develop and organize an animal tracking company listed on the NASDAQ exchange. 

My experience relates both to the pragmatic concerns of the animal producer as well 

as to the bottom-line concerns of business, and consumer concerns about food safety. 

My comments are in no way intended as criticism of the U.S. Department of Agriculture or the Congressional Committees of jurisdiction. I believe the government 

has done a responsible job of BSE surveillance. When the infected animal was found 

in Washington State, the government responded quickly and efficiently to address 

industry concerns and to safeguard consumer confidence. 

As we move from this point forward, I am hopeful we can do so in a coordinated 

government-industry effort. VeriPrime is a member-owned and member-operated cooperative created two and one-half years ago to address situations exactly like this. 

Membership presently consists of two-thirds of the nation’s fed cattle supply. We are 

also a partner with PigCHAMP, a division of farms.com, which gives us access to 

75 percent of the pork supply. Having secured a majority of the beef and pork supplies as partners, we are moving forward to recruit members from the packing industry and food retailers. Swift & Co. has joined as a founding member in the packer sector, and Burger King is our founding retailer. 

Needless to say, this amalgamation of producers, packers and retailers is watching closely as government ponders what to do next to ensure food safety, consumer 

confidence, foreign trade, and the economic well being of the $75 billion beef industry. 

USDA’s call for a national animal identification system, its decision to evaluate 

rapid BSE screening methods and, its willingness to reexamine the complicity of 

Suspected Risk Material, are important and relevant steps. However, speaking from 

the perspective of the private sector, I respectfully suggest these initiatives and others could more efficiently, effectively, and economically be accomplished by the industry itself. 

Overlaying all these issues and solutions is the ever-present question of cost. Both 

the USDA and Congress are concerned, and rightly so, about adopting costly programs that will increase tax burdens. But an industry-financed alternative, regulated by the USDA, should be considered a viable option. Animal ID and traceability 

are the backbone of any reliable, responsible food safety system, and we believe the 

private sector can add value to this discussion as well as self-finance any number 

of solutions. 

At VeriPrime, for example, we employ a licensing strategy in which a fee paid by 

retailers reimburses the cattle production side for the cost of compliance with an 

animal identification program. The system would be, and should be technology neutral and have the flexibility to accommodate virtually all vendors. Once established, 

the revenue stream will make possible evolution to electronic ID and the economies 

and efficiencies those systems can offer. Moreover, because we are member-directed, 

we can guarantee adoption of the least-cost, highest-efficiency systems. A competitive marketplace will encourage innovation and as new, better, and cheaper systems 

evolve, the membership will naturally move to adopt them. 

The issue of BSE testing is particularly worrisome to us. No rational view can 

suppose there was only one BSE-infected animal in this country and we were lucky 

enough to find it through our very limited test protocols. If in response to the discovery of BSE, the USDA now decides to require increased testing—as has been 

suggested—the consequences could be severe. The more we test, the more likely we 

are to discover additional cases. And without a safety net, the economic consequences to the U.S. beef industry would surely be calamitous. After the Washington incident, even though the USDA’s response was quick and efficient, cattle 

prices quickly dropped by 20 percent. We need only look at the economic consequences of BSE in Canada, Japan, and Europe to imagine the catastrophic effect 

we could anticipate in this country. 

Our industry objective must be this: When a consumer prepares to bite into a 

burger, if a news flash reports another BSE discovery, the announcement should be 

accompanied by the statement, ‘‘the affected meat has been quarantined, and all 

meat now in the marketplace has passed BSE testing.’’ 

Rapid test-hold-release programs have shown excellent results in Asia and in Europe, restoring consumer confidence and economic stability to those beef industries. 

Our consumers and our marketplace need similar protections. It has been widely 

stated that testing 100 percent of the beef supply would be prohibitively expensive. 
554 

From the government’s perspective, that is probably true. But the tremendous 

power of the American economic marketplace could easily support such a program. 

A number of models can be employed. At VeriPrime, we would propose to use our 

licensing system to finance such an endeavor, giving retailers the opportunity to 

market BSE-screened beef products in response to consumer preferences. We would 

regard this function as screening only. Suspected test samples would be referred to 

the USDA for its ‘‘gold standard’’ testing while the source product is withheld from 

the food supply. 

Some will no doubt argue that the United States does not have a BSE problem. 

Let’s assume they are correct, and that rapid testing as I have discussed is not a 

food safety issue. I would then suggest that rapid testing is important to the private 

sector as a marketing attribute. Surveys uniformly show that consumers would prefer the safety margin this screening provides, and are willing to pay much more 

than the two-pennies-per-burger cost of screening. And to the beef industry, from 

the cattle rancher all the way through the supply chain, the economic protections 

BSE screening offers are very attractive and highly desirable. 

Mr. Chairman, this is a time of great uncertainty. The threats to our food supply 

from natural, inadvertent, and malicious sources are of great concern to us. And we 

face an uncertain future. Ten years ago, none of us had heard of ‘‘Mad Cow’’ disease. 

What will it be 10 years from now? We need a system that provides responsive, 

flexible, cost-effective consumer protections. The U.S. Congress, in its rightful role 

of oversight; the U.S. Department of Agriculture, in its rightful role as regulator; 

and the U.S. food industry in its rightful role as purveyor of safe, fresh, nutritious 

products, can form a powerful partnership. We look forward to working together to 

achieve a balance of responsibility that properly serves our constituents, our customers, and our industry. 

PREPARED STATEMENT OF THE WILDLIFE MANAGEMENT INSTITUTE

The Wildlife Management Institute (WMI) is pleased to submit this testimony for 

your consideration in determining the fiscal year 2005 budgets for the United States 

Department of Agriculture (Natural Resources Conservation Service, Farm Services 

Agency, and Animal and Plant Health Inspection Service). Established in 1911, the 

Institute is staffed by professional wildlife managers and scientists. Its purpose is 

to promote the restoration and improvement of wildlife in populations and their 

habitats throughout North America. 

NATURAL RESOURCES CONSERVATION SERVICE (NRCS)

General comments.—The USDA’s 2005 Budget Summary states the following: 

‘‘The Department’s 2005 budget supports achievement of the five USDA strategic 

goals and the commitment to provide first-class service, state-of the art science, and 

consistent management excellence across the board responsibilities of USDA. The 

Department promotes . . ., protection of natural resources . . .’’ Out of the 5 listed 

goals, two of them reflect budget decreases. Ironically both deal with Natural Resources and Environmental issues (quality of life in rural America and protecting 

and enhancing the nation’s natural resource base and environment). As we review 

this budget, we continue to see a deterioration in funding and manpower necessary 

to address this nation’s natural resource needs, in particular, programs concerning 

and fish and wildlife. If we are to meet goals and objectives of the 2002 Farm Bill 

Conservation Title (as set by Congress), we will need to ensure adequate funding 

for these programs. 

Conservation Operations/Conservation Technical Assistance.—WMI recognizes 

that there has been a decrease in the number of positions within NRCS over the 

past several years. Our concern continues to be for the resource and the ability to 

deliver quality technical assistance (TA) to private landowners across this nation. 

We observe that TA will decrease by $138 million in fiscal year 2005 under the Administration’s proposed budget. In a briefing to the conservation community on the 

agency’s budget on February 19, 2004, it was stated ‘‘there is a policy shift in the 

Administration’’ towards TA. This shift will result in creating a further backlog in 

the delivery of the conservation programs. This ultimately will lead to further confusion among the very constituents (private landowners) we desire to serve, thereby 

preventing us from contributing to the goals set by Congress when it approved the 

Farm Bill in May, 2002. 

Farm Bill Technical Assistance.—Compared to the fiscal year 2004 estimate there 

is a decrease of $28 million. The Administration’s proposed fiscal year 2005 budget 

allocates $92 million to Wetland Reserve Program and Conservation Reserve Pro-
555 

gram for TA. WMI requests TA funding for these programs to be supported by the 

Commodity Credit Corporation oppose to annual appropriations. 

The Technical Services Provider (TSP) program also needs attention. Level of allocations to Conservation Districts, State fish and wildlife agencies and Conservation 

organization’s is good, but there is a need to evaluate effectiveness of TSP funds 

when achieving conservation goals for soil, water and wildlife enhancements. Therefore, $2 million additional dollars should be allocated to do just that. In fiscal year 

2003 and 2004, NRCS respectively received $30 million and $40 million to implement TSP. According to the Administration’s fiscal year 2005 proposed budget request no money is set aside for TSP; at least $40 million should be allocated. 

Performance measures on page 9 of a February 2, 2004 budget briefing book listed 

targets for 2004 and 2005. These targets are activities and will not contribute to 

the Administration’s and OMB’s Performance Control Standards. They are not RESULT oriented and will NOT enable NRCS to communicate achievements specifically on soil, water and wildlife enhancements. WMI recommends that Congress require such standards as part of the NRCS budgetary process. WMI also recommends 

that $10 million specifically be targeted to conduct comprehensive monitoring and 

evaluation studies on all Farm Bill Conservation programs. Results of such studies 

will help the USDA and Congress identify future spending priorities under the 

Farm Bill. 

Wildlife Habitat Incentives Program (WHIP).—WMI supports the $25 million increase in funding. This funding greatly needed to address over subscriptions in the 

program, especially in the country’s Northeast and Northwest regions. 

Grassland Reserve Program (GRP).—The Administration has requested a $31 million decrease for this program in fiscal year 2005. WMI suggests that with a backlog 

of private landowners involved in this program, it is unwise to decrease funding for 

GRP. Because this is a new program, its financial growth curve should extend beyond its first 2 years of implementation. 

FARM SERVICE AGENCY (FSA)

Staff Years: FSA is slatted to lose 967 positions by fiscal year 2005. These are 

primarily temporary positions and the Administration has justified these losses as 

the result of completed Farm Bill activities. The next scheduled sign up of 800,000 

acres in the Conservation Reserve Program (CRP) is slated for the spring of 2004. 

It is expected a similar effort in 2005 will occur. Thus, there is a need to have sufficient staff to process these additional contracts for the CRP program, as well as the 

expected increase for the Conservation Reserve Enhancement Program (CREP) 

agreements. WMI is concerned about the delivery of CRP to private landowners and 

seeks Congressional support for retention of FSA’s 967 positions. 

WILDLIFE SERVICES, ANIMAL AND PLANT HEALTH INSPECTION SERVICES (APHIS)

Wildlife Services Methods Development: In 1997, the United States and the European Union (EU) entered into a Memorandum of Understanding that identified a 

process for developing and evaluating more effective and humane trapping devices 

used to manage certain wildlife populations (e.g. for research and mitigating wildlife 

damage, to reestablish species extirpated from prior habitats, and to protect endangered species). An active research program is being developed at the USDA’s National Wildlife Research Center in Fort Collins, CO. WMI strongly objects to the 

proposed elimination of $3.35 million for the Methods Development program, and 

urges Congress to restore this funding. 

WMI also recommends Congress restore funding for research of non-lethal methods to mitigate wildlife damage and that Congress provide additional funding to 

Wildlife Services (WS) to conduct research for improved management of invasive 

species (such as the brown tree snake and the Coqui frog that threatens local agriculture, fragile ecosystems, and threatened and endangered species in Guam and 

Hawaii). 

PREPARED STATEMENT OF THE WILDLIFE SOCIETY

The Wildlife Society (TWS) appreciates the opportunity to submit testimony concerning the fiscal year 2005 budgets U.S. Department of Agriculture agencies. The 

Wildlife Society is the association of almost 9,000 professional wildlife biologists and 

managers dedicated to sound wildlife stewardship through science and education. 

The Wildlife Society is committed to strengthening all federal programs that benefit 

wildlife and their habitats on agricultural and other private land. 
556 

The following table summarizes The Wildlife Society’s recommendations for 

USDA, compared with fiscal year 2004 enacted and the President’s fiscal year 2005 

request: 

[In thousands of dollars] 

USDA Agency/Program 

Fiscal year— 

2004 Enacted 2005 President’s 

Budget 

2005 TWS Recommended 

Natural Resources Conservation Service: 

Wildlife Habitat Incentives Program ................................................. 42,000 60,000 100,000 

Grassland Reserve Program ............................................................. 115,000 84,000 84,000 

Wetlands Reserve Program ............................................................... 280,000 295,000 295,000 

Forest Land Enhancement Program ................................................. 10,000 ........................ 80,000 

Technical Service Provider training .................................................. ........................ ........................ 100 

Conservation Program Monitoring and Evaluation ........................... ........................ ........................ 1,000 

Animal & Plant Health Inspection Service: 

Wildlife Services—Operations .......................................................... 71,313 71,684 77,184 

Wildlife Services—Methods Development ........................................ 16,999 13,876 17,266 

Veterinary Services—Chronic Wasting Disease ............................... 18,522 20,067 30,067 

Coop. St. Research, Education, and Extension Serv.: 

Renewable Resources Extension Act ................................................ 4,040 4,093 15,000 

McIntire-Stennis Cooperative Forestry .............................................. 21,755 21,844 30,000 

Natural Resources Inventory ............................................................. 164,027 180,000 180,000 

Natural Resources Conservation Service 

Wildlife Habitat Incentives Program (WHIP).—The 2002 Farm Bill included landmark increases for conservation, but annual appropriations have not been commensurate the 80 percent increase passed in the bill. The authorized level for WHIP 

cost-share payments and technical assistance in fiscal year 2005 is $325 million. 

Given the important impacts of WHIP in providing technical and financial support 

to farmers and ranchers to create high quality wildlife habitat, we request a minimum of $100 million. 

Grassland Reserve Program (GRP).—With estimated expenditure of $115 million 

in fiscal year 2004, the proposed funding level of $84 million in fiscal year 2005 will 

meet the Farm Bill-authorized cap of $254 million for GRP. GRP should focus on 

grasslands of high biodiversity that are at risk of conversion and support grazing 

operations. In addition, enrollment must increasingly focus on long-term enrollment, 

since no more than 40 percent of authorized funding can be used for short-duration 

rental agreements, which have been emphasized to date. 

Wetland Reserve Program (WRP).—The continued target of enrolling 200,000 

acres annually in WRP is essential; if 200,000 acres are not enrolled every year (fiscal year 2004 was limited to 189,000 acres), enrollment must increase in future 

years to reach the authorized level of 2,275,000 acres. Full WRP enrollment is necessary for the Administration to achieve no-net-loss of wetlands by building on the 

WRP successes of the 1990’s that reduced wetland losses to 32,600 acres/year (as 

reported in the USDA National Resource Inventory). 

Forest Land Enhancement Program (FLEP).—The Forest Land Enhancement Program was created through the 2002 Farm Bill to provide financial, technical, educational, and related assistance to promote sustainable management of non-industrial private forestlands. The program is authorized at $100 million for 2002–2007, 

to be distributed through state forestry agencies. We request restoration of the full 

funding balance, $80 million, for this program in fiscal year 2005. 

Technical Service Provider Training.—NRCS is building a Technical Service Provider program of certified professionals who can assist the agency in delivering conservation services to agricultural producers. Training will be needed to effectively 

prepare Technical Service Providers to assist these producers. TWS recommends 

that Congress direct NRCS to appropriate $100,000 for a pilot training program at 

a university in cooperation with professional societies (Society for Range Management, The Wildlife Society, American Fisheries Society) and the USDA Cooperative 

State Research, Education, and Extension Service that subsequently can be repeated at land grant universities and colleges across the country to train Technical 

Service Providers. This program is critical to the effective delivery of Farm Bill Conservation Programs. 

Conservation Program Monitoring and Evaluation.—Monitoring Farm Bill conservation programs and evaluating their progress toward achieving Congressionally 

established objectives for soil, water, and wildlife will ensure successful program im-
557 

plementation and effective use of appropriated funds. Thus far, limited monitoring 

efforts have been focused on soil and water achievements, and NRCS and the Agricultural Research Service have done all the evaluations. It is important for assessments to address wildlife and habitat impacts, and for external parties to be included to ensure credibility and objectivity. We recommend Congress direct $1 million toward a pilot watershed-based monitoring and evaluation project, which would 

include participation by state conservation and agriculture agencies and the state 

land-grant university, that can serve as a model for conservation program assessment nationwide. 

Animal and Plant Health Inspection Service 

Wildlife Services.—The Wildlife Services Unit is responsible for controlling wildlife 

damage to agriculture, aquaculture, forest, range and other natural resources, for 

controlling wildlife-borne diseases, and for controlling wildlife at airports. The Administration proposes a program reduction of $5.5 million from fiscal year 2004 levels to offset a $5 million increase in fiscal year 2005 for a wildlife disease surveillance system. We recommend Congress restore the $5.5 million reduction to maintain existing operations. We also recommend that Congress restore the $3.35 million 

(need $17,266) decrease in the Methods Development program, which provides the 

credible means to identify and improve publicly acceptable methods of wildlife control. 

Veterinary Services.—We commend APHIS-Veterinary Services for working with 

the state wildlife management agencies on Chronic Wasting Disease (CWD) surveillance and management in free-ranging deer and elk. Additionally, we support 

APHIS efforts to eliminate CWD from captive cervids to eliminate the risk of spread 

of the disease from these animals to free-ranging deer and elk. We recommend increasing CWD funding to a total of $30.067 million in fiscal year 2005 to fully address management of CWD in the states, with emphasis on preventing the spread 

of CWD from captive cervid operations. 

Cooperative State Research, Education and Extension Services 

Renewable Resources Extension Act.—We strongly recommend that the Renewable Resources Extension Act be funded at $15 million in fiscal year 2005. RREA funds, 

which are apportioned to State Extension Services, leverage (at an average of 4:1) 

cooperative partnerships with a focus on development and dissemination of information needed by private landowners. The need for RREA educational programs is 

greater than ever today due to fragmentation of ownerships, urbanization, and increasing societal concerns about land use and its impact on soil, water, air, and 

wildlife. Though RREA has been proven to be effective in leveraging cooperative 

state and local funding, it has never been fully funded. 

McIntire-Stennis.—We encourage Congress to increase McIntire-Stennis Coopera- tive Forestry funds to $30 million. These funds are essential to the future of resource management on non-industrial private forestlands, supporting state efforts in 

forestry research to increase the efficiency and sustainability of forestry practices 

and to extend the benefits that come from forest and related rangelands. McIntireStennis calls for close coordination between state colleges and universities and the 

Federal Government, and is essential for providing research background for other 

Acts, such as RREA. 

National Research Initiative.—National Research Initiative Competitive Grants 

(NRI) are open to academic institutions, federal agencies, and private organizations 

to fund research on improving agricultural practices, particularly production systems that are sustainable both environmentally and economically, and to develop 

methods for protecting natural resources and wildlife. Innovative grant programs 

such as NRI help broaden approaches to land management, such as integrating timber and wildlife management on private lands. The Wildlife Society requests $180 

million for National Research Initiative Competitive Grants in fiscal year 2005. 

Thank you for your past support of conservation funding and for considering the 

views of wildlife professionals. We look forward to working with you and your staff 

to ensure adequate funding for wildlife conservation. 

PREPARED STATEMENT OF THE WINE INSTITUTE

This statement is in support of the Market Access Program and the need to fully 

fund it for fiscal year 2005 at $140 million, the level established in the Food Security and Rural Investment Act of 2002. 

The California wine industry has benefited significantly from the MAP, and previous USDA export promotion programs since 1986. At that time our exports were 

only $34.9 million. Last year, we exported over $633 million. Despite this growth, 
558 

we have a huge potential remaining as our international market share is only about 

5 percent. Wine imports to the United States still outweigh exports by a factor of 

4–1 but we are determined to level this balance of payments in the next few years. 

We need the full amount authorized by the 2002 Farm Bill in order to maintain 

our growth and accomplish our objectives. 

The MAP allows our industry to counter the significant trade barriers we face in 

all foreign markets. In Europe, our major market, we face high tariffs, expensive 

certification procedures, and restrictions to our winemaking practices. In addition, 

we face competition from the European wine industry which is heavily subsidized 

and backed with export credits and other significant government support programs. 

In Asia, our industry faces high tariffs in all countries and protective systems that 

allow preference for local bottlers and wine products. 

International wine marketing requires substantial costs of additional labeling requirements, testing and certification procedures. To be competitive, companies must 

attend major trade shows, conduct educational programs and produce expensive promotional materials. Every competitive wine industry relies on a government program to back its export efforts. Small U.S. wineries simply do not have the resources to compete in this arena without the support of the MAP. 

The increase in funding authorized by 2002 Farm Bill for the MAP is necessary 

for new market entry and expansion into current markets. The Administration’s active international trade agenda has allowed for opportunities that all exporters need 

to address as quickly as possible. Creating opportunities without providing resources 

is ineffective policy. Our wine industry needs to expand its efforts into China, South 

America, Eastern Europe, and Russia. We need additional resources to fuel this expansion. 

The MAP is a cost share program. Our industry’s annual contribution has increased from 50 percent to its current level of 150 percent. We are more than willing 

to pay our share. However, we also need the resources and support that our competitors enjoy. Therefore, we strongly support the authorized, full funding for the 

MAP at $140 million for fiscal year 2005. 

PREPARED STATEMENT OF THE WYOMING STATE ENGINEER’S OFFICE

This statement is sent in support of the designation of 2.5 percent of the fiscal 

year 2005 Environmental Quality Incentive Program (EQIP) funding for the Department of Agriculture’s Colorado River Salinity Control (CRSC) Program. Pursuant to 

Public Law 104–127, the USDA’s CRSC Program is a component program within 

EQIP. Wyoming views the inclusion of the CRSC Program in EQIP as a direct recognition on the part of Congress of the Federal commitment to maintenance of the 

water quality standards for salinity in the Colorado River—and that the Secretary 

of Agriculture has a vital role in meeting that commitment. 

The State of Wyoming is a member state of the seven-state Colorado River Basin 

Salinity Control Forum. Established in 1973 to coordinate with the Federal Government on the maintenance of the basin-wide Water Quality Standards for Salinity 

in the Colorado River System, the Forum is composed of gubernatorial representatives and serves as a liaison between the seven States and the Secretaries of the 

Interior and Agriculture and the Administrator of the Environmental Protection 

Agency. The Forum advises the Federal agencies on the progress of efforts to control 

the salinity of the Colorado River and annually makes funding recommendations, 

including the amount believed necessary to be expended by the USDA for its onfarm CRSC Program. Overall, the combined efforts of the Basin States, the Bureau 

of Reclamation and the Department of Agriculture have resulted in one of the nation’s most successful non-point source control programs. 

The Colorado River provides municipal and industrial water for 27 million people 

and irrigation water to nearly four million acres of land in the United States. The 

River is also the water source for some 2.3 million people and 500,000 acres in Mexico. Limitations on users’ abilities to make the greatest use of that water supply due 

to the River’s high concentration of total dissolved solids (hereafter referred to as 

the salinity of the water) are a major concern in both the United States and Mexico. 

Salinity in the water source especially affects agricultural, municipal, and industrial 

water users. While economic detriments and damages in Mexico are unquantified, 

the Bureau of Reclamation presently estimates salinity-related damages in the 

United States to amount to $330 million per year. The River’s high salt content is 

in almost equal part due to naturally occurring geologic features that include subsurface salt formations and discharging saline springs; and the resultant concentrating effects of our users man’s storage, use and reuse of the waters of the River 

system. Over-application of irrigation water by agriculture is a large contributor of 
559 

salt to the Colorado River as irrigation water moves below the crop root zone, seeps 

through saline soils and then returns to the river system. The Department of Agriculture’s CRSC Program is an important proven and cost-effective tool in improving 

irrigation water application and thus reducing salt loading into the Colorado River 

system. 

For the past 20 years, the seven-state Colorado River Basin Salinity Control 

Forum has actively assisted the U.S. Department of Agriculture in implementing its 

unique, collaborative and important program. At its recent October 2003 meeting, 

the Forum recommended that the USDA CRSC Program should expend 2.5 percent 

of the Environmental Quality Incentive Program funding. In the Forum’s judgment, 

this amount of funding is necessary to implement the needed program. ‘‘Catch-up’’ 

funding in the future will require expending greater sums of money, increase the 

likelihood that the numeric salinity criteria are exceeded, and create undue burdens 

and difficulties for one of the most successful Federal/State cooperative non-point 

source pollution control programs in the United States. 

The State of Wyoming greatly appreciates the Subcommittee’s support of the Colorado River Salinity Control Program in past years. We continue to believe this important basin-wide water quality improvement program merits support by your Subcommittee. We request that your Subcommittee direct the allocation of 2.5 percent 

of the Environmental Quality Incentives Program funding for the USDA’s CRSC 

Program during fiscal year 2005. Thank you in advance for your consideration of 

this statement and its inclusion in the formal record for fiscal year 2005 appropriations. 

(i) 

LIST OF WITNESSES, COMMUNICATIONS, AND 

PREPARED STATEMENTS 

Page 

Ad Hoc Coalition, Prepared Statement of .............................................................. 409 

American: 

Farm Bureau Federation, Prepared Statement of ......................................... 412 

Honey Producers Association, Inc., Prepared Statement of .......................... 415 

Indian Higher Education Consortium, Prepared Statement of .................... 419 

Legion, Prepared Statement of ........................................................................ 422 

Public Power Association, Prepared Statement of ......................................... 423 

Sheep Industry, Prepared Statement of ......................................................... 423 

Society: 

For Microbiology, Prepared Statements of.......................................... 427, 429 

For Nutritional Sciences (ASNS), Prepared Statement of ..................... 432 

Of Plant Biologists, (ASPB), Prepared Statement of .............................. 435 

Veterinary Medical Association, Prepared Statement of .............................. 436 

Association of State Dam Safety Officials, Prepared Statement of ..................... 438 

Bennett, Senator Robert F., U.S. Senator from Utah: 

Opening Statements..................................................................................... 107, 273 

Questions Submitted by........................................................................ 38, 171, 380 

Berne, Bernard H., M.D., Ph.D., Prepared Statement of ..................................... 443 

Bond, Senator Christopher S., U.S. Senator from Mississippi, Questions Submitted by ................................................................................................... 59, 174, 256 

Bosecker, R. Ronald, Administrator, National Agricultural Statistics Service, 

Department of Agriculture, Prepared Statement of .......................................... 358 

Bost, Eric M., Under Secretary for Food Nutrition and Consumer Services, 

Department of Agriculture .................................................................................. 107 

Prepared Statement of ..................................................................................... 111 

Statement of ...................................................................................................... 109 

Byrd, Senator Robert C., U.S. Senator from West Virginia: 

Prepared Statement of ..................................................................................... 4 

Questions Submitted by ................................................................................... 99 

Calaveras County Water District, Prepared Statement of ................................... 445 

California: 

Association of Winegrape Growers, Prepared Statement of ......................... 447 

Industry and Government Central California Ozone Study Coalition, Prepared Statement of ....................................................................................... 450 

Table Grape Commission, Prepared Statement of ......................................... 451 

Coalition: 

On Funding Agricultural Research Missions, Prepared Statement of ......... 452 

To Promote U.S. Agricultural Exports, Prepared Statement of ................... 453 

Collins, Keith, Chief Economist, Office of the Secretary, Department of the 

Secretary, Department of Agriculture................................................................ 1, 273 

Prepared Statement of ..................................................................................... 275 

Statement of ...................................................................................................... 274 

Colorado River Basin Salinity Control Forum, Prepared Statement of .............. 454 

Crawford, Lester M., D.V.M., Ph.D., Acting Commissioner, Food and Drug 

Administration Department of Health and Human Services ........................... 184 

Prepared Statement of ..................................................................................... 186 

Davidson, Ross J., Jr., Administrator, Risk Management Agency, Department 

of Agriculture, Prepared Statement of ............................................................... 304 
Page

ii 

Dewhurst, Stephen, Budget Officer, Office of the Secretary, Department of 

the Secretary, Department of Agriculture ......................................................... 1 

Dorgan, Senator Byron L., U.S. Senator from North Dakota, Questions Submitted by ............................................................................................................ 71, 267 

Durbin, Senator Richard J., U.S. Senator from Illinois: 

Prepared Statement of ..................................................................................... 108 

Questions Submitted by........................................................................ 87, 270, 273 

Easter Seals, Prepared Statement of ..................................................................... 456 

Federation of American Societies for Experimental Biology, Prepared Statement of .................................................................................................................. 458 

Feinstein, Senator Dianne, U.S. Senator from California, Questions Submitted by ............................................................................................................ 80, 267 

Fernandez, Dr. Peter, Acting Administrator, Animal and Plant Health Inspection Service, Department of Agriculture, Prepared Statement of .................... 129 

Florida State University, Prepared Statement of ................................................. 460 

Forest Landowners Association, Prepared Statement of ...................................... 462 

Friends of Agricultural Research—Beltsville, Inc., Prepared Statement of ....... 463 

Garcia, Arthur A., Administrator, Rural Housing Service, Department of Agriculture, Prepared Statement of ........................................................................... 329 

Gonzalez, Gilbert G., Acting Under Secretary for Rural Development, Department of Agriculture .............................................................................................. 273 

Prepared Statement of ..................................................................................... 322 

Statement of ...................................................................................................... 320 

Great Lakes Indian Fish and Wildlife Commission, Prepared Statement of ..... 467 

Gulf Coast Research Laboratory, Prepared Statement of .................................... 516 

Harkin, Senator Tom, U.S. Senator from Iowa, Questions Submitted 

by......................................................................................................................... 63, 401 

Hawks, William T., Under Secretary for Marketing and Regulatory Programs, 

Department of Agriculture .................................................................................. 107 

Prepared Statement of ..................................................................................... 119 

Statement of ...................................................................................................... 118 

Hefferan, Dr. Colien, Administrator, Cooperative State Research, Education, 

and Extension Service, Department of Agriculture, Prepared Statement 

of ............................................................................................................................ 346 

Humane Society of the United States, Prepared Statement of ........................... 469 

Inouye, Senator Daniel K., U.S. Senator from Hawaii, Questions Submitted 

by ........................................................................................................................... 106 

International Association of Fish and Wildlife Agencies, Prepared Statement 

of ............................................................................................................................ 472 

InterTribal Bison Cooperative, Prepared Statement of ........................................ 475 

Jen, Joseph J., Under Secretary for Research, Education and Economics, 

Department of Agriculture .................................................................................. 273 

Prepared Statement of ..................................................................................... 339 

Statement of ...................................................................................................... 338 

Johnson, Senator Tim, U.S. Senator from South Dakota: 

Prepared Statement of ..................................................................................... 4 

Questions Submitted by ................................................................................... 92 

Knight, Bruce I., Chief, Natural Resources Conservation Service, Department 

of Agriculture, Prepared Statement of ............................................................... 317 

Knipling, Dr. Edward B., Acting Administrator, Agricultural Research Service, Department of Agriculture, Prepared Statement of ................................... 343 

Kohl, Senator Herb, U.S. Senator from Wisconsin, Questions Submitted 

by.............................................................................................................. 176, 256, 389 

Landrieu, Senator Mary L., U.S. Senator from Louisiana, Questions Submitted by ............................................................................................................... 95 

Legg, Hilda Gay, Administrator, Rural Utilities Service, Department of Agriculture, Prepared Statement of ........................................................................... 326 

Little, James R., Administrator, Farm Service Agency, Department of Agriculture, Prepared Statement of ........................................................................... 290 
Page

iii 

Masters, Dr. Barbara J., Acting Administrator, Food Safety and Inspection 

Service, Department of Agriculture, Prepared Statement of ........................... 163 

Mid-America International Agri-Trade Council (MIATCO) and Food Export 

USA—Northeast, Prepared Statement of .......................................................... 479 

Murano, Elsa A., Under Secretary for Food Safety, Department of Agriculture ................................................................................................................... 107 

Prepared Statement of ..................................................................................... 153 

Statement of ...................................................................................................... 150 

National: 

Association of: 

Professional Forestry Schools and Colleges (NAPFSC), Prepared 

Statement of ........................................................................................... 481 

State Departments of Agriculture, Prepared Statement of ................... 484 

State Foresters, Prepared Statement of .................................................. 485 

University Fisheries and Wildlife Programs, Prepared Statement of .. 486 

Coalition for Food and Agricultural Research, Prepared Statement of ....... 488 

Commodity Supplemental Food Program (CSFP) Association, Prepared 

Statement of .................................................................................................. 490 

Council of Farmer Cooperatives, Prepared Statement of .............................. 492 

Potato Council, Prepared Statement of .......................................................... 494 

Rural Housing Coalition, Prepared Statement of .......................................... 495 

Rural Telecom Association, Prepared Statement of ...................................... 500 

Telecommunications Cooperative Association, Prepared Statement of ....... 503 

Treasury Employees Union, Prepared Statement of ..................................... 506 

Turfgrass Evaluation Program, Prepared Statement of ............................... 507 

New Mexico Interstate Stream Commission, Prepared Statement of ................. 511 

Nez Perce Tribe, Prepared Statement of ............................................................... 512 

Nicholls State University, Prepared Statement of ................................................

Northwest Indian Fisheries Commission, Prepared Statement of ...................... 513 

Oceanic Institute: 

Letter From ....................................................................................................... 515 

Prepared Statement of ..................................................................................... 516 

Offutt, Susan E., Administrator, Economic Research Service, Department of 

Agriculture, Prepared Statement of ................................................................... 349 

Oklahoma Farmers Union, Prepared Statement of .............................................. 478 

Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO), Prepared Statement of .................................. 522 

Penn, J.B., Under Secretary for Farm and Foreign Agricultural Services, 

Department of Agriculture .................................................................................. 273 

Prepared Statement of ..................................................................................... 284 

Statement of ...................................................................................................... 281 

People for the Ethical Treatment of Animals (PETA), Prepared Statement 

of ............................................................................................................................ 524 

Pickle Packers International, Inc., Prepared Statement of .................................. 526 

Red River Valley Association, Prepared Statement of .......................................... 531 

Reifschneider, Donna, Administrator, Grain Inspection, Packers and Stockyards Administration, Department of Agriculture, Prepared Statement of .... 141 

Rey, Mark, Under Secretary for Natural Resources and Environment, Department of Agriculture .............................................................................................. 273 

Prepared Statement of ..................................................................................... 314 

Statement of ...................................................................................................... 312 

Rosso, John, Administrator, Rural Business-Cooperative Service, Department 

of Agriculture, Prepared Statement of ............................................................... 334 

Salazar, Roberto, Administrator, Food and Nutrition Services, Department 

of Agriculture, Prepared Statement of ............................................................... 115 

Society of American Foresters, Prepared Statement of ........................................ 534 

Stevens, Senator Ted, U.S. Senator from Alaska, Questions Submitted by ....... 59 

Terpstra, A. Ellen, Administrator, Foreign Agricultural Service, Department 

of Agriculture, Prepared Statement of ............................................................... 295 

Texas Agricultural Experiment Station, Prepared Statement of ........................ 516 

Tufts University, Prepared Statement of .............................................................. 516 
Page

iv 

U.S.: 

Agricultural Export Development Council, Prepared Statement of ............. 536 

Apple Association, Prepared Statement of ..................................................... 540 

Marine Shrimp Farming Consortium, Prepared Statement of ..................... 516 

United States Telecom Association, Prepared Statement of ................................ 543 

University of: 

Arizona, Prepared Statement of ...................................................................... 516 

Southern Mississippi and the Mississippi Polymer Institute, Prepared 

Statement of .................................................................................................. 545 

Upper Mississippi River Basin Association, Prepared Statement of ................... 548 

USA Rice Federation, Prepared Statement of ....................................................... 551 

Veneman, Ann M., Secretary of Agriculture, Office of the Secretary, Department of Agriculture .............................................................................................. 1 

Prepared Statement of ..................................................................................... 11 

Statement of ...................................................................................................... 6 

VeriPrime, Inc., Prepared Statement of ................................................................ 552 

Waddell Mariculture Center, Prepared Statement of ........................................... 516 

Wildlife: 

Management Institute, Prepared Statement of ............................................. 554 

Society, Prepared Statement of ....................................................................... 555 

Wine: 

America, Prepared Statement of ..................................................................... 447 

Institute, Prepared Statements of .............................................................. 447, 557 

Winegrape Growers of America, Prepared Statement of ...................................... 447 

Wyoming State Engineer’s Office, Prepared Statement of ................................... 558 

Yates, A.J., Administrator, Agricultural Marketing Service, Department of 

Agriculture, Prepared Statement of ................................................................... 125 
(v) 

SUBJECT INDEX 

DEPARTMENT OF AGRICULTURE 

Page 

Access to CSP by Producers .................................................................................... 372 

Achieving the Next Level of Food Safety ............................................................... 156 

Additional Committee Questions ................................................................ 38, 171, 380 

Addressing Overweight and Obesity ...................................................................... 112 

Adjusted Gross Revenue Program .......................................................................... 81 

Administrative: 

Expenses ............................................................................................................ 326 

Support .............................................................................................................. 295 

Advanced Telecommunications in Rural America ................................................ 327 

Adventitious Presence ............................................................................................. 387 

Agricultural: 

Estimates Restoration ...................................................................................... 381 

Marketing Service ............................................................................................ 123 

Trade ................................................................................................................. 76 

And CAFTA ............................................................................................... 30 

Transportation Security ................................................................................... 129 

AMS’ 2005 Budget Request ..................................................................................... 124 

Animal: 

And Plant Health Inspection Service .............................................................. 120 

Welfare Act Violations ..................................................................................... 24 

APHIS’ 2005 Budget Request ................................................................................. 121 

Asian Soybean Rust ................................................................................................. 77 

Assistance on Public Lands .................................................................................... 56 

Avian Influenza ..................................................................................................... 52, 172 

Beaver Control ......................................................................................................... 181 

Beef Export Markets ............................................................................................... 53 

Better Nutrition for a Healthy US ......................................................................... 14 

Bovine Spongiform Encephalopathy (BSE) ............ 51, 54, 63, 78, 90, 151, 171 182 

And Cattle From Canada ................................................................................. 30 

Policy ................................................................................................................. 78 

Related Activities .............................................................................................. 13 

Surveillance Program ....................................................................................... 72 

Testing .............................................................................................................. 28, 93 

Trade Restrictions ............................................................................................ 382 

Broadband............................................................................................................ 389, 407 

Funding ............................................................................................................. 73 

Loan Program ................................................................................................... 393 

Brown Tree Snake ................................................................................................... 106 

Budget ....................................................................................................................... 349 

And Performance Integration .......................................................................... 116 

Cuts ................................................................................................................... 59 

Impact of Information Security Requirements ............................................... 47 

Request Summary ............................................................................................ 129 

Requests ............................................................................................................ 292 

Business and Industry: 

Guaranteed Loan Program .............................................................................. 336 

Program ............................................................................................................. 42 

Central Filing System Programs ............................................................................ 25 

Centralized Servicing Center .................................................................................. 43 

Challenges for 2004............................................................................................. 151, 154 

Child Nutrition Program ........................................................................... 110, 114, 117 

Childhood Obesity ................................................................................................. 89, 173 
Page

vi 

Civil Rights .............................................................................................................. 21 

Combating Childhood Obesity ................................................................................ 176 

Commodity: 

Credit Corporation ............................................................................................ 292 

Supplemental Food Program ........................................................................... 117 

Fiscal Year 2004 Funding ......................................................................... 177 

Community Programs ............................................................................................. 330 

Completing Risk Assessments ................................................................................ 47 

Comprehensive Program Assessment................................................................ 331, 388 

Congressional Add-Ons ........................................................................................... 363 

Conservation: 

Programs ........................................................................................................... 63 

Security Program ......................................................................... 34, 312, 364, 401 

Consumer Data and Information System .............................................................. 356 

Initiative ............................................................................................................ 380 

Cooperative Services ........................................................................................... 334, 401 

Technical Assistance ........................................................................................ 62 

Coordination of USDA Rural Programs ................................................................. 41 

Coqui Frog ................................................................................................................ 106 

Corn Shipments ....................................................................................................... 33 

Country of Origin Labeling .................................................................................... 77, 92 

Crop Insurance ......................................................................................................... 386 

CSP: 

Base Payment ................................................................................................... 314 

Funding Cap ..................................................................................................... 371 

Proposed Rule ................................................................................................... 369 

Customer Service and Technology .......................................................................... 125 

Customers, Partners, and Stakeholders ................................................................ 358 

Cyber Security ......................................................................................................... 37 

Dairy Forward Contacting.................................................................................. 365, 389 

Decreases .................................................................................................................. 141

Departmental Management .................................................................................... 21 

Designate Biobased Products .................................................................................. 68 

Developing the Animal Identification Program .................................................... 93 

Digital Data Maps ................................................................................................... 393 

Discretionary Funding ............................................................................................. 318 

Distance Learning, Telemedicine and Broadband ................................................ 60 

Downed Animal Risk Management Tools .............................................................. 392 

Durum and Spring Wheat Yields ........................................................................... 79 

Electric Program ...................................................................................................... 327 

Employee Security Awareness Training ................................................................ 48 

Empowerment Zones ............................................................................................... 71 

Energy Balance of Ethanol ..................................................................................... 94 

Enhance Public Education Efforts ......................................................................... 167 

Enhancing Program Integrity and Delivery .......................................................... 113 

Ensure That Policy Decisions are Based on Science ............................................ 165 

Ensuring: 

Adequate Funding for FISMA Remediation ................................................... 51 

Effectiveness of Security Management ........................................................... 47 

Program Access ................................................................................................. 112 

Systems are Certified and Accredited ............................................................. 49 

Environmental Impact of On-Farm Burial of Downer/Dead Cattle .................... 85 

ERS Contributions to Mission Area Goals ............................................................ 349 

Export Market Problems ......................................................................................... 390 

Exports Transportation Infrastructure .................................................................. 32 

Facility Feasibility Studies ..................................................................................... 362 

Farm: 

And Foreign Agricultural Services .................................................................. 14 

Bill Authorized Programs ................................................................................ 319 

Credit Administration Review ......................................................................... 43 

Loan: 

Programs .................................................................................................... 293 

Staffing .................................................................................................. 386, 392 

Service Agency .................................................................................................. 282 

Federal Grain Inspection Service ........................................................................... 144 

Filling ACIO for Cybersecurity ............................................................................... 47 

Fiscal Year 2005: 

Budget Request ................................................................. 128, 138, 152, 157, 169 
Page

vii 

Fiscal Year 2005—Continued 

Funding Request ............................................................................................... 371 

Plans .................................................................................................................. 361 

Food: 

And Agriculture Defense .................................................................................. 12 

Guide Pyramid .................................................................................................. 178 

Safety ................................................................................................................. 16 

Stamp Program ................................................................................... 110, 113, 117 

Food, Nutrition, and Consumer Services ............................................................... 17 

Foreign Agricultural Service .............................................................................. 283, 287 

Forest Service Management Plans ......................................................................... 402 

Fraud and Abuse ..................................................................................................... 56 

Fruit and Vegetable Pilot Program ........................................................................ 82 

FSA Farm Loan Portfolio ........................................................................................ 384 

Funding: 

For Food Safety/Animal Health Inspections and Research .......................... 105 

Sources .............................................................................................................. 120 

To Continue Emergency Programs ................................................................. 140 

Genetically Modified: 

Crops .................................................................................................................. 390 

Food ................................................................................................................... 383 

Genomic Science ...................................................................................................... 338 

Geospatial Information System (GIS) .................................................................... 368 

Progress ............................................................................................................. 369 

GIPSA’s 2005 Budget Request ................................................................................ 122 

Glassy-Winged Sharpshooter .................................................................................. 84 

Grain Inspection, Packers and Stockyards Administration ................................. 121 

Guaranteed Single-Family Housing Program ....................................................... 395 

Guidelines on Fat Consumption ............................................................................. 174 

Health Care Cooperative Pilot ................................................................................ 61 

High Fructose Corn Syrup ...................................................................................... 403 

Highest Priority Components of the Strategic Plan and Homeland Security .... 138 

Holding Senior Management Accountable for Information Security ................... 46 

Horticultural Specialties ......................................................................................... 381 

How USDA Budget Corrects Security Weaknesses .............................................. 49 

Human Capital Management ................................................................................. 116 

Humane Slaughter Operations ............................................................................... 99 

Hunger Task Force Pilot Program ......................................................................... 23 

Importation of Live Cattle From Canada .............................................................. 31 

Improve Coordination of Food Safety Activities With Other Public Health 

Agencies ................................................................................................................ 166 

Indefinite Funding in the Food Stamp Act ............................................................ 174 

Inspector Travel ....................................................................................................... 183 

Interest Assistance Loans ....................................................................................... 77 

Intermediary Relending Program ........................................................................... 336 

Iraq Food Aid ........................................................................................................... 384 

Low: 

Carbohydrate Diets .......................................................................................... 178 

Pathogenic Avian Influenza ............................................................................. 52 

Major Activities of the National Agricultural Statistics Service (NASS) ............ 360 

Management Control Review .................................................................................. 388 

Marketing and Regulatory Programs ..................................................................... 15 

McGovern-Dole International Food for Education Program ................................ 65 

Meat and Poultry Safety ......................................................................................... 64 

Merging of Urban and Rural Housing and Community Development Programs ..................................................................................................................... 44 

MFH Automation Initiatives .................................................................................. 333 

Mission ................................................................................................................. 125, 349

Multi Family: 

Housing ........................................................................................................... 42, 388 

Programs .................................................................................................... 329 

Update ............................................................................................................... 331 

Multi-Peril Crop Insurance ..................................................................................... 74 

National Animal Identification: 

Database ............................................................................................................ 86 

Program ............................................................................................................. 22 

System............................................................................................................... 25, 65 

National: 

Board on Rural America .................................................................................. 42 
Page

viii 

National—Continued 

Center for Animal Health ................................................................................ 70 

Finance Center: 

Data Mirroring .......................................................................................... 97 

E-Payroll Initiative .................................................................................... 95 

Thrift Savings Plan ................................................................................... 96 

Competitive Bidding .......................................................................... 57 

Organic Standards Board ................................................................................ 178 

Research Initiative ........................................................................................... 404 

Resources and Environment.......................................................................... 18, 369 

Rural Development Partnership ..................................................................... 26 

New Direction .......................................................................................................... 138 

Northern Great Plains Regional Authority ........................................................... 74 

Nutrition Programs Administration ......................................................... 111, 115, 118 

Obesity Prevention .................................................................................................. 338 

Initiative Grand Forks ARS ............................................................................ 72 

Organic Agriculture Research and Extension Initiative ...................................... 405 

Organization ............................................................................................................. 142 

Other: 

Appropriated Programs .................................................................................... 294 

Increases ............................................................................................................ 140 

Packers and Stockyards Programs ......................................................................... 142 

Partnerships ............................................................................................................. 126 

Pasture-Raised Beef Project .................................................................................... 104 

Payment Limitation ................................................................................................. 403 

Performance Review ................................................................................................ 385 

Pilot Program ........................................................................................................... 41 

Plans to Finalize Security Policies and Procedures .............................................. 48 

Preclearance Inspections in Hawaii ....................................................................... 106 

Prepayment .............................................................................................................. 333 

In Section 515 Program ................................................................................... 399 

Program Highlights ................................................................................................. 309 

And Initiatives .................................................................................................. 330 

Proposed: 

Increase for Buildings and Facilities .............................................................. 345 

Operating Increases ......................................................................................... 345 

Program: 

Decreases ................................................................................................... 345 

Initiatives ................................................................................................... 343 

Rule 3560 .......................................................................................................... 332 

Protect Meat, Poultry, and Egg Products Against Intentional Contamination .. 167 

RD: 

Information Technology ................................................................................... 40 

State Offices ...................................................................................................... 38 

Reaching Out to Those in Need through Faith-based and Other Community 

Organizations ....................................................................................................... 116 

REE Agency Fiscal Year 2005 Budgets ................................................................. 341 

Renewable Energy ................................................................................................... 69 

Grants Program ................................................................................................ 337 

Systems ............................................................................................................. 68 

Rental Assistance ....................................................................................... 332, 387, 397 

Preservation ...................................................................................................... 44 

Program ............................................................................................................. 400 

Reopening Export Markets for Beef and Poultry .................................................. 366 

Repair and Rehabilitation ....................................................................................... 399 

Research, Education, and Economics ..................................................................... 20 

Resignation of Administrator Bobby Acord ........................................................... 78 

Responsibilities ........................................................................................................ 323 

Revenue Based Programs ....................................................................................... 81 

RHS/GAO Report on Rental Assistance ................................................................. 38 

Risk: 

Factors ............................................................................................................... 59 

Management Agency.................................................................................... 282, 286 

Rural Business: 

And Cooperative Service .................................................................................. 42 

Enterprise Grant Program ............................................................................... 336 

Investment: 

Corporation ................................................................................................ 376 
Page

ix 

Rural Business—Continued 

Investment—Continued 

Program ...................................................................................................... 406 

Cooperative Programs ...................................................................................... 324 

Development Grant Program ........................................................................... 335 

Opportunity Grant Program ............................................................................ 337 

Rural Development .................................................................................................. 18 

Accomplishments .............................................................................................. 321 

Budget Request ................................................................................................. 323 

Rural: 

Economic Development Loan and Grant Programs ....................................... 337 

Housing Programs ............................................................................................ 325 

Partners ............................................................................................................. 334 

Programs ........................................................................................................... 39 

Telecommunications ......................................................................................... 73 

Utility Programs ............................................................................................... 323 

Sausage Casings ...................................................................................................... 184 

Section: 

502 Guaranteed Program ................................................................................. 330 

502 Single-Family Housing Programs ............................................................ 397 

515 Multi-Family Housing Program ............................................................... 395 

521 Rental Assistance ...................................................................................... 37 

523 Mutual and Self-Help Housing ................................................................ 330 

538 Guaranteed Rural Rental Housing Program .......................................... 332 

Self-Help Technical Assistance and Other Single Family Housing Programs ... 329 

Significant Food Safety Advancement of 2003.................................................. 151, 153 

Single Family Housing: 

Programs ........................................................................................................... 329 

Update ............................................................................................................... 330 

Single Food Safety Agency ..................................................................................... 27, 87 

Small Area Estimation ............................................................................................ 382 

Sound: 

Science........................................................................................................... 183, 391 

Scientific Information for Regulatory Decisionmaking ................................. 70 

Soybean Rust ................................................................................................ 88, 176, 404 

Specialty Crops ........................................................................................................ 80 

Standard Reinsurance Agreement ........................................... 31, 55, 74, 75, 94, 375 

Subsidy Rates ........................................................................................................... 398 

Sudden Oak Death .................................................................................................. 84 

Summary.............................................................................................................. 328, 343 

Supercomputer Resources ....................................................................................... 377 

Systems Testing and Evaluation ............................................................................ 48 

Technical: 

Assistance .......................................................................................................... 372 

For Specialty Crops Program ................................................................... 81 

Service Providers .............................................................................................. 373 

Telecommunications Budget ................................................................................... 328 

Testing of Animals Prior to Export ........................................................................ 52 

The Challenge of Improper Payments ................................................................... 115 

The Emergency Food Assistance Program (TEFAP) ........................................ 114, 117 

Time Lag on CSP Implementation and Rulemaking ............................................ 374 

Trade Implications of Genetically Modified Crops ................................................ 367 

Training of DHS Employees ................................................................................... 83 

Transportation Efficiency ........................................................................................ 33 

Transshipment of Beef From the Lower 48 to Alaska .......................................... 60 

U.S. Agricultural Economy ..................................................................................... 274 

Underwriting Gains Tax ......................................................................................... 74 

USDA Key Information Security Weaknesses ...................................................... 45 

USDA’s: 

Center for Veterinary Biologics ....................................................................... 58 

Five Star Commitment to Increase Minority Homeownership ..................... 331 

Vision ........................................................................................................................ 323 

Water and Environmental Programs ..................................................................... 328 

Watershed Approach to CSP ................................................................................... 313 

Web-Based Supply Chain Management System ................................................... 128 

WIC....................................................................................................................... 114, 117 

Contingency Funds ........................................................................................... 24 

Program ............................................................................................................. 110 
Page

x 

Wool for Berets in Iraq ............................................................................................ 79 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

FOOD AND DRUG ADMINISTRATION

Additional Committee Questions ............................................................................ 237 

Agricultural Products .............................................................................................. 242 

Albuterol Metered-Dose Inhalers ........................................................................... 247 

Animal: 

Drug Compounding .......................................................................................... 265 

Feed ................................................................................................................... 230 

Inspections ........................................................................................................ 230 

Biotech-Enhanced Events in Food and Feed ......................................................... 247 

Bioterrorism Regulations ........................................................................................ 232 

Bovine Spongiform Encephalopathy .................................................................. 198, 233 

Testing ............................................................................................................... 235 

Combating Counterfeit Drugs: A Report of the Food and Drug Administration .......................................................................................................................... 200 

Counterfeit: 

Alert Network Co-Sponsorship Agreement .................................................... 221 

Drugs............................................................................................................. 200, 265 

Critical Path Initiative ............................................................................................ 231 

Dentician .................................................................................................................. 236

Dietary Supplements ............................................................................................... 270 

Drug: 

Information Web Site ....................................................................................... 237 

Reimportation ................................................................................................... 267 

Emergency Contraception ....................................................................................... 269 

Executive Summary ................................................................................................. 200 

Expanded Description of Comments Received ...................................................... 222 

FDA FOIA Policies .................................................................................................. 259 

Food: 

Guide Pyramid .................................................................................................. 197 

Safety ................................................................................................................. 243 

Generic Biologicals .............................................................................................. 199, 248 

Implicit Pre-Emption ............................................................................................... 260 

Import Inspections ................................................................................................... 258 

Larium (Mefloquine) ................................................................................................ 267 

Live Bird Markets and Avian Influenza ................................................................ 197 

Medical Device: 

Drug Marketing ................................................................................................ 239 

Review ............................................................................................................... 238 

User Fee and Modernization Act .................................................................... 198 

Methylmercury Advisory for Seafood ..................................................................... 240 

Monograph Drug Approval System ........................................................................ 245 

NARMS ..................................................................................................................... 265 

National: 

Animal Identification................................................................................... 235, 236 

Organic Program .............................................................................................. 229 

New Drug Approval Process ................................................................................... 241 

Nutritional Guidelines ............................................................................................ 256 

Obesity ................................................................................................................. 246, 256

Prescription Drug Abuse ......................................................................................... 245 

Proposed Legislation ................................................................................................ 196 

Recall Report by Office of Inspector General ........................................................ 198 

Regulatory Initiatives and State Model Rules ...................................................... 210 

Seafood Inspection/GAO Report ............................................................................. 241 

Technology ................................................................................................................ 205 

Transgenic Animals in CVM ................................................................................... 242 

WIC: 

Contingency Fund ............................................................................................ 228 

Food Costs ......................................................................................................... 229 

Only Stores ........................................................................................................ 231 

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