AGRICULTURE, RURAL DEVELOPMENT, FOOD 

AND DRUG ADMINISTRATION, AND RELATED 

AGENCIES APPROPRIATIONS FOR 2009 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND 

DRUG ADMINISTRATION, AND RELATED AGENCIES 

ROSA L. DELAURO, Connecticut, Chairwoman 

MAURICE D. HINCHEY, New York 

SAM FARR, California 

ALLEN BOYD, Florida 

SANFORD D. BISHOP, JR., Georgia 

MARCY KAPTUR, Ohio 

JESSE L. JACKSON, JR., Illinois 

STEVEN R. ROTHMAN, New Jersey 

JACK KINGSTON, Georgia 

TOM LATHAM, Iowa 

JO ANN EMERSON, Missouri 

RAY LAHOOD, Illinois 

RODNEY ALEXANDER, Louisiana 

NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full Committee, and Mr. Lewis, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

MARTHA FOLEY, LESLIE BARRACK, JASON WELLER, and MATT SMITH, 

Staff Assistants 

PART 7 

Page 

Center for Biologics Evaluation and Research ................ 1 

Center for Drug Evaluation and Research ....................... 69 

Center for Food Safety and Applied Nutrition ................ 211 

Food Safety and Inspection Service ................................... 361 

Farm and Foreign Agricultural Services .......................... 737 

Commodity Futures Trading Commission ........................ 913 

Farm Credit Administration ................................................. 1016 

( 

Printed for the use of the Committee on Appropriations 


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PART 7—AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, 

AND RELATED AGENCIES APPROPRIATIONS FOR 2009 


smartinez on PROD1PC64 with HOTAPPRO
AGRICULTURE, RURAL DEVELOPMENT, FOOD 

AND DRUG ADMINISTRATION, AND RELATED 

AGENCIES APPROPRIATIONS FOR 2009 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND 

DRUG ADMINISTRATION, AND RELATED AGENCIES 

ROSA L. DELAURO, Connecticut, Chairwoman 

MAURICE D. HINCHEY, New York 

SAM FARR, California 

ALLEN BOYD, Florida 

SANFORD D. BISHOP, JR., Georgia 

MARCY KAPTUR, Ohio 

JESSE L. JACKSON, JR., Illinois 

STEVEN R. ROTHMAN, New Jersey 

JACK KINGSTON, Georgia 

TOM LATHAM, Iowa 

JO ANN EMERSON, Missouri 

RAY LAHOOD, Illinois 

RODNEY ALEXANDER, Louisiana 

NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full Committee, and Mr. Lewis, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

MARTHA FOLEY, LESLIE BARRACK, JASON WELLER, and MATT SMITH, 

Staff Assistants 

PART 7 

Page 

Center for Biologics Evaluation and Research ................ 1 

Center for Drug Evaluation and Research ....................... 69 

Center for Food Safety and Applied Nutrition ................ 211 

Food Safety and Inspection Service ................................... 361 

Farm and Foreign Agricultural Services .......................... 737 

Commodity Futures Trading Commission ........................ 913 

Farm Credit Administration ................................................. 1016 

( 

U.S. GOVERNMENT PRINTING OFFICE 

48–718 WASHINGTON : 2009 


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COMMITTEE ON APPROPRIATIONS 

DAVID R. OBEY, Wisconsin, Chairman 

JOHN P. MURTHA, Pennsylvania 

NORMAN D. DICKS, Washington 

ALAN B. MOLLOHAN, West Virginia 

MARCY KAPTUR, Ohio 

PETER J. VISCLOSKY, Indiana 

NITA M. LOWEY, New York 

JOSE ́ E. SERRANO, New York 

ROSA L. DELAURO, Connecticut 

JAMES P. MORAN, Virginia 

JOHN W. OLVER, Massachusetts 

ED PASTOR, Arizona 

DAVID E. PRICE, North Carolina 

CHET EDWARDS, Texas 

ROBERT E. ‘‘BUD’’ CRAMER, JR., Alabama 

PATRICK J. KENNEDY, Rhode Island 

MAURICE D. HINCHEY, New York 

LUCILLE ROYBAL-ALLARD, California 

SAM FARR, California 

JESSE L. JACKSON, JR., Illinois 

CAROLYN C. KILPATRICK, Michigan 

ALLEN BOYD, Florida 

CHAKA FATTAH, Pennsylvania 

STEVEN R. ROTHMAN, New Jersey 

SANFORD D. BISHOP, JR., Georgia 

MARION BERRY, Arkansas 

BARBARA LEE, California 

TOM UDALL, New Mexico 

ADAM SCHIFF, California 

MICHAEL HONDA, California 

BETTY MCCOLLUM, Minnesota 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland 

BEN CHANDLER, Kentucky 

DEBBIE WASSERMAN SCHULTZ, Florida 

CIRO RODRIGUEZ, Texas 

JERRY LEWIS, California 

C. W. BILL YOUNG, Florida 

RALPH REGULA, Ohio 

HAROLD ROGERS, Kentucky 

FRANK R. WOLF, Virginia 

JAMES T. WALSH, New York 

DAVID L. HOBSON, Ohio 

JOE KNOLLENBERG, Michigan 

JACK KINGSTON, Georgia 

RODNEY P. FRELINGHUYSEN, New Jersey 

TODD TIAHRT, Kansas 

ZACH WAMP, Tennessee 

TOM LATHAM, Iowa 

ROBERT B. ADERHOLT, Alabama 

JO ANN EMERSON, Missouri 

KAY GRANGER, Texas 

JOHN E. PETERSON, Pennsylvania 

VIRGIL H. GOODE, JR., Virginia 

RAY LAHOOD, Illinois 

DAVE WELDON, Florida 

MICHAEL K. SIMPSON, Idaho 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

DENNIS R. REHBERG, Montana 

JOHN R. CARTER, Texas 

RODNEY ALEXANDER, Louisiana 

KEN CALVERT, California 

JO BONNER, Alabama 

ROB NABORS, Clerk and Staff Director 

(II)


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(1) 

AGRICULTURE, RURAL DEVELOPMENT, FOOD 

AND DRUG ADMINISTRATION, AND RELATED AGENCIES APPROPRIATIONS FOR 

2009 

WEDNESDAY, APRIL 2, 2008. 

CENTER FOR BIOLOGIES EVALUATION AND RESEARCH 

WITNESSES 

JESSE L. GOODMAN, M.D., M.P.H., DIRECTOR OF THE CENTER FOR BIOLOGICS EVALUATION AND RESEARCH, U.S. FOOD AND DRUG ADMINISTRATION 

MICHAEL A. CHAPPELL, DEPUTY ASSOCIATE COMMISSIONER FOR 

FIELD OPERATIONS, OFFICE OF REGULATORY AFFAIRS (ORA), U.S. 

FOOD AND DRUG ADMINISTRATION 

MARY A. MALARKEY, DIRECTOR, OFFICE OF COMPLIANCE AND BIOLOGICS QUALITY, U.S. FOOD AND DRUG ADMINISTRATION 

INTRODUCTION OF WITNESSES

Ms. DELAURO. The hearing will come to order. 

Today we welcome to the subcommittee Dr. Jesse Goodman, who 

is director of FDA’s Center for Biologics Evaluation and Research, 

which oversees vaccines, blood products, tissues, and related devices, as well as therapeutics, including cellular, tissue engineering, and gene therapies. 

And thank you very, very much for joining us, Dr. Goodman and 

Mr. Chappell, and I’ll rely on you, Dr. Goodman, to make a more 

formal introduction of Mr. Chappell. 

Today’s hearing on the Center for Biologics Evaluation and Research is the second in a series of oversight hearings that take a 

closer look at each of the centers at the FDA. 

We began this series with a hearing on February 27th examining 

the Center for Drug Evaluation and Research, and while the Center for Drug Evaluation and Research receives more attention because of its responsibility overseeing the safety of prescription 

drugs, Center for Biologics Evaluation and Research regulation of 

biological and related products is equally important, and I believe 

this is the first time this subcommittee has held a hearing focused 

exclusively on CBER. 

And I also want to say a thank you to my colleague, Sam Farr, 

who has expressed a great interest in some issues that come before 

the center, and it was at his prodding and at his initiation that we 

decided to hold an oversight hearing. 


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Unfortunately, the importance of the mission of the Center for 

Biologics Evaluation and Research is not reflected, in my view, in 

the fiscal year 2009 budget request. The non-user fee part of CBER’s budget request for 2009 is $158 million, an increase of just under $3 million, or a mere 1.9 percent, 

over fiscal year 2008. 

While the budget request document contains a lengthy description that tries to make this tiny increase sound like it will accomplish a lot, I fear that it will not be adequate. If we are to return 

the FDA to the gold standard for which it was once known, the 

agency will need additional resources. 

The subcommittee is trying to do our part, but we also need the 

administration to demonstrate their commitment to improving 

FDA. 

Unfortunately, the administration’s budget request for the agency and for CBER does not reflect any type of commitment toward 

making the necessary improvements. 

Providing additional resources could help leverage some of the 

good work being done at CBER. For instance, in your testimony, 

Dr. Goodman, you talk about CBER’s interdisciplinary review 

teams and how they work together to design and analyze results 

of post-approval monitoring. 

You also note that CBER has established product safety teams 

for tissue, blood, and vaccines. This sounds like a serious effort, 

which I would like to know more about. 

The good thing about holding an oversight hearing on CBER is 

that it allows the subcommittee to examine a number of important 

issues that we normally would not have the chance to discuss in 

depth. These include tissue safety, recalls of blood and blood products. 

In fact, on these issues, some of the responses to questions for 

the record last year by the FDA were unsatisfactory and require 

followup discussion. This hearing provides us that opportunity. 

Once more we say thank you to you, Dr. Goodman, and I look 

forward to discussing the issues with you and appreciate your willingness to rearrange your schedule to accommodate the subcommittee. 

Ranking Member Kingston will be late. He has another important meeting that he had to be at. I will ask colleague Congresswoman Emerson if she has some opening remarks. 

Mrs. EMERSON. Thank you so much for asking, Madam Chair. I 

don’t have any questions. I do want to welcome you and thank you 

for being here. 

Dr. GOODMAN. Thank you. 

Ms. DELAURO. Then let me ask you to proceed, Dr. Goodman, 

with your testimony, and you know the drill. The entire testimony 

will be made part of the record, so you’re free to summarize in any 

way you care to. 

Dr. GOODMAN. Okay. Well, thank you so much for having me 

here, and Congressman Farr, Chair DeLauro, and Congresswoman 

Emerson, I really appreciate your interest, and, you know, we are 

here to really have a good exchange. 

I look at some statements that people give, these 30-second statements, with a lot of envy, but I’m not—that’s not my style. And 


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then when I looked at what—how I feel about the importance of 

what we’re doing and some of our accomplishments, I cut it down 

from the written statement, but I’d still like to share a few things 

with you. 

As you know, I’m Jesse Goodman. I’m director of the CBER, the 

Center for Biologics Evaluation and Research, and this is Mike 

Chappell, who is the deputy associate commissioner for field operations from the Office of Regulatory Affairs, and why he’s here, as 

you know, we work very closely together. 

In fact, we have a unique relationship in our center, because we 

have this Team Biologics, which is a joint enterprise of the center 

to try to bring the scientists and the field investigators together, 

and we also, in our center, most people don’t realize, but we do the 

pre-licensure inspections from the Center for Biologics. But we’ve 

had a really great working relationship with ORA, and we support 

them. 

As you know and have said, we’re responsible for regulating biological products that touch the lives of millions of Americans every 

day, and I think what’s equally important and keeps me awake is 

that these are important for the preparedness of our nation, they’re 

important for confidence in our health care system, so when you 

talk about vaccines and blood safety, as you know, this is critical. 

The safety expectations are very high, so our normal mode is to 

take those expectations very seriously and approach them innovatively. 

The funding, as you mentioned, first of all, in 2008, I want to express appreciation for the $2.2 million additional we got for our 

safety activities, $4 million more for our pandemic activities, and 

that was built on top of the pandemic supplemental that you had 

given us. 

And I’ll say a little more. I think we’ve invested that wisely, and 

we’ve made some real gains that you really should share the credit 

for. 

In addition, in 2008, we received $1 million for critical path, and 

we received coverage of the payroll increases for our program. 

As you mentioned, the 2009 budget includes a $3 million increase 

in budget authority, but also an increase in user fees. 

An important point about the user fees is that, with the recent 

agreement, this does allow user fee use for the complete spectrum 

of product safety activities, and we are applying increases from 

both 2008 and 2009 to strengthen product safety activities, which 

we consider important. 

Okay. What are the accomplishments in pandemic preparedness? 

These really flow from your investments, and I think they’re already quite tangible. 

We’ve accelerated America’s preparedness. We’ve improved our 

ability to support development and evaluation of new vaccines. 

We’ve really enhanced our infrastructure in the center to test and 

deploy vaccines rapidly in our emergency preparedness. 

And then we’re engaged—this is an area, as I’ve mentioned in 

the past, where the science is often 40 or 50 years old, the assays 

being used to evaluate vaccines are in clinical trials, or to test 

them prior to their deployment, are very old, and we’re investing 


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in trying to modernize those assays, and we’re doing that in a collaborative way with colleagues around the world. 

In part of this accomplishment, last April we licensed the first 

vaccine to be used against avian influenza in the world. That’s an 

accomplishment. 

We recognize some of the limitations of that vaccine, and will 

very actively engage with HHS and partners in next generation 

vaccines which hopefully will allow lower doses and more 

immunologic effectiveness. 

These are vaccines using new adjuvants, which raise some important potential safety issues, adjuvants are components which 

will strengthen the immune response, and also using new technologies, such as cell cultures or even recombinant vaccines, to generate synthetic proteins protective against pandemic flu. 

We put forth an accelerated approval platform, really, for annual 

and pandemic flu vaccines, and we’ve worked expeditiously to 

evaluate multiple new vaccines. 

I think the interrelatedness of the pandemic preparedness and 

our whole nation’s public health preparedness is illustrated by the 

fact that, as part of this effort, we’ve actually doubled the number 

of licensed U.S. vaccine manufacturers and doubled the capacity to 

produce flu vaccine for annual flu, with over 130 million doses this 

year, for the first time able to come close to meeting some of the 

public health targets that CDC has put out there, and this offers 

the possibility of saving thousands of lives. 

And our hope is also that the diversity in flu vaccine supplied, 

it better prepares us for a pandemic. It also better prepares us for 

the kind of events we’ve had in the past, where one manufacturer 

may have problems and fail. 

So I think that’s a really good story. 

We’ve also used this as the opportunity—one thing I want to say 

is, I was very conscious that when we got the pandemic supplemental, this was an opportunity to help prepare for the pandemic, 

but also to do it in a way that strengthens our infrastructure and 

deal with other emergencies that might come along, and we’ve really tried to do that very deliberatively. 

And so, for example, we’ve used the pandemic investment also to 

help us do post-marketing product safety activities better. We have 

a collaboration with Harvard to try to access health care data very 

quickly from flu vaccination. 

We did, some of our scientists did an amazing project collaborating with colleagues at CMS, where we were able to, within a 

month, capture 10 million immunizations in the CMS population, 

and look for spikes in an adverse event of interest. 

So again, these are the kinds of things that will better prepare 

us to monitor vaccine safety, both in a pandemic and every year, 

and actually, they’re helping provide examples for all of FDA, in 

terms of how do we do product safety using health care and other 

data. So that’s been very exciting. 

Now, as I mentioned, it’s not just pandemic we have to worry 

about. There are many other threats, ranging from West Nile to 

bioterrorism, et cetera. These are threats which sometimes we need 

to develop new products to address, or sometimes we need to do 


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things to enhance the safety of the blood or tissue supply, and 

we’re actively engaged in that. 

We work proactively with HHS and WHO, numerous other organizations, and we’re developing—we’re involved and engaged in developing vaccines to meet these threats. 

One of the things that we did, again with your support, is we 

really put together the first, in a sense, global regulatory team, involving other regulatory agencies from across the globe, including 

countries affected by the avian flu risk, like Vietnam, Indonesia, 

Thailand, to get them at the table with us and our WHO colleagues, and develop a set of standards and approaches to pandemic vaccines so that not just the U.S., but the world, will share 

information and have high quality vaccines for a pandemic. 

With your help, we’ve strengthened our emergency response infrastructure. I won’t go into that in details. But again, this will 

help us in a pandemic or in other emergencies. 

Now, I will say people really look to FDA for our safety and for 

safeguarding the safety of products, and at the end of the day, our 

most critical and unique responsibility is to give that objective, 

independent, expert assessment of safety. 

As Ms. DeLauro mentioned, we have put in place very interdisciplinary and proactive approaches, and we are trying to modernize how product safety is done, and we view product safety as 

encompassing everything from how the product is designed, the 

quality of manufacturing, and the followup on possible adverse 

events when it’s approved. 

We have multidisciplinary review teams up front, so in the spirit 

of the IOM report, we have safety people involved in the review of 

the product and in designing the post-marketing studies that will 

be done, and these folks are all together in the room doing these 

reviews, and part of that, what that accomplishes, is everybody is 

identifying their concerns and trying to work issues out, both 

ahead of approval, and then we take a similar approach with the 

safety teams after approval. 

I really didn’t want to see a situation where one group of people 

knows that an inspection of a facility showed X, another group of 

people is looking at the adverse events, and another group of people understands the benefits or the need of vaccines, but they’re 

not talking with each other. 

We have them all talking to each other, and that tends to resolve 

issues and conflicts at an early stage, or identify problems at an 

early stage. Okay. 

We also put in place a new regulatory framework for tissue, to 

enhance tissue safety, and I’m happy to talk more about that. 

These safety teams meet regularly and consider all ongoing safety issues, and they also meet in emergencies. We convene them 

when new signals arise or when a product safety or availability 

issue comes up. 

And of course, one thing that’s very unique in what we do in 

blood and vaccine safety and tissues is, we work very closely and 

leverage the resources of CDC, and that is a highly collaborative 

and productive relationship. 

So that we identify an issue, we may use our colleagues at CDC 

to go out and engage the states, the state health departments, the 


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epidemic intelligence service people, who CDC has out in the 

states, for example, to conduct tissue safety investigations with us, 

and that’s been an excellent relationship. 

One of the things we’ve tried to do, and I think this is in the 

spirit of what we understand the public wants, and I think it’s the 

right thing that the public wants, is that when we identify potential concerns to, even if we’re not clear if it’s related to a product, 

to try to make that information available to people at an early and 

appropriate time, and be transparent about what we know and 

what we don’t know. 

This can be complicated, and it’s a challenging kind of risk communication, but, for example, we’ve used innovative methods to 

both identify possible safety signals, like we had a safety signal of 

Guillain-Barre Syndrome, a neurologic problem with the meningitis 

vaccine, but then to be able to tell people what we did and didn’t 

know about it, so they were aware, and their physicians are aware, 

in making health care choices. And the public has really appreciated this. 

Now, as Congresswoman DeLauro mentioned, we also have a lot 

of incredibly promising, exciting, innovative products that I think 

offer the potential to cure diseases, whether these are gene therapies, stem cells, tissue engineered products, where people are starting to make in the laboratory new organs, but these raise a lot of 

unique concerns in their development and in their evaluations. 

So we’re really, this is where our science is very, very important, 

and where we try to work collaboratively with product developers, 

with NIH, to stay ahead of the curve and say, how can we move 

such unique, innovative products more quickly from the laboratory 

to the clinic, but how can we do that in a way that’s safe and 

makes sense and gets us the needed information. And we have numerous partnerships doing that. 

For example, we’ve issued draft guidance on how to use cord 

stem cells and guidance on how to maintain high quality in those 

cells. 

We’ve held joint workshops with NIH on how to develop stem cell 

therapies for neurologic and cardiac disease and how that should 

be tested—a whole bunch of things like these to try to move new 

fields forward while fulfilling our responsibilities. 

We set up what’s FDA’s first inter-center review team involving 

our center and the device center working together to review tissueengineered products so people don’t have to go into two different 

centers and deal with two different systems, and so the right experts are doing the reviews. 

A lot of this requires a strong science base, and you’re all aware 

of the science board report raising concerns about the state of that. 

What I do feel very good about is that the science board did recognize that we were managing our program in an effective way and 

achieving some very substantial outcomes, despite those limited resources, and they specifically recognized this as they reviewed our 

center’s science. 

But examples of some of our scientific accomplishments, as I 

mentioned, using health care databases in new ways, developing 

new tools to track adverse events, collaborative studies with the 


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national toxicology program to make gene therapy safer, a bunch 

of new methods. 

The National Institute of Allergy and Infectious Disease came to 

us and said, ‘‘You guys are the experts, can you help us develop 

new methods for assuring cells that vaccines and other products 

are safe,’’ and we worked on that project and were able to provide 

guidance to industry that’s actually allowed development of new 

vaccines and cell lines that previously could not be safely used. 

And I think one of the most well-known examples is providing 

standards and expertise that allowed implementation of West Nile 

Virus testing in eight months, and probably prevented thousands 

of disease transmissions. 

So these are scientific accomplishments that we’re very proud of. 

We could certainly do more. 

And we are, you know, with your support, for example, through 

the critical path initiative, and of the center, we’re making more 

investments in these areas. 

For example, we’re interested in improving our ability to use 

genomic methodologies to assess rare adverse events, for example, 

in the vaccine area, et cetera. 

Now, the one thing that I feel very personally passionate about, 

I feel passionate about all of this, but one that I feel particularly 

passionate about, and we’ve recently seen how important it is on 

multiple levels, is that we are in a global community. 

Public health is a global issue. As you’ve heard, diseases know 

no boundaries. But as we’ve also found out, manufacturing knows 

no boundaries, and also, quite frankly, the positive knows no 

boundaries. 

There is knowledge and innovation out there in other countries 

and other places in the world that we need to keep abreast of. And 

I mentioned our efforts to work with other regulators and scientific 

bodies to do that. 

But we are very committed to dealing with infectious disease 

threats, like malaria, chikungunya, another mosquito-borne virus, 

dengue, which is sweeping through parts of South America and Hawaii, new hepatitis viruses, drug-resistant TB, diarrheal diseases. 

People tend to think of these as diseases which just affect others 

elsewhere, but as the recent episode of the traveller with TB, minor 

variants of which, by the way, are happening all the time, illustrate, these things are threats to the security of the United States, 

as well, whether they occur naturally or deliberately, as I mentioned, and we would ignore them at our peril. 

So I think in global health, we face a win-win situation, where 

we can help the world solve some of the major health problems 

that are there, but where we can also protect our country better. 

So we place a very high priority on these global efforts, trying 

to develop products to meet these needs. 

We actually were recently recertified, there’s an outside evaluation, as a WHO collaborating center, both for biologic products and 

for influenza, so we play a role in setting global standards in these 

areas. 

And we’re out there. Our blood center director is the chair of the 

global collaboration for blood safety. 


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So we’re out there trying to both protect our country by assuring 

that global product quality and safety are high, but also trying to 

help colleagues throughout the world achieve those goals. 

We have a program called the global vaccine initiative that seeks 

to work with other countries, other regulators, WHO, to facilitate 

development of vaccines that could help face these neglected diseases, like malaria, TB, et cetera. 

And I often say, if there were a safe and effective tuberculosis 

vaccine, I think I would line up to get it, because I think the risks 

and the toll of that disease are high, even though in our country 

right now it isn’t an issue. 

So this is just a little bit about what we do globally, but what 

I really want to say is that there are unprecedented opportunities 

to improve global health, and at the same time, protect the health 

of our people against emerging infectious disease threats, and we’re 

very engaged in that and spend a lot of effort on it. 

So to conclude, we really have a dedicated team. We have knowledgeable staff. We collaborate with lots of others. And we’re very 

committed to promoting innovation and quality concerning the 

products we regulate. 

While there are many new threats emerging, our blood supply is 

safer than ever, our vaccine infrastructure has dramatically improved, not that there aren’t still areas that we’re really concerned, 

and we have record influenza vaccine capacity. 

This needs continuous vigilance, monitoring, and improvement, 

but thanks to your support, I think we’re a lot better prepared 

there, and for future pandemics. 

And I’m proud of this record, and my staff’s accomplishments. 

As I said, we face continuing challenges and risks. We continue 

to remain vigilant against known and emerging health risks, and 

we do also in that process strive for continuous improvement. 

We realize our resources are limited. There are many resource 

needs. But we aim to face the highest-risk, most serious problems 

in an effective way, and we’re committed to this vision and mission. 

And, you know, frankly, I totally welcome your and any outside 

input and participation in achieving what I think are common 

goals for U.S. and public health. 

So thanks so much. 

[The information follows:] 


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Ms. DELAURO. Thank you very much, Dr. Goodman. Let me 

start. 

And I do, too, again want to compliment the interdisciplinary efforts that you’re making, because I think you’re more accurate 

when you bring people together. 

You can look at the product safety teams, which I think put everybody at the table, and you can figure out what direction you 

might take. But listening to people’s concerns—et cetera. 

TISSUE REGULATION

Let me start with an area that I just want to get your thoughts 

on. 

This is, and it goes back a bit, so I understand that some things 

have been done, but I want to just get some idea of where efforts 

are. 

The AP did a two-part series on problems with tissue regulation, 

as you know. Some shocking statements. 

Let me just try to see your reaction to them, and if these things 

are correct. 

First, with respect to a healthy 23-year-old who died after elective surgery involving cartilage replacement, the AP story said he 

died because the cartilage came from a corpse that had sat 

unrefrigerated for 19 hours, a corpse that had been rejected by two 

other tissue banks. The cartilage hadn’t been adequately treated to 

kill bacteria. The Georgia-based tissue bank, Cryo Life, Inc., knew 

that the donor had the germ, and released the tissue anyway. None 

of this broke a single federal rule. 

Is that accurate? 

Dr. GOODMAN. No. No. It did—there were a number of things 

that broke federal rules, and that event in part, and I think my 

concern and attention about that subsequent to that led us to push 

forward a new set of rules that tightened things up. 

I think that it is a complex issue and there was—— 

Ms. DELAURO. At the time, though, they didn’t break any federal 

rules—— 

Dr. GOODMAN. Well, actually, I want to check with Mary Malarkey, but I believe that compliance action was taken against that 

company, and our view was that they had broken certain rules. 

But Mary Malarkey is director of our Office of Compliance and 

Biologics Quality. 

Ms. DELAURO. Why don’t you get to a microphone. Can you identify yourself, Mary? 

Ms. MALARKEY. Certainly. I’m Mary Malarkey. I’m the director 

at the Office of Compliance and Biologics Quality at CBER. 

Ms. DELAURO. Okay. 

Ms. MALARKEY. And at that time, I was actually the director of 

the Division of Case Management. 

Cryo Life did, in fact, violate the tissue regulations at the time. 

We first issued them a warning letter, and then subsequent to 

that, when they did not choose to recall tissue voluntarily, we ordered them to recall, retain, and destroy tissue that had been manufactured since the time that the tissue was processed that resulted in Mr. Liken’s death. 


wwoods2 on PROD1PC60 with HEARING
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Dr. GOODMAN. You know, I also do want to say that we took this 

event extremely seriously. 

I’ve met with the family in question in the past. We’ve sought— 

we looked at that experience both from a scientific and a policy 

point of view, and from the scientific point of view, it’s changed 

some of how processors approach things, and it’s also resulted in 

our rules and in guidance that makes it, I think, far less likely that 

that kind of problem occurs. 

Ms. DELAURO. Second, let me move in, if I can quickly, because 

there now appears to be three votes, and I know—— 

Dr. GOODMAN. Okay. Do I get to vote? 

Ms. DELAURO. Well, I tell you what would be interesting. 

Later, we’re going to do this Tom Lantos, Henry Hodge, United 

States Global Leadership against HIV/AIDS, Tuberculosis, Malaria 

Reauthorization Act, so it’s an appropriate vote for today. 

Dr. GOODMAN. Okay. 

TISSUE REGULATION

Ms. DELAURO. A trade group, the American Association of Tissue 

Banks, requires accredited members to follow high standards, but 

without the FDA doing the same, hospitals and doctors can buy 

from unaccredited suppliers that offer tissue quicker or cheaper. 

Is that true or false? 

Dr. GOODMAN. What is true is that FDA does not require accreditation by that accreditation body. 

Ms. DELAURO. This body? 

Dr. GOODMAN. Right. 

What is incorrect is that we actually look at accreditation, for example, we do risk-based inspections and compliance activities, and 

for example, accreditation is one of the factors we consider in deciding on risk and where we focus our efforts. 

AATB is an organization we’ve worked with a lot. They are really 

doing a lot of work to improve quality in tissues, and they’ve been 

very cooperative and collaborative with us, but they also don’t have 

enforcement authority. 

We have to—whether they’re accredited or not, we have oversight 

on them, and they need to follow our rules. 

Ms. DELAURO. Hospitals and doctors do not have to report tissue 

infections to health officials, and evidence suggests that many are 

missed. 

True? 

Dr. GOODMAN. There is a requirement for the sponsors who we 

regulate to—you know, the people who ship out the tissue—to report infections to us—— 

Ms. DELAURO. But hospitals and doctors—— 

Dr. GOODMAN. I don’t believe that—— 

Ms. DELAURO [continuing]. Do not have to report—— 

Dr. GOODMAN [continuing]. I don’t believe there is—that we have 

jurisdiction or there’s a requirement for the hospitals to report. 

I will mention, just because of awareness of that issue and that 

under-reporting probably does occur, that again, we’ve put together 

two projects to try to address this and understand what might be 

going on out there. 


wwoods2 on PROD1PC60 with HEARING
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One is, through—in collaboration again with the device center, 

who has a program called MedSun you may have heard of, which 

involves actively going out in the health care setting and soliciting 

outcomes in infections, and we have a tissue project with them that 

covers a large number of health care sites, and also we have a 

project with CMS that again is going to get to that database to 

look. 

Ms. DELAURO. But in actuality, hospitals and doctors do not now 

have to report tissue infection to health—— 

Dr. GOODMAN. I believe that that is correct. They frequently do. 

Ms. DELAURO. Well, I know, but—— 

Dr. GOODMAN. But it’s not required. 

TISSUE REGULATION

Ms. DELAURO. The FDA requires no medical training to run a 

tissue bank or procure tissue. 

Is that true? 

Dr. GOODMAN. I think that what our—I may turn to Mary Malarkey again, but I believe what is required, it’s a more general requirement, that they have to be qualified and have suitable personnel. 

Our inspectors can look at records and determine whether they 

think that’s—— 

Ms. DELAURO. But they don’t have to have any real medical 

training in order to run the bank or to procure tissue—— 

Dr. GOODMAN. That’s my understanding. 

Ms. DELAURO. Okay. 

FDA rules state broad goals and let industry decide how to meet 

them. They say tissue should be tested for germs, but do not specify the type or level of testing. The same is for how tissue is disinfected. In some instances, some tissue, in fact, is not disinfected 

at all. 

Is that true? 

Dr. GOODMAN. In general, those comments are true. 

What is done is, we are actually going to be providing guidance 

that provides much more detail. 

One of the issues here, Congresswoman DeLauro, is that this is 

an industry where the scientific needs of improving—the science 

where it is, there are many different things going on to reduce infectious risks, and one of the things we’re trying to promote is identifying the best practices and then putting those in guidance. 

Ms. DELAURO. I understand, Dr. Goodman, and you all know me 

well enough to know that I’m about up to the top of my head with 

guidance—— 

Dr. GOODMAN. Yeah. Okay. 

Ms. DELAURO [continuing]. With some very specific—but I understand, I understand—— 

Dr. GOODMAN. Can I make one other comment? 

Ms. DELAURO. Yeah, but my time has run out, and—— 

Dr. GOODMAN. Okay. Why don’t you go ahead. Sure. 

Ms. DELAURO [continuing]. And let me—this is a comment from 

your former FDA colleague, Bill Hubbard: 


wwoods2 on PROD1PC60 with HEARING
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‘‘When an industry feels like its feet are not held to the fire, it 

feels emboldened not to care.’’ William Hubbard, long-time FDA associate commissioner for policy and planning. 

The tissue industry was an example of a—that needed a firm 

regulatory hand, and it never got a firm regulatory—true or false? 

Dr. GOODMAN. We have put in place a markedly enhanced system of regulation, and we are going out to these facilities, and the 

major processors have been inspected, and we have taken actions 

in the last—in 2006 we put two companies out of business. We got 

the power to actually put a company out of business. 

Are there areas in which the regulations could be strengthened? 

Yes. Are we actively looking at this industry? Yes. 

Ms. DELAURO. That’s good, because we’d like to work with you 

on that, and to increase the regulation in this area. We know that 

you have taken some steps, but it would appear that there are several areas at the moment where there are real gaps in terms of ensuring the public health, which I know you’re committed to. 

Ms. Emerson. 

USER FEES

Ms. EMERSON. Thank you. 

Dr. Goodman, thanks for being here, again. 

You know, I have this pet peeve about the fact that user fees are 

such an important part of the way that FDA does business, and the 

increased reliance on them just bothers me terribly, because I 

think there’s an over-reliance, number one, and number two, I 

think there’s a public perception that FDA is beholden to the industry it regulates. 

And, you know, when the salaries of your staff, in essence, could 

be perceived as being paid by the drug companies, then that is, to 

me, not in your good long-term interests. 

Anyway, with that being said, do you have an opinion on what 

you think the appropriate balance of user fees and the appropriations Congress gives you to fund your activities is? 

Dr. GOODMAN. Well, you raise a very important question. Okay. 

Frankly, I would be—— 

Ms. EMERSON. Just don’t be political—— 

Dr. GOODMAN. No, I’m not being political. 

Ms. EMERSON. Okay. 

Dr. GOODMAN. Let me put it the other way. 

Right now, we get money both from user fees and from appropriated money. 

Ms. EMERSON. Right, right. 

Dr. GOODMAN. Okay. In my center, we probably have a somewhat lower percentage of user fees than in the drug and device center, okay, but we have a lot of user fee activities, so we use a certain amount of base to pay for those user fee activities. 

When it comes down to it, it’s about 22 percent of our center’s 

budget that goes to activities that are unrelated to user fees, of 

which we—you know, base authority that is not tied to user fees 

in one way or another. Okay. 

That 22 percent is used for things like tissue safety, blood transfusion, medicine safety, et cetera. 


wwoods2 on PROD1PC60 with HEARING
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What I do want to say is that to me, the user fees, for example, 

PDUFA, have enabled us to dramatically increase our number of 

reviewers and staff to get the job done. 

The user fees, for example, particularly with the change in 

PDUFA 3 to allow their full use in post-marketing safety activities, 

have really provided added resources that we are putting into improving post-marketing safety activities. 

So if I didn’t have those user fees right now, it would be very difficult to carry out our mission. 

If Congress and the executive branch—well, the administration 

or any administration said, ‘‘We want to fund FDA 100 percent off 

appropriated funds,’’ that would be fine with me, as well. 

One thing I have to say, and I encourage this culture within my 

center. I don’t care that those are the user fees. I care that we get 

the job done. 

I tell people that those deadlines, which can create pressure, if 

you have concerns, if you have doubts, if you have additional questions, you don’t have to approve the product by that deadline. 

Okay. 

So the culture they I’m aiming to have is make the best decisions, whatever the source of funds are, and to me that’s absolutely 

critical. 

Also, those are not, those dates, they’re not dates for approval, 

they’re dates for decision, and when we have a concern, the decision is to tell a sponsor, we need you to answer these additional 

questions, or to provide this additional information. 

USER FEES

Ms. EMERSON. Okay. So that begs the question, then, and I 

apologize for not knowing in advance what the answer is going to 

be, because, you know, there are so many competing priorities, obviously. 

Dr. GOODMAN. Right. 

Ms. EMERSON. And when user fees are increased, for whatever 

reason, how do you all determine what the allocation will be of 

those additional funds? 

Dr. GOODMAN. Well, the way that I determine it is, I look at 

where I think our mission, you know, is most either at risk or our 

needs are greatest, so if there’s a review division which is being 

overworked or where it’s of incredible public health importance, I 

will move additional positions from the user fees into that area, or 

as recently, where I think historically, post-marketing safety activities have been underfunded, now that we can use those, I move 

those into that area. 

Ms. EMERSON. So do you have performance goals for each of 

those programs so that you can measure how the user fees are— 

I mean, are you meeting your performance goals better because you 

have extra user fee money, or is it just—— 

Dr. GOODMAN. Yeah. No, there’s—— 

Ms. EMERSON [continuing]. Just because the pot is bigger? 

Dr. GOODMAN. The performance goals are historically very well 

developed in the pre-market area, so they are review an I&D within 30 days, review a priority application within six months, et 

cetera, et cetera. Those we meet. Okay. 


wwoods2 on PROD1PC60 with HEARING
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The area in which the goals are less developed is the post-marketing, but there, right now for me, FDAAA, first of all, sets a 

bunch of new goals and requirements, and we will certainly comply 

with those, and use these funds to comply with those, but also, I 

look at it and say, here’s what I want. I want our safety teams to 

function this way, I want us to look at health care data this way. 

And I will apply those resources to that. 

Ms. EMERSON. I know our time is up, but I just want to—how 

does OMB account for all these user fees? 

In other words, you know, if we increase your user fees, by—let’s just say, if you’re going to increase user fees by $30 million, hypothetically, then, does OMB then come in and take $30 million off 

the top of what the president’s budget would advocate for you? 

Dr. GOODMAN. I’m not aware, really, of what goes on at that 

level, but I think to not just avoid that, let me put it—reverse it 

and make it a little hypothetical. 

If user fees allow erosion of non-user—of funding of non-user fee 

activities—— 

Ms. EMERSON. Right. 

Dr. GOODMAN [continuing]. Then we have challenges, so that 

there are certain areas, such as tissues and transfusion medicine 

safety, that may not be covered by user fees, and if anybody mistakenly feels those are covered by increases in user fees, then those 

kinds of programs themselves are—— 

Ms. EMERSON. And see, that’s what I think is kind of happening 

with you all, but I better leave it at that, because we have a vote, 

and my time is up. 

Dr. GOODMAN. Okay. 

Ms. EMERSON. Thank you. 

TISSUE RECOVERY

Ms. DELAURO. Let me ask an additional question here. 

My understanding is that recovery locations, that most counterrecovery locations, the percentage of recovery establishments that 

user the locations, hospital operating room, 93 percent, funeral 

homes, 59 percent. 

What is the—is there the restrictions, the regulations around funeral homes, is that of concern to you, where this has been a real 

problem in the past? As far as I—and that had to do, obviously, 

with BTS, but as far as I know, this is still a wide open area. 

Dr. GOODMAN. It is a concern, but we have acted to both assess, 

and I hope reduce that concern. 

So when Biomedical Tissue Services, and Donor Referral Services, which was another one, a much smaller event, occurred in 

2006, those two aspects of those, they were related to recovery in 

local organizations and funeral homes. 

They were the subject both of criminal investigations and ongoing cases, so they are not just an issue where, you know, if you— 

you know, it’s kind of like, if you have activities that are designed 

to be hidden or circumvent regulations, even the best agent, as we 

see, the city is full of police, but that doesn’t mean there’s not 

crime, but you need the police. 

An interesting—what we did in response to that, and I acted, I 

think, you know, almost immediately, is we did two things. 


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We put together a task force called the human tissue task force, 

across the FDA, and again, this was quite unconventional, because 

it wasn’t just us guys. We involved Mike’s group, high-ranking people in compliance, our chief counsel’s office, because of the issue of 

authorities, et cetera, et cetera. 

And we got everybody together, and I said two things. I want to 

know—let’s assess what’s happened in the first year these tissue 

rules have been implemented. Are there weaknesses, are there 

things we can strengthen? What have we learned? And also, I’m 

very concerned. I don’t want to find out that there’s not just these 

two funeral homes and renegade practitioners doing this, but that 

it’s a general problem. 

And what we did, which is amazing performance from our colleagues in the field, is went out—the number may be not exactly 

right—but over 150, we went and, within just a few months, to 

over 150 places that are registered as recovering tissues, and we 

went to every one of those and looked at those practices, and where 

there were any concerns, cited them, gave the message that there’s 

going to be oversight. 

Ms. DELAURO. I understand that, and I appreciate the speed, but 

that is reaction rather than prevention, which gets me to the issue 

of why aren’t we licensing, why aren’t we accrediting these places 

to do this? 

I mean, I understand that you take that into consideration, but 

why do we not accredit or license these places which, if we find it 

out, in addition to which we found out here through a doctor in 

Colorado, we find out from investigative reporters that this is going 

on, it’s not having to uncover it, as an agency uncover it, and yes, 

there’s no question, the blitz. You went out, you did all of this, and 

I applaud that. 

But to leave such a hole in public health, it just seems to be nonunderstandable, not comprehensible that we would just not say, 

‘‘You can’t do this unless we put a stamp of approval. We are the 

Food and Drug Administration, we put our stamp of approval on— 

you have to be trained, you have to be licensed, and you have to 

be credentialed to engage in this kind of activity.’’ 

TISSUE REGULATION

Dr. GOODMAN. Yes. 

Ms. DELAURO. I don’t understand it, Dr. Goodman. 

Dr. GOODMAN. So you would argue and support a system where 

they might not be able to, you know, sort of like with our licensed 

manufacturers, where they would not be able to conduct any activities until they received—— 

Ms. DELAURO. That’s right. Absolutely. 

Dr. GOODMAN. Well, I think that is an option. It would obviously 

require a different regulatory approach and resources to do that. 

What I will say is that what we were doing, following implementation of the tissue rules, which really ramped up the infectious 

disease testing they should do, saying they should have good manufacturing practices, et cetera, what we initially did is focused on 

what we believed were the highest risk parts of this industry, 

which are these processors that make large amounts of tissue for 

large amounts of places. 


wwoods2 on PROD1PC60 with HEARING
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So we went to them, we went in, in many cases, corrected their 

practices. In many cases, their practices were excellent, as you 

mentioned, or as somebody mentioned, AATB in many cases said 

they were meeting standards. But we identified the ones where 

there were problems, and have cited them, and corrected them. 

What was not as high on the priority list, but was rapidly moved 

up there when we encountered these, you know, frankly, not just 

they weren’t compliant, but frankly, off the—out of bounds practices, we did feel we had to go to those. 

But you are right, there is not a pre—— 

Ms. DELAURO. Risk base is only as good as the data on which 

it sits. 

Dr. GOODMAN. Mm-hmm. 

Ms. DELAURO. That’s the fact. And if you don’t have any information, and you don’t know what they’re doing, and they don’t 

have anything, any—they don’t have any regulation and they don’t 

have to meet any demands, they are free to do what they like, and 

if you happen to find them, fine, and if there’s a crisis, then you 

find them, well, then we can attack it. It is not—— 

Dr. GOODMAN. Yeah. Well, that’s—I understand your concern, 

and I think, you know, it’s a legitimate point. 

TISSUE RECIPIENT TRACKING

Ms. DELAURO. Go. Go vote. Go vote. 

Well, I would really—look, I can’t account for my other colleagues, I can’t see why they wouldn’t feel the same way that I do 

about licensing these kinds of places and making them accredited, 

and to work with you on doing that and putting together an effort 

that really closes the—you know, just closes this gap. It’s not a 

loophole. It’s just not—it’s not there. And not only that, it’s been 

reviewed, and they said we’re not going to accredit or license them. 

Let me—okay. Let me just—the timing on this. I know we’re 

looking to track the tissue replacement to the recipient. 

Dr. GOODMAN. Right. 

Ms. DELAURO. You are going to look at legality on that tracking 

system. What’s the status of all that? 

Dr. GOODMAN. That’s ongoing, and I am concerned that I want 

to enhance our ability to rapidly track to the recipient. 

Ms. DELAURO. Ongoing. Dr. Goodman, when are we going to find 

out whether or not we have the legality, and if we don’t, how do 

we get it, and if we do, how do we use it? 

Dr. GOODMAN. Well, I will get back to you with the timetable, 

but when I say ongoing, I mean it is ongoing, not that it’s sitting 

somewhere. We’re having that—we’re engaged in that process. I’m 

an active advocate of it. 

Ms. DELAURO. Great. Thank you. 

Dr. GOODMAN. Sure. 

[The information follows:] 

FDA intends to make a determination on tracking of human tissue to the recipient in the next several months. We must consider the circumstances under which 

a tissue establishment should have access to information in a patient’s medical file. 

The legal questions concern whether existing authorities related to the prevention 

of transmission of communicable disease authorize us to require health care professionals to disclose or permit access to such information. CBER has been examining 

recall data and data from industry to determine where the problem areas in trackVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 E:\HR\OC\B718P2.XXX B718P2

wwoods2 on PROD1PC60 with HEARING
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ing appear to be. CBER is currently in the process of assessing whether regulatory 

changes are warranted. 

INSPECTION OF FOREIGN BIOLOGICS FIRMS

Ms. DELAURO. Thank you. I appreciate that. 

Let me just say, and I don’t want to go through the whole litany 

here, but it’s my understanding that, with regard to foreign inspections—— 

Dr. GOODMAN. Right. 

Ms. DELAURO [continuing]. That I was troubled to learn that the 

average rate of inspection for foreign biologics firms is once every 

18.3 years. This is not as bad as CRH’s rate, but it is still bad. 

What kinds of CBER regulated products tend to be made overseas, and in what countries? 

Dr. GOODMAN. Okay. Well, first of all, I have some good news for 

you. That calculation is essentially not correct. 

Ms. DELAURO. Okay. 

Dr. GOODMAN. Okay. 

Ms. DELAURO. But what is it? 

Dr. GOODMAN. So of the facilities of most importance to us, okay, 

which are the blood establishments, plasma manufacturers, other 

biologics manufacturers, which would include vaccine manufacturers, so basically our major portfolio, other than tissues—— 

Ms. DELAURO. Blood, plasma—— 

Dr. GOODMAN. Okay, blood, plasma—— 

Ms. DELAURO [continuing]. Vaccines—— 

Dr. GOODMAN [continuing]. Biologics—— 

Ms. DELAURO [continuing]. Coming from—— 

Dr. GOODMAN. Yeah, these are the ones that are more comparable to drugs in terms of some of the kinds of concerns that 

have come up, in those, I have the numbers here, but basically— 

basically, what I can tell you is, we are getting to them on an average of every 2.1 years, so we are close to meeting our statutory requirement. I can give you more details on—— 

Ms. DELAURO. I would appreciate, because I’ll tell you, the answer I got from Dr. Von Eschenbach last year—— 

Dr. GOODMAN. Yeah. 

Ms. DELAURO [continuing]. The average inspection frequency for 

all foreign biologics firms is once every 18.3 years. 

Dr. GOODMAN. Yeah. 

Ms. DELAURO. I just didn’t pull the number out of a hat. 

Dr. GOODMAN. That was an error. And actually, also, and I think 

we’ve been ahead of the curve there, from 2006 to 2007, we pretty 

much doubled the number of inspections. We went from 22 to 37. 

Ms. DELAURO. If you can get us the list of the countries, what 

the products are, and—— 

Dr. GOODMAN. We’ll be happy to. No, I want to give you total 

truth in advertising—— 

[The information follows:] 


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wwoods2 on PROD1PC60 with HEARINGInsert offset folio 54 here 48718A.013
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wwoods2 on PROD1PC60 with HEARINGInsert offset folio 55 here 48718A.014
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Ms. DELAURO. I have to vote. 

Dr. GOODMAN [continuing]. The tissue firms are a different issue. 

Ms. DELAURO. Okay. I need to know that. 

We’re in recess. 

[Recess.] 

Ms. DELAURO. The hearing will come to order. 

Mr. Farr. 

BLOOD DONOR RESTRICTIONS

Mr. FARR. Well, Madam Chair, I want to thank you very much 

for having this hearing. 

I have sort of a couple of issues that I really wanted to get at, 

and I think that’s the role of this committee, to do oversight. 

I appreciate all the parties coming together and appreciate your 

testimony. 

I have to say, Dr. Goodman, that I just read your background, 

and you edited the ‘‘Tick-Borne Diseases of Humans.’’ 

Having spent last week in Big Sur and pulling three ticks out 

of my body, I thought, now everything is going to start—I should 

probably talk to you a little about that. But anyway—— 

Dr. GOODMAN. Absolutely. Luckily, there’s not too much Lyme 

Disease there. 

Mr. FARR. The reason I talked to the chair about having this 

hearing is that it was brought to my attention by members of the 

gay community in my district that there’s a discriminatory policy 

by FDA in providing blanket deferral to any male blood donor who 

admits any homosexual activity. And let me just make some points 

here. 

Heterosexuals who are judged to be at risk of exposure to sexually transmitted diseases that could result in transfusion transmitted infections are deferred from blood donations for one year. 

Any man who has had sex with another man even once, since 

1997, is banned forever from giving blood. 

The difference in treatment of homosexual and heterosexual 

blood donors is inconsistent, at the best, and outright discriminatory, at the worst. 

By banning all men who have had sex with other men without 

regard to how recently the man engaged in sex, or any other circumstances, the current policy screens are based on sexual orientation rather than an established risk behavior. I mean, that’s the 

point. 

Why do you seem to establish risk behavior as a criteria for a 

12-month ban, but a sexual orientation as a lifetime ban? 

And that’s where I think it’s—also, given that NAT, nuclear acid 

amplification testing, and other methods, allow detection of HIV-infected donors between 10 and 21 days after exposure, a lifetime donation deferral for men who have had sex with men is over-responsive, punitive, and potentially harmful to the ability of blood banks 

to maintain adequate blood supplies. 

I have a letter from the American Blood Centers, the American 

Association of Blood Banks, and the American Red Cross, all in 

support of the 12-month deferral for persons who engage in risk behavior, rather than a lifetime ban. 


wwoods2 on PROD1PC60 with HEARING
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So my question to you is, in light of the medical and scientific 

advances since 1983, and given improved blood donation screening 

improvements, including, I understand, that blood products are 

quarantined until the products have been thoroughly tested and 

donation records have been verified, that in light of that, what is 

preventing FDA from updating your blood donation policy so it does 

not discriminate against gay men? 

Dr. GOODMAN. Okay. Well, thank you, Congressman Farr, for 

your question, and I know this is a concern to you and many people 

who have raised it to us. 

Mr. FARR. The blood banks are also concerned, because they see 

a population that could be donors. 

Dr. GOODMAN. Well, they’re concerned for a number of reasons. 

They’re kind of on the front line, also, of this. 

This is simply a scientific decision. The issue here is that our scientists, as best as they can, dealing with data with some uncertainties, have concluded that relaxing this policy at this point would result in a real risk of additional transmission of transfusion transmitted diseases. 

Can I finish? 

Mr. FARR. Yeah. 

Dr. GOODMAN. I mean, that there would be cases, additional 

cases of HIV transmission in the blood supply, and also Hepatitis 

B virus transmission. This is a safety issue. It is not discriminatory. 

We, for example, defer people who have lived in the United Kingdom during certain years from donating because of the risk that 

they could transmit Mad Cow Disease. 

We defer people for periods of time after travel to malarious 

areas, and those are based on behaviors, not my judgment of a behavior, no one’s judgment of the behavior. 

And I also want to say that I am very sympathetic and appreciative of the human rights issues and of the fact that you’re talking about a population which is very sensitive to this issue. 

BLOOD DONOR RESTRICTIONS

Mr. FARR. The safety issues. The other thing pointed out is that 

the highest at-risk group now is women, and if that is true, then, 

and they’re deferred if the sexual activity is disclosed, they’re deferred for a year. Men aren’t. 

Dr. GOODMAN. It is still a fact, and you know, here we rely on 

statistics from our colleagues in the CDC and also from the blood 

community, that there’s two issues about the population of men 

who have had sex with men, and I also want to say it doesn’t matter if they identify themselves as gay or not. You could be a heterosexual and have had sex with men, and it still raises this risk concern. 

The issue is that the population—— 

Mr. FARR. Women who have had sex with men? 

Dr. GOODMAN. Hmm? A heterosexual—a person who identifies 

themselves as heterosexual male who has had sex. Okay. 

Mr. FARR. It’s the sex with men that is—— 

Dr. GOODMAN. It’s the sex with men that’s the risk factor and the 

issue. 


wwoods2 on PROD1PC60 with HEARING
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Mr. FARR. Have we told women that? 

Dr. GOODMAN. Men who have sex, because it’s the male-male sex 

that results in increased transmission and identifies a group, and 

it identifies a group that has, as I think you know, a 60-fold increase in HIV compared to the rest of the population, an 800-fold 

increase in HIV compared to first-time blood donors, and a 1,000- 

fold increase in HIV compared to repeat blood donors. 

This becomes important, I think you raised an important question, and one of the reasons people look at this, and have difficulty 

understanding the point of view, is that there are essentially 

around 25 million transfusions in the United States annually. 

This is an extraordinary amount of blood that is tested, goes 

through numerous processes prior to transfusion. 

The tests are wonderful. They’ve helped us get the safest blood 

supply in history, and the safest in the world right now. 

But they are not perfect. They don’t identify some early cases. 

Errors are made in testing. Errors are made in transfusion. Errors 

are made in which unit goes to which people. 

And even rare errors in a system that is that large and where 

you then have in that system blood with those markedly increased 

rates of carriage of these infectious diseases, poses a risk. 

So that’s how, when people look at all these numbers, they find 

that there would be additional transmission, and I think as long 

as we see that there would be additional transmission, you know, 

really, our responsibility, first and foremost, as much as I totally 

appreciate the desire of people to donate, we do want to increase 

supply, but our key responsibility is to not lose any of those gains 

that we’ve made in blood safety. 

Mr. FARR. I don’t think that’s what I’m disputing. I think that 

we’re all very appreciative of that. 

It just seems the policy is not logical if, indeed, the high risk population is now falling on the female side of it. 

Dr. GOODMAN. Yeah. So your point is that we’re starting to see, 

if I understand it, increasing infections in other groups, as well, 

and that we may treat them not the same way. 

But again, the issue is, they haven’t had this degree of risk in 

those populations—— 

Mr. FARR. When was the last time that the FDA reviewed—— 

Dr. GOODMAN. Well, we are reviewing it right now, and we had 

a public workshop in 2006, and since that workshop, we’ve been 

interacting with others who could bring—including industry—to 

bring—who could bring additional data into this. 

Mr. FARR. And how do you square this with the blood banks’ position, that yours is different from theirs? 

Dr. GOODMAN. Well, they were at those meetings. We heard their 

scientific points. And, you know, I’d like to make a couple of comments about that. 

One is that we work day in, day out with the scientists in the 

blood community. We have a very positive interaction. They’ve 

helped us solve and face a lot of important blood problems, like 

West Nile Virus. 

But at the end of the day, they have their job to do. They run 

blood organizations. And we have our job to do, which is to protect 

the safety of the blood supply. 


wwoods2 on PROD1PC60 with HEARING
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Usually, we agree, but sometimes we don’t agree, and in this 

case, at this point, based on the current evidence, we don’t agree. 

And I’ve heard a lot about how important it is for FDA to make 

its decisions independently, and to not rely on regulated industry 

for its decisions, and in this case, this is a regulated industry. 

So I think we just need to, you know, keep this based on the 

science. 

Now, that said, we are not—we welcome difference, not just scientific difference from inside the agency, like I said, but we welcome difference from the outside. We welcome a continuing discussion and debate. 

If I could have—if I could say, gee, we could remove this deferral 

and I could have confidence that it wouldn’t affect—that people 

wouldn’t get infections transmitted to them, that would be a very 

happy day for me. Okay. 

So I would like to see that happen, but I just don’t think we’re 

there yet. 

BLOOD DONATIONS

Now, we are working on—— 

Mr. FARR. You can’t determine by questions—I mean, I think the 

question goes here, is you’re banning a whole class of people rather 

than sexual activity, which is the judgment you use for everyone 

else. 

Dr. GOODMAN. Well, it’s a good question. I would just point out 

it’s not the judgment we use for everyone else. 

For example, people who have used intravenous drugs, people 

who have been commercial sex workers who have similar kinds of 

increased risk, they also are, as a group, based on those behaviors, 

deferred from donating blood. But that—— 

Mr. FARR. Deferred or banned? 

Dr. GOODMAN. Well, we call it all deferred. Banned, in terms of 

there is a ban on it. 

Mr. FARR. In lifetime, they can’t—— 

Dr. GOODMAN. That’s my understanding. 

But I do want to, still, I think you’re asking a good question, so 

I don’t want to just—because it could be a good question for those 

groups, too. 

Mr. FARR. Well, it’s a question of whether, you know, you’re 

using good—— 

Dr. GOODMAN. No, it’s—— 

Mr. FARR. It seems it’s a bifurcated issue. 

Dr. GOODMAN. Yeah, you’re asking—— 

Mr. FARR. If you’re a gay man, you can’t give blood. 

Dr. GOODMAN. Yeah. 

Mr. FARR. If you’re a sexually active woman, maybe high-risk 

HIV, you’re deferred for a year. 

Dr. GOODMAN. Mm-hmm. It’s not a perfect system, but it’s built 

on the risk rates in those groups. 

One of the questions I think you are getting at, that I do want 

to address, is could we identify a group of men who identify themselves as gay, or have had sex with men—it’s really, again, about 

men who have had sex with men—could we identify a, quote, ‘‘safe’’ 

group? 


wwoods2 on PROD1PC60 with HEARING
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For instance, there’s people who have had very limited numbers 

of partners, and inherently, and in my thinking about it, or any of 

us thinking about it, we would think we could identify a group with 

an HIV rate very similar to the rest of the population. The problem 

is, CDC and others have been unable to do that. 

So you might suspect you can find groups with somewhat reduced risk compared to the numbers I quoted you, but they are still 

substantially above the—— 

Mr. FARR. Well, I just, when you told me about what science and 

the testing you use, and you use that for deferral, except you make 

this blanket—science doesn’t seem to support that policy decision. 

That’s what I think is discriminatory. 

Dr. GOODMAN. Yeah. Well, I beg to differ. Okay. It is our scientists who have looked at the data, including hearing out the 

blood organizations—— 

Mr. FARR. How often do you have these reviews? 

Dr. GOODMAN. As I said, we had a major workshop in 2006, and 

based on input from that, we’re continuing to look at the data, as 

we speak. 

Mr. FARR. So you haven’t decided finally what your future policy 

will be? 

Dr. GOODMAN. Well, the data that I have seen, and what my scientists are telling me, is that we’re still at a point where they are 

concerned that a change in policy to one year would result in transmissions of HIV, and so that’s the issue. 

I do want to say that, you know, there are some other issues, and 

potential mitigating approaches, both. There are some other concerns and some potential mitigating approaches. 

Potential mitigating approaches, there’s future technologies out 

there that might allow inactivation of pathogens in the blood to 

provide another, so that if something slipped through, things like 

the error rate issue may be able to be improved, and therefore 

much reduce those risks. 

But what I’m saying is, based on what our scientists are looking 

at now, they are seeing this risk of transmission and real cases 

that would occur. 

Now, different people—there are a lot of uncertainties in the 

data and different people could legitimately view it differently, but 

our responsibility is to—you know, is really to protect those recipients. 

The other case—instance—information I’d like to bring up, because I find it much—do you want me to finish? 

The other piece of information that’s much more difficult to deal 

with is the issue of transmission of other potential diseases that 

could be blood transmitted. 

But we are—I will earnestly tell you we’re engaged in this issue. 

We are seeing this as science. We would be delighted if we could 

change this without a risk to blood recipients, and it is not, in our 

minds, discriminatory. It’s about risk. 

And if other populations—you mentioned women getting more 

HIV—if we saw risk information in other areas and we felt we had 

to take similar actions, we’d take it. 


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This is why we have the safest blood supply. The hemophilia 

groups, other—you know, are very concerned about a change in policy. And most other countries have adopted a similar policy. 

Ms. DELAURO. Thank you, Dr. Goodman. 

Mr. Boyd. 

[No response.] 

Ms. DELAURO. Mr. Kingston. 

Mr. KINGSTON. Thank you, Madam Chair. 

I think I’ll submit my questions for the record. I want to apologize to Dr. Goodman. As I mentioned to you earlier, I had a conflict 

in another meeting, along with Mr. Boyd, on defense. So I apologize. 

BLOOD SHELF LIFE

Ms. DELAURO. Thank you. 

Let me see if I can ask one more question. 

Dr. GOODMAN. Sure. 

Ms. DELAURO. Blood shelf life. You’re aware of the recent study 

in the New England Journal of Medicine that indicated heart surgery patients getting transfusions from blood that was stored for 

longer than two weeks were 64 percent more likely to die in the 

hospital than those getting blood that had not been stored that 

long. 

I understand FDA said the study was, quote, ‘‘narrow and nonrandomized,’’ and that regulatory action would be, quote, ‘‘premature.’’ 

It’s a striking report to a layperson, and surprising. 

Could you comment on the study, and are you looking at the 

issue more closely, even if you’re not prepared to take action? 

Dr. GOODMAN. Yeah, I’d be delighted to. 

There have been conflicting results in similar studies. In other 

words, there are previous studies that haven’t shown worse outcomes, and it sort of depends, you know, what do you call young 

blood, what do you call old blood, and what patient population you 

study it in. 

So like in a lot of areas in medicine, there’s complexities, with 

different studies showing different results. 

I don’t question the results of that study. It was well done. But 

as you noted, it wasn’t controlled. In essence, it looked at—it didn’t 

randomize people, it just looked at what blood they received. 

Now, what I would like to say is, we are looking at this, and we 

are working—this is another example where— Mr. Farr mentioned, 

you know, that our interactions with the blood community. 

We, and I think the blood community as well, are concerned 

about these kind of issues, and we are looking at it. 

And in fact, we just decided, actually before that came out, but 

as a group, to devote some of our scientific resources to try to help 

that process of evaluating the storage of blood. 

Ms. DELAURO. What’s the shelf life that you currently work 

under with regard to blood? 

Dr. GOODMAN. The normal shelf life of red blood cells is 42 days, 

and so if you were to reduce that to 10 days, there would be a huge 

impact on supply. 

Ms. DELAURO. Six weeks versus two weeks is a big difference. 


wwoods2 on PROD1PC60 with HEARING
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Dr. GOODMAN. It would be a huge impact on supply. 

But, you know, that doesn’t mean that that issue should be ignored. It needs attention. 

For example, is there science that could allow the red cells to be 

stored for 42 days and not lose any of their capacity? 

So part of the reason I’m concerned about that study is that it 

makes sense, I mean, that older blood is not—you know, is going 

to have some defects that it gets from storage, and we’ve known 

this for a while. 

But this may have identified a particularly sensitive population, 

so it may be that we need to target older cells and younger cells 

differently. 

But what you want to say is this is an area where there’s not 

a lot of investment driving improvements. That’s true in something 

like donor testing and screening, too. It’s a small area for the whole 

pharmaceutical enterprise. 

And I can’t—I think there’s a lot of exciting opportunities 

through critical path, through NIH, to look at some of these problems, like how do you store, how do you preserve the function of 

red cells and platelets, that if we applied the kind of modern 

science we do to that that we do to so many other things in our 

society, we could really have public health benefits. But the markets are just not large. 

TISSUE RETRIEVAL

Ms. DELAURO. How long after death can tissues be taken—can 

tissue be taken? 

Dr. GOODMAN. Is there a specific number in the guidance on how 

long after death tissue can be taken? 

We’ll get back to you on the numbers. 

[The information follows:] 

In the preamble to the final Good Tissue Practice Rule, FDA stated, ‘‘Proposed 

Sec. 1271.180 would require establishments to establish and maintain procedures 

for all significant steps that it performs in the manufacture of HCT/Ps. We have 

reorganized Sec. 1271.180 by dividing it into paragraphs for greater clarity and ease 

of reading. In addition, Sec. 1271.180 now requires you to establish and maintain 

procedures appropriate to meet core CGTP requirements for all steps that establishments perform in the manufacture of HCT/Ps and further requires that these procedures be designed to prevent circumstances that increase the risk of the introduction, transmission, or spread of communicable diseases through the use of HCT/Ps. 

We note that, depending on the activities that you perform, your procedures may 

need to cover such issues as the length of time a cadaver may be stored, or the conditions of storage (e.g., temperature). Moreover, to prevent the recovery of contaminated cells or tissues, you need to establish and maintain procedures to prevent the 

recovery of cells or tissue from a septic donor or from an area of the body where 

there is a localized infection. The procedures of an establishment that recovers cells 

and tissue should appropriately address these possible causes of HCT/P contamination to comply with Sec. 1271.180(a).’’ (69 FR 68611) 

FDA finds acceptable the limits that have been established in the American Association of Tissue Banks (AATB) Standards for Tissue Banking, which require that 

recovery commence within 24 hours of death, providing the body was cooled or refrigerated within 12 hours of death. Tissue recovery might also commence within 

15 hours of death if the donor has not been cooled or refrigerated. 

What I will just say about that, I believe there are numbers, 

now, that we put in there, but also that part of the good tissue 

practice regulations requires them to show that their storage and 


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preservation practices are sound, so that practice would not be allowed, that you had been concerned about. 

Ms. DELAURO. Dr. Goodman, I unfortunately have to leave for 

another hearing. There are a number of questions, and Mr. Kingston will offer his for the record. He may, if we reschedule, be able 

to ask those on the record here. 

I have additional questions which have to do with the blood recalls in the Red Cross, and inspections, and the flu vaccine, which 

we understand because of the three new components we may be delayed in getting flu vaccine. There are a whole range of questions. 

And I would want to suggest, and it wouldn’t be a long hearing, 

because I think we’ve had a very good exchange here, that maybe 

we just try to, we can work with your schedule, just to reschedule 

and, you know, put a—you know, some absolute time frame on 

this, so that we don’t interfere any longer with your schedule, but 

allow some of the other questions. 

This is a—it’s a very—there are hearings around the clock here, 

and I know you’re very busy. 

So if we could beg your indulgence on that, I would like to do 

that, and adjourn this hearing and see if we can then get you back 

again for a short time. 

Dr. GOODMAN. We appreciate your input, oversight, critiques, et 

cetera, and, you know, we’re happy to try to arrange something. 

Ms. DELAURO. Thank you. Thank you very, very much for your 

patience and for your good will. 

Dr. GOODMAN. You’re welcome. 

Ms. DELAURO. The hearing is adjourned. 


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(69) 

WEDNESDAY, FEBRUARY 27, 2008.

CENTER FOR DRUG EVALUATION AND RESEARCH 

WITNESSES 

JANET WOODCOCK, M.D., DEPUTY COMMISSIONER FOR SCIENTIFIC 

AND MEDICAL PROGRAMS, CHIEF MEDICAL OFFICER, AND ACTING 

DIRECTOR OF FDA’S CENTER FOR DRUG EVALUATION AND RESEARCH 

DAVID J. HOROWITZ, ESQ., DEPUTY ASSOCIATE COMMISSIONER FOR 

COMPLIANCE POLICY, FDA OFFICE OF REGULATORY AFFAIRS 

Ms. DELAURO. The committee is called to order. 

Good morning, and thank you very, very much, and let me welcome all of you here today. 

I will make some more formal introductions in a second, but I 

particularly want to say thank you to all of our panelists this 

morning for their participation. 

This is an important hearing, the first hearing on drug safety 

that this committee has convened in 25 years, so I am eager to get 

started. 

A little over 100 years ago, Congress passed the Pure Food and 

Drug Act with President Theodore Roosevelt. 

Congress passed this landmark legislation to protect the American people from adulterated and sham drugs and unsanitary and 

dangerous drugs. 

In the newspapers today, there are daily stories about unsafe 

food and unsafe prescription drugs. It’s easy to wonder if we have 

gone back in time to 1906. 

We recently discovered that the widely used blood thinner Heparin, under investigation after hundreds of allergic reactions and 

four deaths among the drug’s users, includes an ingredient from a 

Chinese facility that had not been inspected by the FDA. 

What is even more startling is that apparently the FDA inspected the wrong Chinese factory and the wrong firm was entered 

into the FDA’s database. 

Cases like this, or controversies surrounding Evandia, Vioxx, 

Trazalone and beyond are embarrassing, but more than that, in my 

view, they offer a window into the FDA’s myriad failures under the 

current administration, it’s work motivated by ideology compounded by incompetence and negligence and a lack of regard for 

the health and safety of the American public. 

To restore the agency’s gold standard in that mission and to ensure the fundamental safety of the drugs that it regulates, I’m 

guided by four principles. 

First, we must increase funding to support the FDA’s mission. 

Second, we must improve the management of the agency and 

hold it accountable. 


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Third, we must push back against the influence of big pharma 

over the agency. 

And finally, and perhaps most importantly, we must let the scientists do their work, guided by science and not by political interference. 

The FDA has been starved for resources under seven years of 

this administration. FDA managers point to a lack of resources as 

a reason for not carrying out their appointed duties. 

The administration is taking the bargain basement approach, 

then using it as an excuse for its poor performance. We can do better. 

Since 2006, despite overall spending limitations imposed by the 

administration, this committee and Congress have increased the 

FDA’s total budget by more than $227,000,000. 

Last year, our subcommittee increased funding for drug safety 

and other important FDA functions. This marks the beginning of 

an effort to rebuild the agency’s capacity to protect the American 

public. 

But increased funding is only part of the challenge. Funds alone 

cannot fix an agency that routinely fails at its most basic responsibilities, keeping track of clinical trial, preventing conflicts of interest, following up on critical investigations. 

Sixty-five percent of post-market studies on new medications 

have not yet begun. This startling fact makes it clear what a long 

way that we have to go. 

Considering the agency’s record when it comes to its own drug 

databases, schedules, and reform, I am skeptical of the FDA’s 

newly proposed initiatives to turn things around. 

I look forward to hearing more about your plans for implementation and specific funding needs going forward. 

Ultimately, better management and resources must go toward 

supporting independent science in the service of the agency’s most 

important regulatory mission, and that is protecting public health. 

Yet in recent years, surveys consistently show that FDA scientists overwhelmingly complain about interference from top level 

FDA appointees on behalf of corporate and political interests. They 

feel that factors other than good science play a role in important 

FDA decisions. 

And that may be why too many good scientists continue to leave 

the agency at a time when we should be trying to attract them and 

support their work. 

We can no longer accept federal agencies tasked to protect the 

public health that seem only interested in protecting business from 

embarrassment or cost. 

My thanks again to our panelists for being here today. I look forward to hearing from you in addressing these tough issues. 

Government has an obligation to its citizens to check private 

abuse and set standards in the public interest. 

I said it before and I believe it bears repeating. 

Our commitment to reform requires more resources and better 

management, less influence from the drug companies, and more influence for independent scientists. 

With the public health at stake, nothing, nothing could be more 

fundamental. 


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Let me welcome my colleague, our ranking member, Mr. Kingston. 

Mr. KINGSTON. Thank you, Madam Chair. I have no opening 

statement. 

INTRODUCTION OF WITNESSES

Ms. DELAURO. I want to get the appropriate introductions so people know how credentialed our folks are today. 

Our first panel would be Dr. Janet Woodcock, deputy commissioner and the chief medical officer at the FDA, the Food and Drug 

Administration. 

She shares responsibility and collaborates with the commissioner 

in planning, organizing, directing, staffing, coordinating, controlling, and evaluating the agency’s scientific and medical regulatory 

activities in order to achieve that mission of the FDA. 

She most recently served as the deputy commissioner for operations and chief operating officer, FDA, where she was responsible 

for overseeing agency operations and cross-cutting regulatory and 

scientific processes at the FDA. 

Given her history and the many years of service at the FDA, I 

believe no one is more prepared to answer our questions on the 

issue of drug safety than Dr. Woodcock. 

She’s accompanied this morning by David Horowitz, who is deputy associate commissioner for compliance policy in the FDA’s Office of Regulatory Affairs, ORA. 

Dr. Woodcock, if you would begin, and, you know, your testimony, and obviously, the entire testimony will be included in the 

record, and you may give the testimony or summarize in any way 

you care to. 

Dr. WOODCOCK. Thank you. Good morning. 

Thank you, Chairman DeLauro, Congressman Kingston, and 

members of the subcommittee. 

I’m Janet Woodcock, deputy commissioner and chief medical officer at the FDA. 

I’m also currently acting director of the Center for Drug Evaluation and Research. 

I’m here to discuss the budget of FDA’s human drugs program 

as it relates to drug safety. 

Joining me for today’s hearing is David Horowitz, who is deputy 

associate commissioner for compliance policy in FDA’s Office of 

Regulatory Affairs. 

I’d like to start by thanking this committee for the important increases for the drug program in the fiscal year 2008 budget. 

The appropriation contained a $21,000,000 increase for drug 

safety activities. I believe that’s the largest increase for drug safety 

that we have ever seen. 

It included a $10,000,000 increase for CDER’s officer surveillance 

in epidemiology, as well as included $4,000,000 for review of direct 

consumer advertising. 

$6,000,000 was also provided to expand the generic drug review 

program to meet its markedly increased workload. 

And, there was increased funding to meet drug payroll obligations. 


wwoods2 on PROD1PC60 with HEARING
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Finally, there was an increase of $7.5 million for FDA’s critical 

path initiative that was allocated among the medical product centers and central critical path program. 

And I would like to explain how this year’s funding is being used 

to improve drug safety in the United States. 

CRITICAL PATH

First, the critical path initiative is improving the science of the 

drug development process. 

For example, FDA has reviewed, along with the European Medicines Evaluation Agency, a new set of kidney safety markers. 

These markers, which have now been evaluated in animal tests, 

will now move to human tests. 

It is expected that we’ll get a much earlier warning system for 

drug-induced kidney damage emerging from this program. 

There is also vigorous work going on in the area of genetic predictors of drug-induced toxicity. 

An increasing number of cases, testing for individual differences—what’s different between you and me—will help us to 

predict, and therefore prevent, drug side effects in individuals who 

are at risk for them. 

In another example, center scientists are working on creating a 

quantitative model of Parkinson’s Disease that can be used to design better clinical trials. 

As you know, Parkinson’s Disease is one of the many diseases 

that patients in this country have that really doesn’t have acceptable effective treatments for the long term. 

So the critical path initiative is beginning to make real contributions to better drug development. That’s the development side. 

SAFETY FIRST

We also need to make major steps to improve the safety of drugs 

that are already on the market. 

Using the new funding provided this year, we’ve launched a new 

initiative called Safety First. 

This incorporates the recommendations of GAO and the Institute 

of Medicine, as well as implantation of the new authorities and 

safety procedures that we received under the FDA Amendments 

Act. 

Under Safety First, safety issues for marketed drugs will be our 

number one priority. 

We are instituting extensive tracking and project management 

procedures to make sure we stay on top of these problems. 

We’re appointing senior physicians, whose only job will be to 

manage these safety issues in each disease area. 

We’re making sure that the opinions and the voices of all reviewers and scientists are heard, and I’m happy to go into detail about 

how we’re doing that, and we’re strengthening the roles and responsibilities of the Office of Surveillance and Epidemiology. 

As we put these programs in place, we’re also going to be looking 

externally to form partnerships with parts of the health care system to collaborate on ways to make medication use safer, because 

medications are used out in the health care system, and we need 


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to work with those individuals and systems to improve medication 

use. 

We will build a sentinel network, which is a new type of 

pharmacovigilance system that will link emerging electronic databases that are emerging out in health care in partnership with 

health care systems in academia to better track adverse events and 

drug performance. 

Despite these advances, drug regulation has many challenges. 

The foundation of our efforts is drug quality. Without quality of 

drugs, safety and efficacy cannot be maintained. 

Maintaining quality in a globalized environment where drug 

manufacturing and clinical trials are increasingly done outside the 

United States is an ongoing and still growing problem for the drug 

regulatory program. 

Without the foundation of quality, drug safety and effectiveness 

cannot be maintained. 

I would be pleased to discuss this challenge in particular with 

the subcommittee and answer any of your questions. 

Thank you. 

[The information follows:] 


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Ms. DELAURO. Thank you very much, Dr. Woodcock. 

Let me just note, the first information that we’ve had about this 

Safety First initiative arrived, I believe, last night about 8:30 p.m., 

so we obviously will take a look and see what we have. 

But I must be honest. I would have thought Safety First was, 

you know, a standard that was set all along, and not something 

that we now are trying to engage in. Above all, it is about public 

health, public safety. 

With that, let me just ask some questions. 

CENTER FOR DRUG EVALUATION AND RESEARCH

Since 2001, the Congress provided more than $2.3 billion for 

CDER under the acting director, not counting user fees. 

It has 62 percent more in taxpayer dollars to spend this year 

than it had in 2001, more than three times the rate of inflation in 

that period. 

Congress also provided more than the president requested for 

CDER during the period. 

We should have a lot to show for the money, but in my estimation, we don’t. 

There should have been a series of—there have been a series of 

GAO IG reports that have highlighted fundamental, and I mean 

really fundamental problems, with basic systems at CDER that are 

the foundation for its work. 

I’ll be looking at the FDA followup on its promises to the GAO 

and the IG to fix things. 

But today I want to know how these things got so bad and did 

not get a fix until someone else pointed them out. 

Unless we have an answer to that question, I’ll be very honest 

with you. 

I don’t have any confidence that giving CDER more money is 

going to solve the problems that we have. 

FOREIGN DRUG ESTABLISHMENTS

So let me ask you, first, foreign drug establishments. GAO said 

last fall, FDA does not know how many foreign drug establishments are subject to inspections. 

Instead, FDA relies on information from several databases that 

were not designed for this purpose. 

The range of FDA’s estimate of the number of firms is between 

3,000 and 6,700. 

Worse yet, these problems were identified by the GAO 10 years 

ago, and they were not fixed. 

Now, I’ve got the March 1998 improvements needed in the foreign drug inspection program, 10 years ago. 

Why did FDA create three different databases that don’t talk to 

each other, that serve different purposes, and that are all flawed? 

Somebody should jot the questions down, because I want answers 

to these questions, but I’m going to go through, because I don’t 

want the time to expire here, and then we can’t get the answers. 

Second, official list of drugs. 


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OFFICIAL LIST OF DRUGS

In August 2006, the HHS inspector general found a huge problem in FDA’s official list of approved drug products. 

There were 123,856 drugs listed. The IG found that 9,100 or almost 9,200 products were missing and 34,000 products were listed 

erroneously. 

IG found exactly the same problems 15 years earlier in a 1991 

report, and they are still not fixed. 

How can an agency that regulates drugs not have an accurate 

list of drugs it has approved and how could it go for 15 years without having fixed the problem? 

Third, post-marketing study. 

POST-MARKETING STUDY

June 2006 IG report, building on problems found in the 1996 report, found that, one, FDA cannot readily identify whether or how 

timely post-marketing study commitments are progressing toward 

completion. 

About one-third of the annual status reports on the commitments 

that drug companies are required to submit were missing or incomplete. FDA lacks an effective management information system for 

monitoring post-marketing study commitments. 

This may be why 66 percent of CDER reviewers told the IG in 

2003 that they were only somewhat confident or not confident at 

all that FDA does an adequate job of monitoring the safety of drugs 

after they go on the market. The nonprofit had the same results. 

When you put of safety issues to a post-market study commitment, you better be able to assure that they get done, which obviously, they’re not able to be done. 

Why did you allow problems with tracking post-market study 

commitments to fester so long when they are so critical and a growing part of the post-market drug market? 

Final point. Clinical trials. 

CLINICAL TRIALS

IG reported last September that the FDA has no idea how many 

clinical drug trials were going on. 

IG found that FDA has inspected only about 1 percent of all clinical trial sites between 2000 and 2005. 

Some of the same problems were found by the IG in previous reports but have not been corrected. 

How can you regulate clinical trials without a complete list of 

them? 

So if we can start from the top, I would appreciate answers about 

the databases, foreign drug establishments, et cetera. 

Dr. WOODCOCK. Right. Certainly. 

And I certainly understand your position on all these matters, 

and your statements reflect my frustration over the years in having 

to deal with these issues. It is extremely difficult for FDA staff. 

Let me just quote the recent report, and I will go through each 

of your issues, from the Science Board Subcommittee that reviewed 

the FDA science and IT capacity, what they say. 


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‘‘The FDA lacks the information science capability and information infrastructure to fulfill its regulatory mandate.’’ 

They also said, ‘‘FDA’s current information supply chains are inefficient, cost-intensive, and prone to promote errors.’’ 

And they go on: 

‘‘Consequently, the FDA’s ability to support regulatory activities 

is compromised.’’ 

This is from a large group of scientists that we invited in—— 

Ms. DELAURO. I’ve read the report. 

Dr. WOODCOCK. The IT group. We provided them a lot of information about all the challenges that we face. 

So let me move to first the databases. 

When I was head of CDER a while ago, I was head of it during 

the 1990s, I made the ES database, which is one of these databases. 

Before that, the inspections were ordered up on paper, and paper 

was shuffled around to different offices, and naturally then we 

didn’t have any real IT record. 

That system I built with I think $30,000 that I was able to 

scrape together, and unfortunately, we’re still running on it. 

It doesn’t talk very well to the other systems, because it requires 

investment, requires substantial investments to upgrade all the 

systems into an integrated system. 

A year or so ago, I helped with others form the bioinformatics 

board at the FDA. We have developed a whole plan of how you 

would create modernized IT systems to support the regulatory 

processes at FDA. 

The bioinformatics board said the number one priority is to get 

a single inventory of establishments that make drugs and other 

FDA regulated products for the agency, not multiple inventories. 

The data problems you’re talking about, is it 3,000, is it 6,000, 

comes from the fact that the import system that we have, to use 

an IT term, corrupts the database by adding duplicate entries that 

have small differences, if you follow me, and we need a system that 

refers back to a central inventory. 

We have lacked certain authorities in these areas. They have 

partly been corrected by the FDA Amendments Act. 

So the reason—but to answer your first question, the reason we 

don’t have—the reason we have three databases is we have not 

been able to make the investment in building modern information 

technology platform, not to support the science, we’re not even talking about the science here, support our regulatory activities for 

drugs. 

Okay. 

Number two. What about electronic—what about listing? 

OFFICIAL LIST OF DRUGS

We have an outdated listing—drug registration and listing system. We are in the process of changing that. 

The FDA Amendments Act called for electronic registration and 

listing, and that is a tremendous help for us, because now we don’t 

have to go through regulations to get that done, although we are 

doing it. 


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The current system allows the manufacturers to set their own 

codes. 

It gives them a master code and then they can add codes to it. 

That way, they can add numerous items to our database that are 

not approved drugs. 

The new system that we’re building, the regulation we’ll put 

through and so forth, will address this particular problem. 

We do have to have a master list of approved drugs in the United 

States. We have to know who they are. CMS has to know who they 

are. The public has to know who they are. All right? 

Should I keep going? 

Ms. DELAURO. Well, I want you to move quickly, because on your 

first issue, you know, the requests that have come up here, it 

would appear that what we’re doing is continuing to talk about the 

resources. 

We gave you money. We gave you money to deal with these 

issues. 

We gave you what you requested, and more than an administrations have requested. 

I don’t know what you’ve been doing with the money. You can’t 

take care of basic functions, and you come up here this morning 

and talk about the critical path and new science and all this. 

You know, I believe in the research. You can’t deal at this agency 

with basic functions with the money that we have provided. 

What have you been doing here the last 10 to 15 years, if it’s all 

going to hell in a handbasket? 

And you’re not saying anything to anyone, you’re not crying out 

loud that you’ve got these problems, and you as the Congress have 

got to address them, that this is the first time at 8:30 last night 

we get a Safety First document that you’re going to concentrate on 

safety first? 

I mean, I don’t know what you’ve been doing for all of these 

years in these positions that you have, and you had to wait for 

these new amendments to be able to do what your job is necessary 

to do, and that is extremely frustrating, when you talk about frustration. 

Because all this agency ever does is to cry about resources. All 

it does is cry about resources. 

It says nothing about management. It says nothing about the influence of the industry, which is rife. 

And it says nothing about the demoralization of the scientists 

you have there, who are good, hardworking people, and their views, 

apparently, don’t count for very much, often, not all the time, but 

often. 

Now, I don’t know how you’re planning to address those issues. 

You’ve got—there were two other areas that I mentioned, and if 

my colleagues will indulge, let’s move quickly and get to an answer, 

about tracking the post-marketing systems—— 

Dr. WOODCOCK. Yes. 

Ms. DELAURO [continuing]. And why you haven’t been able to 

deal with that issue, and why we can’t—we don’t have a list of approved drugs. 

That’s a list. That’s a list. And let us know why—— 


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Dr. WOODCOCK. There is a list of approved drugs that is in our 

orange book. All right. 

We don’t have a very good inventory, though, of where they’re 

manufactured and so forth. 

That is—— 

Ms. DELAURO. Because of resources, as well? 

Dr. WOODCOCK. Yes. 

Ms. DELAURO. It’s because of resources that you can’t keep a list 

of the accurate drugs, for the last 15 years? 

Dr. WOODCOCK. As I said, it’s a combination of resources and authorities. 

Ms. DELAURO. It’s not a question of authorities, my friend. 

I’ve sat here month after month, year after year, with an agency 

that doesn’t want any authority lest it would be forced to use it, 

lest it would be forced to use it. 

And I read the Secretary Levitz, and this is his report that came 

out at the beginning of the year, which was mostly channeled to 

food safety. 

Not once did we talk about additional authority or, for that matter, additional funding. 

A few days ago, he talked about maybe what we ought to do is 

to have some authority with regard to overseas firms. 

So this has not been the case. 

We’ve been assured that everything is fine, everything is fine, 

and we can go back and get the transcripts and lay them out. 

Yes, and as my colleague, Mr. Hinchey, points out, most of your 

funding comes from the drug companies these days. 

Final comment, which is that one, and then the tracking of the 

post-market studies. 

POST-MARKET STUDIES

Dr. WOODCOCK. Yes. The post-market studies, we have cleaned 

up that tracking multiple times. 

The studies that have not been started that you referred to, that 

are delayed, that you referred to, actually are in pending status, 

which is something regulation requires. 

They haven’t been started, but they may or may not be delayed. 

Ms. DELAURO. All right. That means they haven’t been started. 

Dr. WOODCOCK. It takes a while to get some studies started. I’m 

not saying that all of them are on time. 

Ms. DELAURO. And you don’t have any mandatory authority, 

which you haven’t wanted, to say to the industry that you need a 

post-market surveillance, when are you going to do it—— 

Dr. WOODCOCK. Now, we do. That’s what the FDA Amendments 

Act enacted. Within 180 days from enactment of that Act. 

Ms. DELAURO. How do you regulate clinical trials without a complete list of them? 

Dr. WOODCOCK. We do not have a complete list of clinical trials. 

That is correct. 

Ms. DELAURO. Another resource problem, as well? 

Dr. WOODCOCK. Well, when you add together—I know you say 

that we have received additional resources. 


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I’m aware of the $26,000,000 additional for drug safety since 

2001 post-Vioxx that had been provided to the agency. I can tell 

you that that is not adequate to fix all these problems. 

All right? 

Ms. DELAURO. More money than you requested. More money 

than you requested. 

Dr. WOODCOCK. I’m not in charge of requesting money. 

Ms. DELAURO. I’m going to—listen, because we’ve got to move on, 

I’ve got—— 

Ms. EMERSON. Madam Chairman? 

Ms. DELAURO. Yes. 

Ms. EMERSON. It seems to me that, because we’re not satisfied 

with a lot of the answers here, that perhaps our subcommittee 

should do a field trip down to the FDA and meet with the offices 

of all of these who are running each of these programs, to really 

kind of get a handle on to see if the right hand knows what the 

left hand is doing. 

Ms. DELAURO. You know, a very, very good suggestion, and I appreciate that, Congresswoman Emerson. 

I’m going to conclude, to allow my colleague, Mr. Kingston, to ask 

some questions. I’ve gone well over my time. 

I note only that, keep in mind the four pillars that we are going 

to look at, and that’s resources, management, influence of the drug 

industry, less not more, and more influence of the scientists. 

I don’t know if you agree with that framework. At some point, 

I’d like to hear whether or not you agree with the framework, or 

are we only going to continue to hear about the lack of resources 

that you have, but you have not requested, and you continue to tell 

us you can move with what you have. 

Mr. KINGSTON. Thank you. 

DRUG APPROVAL TIME

Doctor, in terms of drug approval, there was great criticism on 

FDA by Congress for many years that your approval was too slow. 

And we worked with you to come up with ways of speeding that 

up. 

Do you have a chart on the duration of approval time? 

Dr. WOODCOCK. I don’t have a chart I can show you right now, 

but basically, after the enactment of the Prescription Drug User 

Fee Act, the very prolonged review times were diminished. They 

were about cut in half. 

Right now, many priority drugs, which are drugs for serious or 

life-threatening illnesses, where there isn’t an alternative, get on 

the market very rapidly, perhaps within six months, if they can be 

reviewed in the first cycle and they’re not sent back to the company 

for more work. 

Mr. KINGSTON. Well, in terms of the data on it, you’re going to 

be criticized, regardless of what you do, either for approving too 

many too quickly or going too slowly, and your job is to balance 

that. 

Now, in that equation, do you ever look at the number of deaths 

that are caused by illnesses by you not approving a drug? 

And do you have some statistics that you can share with us on 

that? 


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Dr. WOODCOCK. Well, that is only available if a drug is shown 

to save lives. 

Mr. KINGSTON. Well—— 

Dr. WOODCOCK. If a drug is shown to save lives, it’s usually gotten on the market quite promptly. 

Part of the problem is that many drugs help provide a lesser benefit. They help with pain, terrible pain. They help with people getting their activities of daily living done. 

Say someone who has rheumatoid arthritis. They can go back to 

work. It isn’t necessarily saving their lives, at least in the short 

term couple years of treatment. 

So we do always do analysis of the benefits of any drug versus 

the risk. That is the fundamentals of whether or not a drug gets 

on the market, is that the benefits are going to pretty substantially 

outweigh any risk, because all drugs have some risk. 

Mr. KINGSTON. Well, do you, you know, do you answer your critics vigorously, or as vigorously as they attack you, in terms of certain drugs not being approved properly or whatever the results 

are? 

Dr. WOODCOCK. We have—— 

Mr. KINGSTON. I think that’s one thing that maybe this committee would like to know. 

Dr. WOODCOCK. Yes. 

Mr. KINGSTON. You know, there’s always a lot of one-sided outside groups who, you know, quote unknown medical providers and 

medical personnel, but they don’t ever really document it. 

I mean, it makes for a great editorial, but not necessarily for 

great science. 

Do you, you know, swing back, and say, ‘‘Let’s engage in it?’’ 

Dr. WOODCOCK. Well, you’re talking about actually doing an 

analysis of whether overall the benefits of drugs outweigh the 

risks, in general? 

Mr. KINGSTON. Well, not particular drugs. 

Dr. WOODCOCK. Mm-hmm. 

Mr. KINGSTON. For example, I know that this committee, years 

ago, there was a drug for epilepsy that I think was approved in 

France and used maybe widely throughout Europe, but the FDA 

was really going slow on it in America, and finally, FDA approved 

it. 

But in the meantime, there were some documented cases of 

death that this drug could have helped, if the people were allowed 

to take it. 

Dr. WOODCOCK. That’s right. 

Well, that kind of information is very hard to find in a scientific 

way, okay, without doing a study. 

So we, when we approve drugs, we have very strong evidence 

that the benefits, the overall benefits will outweigh the risks of 

those drugs. 

Nevertheless, a lot of folks feel we’re not approving enough 

drugs. We certainly very recently have had a lot of criticism about 

that in the cancer area, for example. 

And other people feel we approve too many drugs, and that they 

have too many risks. 


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Mr. KINGSTON. Do you have any specific drugs or stories that you 

can relate on that topic, any examples? 

Dr. WOODCOCK. Well, any drug that we approve is going to provide benefit for a population, but there’s going to be some individuals who are at risk. 

For example, you’ve probably heard of the drug Vioxx, right? 

I was at the Arthritis Foundation yesterday, addressing the patients who were there, and one of the patients stood up and said, 

‘‘Why can’t I get Vioxx?’’ 

Because for that person, he had tried everything. He had a serious arthritic condition. For him, the benefits of Vioxx well outweighed the risks of Vioxx. 

And I have had many people, from both sides of the aisle, come 

up to me and say that that one drug was better for them. 

Now, overall, Vioxx did not benefit the population. More people 

were put at risk than the benefit. But you need to understand that, 

for individuals, many—all the drugs we approve provide a benefit 

for a substantial number of individuals. 

GLOBALIZATION

Mr. KINGSTON. Okay. In terms of the globalization that you talk 

about in your testimony, and the fact that drugs have traditionally 

been made in the United States, manufactured, packaged, and so 

forth here, and now there’s a whole series of activities outside of 

the country, how can you address those? 

What is in your vision in terms of trying to figure that one out? 

Dr. WOODCOCK. Our maintaining quality relies on a number of 

factors, all right: 

Inspection of the plant; review of how the manufacturing is done; 

making sure the imports that come into the United States are from 

qualified facilities and should be imported into the United States; 

and then surveillance of what happens in the United States from 

our post-marketing surveillance systems. 

Mr. KINGSTON. Let me ask you a question, then. 

IMPORTS AND RE-IMPORTATION

If you’re able to monitor to your comfort level an importation, 

why is it that we can’t monitor to your comfort level a reimportation? 

Dr. WOODCOCK. Well, as I just said, in response to Mrs. DeLauro, 

we are not—I’m not that comfortable with the systems that we use 

to check imports, to make sure that foreign facilities manufacturing 

drugs in other countries, that we are there often enough to be comfortable always, and our data systems are not up to what they 

should be. 

So reimportation would add yet another level of challenge onto 

that whole system, which is under a great deal of stress right now. 

Mr. KINGSTON. Have you ever thought about putting in a study 

of how that actually can be done? 

For example, if we put in our bill some language that would instruct you to come up with a model for reimportation, and that 

seems to be the only way we’re going to be able to get it done, but 

there would be something that would come from that, correct? 


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Dr. WOODCOCK. For FDA to have reimportation would require a 

great number of steps that have been discussed by many parties, 

and we would need to have confidence that the site of manufacturing, the trail, the pedigree of that product as it moved around 

maybe into different countries and so forth, that we could keep 

track of that and that we knew when a product was imported into 

the United States that it was the authentic product that we 

thought was being imported. 

Mr. KINGSTON. So it would make sense to maybe only do it for, 

say, a Canadian reimportation rather than one from Singapore? 

COUNTERFEIT DRUGS

Dr. WOODCOCK. If—well, as you know, there are a large number 

of counterfeits and improperly manufactured drugs out in the 

world. 

Mr. KINGSTON. Let me interrupt you a minute. 

How much of the counterfeit is actually in life savings versus 

vanity drugs? 

Because I’ve always heard that the vanity drugs have the bigger 

counterfeiting. 

Do you have a breakdown? I don’t know the answer. I’m just asking. 

Dr. WOODCOCK. David, do you know that? 

Mr. HOROWITZ. I don’t have an exact figure on that, but it’s—you 

typically see drugs that are large volume drugs being counterfeited, 

because you can make more money. 

So it’s not just the Viagras of the world, but it’s also Lipitor and 

things that are life saving drugs, because a lot of money can be 

made because of the high volume associated with those drugs. 

Dr. WOODCOCK. Also, even though perhaps it might be a vanity 

drug, if it has a wrong ingredient in there that can be harmful to 

people, it still could be life threatening. So the risks are very high. 

We’ve talked to regulators in other countries where counterfeits 

are rife, and any importation of unapproved drugs would have to 

have extremely careful oversight. 

Mr. KINGSTON. Okay. Madam Chair, I want to yield back the 

unremaining time. 

But are we going to have another opportunity—— 

Ms. DELAURO. Yes, we will have another opportunity. 

Mr. HINCHEY. Good morning, Dr. Woodcock. 

Dr. WOODCOCK. Good morning. 

Mr. HINCHEY. It’s very nice to see you again. 

I know this is the first time, or at least I believe it is the first 

time that you’ve actually testified at the table, but I know you’ve 

been at these hearings—— 

Dr. WOODCOCK. That’s correct. 

Mr. HINCHEY [continuing]. On numerous occasions, sitting in 

that row back there, most of the time. 

So I congratulate you on moving up in your responsibilities, and 

you and I both know that they’re very serious responsibilities. 

And I very much appreciated, frankly, what you said in the context of your testimony today, because it was very positive. 


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And just listening to that testimony, it’s inclined to give someone 

a positive feeling about what the FDA is doing, and that’s very 

good, and I hope that what you are saying will happen. 

But at the same time, it’s impossible not to be less than optimistic about that, based upon the past experience that we have, 

and the way in which the FDA is constituted and funded. 

FDA FUNDING SOURCES

We know, for example, that somewhere in the neighborhood of 

roughly about 65 percent of the funding comes from the corporations that the FDA oversees. 

That is just an open invitation to corruption. It’s an open invitation to the people who are being overseen having an undue influence on what is being overseen, and the fact of the matter is, we 

see vast amounts of evidence that it’s not working effectively. 

And I think that the FDA is not working effectively, and there 

are many people who look at the situation and who come to the 

conclusion that it has never been worse than it is today in terms 

of its effectiveness, in terms of its oversight of the drug companies, 

in terms of its protection of the people of our country, which is 

what the FDA was set up to do. 

And a large part of that failure has to do with the fact that so 

much of the resources which were mentioned over and over again 

this morning come from the people who are being overseen. 

And then, in the context of the groups that examine the process, 

we have an undue number of those people who are directly conflicted, and even though they’re directly conflicted, they receive 

waivers, and the amount of waivers that we’ve seen is roughly 

about 17 percent of the people who are on those committees are 

given waivers, even though they have direct contact with the drug 

companies and are getting very substantial amounts of money, either directly or indirectly. 

All of this causes deep concern among the members of this committee, I think on both sides of the aisle, and the reason is not just 

because of the abstract numbers that I’ve been mentioning, but the 

effect of those. 

NEURONTIN/GABOPENTIN

Let me give you an example of that. There’s a drug called 

Neurontin, which I believe is—that’s the market name for it. The 

actual drug is called gabopentin, I think it’s called. Is that correct? 

Dr. WOODCOCK. I believe so. 

Mr. HINCHEY. Pardon me? 

Dr. WOODCOCK. Yes. 

Mr. HINCHEY. Yeah. That’s the real drug name. And it’s a drug 

that is supposed to be used for people who have shingles, things 

of that nature. 

And what we have seen is that people taking this drug, in a 

number of instances, develop adverse effects toward themselves, 

some of it very deeply. Some of it attempted suicide, and a lot of 

it actual suicide. 

We have, as a result of an examination that I’ve been engaged 

in, and that examination was based upon an initiative that came 

from an attorney who is a constituent of mine, who was repVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00094 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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resenting some people who were involved in this kind of situation. 

He brought it to my attention. 

We sent a letter to the then acting commissioner, Lester 

Crawford, as you know. I know you worked with him back in 2004. 

We sent that letter to him back in 2004. 

And in the context of that letter, we asked for actions to be taken 

on this particular drug, and nothing has really happened. It’s been 

three-and-a-half years since that letter went out. 

We know that, based upon just a fraction of the information, we 

know that there have been at least 200 completed suicides and 

there have been at least 2,500 attempted suicides. 

Now, that is not the overall picture. That’s just a fraction of the 

picture, of the big picture that has been examined. 

So the number of suicides as a result of taking this drug could 

be 10 times that number. It could be even more than that, much 

more than that. We don’t know that. 

We need the FDA to do an examination on this, to come up with 

the information as to what is happening, and we have not had an 

adequate response to the questions that we have asked. 

So these are the basic issues that we’re confronting here, that 

this Appropriations Committee is trying to confront. 

We have provided substantial amounts of increases in revenue to 

the FDA, but still, most of the money comes from outside, comes 

from people who are being overseen, and that needs to stop. We’ve 

tried to stop that. 

We’ve tried to have legislation passed which would tell the drug 

companies to send their money directly to the Treasury, and then 

the Treasury can provide the money to the FDA. 

That seems to me to make a whole lot of sense, because then you 

abolish the financial connection between the drug companies and 

the FDA which is set up to oversee them, and you would effectively 

eliminate most if not all of the direct adverse influence that the 

drug companies have over the FDA because of the money that they 

provide to run the operation, and the way in which they get away 

with having people who have conflicts of interest nevertheless sit 

on the oversight committees and make decisions which determine 

whether or not a drug gets on the market or whether or not that 

drug continues to be on the market, even though it is having adverse consequences to the people who take it, including inducing 

suicide within them. 

So these are the points that we have to confront here, representing the people of this country, trying to protect them, trying 

to get this FDA, which was set up to be in their interest and to 

protect them, to actually act in the way it was supposed to act. 

Let me just ask you what you think the prospects are for change, 

generally, and specifically, within the context of Neurontin. 

Dr. WOODCOCK. We will see change, as we have been changing, 

as part of our response to the IOM, the FDA Amendments Act, the 

Safety First and the additional initiatives we’re going to do after 

that will provide real substantive change, as well as being able to 

build better surveillance systems to look at what’s happening out 

there to people in the real world. 

So I believe there is a prospect for substantial change. 


wwoods2 on PROD1PC60 with HEARING
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As far as the user fee program, as you know, that was set up by 

Congress because FDA was felt to have inadequate funding to perform its duties. 

Mr. HINCHEY. It was set up by Congress, but it was set up back 

then at the request of an administration which was saying that we 

needed to save money from the federal budget, and one of the ways 

in which we could do that was to have the drug companies contribute to the oversight that the FDA engaged in. 

Why the Congress, back then, bought into that idea amazes me, 

frankly. It was a big, fat mistake, and it needs to be corrected. 

We have tried to correct it, but we have never gotten support in 

order to get it corrected. 

We’re going to keep trying to do it, and we’re determined to get 

that done, because it just doesn’t make any sense to have this kind 

of very close financial contact with the companies that are being 

overseen and the overseer. 

So it was set up by Congress, but it was set up at the request 

of an administration similar to the one we have in the White House 

now, who had the same kind of views on the way in which the government should operate in the context of overseeing corporations 

whose main objective is just making money, which is—you know, 

I mean, there’s nothing wrong with making money, but let’s do it 

in a way that is not going to kill people and cause people to kill 

themselves. 

Dr. WOODCOCK. As far as Neurontin, we certainly will get back 

to you on that issue. 

[The information follows:] 

In an effort to provide a more complete understanding of safety issues associated 

with the drug Neurontin and the information that Rep. Hinchey’s constituent provided to the FDA on possible adverse event associated with Neurontin, FDA officials 

conducted a conference call with Rep. Hinchey’s office on February 29, 2008. 

It is never surprising that drugs that affect the nervous system, 

and gabopentin is one of those, would have neuropsychiatric side 

effects. All right? That’s something we’ve come to expect. 

Large numbers of drugs have neurologic and psychiatric side effects. 

And so what we need to do is identify those, be alert to those, 

and make sure people are properly warned. 

On the other hand, some of the conditions for which the drug is 

prescribed are very serious for people’s lives, and so we have to 

keep a balance there about the availability of a drug to treat very 

debilitating conditions versus its potential for having side effects. 

Mr. HINCHEY. Well, thank you. 

Just looking at you, and having looked at you before a little bit 

further away, you know, I’d like to have confidence in you, and I 

would like to think that you would have the ability to do something, particularly as a physician yourself. 

But I know what we’re dealing with, and I know that you can’t 

make these decisions by yourself. 

So we would like to do everything that we can to try to correct 

this situation and continue to work on it, and it’s going to have to 

be worked on aggressively in order to get it done. 

Thank you very much for your testimony, and I now turn over 

the time to my colleague. 


wwoods2 on PROD1PC60 with HEARING
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Dr. WOODCOCK. Thank you. 

Ms. EMERSON. Thanks. Thanks for being here today. 

Doctor, can you tell me what percent of the dry, the bulk dry 

substances used by pharmaceutical manufacturers to produce their 

drugs as manufacturers—hold on just a second. Are we on zero for 

time? 

No, I think we have no time left for our vote. 

Shall we recess for just a minute? 

I think we probably, if you don’t mind, doctor, I’ll ask my question again when we get back. 

Dr. WOODCOCK. Certainly. If I could just follow up with Mr. Hinchey here, I just got some more information from my colleague 

about Neurontin. No. Okay. 

We will follow up with you, because we have made some announcements about this. 

Mr. HINCHEY. Okay. Thanks very much. 

[Recess.] 

Ms. DELAURO. The hearing will come to order. 

Okay, Mr. Farr, I’m going to go directly to you, after you have 

your slug of water. 

Mr. FARR. Thank you, Madam Chairman. 

I appreciate you coming and testifying today. 

It’s—this hearing is to me one of our most important, because 

the FDA has traditionally been the agency that has enjoyed the 

greatest public trust, and those of us that are elected to House of 

Representatives are the ones that I think I have found that in generally talking about the Federal Government, the highest respect 

that consumers have had, people have had, is in the government’s 

ability to make sure that our food and drugs are safe. 

I think it’s shocking to sort of get into, to lift the cloak of the departments and just find out how many critical problems there are, 

and I couldn’t help but wonder, why—identifying, there’s a lot of 

testimony here, identifying what these problems are and they’ve 

been for a number of years, why there hasn’t been an ask for more 

money. 

Dr. WOODCOCK. Well—— 

ADDITIONAL FUNDING

Mr. FARR. Is it that the department isn’t making the ask, or is 

it OMB is dinging the ask? 

Dr. WOODCOCK. As you well know, that’s above my pay grade, 

and—— 

Mr. FARR. Well, why should it be? You’re in control, as I understand, you’re—you oversee the ongoing agency operations. 

I mean, that shouldn’t be above your pay grade. 

Dr. WOODCOCK. I’m a career civil servant. As you well know, the 

agency heads even do not decide what the Federal Government ask 

will be. That is an administration function. And—— 

Ms. DELAURO. Will the gentleman yield for a second? 

Don’t you have, as the head of the CDER, have any responsibility 

to let people know what it is that you need to be able to do your 

job, or do you just say, ‘‘Hey, look, this is it, I’ll take it, and, you 

know, come what may’’? 


wwoods2 on PROD1PC60 with HEARING
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Dr. WOODCOCK. No. We have prepared—we saw, for example, the 

importation issue, manufacturing moving overseas, clinical trials 

now moving overseas. 

We have seen this coming for a decade. We have raised red flags. 

We have raised the alarm. All right? 

Mr. FARR. But who is not watching or listening to that? 

Dr. WOODCOCK. Well, if various administrations—this has been 

going on for more than a decade. 

If various administrations and various Congresses have had 

higher priorities, that’s not for us to question at that point. 

Mr. FARR. I don’t think you can bring Congress that question, because in this town, the president asks and the Congress disposes. 

It’s always initiated with and ask. 

Dr. WOODCOCK. I think—— 

Mr. FARR. I don’t think Congress has been cutting that ask. I’ve 

been here long enough to know that. 

Dr. WOODCOCK. I can tell you—— 

Mr. FARR. I think it’s the other way around. 

Dr. WOODCOCK. I can tell you that for over a decade—I know you 

had Ben England here a few weeks ago, right, testifying about 

foods, is that right? 

He and I, I worked with him on various plans about importation 

and foods many years ago. We’ve been concerned about these problems—— 

Mr. FARR. But that’s—I mean, I appreciate that. I appreciate 

where your concerns are in the ranking. 

Dr. WOODCOCK. Right. 

Mr. FARR. But the testimony here often is that we don’t have the 

resources to do all these things. 

This whole line of questioning is about, well who in the hell is 

responsible for making sure that you do have those resources? It’s 

got to be in—you’re an administrative arm of government. It’s got 

to be from the administration. 

And my question is, at OMB, is it either the ask isn’t being made 

or is it OMB rejecting it? 

Dr. WOODCOCK. Well, as you well know, you’re putting me in a 

very difficult position. I’m a career civil servant, and, you know, 

these things are not mine to decide. 

Mr. FARR. We’ll try to get that answer. 

CDER BUDGET, USER FEES

The other thing maybe you could tell me is that, of your budget, 

the CDER budget is $793,000,000 this year, the ask? 

Dr. WOODCOCK. Yes. 

Mr. FARR. How much of that budget comes from the Prescription 

Drug User Fee Act? 

Dr. WOODCOCK. For 2009, $380,000,000 from user fees and 357 

or 8, rounded off, million from budget authority. 

Mr. FARR. So taxpayers put in 358 and the private sector puts 

in more? 

Dr. WOODCOCK. That’s correct. 

Ms. DELAURO. Does that include direct to consumer and the proposed generic drug user fees? 

Dr. WOODCOCK. Yes. 


wwoods2 on PROD1PC60 with HEARING
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Ms. DELAURO. And generic drug user fees, as far as I know, does 

not have—is not authorized, and—— 

Dr. WOODCOCK. That’s correct. That’s correct. 

Ms. DELAURO. And the direct to consumer, what we did is we 

didn’t do that in this budget—— 

Dr. WOODCOCK. So there’s some decrements from that, from a 

practical point of view. 

Ms. DELAURO. 50/50? 

Dr. WOODCOCK. The PDUFA is about, yeah, it’s about 50/50 with 

the user fee, prescription drug user fee program versus, that’s correct. 

Ms. DELAURO. Right, so it’s about 50/50? 

Dr. WOODCOCK. Mm-hmm. 

Mr. FARR. Well, as a career professional, and I appreciate that, 

and appreciate your service to our government, as a career professional, what would you recommend that budget balance be? 

Dr. WOODCOCK. Well, that’s a very difficult question, again, to 

ask me. 

DRUG SAFETY FUNDS

Let me respond a little bit. Mrs. DeLauro said earlier about the 

drug safety money you’ve given us over the past four years, right, 

and we are very grateful to that. Post 2001, after Vioxx, we got increments each year for drug safety. 

But in 2000, I had testified before the Senate, Mr. Kennedy and 

Mr. Jeffords, about drug safety, and we were able to get a letter 

out to Mr. Kennedy and Mr. Jeffords telling them what we thought 

was needed just for drug safety and post-marketing. 

Mr. FARR. And that’s my question. I mean, what are those figures? 

Dr. WOODCOCK. Okay. The figure was—that was in year 2000. Times have changed. It would probably be more. $150,000,000 in 

additional funding, minimum. 

Mr. FARR. So what would be the—I mean, the question—— 

Dr. WOODCOCK. I can provide this letter for you, if you would 

like. 

Mr. FARR. I wish you’d be a little more frank about it. You’re a 

career civil servant. You’re not a political appointee. 

Dr. WOODCOCK. Right. 

Mr. FARR. And you’re protected. It’s your bosses that aren’t. And 

obviously, with a change of administration, they’re going to be 

gone. 

So we will have, you know, new figures and new approaches, and 

hopefully a new advocacy for regaining the credibility that the public so much wants this agency to have. 

Dr. WOODCOCK. Well, let me just—can I just—— 

Mr. FARR. It’s very difficult to assure the public that they’re getting a fair, unbiased treatment, when more than half of the fees 

to run the department come from people who benefit from the outcome and make a gazillion dollars off of it. 

Dr. WOODCOCK. The prescription drug user fee improved the 

drug development side of drug regulation. 

In other words, it provided substantial resources for improving 

the review process, including, say, preapproval inspection activities, 


wwoods2 on PROD1PC60 with HEARING
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and so forth, so that part of the program is more robust than the 

other programs. 

The new prescription drug user fee does give substantial resources to drug safety, for the first time. There were just a few resources given before in PDUFA III, right. 

The drug safety program, as I just told you, is really vestigial. 

There was no real appropriations for drug—specifically for drug, 

postmarketing drug safety during the entire time I think I worked 

at the Center for Drugs, perhaps except in 2002. 

The other program that really needs improvement has already 

been pointed out by the chairwoman, and that is the quality program, our ability to manage, track, what are the drug establishments, where are they, who is making the drug, when are they inspected, to be able to get there and inspect them—— 

Mr. FARR. And how much more money do they need for that? 

Dr. WOODCOCK. I don’t know the answer offhand, but I would say 

it is substantial. 

Mr. FARR. Well, what’s substantial? 

Dr. WOODCOCK. Again, I can’t give you a direct number. I can 

give you this letter about the drug safety program, however. 

Ms. DELAURO. Why don’t you get us an answer on that? 

Dr. WOODCOCK. We can certainly try to do that. 

Ms. DELAURO. Get us an answer on what you believe it is. 

[The information follows:] 


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Mr. FARR. Thank you. I’m not getting very far. I give up my time. 

Ms. DELAURO. Ms. Emerson. 

Ms. EMERSON. Thanks, Chairwoman. 

Excuse me. Now let me go back and ask my question before, to 

which hopefully you got an answer, while I was gone. 

And I wanted to know what percent of the bulk drug substances 

used by the pharmaceutical manufacturers in the United States 

are imported? 

IMPORTED DRUGS

Dr. WOODCOCK. Approximately 80 percent. 

Ms. EMERSON. And what percentage of finished drugs are manufactured abroad? 

Dr. WOODCOCK. I don’t know the answer to that. Do you have 

that rough, ballpark figure, David? 

Mr. HOROWITZ. Not offhand, no. 

Dr. WOODCOCK. No. It’s a much lower percentage, but again, that 

is going to change, I think. 

Various regions of the world have made it extremely clear that 

they want to take over drug manufacturing. 

Ms. EMERSON. Right. So, you know, obviously, we talked about 

the challenges you face with the databases, so I’m not going to go 

there again. 

Do you know what countries have the most number of establishments registered to manufacture drugs outside the United States? 

Dr. WOODCOCK. David? 

Mr. HOROWITZ. I think the GAO report indicates that the largest 

number of registered firms are in China, but it’s not clear that 

those numbers are accurate, and it’s not clear that they are limited 

just to manufacturing facilities. 

They may include other things, like distributors and people who 

make herbal products, and folks that we wouldn’t consider drug 

manufacturers. 

Ms. EMERSON. Well, if the GAO was able to come up with a number, even though it might be too inclusive—— 

Mr. HOROWITZ. Yes. 

Ms. EMERSON [continuing]. Why is it that you all can’t come up 

with a number? 

Mr. HOROWITZ. Well, that number is from our system, and as the 

GAO report describes, there are problems with our systems that 

make it difficult to come up with a number that exactly characterizes what you’re seeking to get at, which is the actual number of 

manufacturers of drug products and ingredients in China. 

INSPECTION OF FOREIGN MANUFACTURING FACILITIES

Ms. EMERSON. Okay. On average, how many of these establishments that you are aware of that are manufacturing facilities are 

inspected each year, outside the United States? 

Mr. HOROWITZ. We do about 300 manufacturing inspections. That 

includes the preapproval and the so-called good manufacturing—— 

Ms. EMERSON. A year? 

Mr. HOROWITZ [continuing]. Or GMP inspection. We did in 2007. 

That was more than we’ve done in previous years. 


wwoods2 on PROD1PC60 with HEARING
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Ms. EMERSON. And if one of your databases says there’s 3,800 

manufactures, we’ve only—y’all have only had the capacity to look 

at 300, correct? 

Mr. HOROWITZ. One of our—— 

Ms. EMERSON. Less than 10 percent? 

Mr. HOROWITZ. The GAO report looked at the 3,000 number, for 

3,000 foreign manufacturers, and yes, we did about 300 of those 

manufacturing inspections in 2007. 

Ms. EMERSON. How many did you do domestically? 

Mr. HOROWITZ. Domestically, I think we did about 1,200 drug 

quality inspections. Again, these don’t include the bioresearch monitoring or all the other inspections that we do. 

Ms. EMERSON. How many people do you all have on staff to do 

these inspections, both foreign and domestic? 

Mr. HOROWITZ. Let’s see. We have about 232 drug investigators, 

and they do some domestic work, some import work, and some foreign work. 

Ms. EMERSON. And how long does it take—I mean, if I was going 

into a manufacturing facility as an inspector, how long would it 

take me to go through the checklist of things that you all require? 

Mr. HOROWITZ. That really varies, depending on the complexity—— 

Ms. EMERSON. Give me the low end and the high end, just so I 

can—— 

Mr. HOROWITZ. You know, between one to three weeks. 

Ms. EMERSON. Per facility? 

Mr. HOROWITZ. Per inspection, yeah. One week is typical for a 

foreign inspection. 

Ms. EMERSON. And why would we be spending less time, perhaps, in a foreign location and more time in a domestic? 

Mr. HOROWITZ. I don’t know that we always are, but, you know, 

a lot of the foreign facilities are these active ingredient inspections, 

and those inspections tend to be targeted because the manufacturing is more focused on a particular activity. 

Ms. EMERSON. Let me go back and ask a followup to Sam’s question to you. 

Hypothetically, let’s pretend—and we know you’re a career civil 

servant, and the OMB runs rampant over every agency, and so we 

understand that, and I don’t want you to have to say anything. 

But hypothetically, let’s just say funding or money constraints 

were not an issue. 

IMPROVING INSPECTIONS

What course of action would FDA take to improve your inspection processes? What would be your first priority, and what 

would—yeah, and what would be your first priority? 

Dr. WOODCOCK. Well, we’d have two first priorities. 

Number one, we’d hire more investigators. Okay. 

Ms. EMERSON. How many more investigators? 

Dr. WOODCOCK. Enough to have a reasonable coverage of both 

domestic facilities and out of country facilities. 

Ms. EMERSON. So you have 238 now, so you would say what, 

2,000 would be—— 

Dr. WOODCOCK. I do not know. We don’t have to—— 


wwoods2 on PROD1PC60 with HEARING
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Ms. EMERSON. You might need more? 

Dr. WOODCOCK. We might. We’d have to run those numbers. 

We don’t have to be everywhere all the time, all right, we go 

intermittently. 

We have agreements with other countries. We can talk to their 

inspectors. They may have been in the factory recently and done 

an inspection. We don’t have to duplicate that. But we need the capacity to do that. 

But that’s number one. 

Number two, we must implement all the plans that we would 

have for improving our databases so that we have a grip, so that 

we can control the inventory of drugs that enter into the United 

States, and we know who makes them, and where they are. 

We know if they come in, whether they’ve come in or not, where 

they come from. We know everything about that. 

Ms. EMERSON. So that if money was no object. 

And so you report to the administrator, and it’s your responsibility then to make that request, among all the other requests that 

your counterparts would have in the agency, correct, so it obviously 

hasn’t been a priority. 

It’s been your priority, but it’s not necessarily been the agency’s 

priority to get a handle on this, Chairwoman, and appears to have 

ceased, momentarily, anyway. 

Ms. DELAURO. Let me make a couple of observations, and I want 

to go to—based on something both Mr. Farr and Congresswoman 

Emerson are focused on. 

Between 2001 and 2008, we provided a 62 percent increase to 

CDER. Can you hear me? 

Dr. WOODCOCK. Yes. 

Ms. DELAURO. A 62 percent increase. 

Now, we do not take that money and divide it up. CDER takes 

that money and then deals with their money, and they figure out 

where their priorities are, and what they ought to try to do with 

the dollar. 

REDUCED FUNDING FOR INSPECTIONS

It would appear that, during that time, we have seen foreign inspections drop about 30 percent. We’ve seen domestic inspections 

drop about 17 percent. The money for these efforts, the money for 

the efforts has dropped. 

So that was an internal decision at the center, because we had 

a 62 percent increase in dollars during that period of time. 

The other issue is that, and I would agree with you. I don’t hold 

a brief here. This is not in terms of partisanship. 

I said we had not had a hearing in the last 25 years, so that tells 

you where I’m coming from in this regard, so I look at the spectrum here. 

And if you got less money at that point in that budget, shame 

on those who made that decision. 

However, I would just say that it was because of this committee, 

and you’ve got questions, you know, later on about OND and OSE, 

et cetera. 


wwoods2 on PROD1PC60 with HEARING
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But it was this committee that increased funding for drug safety, 

and that’s to OSE, and that was in 2006 that we did that, and we 

increased it $10,000,000 more above what was requested for 2008. 

It wasn’t that you came in with a letter or with a request that 

drug safety was a very important critical issue that is in crisis, and 

asking for money. 

We determined that it was in crisis, and the Congress in the last 

several years has been very responsive and quite frankly, the administration and the agency have not been responsive at all to 

what’s happened. 

Mr. Rothman. 

Mr. ROTHMAN. Thank you, Madam Chairwoman. 

Good morning, doctor. 

Dr. WOODCOCK. Good morning. 

Mr. ROTHMAN. I’d like to follow up on some of the questions of 

my colleagues, and I’m sorry I was late. I was at another hearing 

from another subcommittee, for another subcommittee. 

You indicated in response to Congresswoman Emerson’s questions that you would need to hire more investigators. 

REQUEST FOR INVESTIGATORS

Did you speak to—did you make a budget submission to the FDA 

last year, for the present fiscal year? 

Dr. WOODCOCK. We make budget submissions—— 

Mr. ROTHMAN. The answer is yes, you did? 

Dr. WOODCOCK. Yes. Yes. 

Mr. ROTHMAN. And in that, did you request investigators? 

Dr. WOODCOCK. I will turn over to David Horowitz, who is actually—those resources for investigators, I understand that money 

was given to the drug program, to CDER in the last few years for 

drug safety. 

The investigators are employed by ORA, our field organization. 

Mr. ROTHMAN. Is ORA within your jurisdiction as the director? 

Dr. WOODCOCK. No. 

Ms. DELAURO. Doesn’t the CDER appropriation include ORA? 

Mr. ROTHMAN. It does include the ORA. That’s a separate line 

item. 

Mr. ROTHMAN. Okay. Dr. Woodcock—— 

Dr. WOODCOCK. Well, according to what I see. 

Mr. ROTHMAN. Dr. Woodcock. 

Dr. WOODCOCK. I’m sorry. 

Mr. ROTHMAN. Yes. So you submitted a budget request, correct? 

Dr. WOODCOCK. Yes. 

Mr. ROTHMAN. In your budget request, did you request money for 

more investigators, in your budget request? Or don’t you know 

what was in your budget—— 

Dr. WOODCOCK. I was not the head of CDER at that time. However, we have discussed endlessly the need for more coverage, yes. 

Mr. ROTHMAN. Okay. Do you know if the person who was in 

charge of CDER when the budget request was submitted requested 

more investigators? 

Dr. WOODCOCK. I believe what they did was request that ORA 

would have more investigators, because the investigators don’t report to CDER. 


wwoods2 on PROD1PC60 with HEARING
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Mr. ROTHMAN. So the answer is yes, they did? 

Dr. WOODCOCK. Yes. 

Mr. ROTHMAN. Okay. And were you turned down or were you approved for the number of investigators you requested? 

Dr. WOODCOCK. The administration, as I said, must set various 

priorities, and the FDA must set various priorities within the FDA. 

The foods program also has, as you probably well know, has very 

significant challenges, so forth. So, David—— 

Mr. ROTHMAN. No, Madam Director, I just want an answer to my 

question, if I can. 

Did you get what you asked for or not? Did they give you more, 

less, or the same as you had at the time of the request? 

Dr. WOODCOCK. Are you talking about at the FDA level or at 

whatever level—— 

Mr. ROTHMAN. The president. 

Dr. WOODCOCK [continuing]. Of the budget process? 

Mr. ROTHMAN. The budget process. 

Dr. WOODCOCK. Oh. Well, the 2009 budget really doesn’t contain 

a substantial request for additional drug investigators. 

Mr. ROTHMAN. It doesn’t contain a substantial request or any request? 

Dr. WOODCOCK. I believe it has—— 

Mr. HOROWITZ. I think the, in the 2009 budget, there’s included 

in that the generic drug user fees and the reinspection user fees. 

If those were enacted, those would provide significant resources 

for additional drug inspections. 

Mr. ROTHMAN. Is there anywhere in the budget where it says 

that if those resources come in, because of those increases in fees, 

they are dedicated or will be specifically used for inspectors, or investigators? 

Mr. HOROWITZ. It’s my understanding that the reinspection user 

fees would be dedicated to conducting additional inspectional activities. 

It’s also my understanding that the generic drug user fee proposal would include additional funding for the kinds of inspections 

that are necessary prior to approval of generic drugs. 

Mr. ROTHMAN. And do you happen to know that if those things 

happened, what percentage of increase in inspections or inspectors 

are anticipated as a result? 

Dr. WOODCOCK. I think we do know that, and we can get back 

to you on that—— 

Mr. ROTHMAN. Do you know now? 

Dr. WOODCOCK. I don’t know—— 

Mr. ROTHMAN [continuing]. Dr. Horowitz. 

Mr. HOROWITZ. The only figure I have in front of me concerns the 

generic user fee proposal and an estimate that that would provide 

for 90 additional inspections. 

Mr. ROTHMAN. Ninety inspections? 

Mr. HOROWITZ. Ninety additional inspections would be funded by 

the generic drug user—— 

Mr. ROTHMAN. And how many inspections are there a year now? 

Mr. HOROWITZ. We currently conduct—— 

Mr. ROTHMAN [continuing]. In that area? 


wwoods2 on PROD1PC60 with HEARING
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Mr. HOROWITZ. We currently, in the area of manufacturing quality, conduct about 300 inspections foreign and 1,200 domestic. Foreign inspections are more resource intensive. 

Mr. ROTHMAN. May I move on to another question—— 

Ms. DELAURO. If I could just amplify—— 

Mr. ROTHMAN. Certainly. 

Ms. DELAURO [continuing]. What I understand here, and I thank 

the gentleman. 

My understanding from Dr. Woodcock’s testimony on Page 2, you 

talk about the increase in ORA field operations for improving the 

safety of imported drugs. 

I think we need to be clear about what you requested. It’s $1.2 

million and three people. And I don’t know what kind of an impact 

that that will have. 

Page 4, you say the proposed generic drug—keep in mind that 

has not yet been authorized, and we don’t have any—I don’t have 

any information about whether or not the authorizor will move forward—would help oversee the exploding number of overseas facilities. 

And it’s very hard to explain—very hard for me to understand 

how $2.8 million and six people, that you get from the user fee, and 

use for the field, are going cope with what we talk about, the exploding number of overseas facilities. 

Now, you didn’t talk about inspectors. You talked about inspections. So that’s what I ascertained—— 

Mr. ROTHMAN. Madam Chair, do I have time for another—— 

Ms. DELAURO. Absolutely, go forward. 

Mr. ROTHMAN. Thank you. 

Dr. Woodcock, in your testimony, you address the increased problem the drug safety community faces as the globalization of drug 

development and manufacturing increases. 

FOREIGN COUNTERFEIT DRUGS

A specific problem is the issue of foreign counterfeit drug making, and these foreign counterfeit drugs making their way into our 

marketplace, especially through the Internet. 

Such a case was brought to the attention of my office. A constituent was solicited by an on-line pharmacy based in Canada. My 

office performed an investigation and found the complaint to be 

true. 

In turn, my health staffer called the Food and Drug Administration to log the complaint and allow for some sort of response or recourse by the FDA. 

My office was told that the FDA would, quote, ‘‘handle it from 

here,’’ unquote, and told that it was a policy that such matters are 

handled internally and there would be no final report on the outcome of the investigation. 

In essence, we were told that, ‘‘Thank you for letting us know,’’ 

but that the FDA was unable to investigate and prosecute all illegal web sites, and that the outcome of any investigation you might 

conduct in response to our notification would not be made public. 

If the FDA expects not only to stop illegal drug trafficking but 

also to increase the public’s trust in the agency, wouldn’t you think 


wwoods2 on PROD1PC60 with HEARING
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that complete transparency is essential, and what is the practice 

of the FDA in this regard? 

Thank you, doctor. 

Dr. WOODCOCK. David? 

Mr. HOROWITZ. I don’t have anything specifically on the issue 

that you’re raising, but we, as you can imagine, receive a large 

number of complaints about spam e-mails and other complaints 

about Internet activity, and our jurisdiction, unfortunately, is very 

limited in terms of our ability to pursue some of the activity which 

occurs on foreign web sites and abroad. 

Mr. ROTHMAN. Well, we advised you that there was a specific 

company soliciting Americans to purchase counterfeit drugs from 

Canada, from this company in Canada, and when we advised you 

of the company and its name, I would think that that is no longer 

this amorphous entity that’s threatening Americans, this is a specific, named entity threatening Americans. 

Is it your testimony that the FDA has no jurisdiction in this regard or that you—— 

Mr. HOROWITZ. No, not at all. 

As you’ve described it, that would be something that we would 

follow up on and investigate, and I don’t have the specifics here, 

so I can’t tell you exactly what we did, but it would be our policy 

to look into that if we have jurisdiction, to follow up on reports of 

counterfeit drugs. 

Mr. ROTHMAN. And would it be your policy to respond to let’s say 

a Member of Congress who brought this to your attention, to advise 

this Member of Congress as to the results of your investigation? 

Mr. HOROWITZ. I think that would be my policy. 

Mr. ROTHMAN. Okay. Would you mind, for the record, so you can 

get back to me on this, look into that and find out if the staff person who spoke to our office misspoke that we were not going to receive any followup or advice as to what at results were received by 

the FDA in the event the FDA followed up on our call? 

Mr. HOROWITZ. We’ll follow up with you. Thank you. 

[The information follows:] 

In an effort to describe FDA’s actions in response to the concern raised by Rep. 

Rothman’s constituent about the on-line solicitation for drugs, FDA officials conducted a conference call with Rep. Rothman’s office on March 4, 2008. 

Mr. ROTHMAN. Thank you. 

Ms. DELAURO. Mr. Kingston. 

Mr. KINGSTON. Thank you. 

COUNTERFEIT DRUG WEB SITES

I want to kind of jump on that a little bit more in terms of the 

scope of the problem with web sites that may have counterfeit 

drugs. 

How big do you think that it is, and how do we best fight it, and 

do you do undercover purchases, do work with the IG’s office, do 

you do any kind of sting type operations? Because I think that is 

a, you know, a serious issue. 

Dr. WOODCOCK. Yes, I’ll refer this also to David Horowitz. 

Mr. HOROWITZ. Yeah, it’s a very serious issue. 


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Our Office of Criminal Investigations, a large percentage of the 

work they do relates directly or indirectly to counterfeit drugs coming from around the world. It’s a serious problem. 

There have been a large number of prosecutions and arrests. I believe in the last year there were $25,000,000 in fines related to 

this. 

Undercover buys are part of that program. Collaborating with 

foreign law enforcement around the world is also part of that program. 

DRUG ESTABLISHMENT DATABASE

Mr. KINGSTON. Now, you talked about, in your testimony, implementing an electronic system for accepting and processing drug establishment registration and listing, and is your goal to have a 

comprehensive accounting of domestic and foreign? 

Dr. WOODCOCK. Absolutely. 

The law requires all the facilities that produce drugs that would 

be in the United States to register and to list, and what we would 

like to go to is that we have a common, single inventory of firms, 

each with a unique identifier, so we know what the firm is, where 

it is, how much volume it’s importing, if it’s a foreign firm, and how 

recently it’s been inspected, and what the results of the inspection 

are, and to have that all in one database. 

Mr. KINGSTON. Do you have to have an international agreement? 

I mean, is that a State Department function, to do that? And 

how many countries are participating? 

Dr. WOODCOCK. The companies would have to then register and 

list to get their drugs imported into the United States, so they 

would be stopped unless they actually belonged to this. 

We check with that now. It’s just, as Mrs. DeLauro said, our systems are not linked, and so it is very difficult sometimes. 

REIMPORTATION OF DRUGS

Mr. KINGSTON. So an American company that did want to reimport could do this system, and that would give you an opportunity to monitor reimportation? 

Dr. WOODCOCK. Yes. We would have to have a pedigree of those 

drugs, though, to make sure they hadn’t magically turned into 

counterfeit drugs while they were off in some other country. 

Mr. KINGSTON. But there is the loop of custody that you can follow? 

Dr. WOODCOCK. We would have to do that. 

Mr. KINGSTON. Now, we know that American drug companies do 

not want to reimport, but the farce on Capitol Hill is that it’s a 

safety issue, and the real issue is a legitimate issue, is that the 

American drug companies actually produce and patent most of 

these drugs, and they need to recoup their costs, and in order to, 

you know, have more money for R&D, they have to have, you 

know, good cash coming in. 

I mean, there’s nothing wrong with that. It’s just that they won’t 

admit that that’s the real reason. 

But I’m hearing you say that the safety reason is taken care of 

now, largely. 

Dr. WOODCOCK. No, I’m saying—— 


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Mr. KINGSTON. The safety argument—I mean, I think we should 

just debate this issue, in truth, in reality, and I do not begrudge 

the drug companies as a private industry to protect their research 

and development. 

Dr. WOODCOCK. I am saying that if we had Mrs. Emerson’s ideal 

system up and in place, then we could much better assure anything 

that was imported, what it was, and the quality of its manufacture. 

However, for reimported drugs, we would still have to look at a 

pedigree or tracing the path of those drugs. 

Ms. EMERSON. Excuse me. Just let me interrupt for a second. 

You do that now for all, you know, the bulk ingredients, as well 

as the finished product, right? 

Dr. WOODCOCK. Yes. We check imports as they come in, to make 

sure that they are allowed into the United States. 

Mr. KINGSTON. How many countries are in there? 

Dr. WOODCOCK. Do you know how many countries? I remember—— 

Mr. KINGSTON. Would it be over 10, less than—— 

Dr. WOODCOCK. Oh, yes, many more than 10, yes. All over the 

world. 

Mr. KINGSTON. 129? 

Well, I know you don’t set policy on this. I’m just appreciating 

your perspective on it. 

Okay. I’ll yield back. 

Ms. DELAURO. Mr. Farr. 

Mr. FARR. Thank you. 

INSPECTORS

You responded to Mrs. Emerson and to Ms. DeLauro’s 

prioritization that you would hire more, number one, you’d hire 

more inspectors. How many? 

Dr. WOODCOCK. Well, I also responded I didn’t know how many, 

but it would be a substantial number. 

Right now, we’ve all agreed that we are inspecting approximately 

10 percent of the foreign inventory, as far as we can tell, yearly. 

Mr. FARR. But how can you make a priority that you would need 

more inspectors without even knowing how many? 

Dr. WOODCOCK. We could certainly do the analysis, look at the 

target, how many firms we want to inspect every year, what would 

be the appropriate number, and then we could certainly calculate 

the number of people needed. 

Mr. FARR. Why would you have to do that analysis, after you’ve 

already determined that you need more? 

Dr. WOODCOCK. Well, you asked me exactly how many more. 

Mr. FARR. Yeah. Well, that was your response, was that this is 

our first, highest priority. 

I mean, this is the appropriations committee. We deal with 

money in this committee. And that’s the issue, is how much, how 

much will it cost. 

And if this is a priority, it’s essential for the credibility of the department, and it’s your highest priority, there ought to be an ask 

here, a specific ask. 

Dr. WOODCOCK. We are certainly capable of getting—doing the 

calculation, but not in my head right now. 


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Mr. FARR. I would think you would do that before you’d come 

here and make that announcement. 

Mr. ROTHMAN. Will the gentleman yield for a moment? 

Ms. DELAURO. Can I, just I think one important issue, if the gentleman would yield. 

INSPECTION OF FOREIGN FIRMS

I think it’s important to know that there is no statutory requirements for FDA to inspect foreign firms. 

Dr. WOODCOCK. That’s correct. 

Ms. DELAURO. In fact, the FDA says that it inspects foreign 

firms, and I quote, ‘‘at the request of foreign drug manufacturers.’’ 

So this notion of inspection and additional people, there’s really 

some fundamental gaps here in how you get to what you have and 

what you need to expect. 

Since October 1999, 59 percent of all foreign human drug firms 

in FDA’s inventory, of inspected foreign drug firms, have been inspected only once. 

About 63 percent of all foreign generic manufacturers were never 

inspected even once. 

But we have no statutory requirement—— 

Mr. FARR. Ma’am—— 

Mr. ROTHMAN. Mr. Farr, would you yield? 

Mr. FARR [continuing]. It’s so shocking that if you would make 

a—we know these gaps, and you pointed out it’s your number one 

priority, but we have no idea what the number is. 

Yes. 

Mr. ROTHMAN. I thank the gentleman for yielding. 

Dr. Woodcock, the point I was trying to get at earlier, and Congressman Farr is elaborating on it as well, is a request was made 

to have an increase in investigators. 

Presumably, there was some rationale given to the administration as to why you needed more investigators. 

Presumably, you said how many you needed, and why you needed them, and what they were going to do if you got them. 

So I find it puzzling that you don’t have that information now, 

or it appears that you need to generate this data de novo, brand 

new. 

Is it that you’re just not aware of what was in the rationalization 

in the budget request that you folks made, that your predecessor 

made, or they never explained why they needed more or how many 

they needed? 

CLINICAL TRIALS, DATABASE

Dr. WOODCOCK. It’s that we have a broad number of needs. 

The need I was just talking about was for inspectors, investigators who look at establishments. 

We also inspect 1 percent of clinical trials, as far as we can tell, 

and we also do not have a database, as you pointed out, for clinical 

trials. 

We also have other needs in other areas, as has been alluded 

to—— 

Mr. FARR. The second question is along the lines of the first one, 

because it’s just your priorities, because you said that number one 


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was to hire more inspectors, and number two was to implement 

plans to modernize and integrate databases. 

How much money do you need for that? 

Dr. WOODCOCK. Again, that would be a substantial amount of 

money. It depends on what databases you’re talking about. 

Mr. FARR. Well, I don’t know what substantial is. We deal with 

billions. 

Dr. WOODCOCK. Well, good. I’ll take it. 

[Laughter.] 

Dr. WOODCOCK. Well, no, the drug program budget is 500 and 

some millions of dollars each year, much of which goes to personnel. 

Mr. FARR. You’ve talked about database integration, and we get 

that all the time—— 

Dr. WOODCOCK. Yes. 

Mr. FARR [continuing]. With the USDA, and we know the Federal Government runs on databases. 

Dr. WOODCOCK. Right. 

Mr. FARR. And you said this was a number one request, to get 

these databases modernized, and as I’ve heard in other testimony, 

integrated with other agencies and departments so that you could 

effectively do these inspections and cover data. 

Dr. WOODCOCK. That’s correct. That was—— 

Mr. FARR. You have no figure as to how much that’s going to 

cost? 

Dr. WOODCOCK. We could easily come up with a figure. What I 

was trying to say, in response to the other question, was we have 

over the years, we have not gotten substantial increases, if you look 

over two decades, we have not. 

Ms. DELAURO. I’ve suggested that it is not this notion that this 

has been an unresponsive body to your needs. 

I don’t believe you’ve calculated what your needs are and addressed them in terms of priorities and made the request, maybe 

not you, whoever was directing the agency, and in addition, the administrations, and I’ll say administrations. 

Most recently, we have seen pretty much the collapse of an agency that had truly the gold standard in the United States. 

It’s $2.3 billion from 2001 to 2008, the amount of money that 

you’ve received. What do we have to show for it? 

Mr. FARR. Madam Chair, I’m not going to go further, because it’s 

very painful not to get these answers. 

Those are the kinds of things that, if it’s broken, our job is to fix 

it, and we can debate on what a priority is to fix it, but this is— 

we need this data. 

Dr. WOODCOCK. Well, may I just respond a little bit? 

Mr. FARR. Hopefully, you have been, but it hasn’t given me any 

confidence. 

Dr. WOODCOCK. I understand. 

Mrs. Emerson’s question was simply about the drug quality piece 

of this, the drug registration listing imports and inspections and so 

forth. That relates to maintaining drug quality. That’s one piece. 

That is not the entire list of additional things that need to be 

done. 

Mr. FARR. Is it still your number one priority? 


wwoods2 on PROD1PC60 with HEARING
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Dr. WOODCOCK. I’d say that is a number one priority over all the 

different needs that we have, but there are other important—— 

Mr. FARR. Are you changing number two priority? 

Dr. WOODCOCK. What do you mean, changing? 

Mr. FARR. Well, if you just responded to a specific, as you interpret it to be, from Mrs. Emerson—— 

Dr. WOODCOCK. Yes. 

Mr. FARR [continuing]. Now, you just stated that there’s other 

issues. 

Dr. WOODCOCK. There are. 

Mr. FARR. Is number two the database or is it now something 

else? 

INSPECTORS

Dr. WOODCOCK. Well, if you recall, I said we had two number one 

priorities, so if you want the number two or number three priority, 

it would probably relate to more inspectors to monitor the clinical 

trials, to go out and inspect clinical trials, both in the United 

States, and increasingly, is growing in Europe. 

Mr. FARR. So the more inspectors—all I wrote down was more inspectors, because you didn’t specifically say for what. 

So now we need two types of more inspectors? 

Dr. WOODCOCK. Correct, but one is called—inspectors, they look 

at the clinical trials. Another kind is the one that looks at the manufacturing quality. 

Mr. FARR. Well, your answer to us when you come back is the 

total number of inspectors you’re going to need for your number 

one, two, three priorities. All right. Thank you. 

Ms. DELAURO. Ms. Emerson. 

Ms. EMERSON. Thank you. Thank you. 

Let me—this is really a process question. 

Well, no. Actually, let me ask something. I’ll just follow up with 

what Mr. Farr was saying. 

DATABASE COST

Have you all, as a team at FDA, looked at, or at least with regard to your database, have you actually talked about what this 

would look like and have you gotten any bids, or have you even 

gotten that far to get any bids, on how much it would cost you? 

Do we have to do a study to determine what kind of a database 

we want? 

Dr. WOODCOCK. We have done extensive work on this. 

Ms. EMERSON. Like what, specifically? Tell us. 

Dr. WOODCOCK. What the design of the database is. We’re ready 

to move this summer to electronic registration and listing. 

We’ve been developing the application, the computer application 

under a CRADA, a cooperative research and development agreement. 

So that we will be, thanks to the FDA Amendments Act, that 

mandates electronic activities in that regard, will be able to open 

the doors this summer, start populating the database. However, we 

will need to then link it to the field. 

We also want it to become part of the entire FDA registration 

and listing systems, and that would require integration. 


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We’ve looked at that. We have the project scoped out. So that 

we’re not just registering drugs here and foods here and veterinary 

drugs over there, but they would all be in a single FDA application. 

So we have gone through and mapped out a plan about how to 

do this. 

Ms. EMERSON. But the reason that you can’t tell us how much 

it is is because it really would depend on the entire FDA system, 

which makes it a whole lot more expensive than just the piece that 

you’re doing, in order to make it link and talk and everybody be 

able to access that information, correct? 

Dr. WOODCOCK. That’s correct. 

Ms. EMERSON. Has the big FDA in general been helping, and are 

they interested in doing that, as well, with you all? 

Dr. WOODCOCK. Yes. Well, I was actually speaking as deputy 

commissioner. This is something I did over the last couple years. 

I got the bioinformatics board together. I got the different centers 

all to work together to make a plan to have single databases for 

registration and listing, and for adverse event reporting. 

We would like to build a portal so that every—anybody, any consumer, anyone could log on and report a problem or adverse event 

to FDA from a single FDA web site, and so forth. 

Ms. EMERSON. Okay. So the next step in the process to make this 

a reality is to determine how much it’s going to cost. 

Do you go out and ask IBM or some you know, IT companies to 

come in and bid on it? 

I mean, I’m serious. I don’t have a clue what happens next. 

Dr. WOODCOCK. Yes. There are project plans in place to get these 

things done, and we have to go through contracting. 

We also have to get a final regulation out on drug registration 

and listing. 

Why do we need to do that? We need to modify the NDC number. 

Are you familiar with that? 

That’s the number that’s used for billing. It describes each drug, 

each dosage from under this code. 

We have to change that in order to get rid of all the volunteers, 

okay, who put things that aren’t drugs into this database. Okay. 

We have devices in there, we have unapproved drugs. They give 

themselves NDC numbers. 

So we have to—and we have to do that by regulation, because 

there was already a regulation in place that said how you had to 

do it, by paper. 

So those things are in process. We will get them done. We will 

be able to fund them this year with the monies that have been 

made available. 

Ms. EMERSON. So I guess the bottom line is, at some point in 

time in the next month or two months, would you be able to tell 

us how much it would cost to do an integrated system that would 

at least satisfy your number one priority? 

Dr. WOODCOCK. Yes. 

Ms. EMERSON. At least tell us how much it’s—— 

Dr. WOODCOCK. I believe, yes, we can do that. 

Ms. EMERSON. And give us a business plan? 

Dr. WOODCOCK. Yes. 

Ms. EMERSON. Okay. 


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[The information follows:] 

FDA is preparing a document that describes its business plan for an electronic 

registration and listing system. Consistent with the request made by Rep. Emerson 

during the hearing, FDA will submit a document to the subcommittee in 30 to 60 

days. 

Now, my next question has to do, back on the reimported drugs 

issue, you know, and this whole issue of web sites and not knowing 

whether or not we’re dealing with counterfeit drugs or real drugs? 

And I’m not talking about a web site from a Canadian pharmacy. 

I’m actually talking about every single thing that goes into my 

junk mail, for example, that says, get, you know, Viagra, which I 

obviously don’t need. You know, those sorts of things, but for a 

much cheaper price. 

Do you—how do you oversee this, or can you, can you oversee all 

of those web sites that, in fact, promote cheaper drugs? 

Dr. WOODCOCK. We’ve been struggling with this for years, because you can set up a web site easily, and you can come and go 

if somebody comes after you. 

I think, David, you can talk about this more. You’ve been spearheading some of those programs. 

Mr. HOROWITZ. It’s very difficult. 

The web sites are foreign. If you send them a letter, if they even 

have an address, a hard address, or you can send them an e-mail, 

a cyber letter we call it. They can change names and set up somewhere else. 

What we’ve tried to do is collaborate with the Federal Trade 

Commission and other regulatory agencies, including foreign law 

enforcement, and to try to find the areas where they’re the greatest 

concern and to try to target those. 

But our resources are so limited, that we have to pick and 

choose—— 

Ms. EMERSON. So why do you think—Madam Chairman, I know 

my time is up, but let me just pursue this just for a second. 

Can you—why do you think there are so many web sites cropping 

up trying to sell people drugs cheaper? Why do they exist? Why are 

they coming into—why are we having new ones every day? 

Mr. HOROWITZ. I’ll ask Dr. Woodcock if she knows the—— 

Dr. WOODCOCK. Well, first of all, some drugs aren’t affordable for 

some of our population. 

Second of all, as I learned from an attorney general once, a state 

attorney general, the criminals are always one step ahead of us, is 

what she said, and I think that’s true. That’s a problem. 

And people, health fraud, there are people out there all around 

the world now, can reach our population and defraud them over the 

Internet. 

Ms. EMERSON. So it seems to me that if in fact we’re able to get 

this database fixed the way you really want it fixed, and you can 

maintain chain of custody, et cetera, et cetera, then it seems to me 

that if we have a legal type of reimportation program or parallel 

trading, as they do in the EU, then at least you would have the 

capability, which might drive prices down, and therefore we 

wouldn’t have as many web sites cropping up where people are trying to sell drugs on the black market and make a fast buck, but 

also people who are desperate, you know, think they can afford it. 


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I’m just—so, I mean, that’s my point. I’m just thinking that, 

Madam Chairman, the more that we are able to do to help them 

control the drug flow in and out and know what’s going on, the 

more opportunity we have to try new systems to bring the drug 

prices down and obliterate these web sites. 

Thank you. 

Ms. DELAURO. Thank you. 

DOWNGRADING ENFORCEMENT ACTION RECOMMENDATIONS

Let me just see if I can get a couple of questions in. 

This is a document, as I understand it, it’s the establishment inspector report, which is something that comes out from the agency. 

It’s an FDA chart. 

And what was difficult, in looking at this, when the violation 

falls into the highest category, which is official action indicated, 

which is this graph here, the need for immediate enforcement action, it would appear, is the highest. 

It was disturbing to learn, this is 2004, that the CDER headquarters overruled almost all of the district recommendations for 

OAI classifications for foreign human drug facilities. Headquarters 

believed that only voluntary action was needed. 

And according to the GAO report, this pattern was also evident 

in 1996 and in 1997. 

And this was on your watch, Dr. Woodcock. 

Why are we downgrading the recommendations from inspectors 

on this? Because this then winds up in the voluntary category. 

Can you give me an answer to that, where you’ve got these recommendations for official action, enforcement action? 

Dr. WOODCOCK. Yes. We’ve looked at this very carefully, because 

we’ve been trying to put together a quality system for our 

inspectional program. 

And certainly where you have that amount of disagreement or 

whatever you might call it, between the investigator who goes out, 

the district recommendations, they’re basically recommendations, 

that then are sent to headquarters, and then headquarters has a 

different opinion, then there’s some misunderstandings about what 

the policies are amongst these different parties. 

And so we look at these and decide what their level of importance is, whether they’re legally supported, which is something we 

have to do, and so forth and so on, and make a final determination. 

That is the role of our office of compliance. 

I have a note here from the head of our office of compliance, 

Deborah Otter, who says most of these that are overruled are the 

BIMO inspections, the inspections—— 

Ms. DELAURO. Pardon? 

CLINICAL TRIAL INSPECTION TRAINING

Dr. WOODCOCK. The BIMO inspections, the inspections of clinical 

trials. 

However, I agree with you that this is a sign that we’re not all 

on the same page about what the policy is. 

Now, we’ve had trouble, especially in BIMO, getting the inspectors in, getting them all trained, getting us all on the same page 


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about what is a violation, what isn’t a violation, and how we should 

manage this program. 

Ms. DELAURO. Is there any number about upgrading? In other 

words, upgrading the—how often do we upgrade these inspectors’ 

recommendations? 

Dr. WOODCOCK. You mean make them more stringent? We certainly do that. 

We have done that recently in some cases. In some cases, we’ve 

actually taken regulatory actions. 

We, over the last years, we’ve been training our GMP inspectors 

into what’s called the pharmaceutical inspectorate, and that’s a 

program where they get very advanced training, they come into the 

center, they meet with our reviewers, they learn everything. This 

has been extremely positive. 

I would like to expand this to the BIMO inspector program as 

well, so that we can all get on the same page. 

Ms. DELAURO. Okay. I appreciate that, and it just seems odd 

that, once again, we are in the voluntary mode of doing what people have to do versus official enforcement action. 

And I don’t have to regale this. I mean, I think we all know this 

always revolves around moving to voluntary guidelines, voluntary 

actions, and not any kind of enforcement action until, my God, we 

absolutely have to, and, you know, there is no recourse. 

This was a comment that I think I made, a question that I 

asked. 

Depending on the nature of the violations found during an inspection, it is FDA’s practice to give individuals and firms an opportunity to take voluntary and prompt corrective action. 

And as I understand it, FDA does not generally go back to inspect to see whether the changes were made until the company 

tells FDA it is ready for reinspection. 

Again, one more time, where we are totally in the hands of the 

industry. 

And I applaud you wanting to move on this, but we unfortunately have a base of information that tells us that our priorities 

and our focus are less on what’s good for the public health versus 

what is good ultimately for the industry. 

Let me move to a question on the domestic drug inspections, 

which resolves from what I was asking about here. 

I’m going to be very quick about this. 

This is with regard to the company that makes 65 percent of all 

generic, over the counter generic drugs in 2006. 

FDA said the plant had been inspected seven times in five years 

as recently as March 2006. These folks recalled 11,000,000 bottles 

of, I’m sure I don’t have it pronounced right, acetaminophen, because metal particles were found in some of the caplets. 

GLAXOSMITHKLINE MANUFACTURING VIOLATIONS

In 2005, FDA had to have U.S. Marshals seize Paxil CR and 

Avandamint tablets at two Glaxo Smith Kline facilities because of 

severe manufacturing problems. 

There were inspections back to 2001, 2002, warning letters sent 

2002. FDA had additional inspections in November, December 

2002, again in September, November 


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Glaxo Smith Kline is not a mom and pop operation. We keep 

going back and inspecting and inspecting. In 2002, there were various violations. 

Thirteen inspections at four New Jersey and Puerto Rico facilities since 1998, where we found significant violations of the CG&P 

regulations related to the facilities. 

U.S. Marshals last year seized hundreds of thousands of dollars 

worth of drugs and dietary supplements. FDA issued a warning letter to the company in 1999 about serious drugs, and yet, seven 

years went before we did nothing, FDA did nothing between 1999 

and 2007. 

Again, a plant with generic drugs, nine inspections in two years, 

a dozen recalls. FDA warning letters. Consent decree entered into 

in 1998 about manufacturing standards, warning letters 2002, 

2004. 

And again, we got a president and CEO pled guilty to 19 counts 

of distributing adulterated drugs. The new CEO in 2008 got a 

warning letter for multiple serious manufacturing violations. 

There are lots of other examples. 

We talk about inspections. We’re going back and back and back 

to places again. We’re talking Glaxo Smith Kline, Shearing Plough. 

This is not some mom and pop operation someplace. 

And it’s—do we have the inspectors overridden in these cases? 

Did we fail to have inspections? We didn’t fail to have inspection. 

Why don’t we take decisive action at the time when these events 

occur the first time around, which would clearly free up money for 

inspections in this area and a variety of other areas. 

Dr. WOODCOCK. David, do you have any comments on this? 

Mr. HOROWITZ. I appreciate the need for a strong enforcement 

program, and to do it sooner rather than later is always better, and 

it’s more efficient, and if we can nip it in the bud, I completely 

agree we need to do that. 

We do get a lot of compliance by pointing out problems that were 

not otherwise known to the firm. 

That’s why we do inspections, in part, is to find problems and 

make firms fix them, and in the majority of cases, we are able to 

obtain the corrective action we need by pointing them out, through 

advisory actions, through inspections, and sometimes through letters that point out that this has to be taken care of. 

When that’s not done, we have to take other actions. Those are 

costly and take resources, of not just the FDA, but the Department 

of Justice, to bring judicial enforcement actions. 

Ms. DELAURO. David, with all due respect, with all due respect, 

I don’t make up these issues. We’re talking seven inspections, 

seven years. 

I mean, this is—there appears to be, as I said, no interest in taking authority and enforcing it, and in addition to which, getting 

new authorities, lest you might be forced to use it. 

That is unacceptable, when we’re dealing with—you deal with 

life and death, and I think you know that as well as I do. We’re 

dealing with life and death with some of these instances. 

A letter is nice. Corrective action is great, and if it’s done, boom, 

that’s finished, that’s off the table. Seven years. Nine inspections. 

I don’t want to go back through all this. 


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I mean, I think that that rises to negligence of an enormous proportion. 

I thank you for your comment, but I really do believe that’s serious negligence on behalf of the agency. 

Mr. Kingston. 

Mr. KINGSTON. Thank you. 

REDUCTION IN WARNING LETTERS

Why have the number of warning letters gone down so much, according to your web site? 

Dr. WOODCOCK. A policy decision was made to have more legal 

sustainability or support to the warning letters that were issued by 

the agency. I think that was—do you know when that— 

Mr. KINGSTON. Is it a good thing, or—you know, I mean, you’re 

going to be charged that this shows that you’re being lax on enforcement. 

And what I want to hear you say is no, this is a good thing, and 

here’s why. 

Dr. WOODCOCK. David. 

Mr. HOROWITZ. Well, I think it’s actually a complex phenomenon, 

and I and many others in the agency have concerns about the decrease in those numbers, because it’s important that we maintain 

a credible turn, and that there is action that is taken promptly 

when there is not corrective action by the firm. 

But there are a number of explanations for this. 

One of them is that the compliance rate has improved in recent 

years, and so it’s not surprising that, given that there is a smaller 

number of inspections classified as OAI, ultimately, that that 

would result in a smaller number of warning letters. But I do not 

believe this is the entire story. 

I also think part of the story has to include resources. It’s not 

the entire story, but it is part of the story here. 

The field’s resources declined significantly between 2003 and 

2006, and that had an impact on a variety of different activities the 

field engages in. 

Mr. KINGSTON. David, I don’t want to interrupt you, but are you 

aware that the FDA commissioner refused to testify before this 

committee in 2006 until we zeroed out the funding on a bipartisan 

basis, and in fact, the chair, who was ranking at the time, offered 

the amendment to zero out the funding. 

And I just want that to be—you know, I think that’s relevant to 

the record. The only way we could get the commissioner to testify 

before this hearing was to zero out FDA funding, and when we did 

have the hearing, and Rosie, I don’t remember the date, it seemed 

like it was, you know, maybe August or—— 

Ms. DELAURO. July or August. 

Mr. KINGSTON. Yeah. It was later on. 

So, you know, that was in 2006, and that’s something to—you 

know, how let me say this. I’m pro FDA. I’m not here to—you 

know, I don’t think there is a drug crisis, a safety crisis in America. 

Frankly, what I want to hear you do is do a little more chest 

pounding and say, you know, ‘‘You guys are crazy. Let me give you 

the statistics.’’ 


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And I guess with that, let me kind of throw the volley to you. 

That’s what I want to hear. 

I mean, if I have constituents and consumer groups telling me 

that there’s a drug safety crisis in America and the FDA is spread 

too thin, negligent, lax on enforcement, in bed with the pharmaceutical, I want to hear you tell me why that is absolutely positively without question wrong. 

INDUSTRY INFLUENCE ON FDA

Dr. WOODCOCK. It is absolutely not the case that FDA is excessively influenced by industry in its judgments about drugs. 

Our staff has an adversarial relationship with industry, and they 

always have. It goes up and down, over the years. It’s probably in 

an up phase right now. 

We have approved multiple drugs over the past 10 years that 

have provided health advances for millions of Americans. We are 

seeing now more drug safety problems, and you can ask why. 

The reason we are is that we can find them better. The science 

has advanced. The drug development programs and post-marketing 

programs that occurred 20 years ago have no resemblance to what 

we do now. 

And so we are much smarter, we’re much more able to detect 

these problems, and we have developed a policy of early warning. 

So we’re telling everyone about them when we find them. 

So the problems are discovered. If you look, you find things. 

When we find them, we get them out, so that the doctors and the 

patients are aware. 

But that doesn’t mean that the benefits to patients of the drug 

supply in the United States have diminished. They have increased. 

Mr. KINGSTON. I will yield back, but Dr. Woodcock, you’ve done 

a good job, and David, you always do, and I just want to say 

thanks. 

But, you know, what we are up against I think is an image of 

America right now of incompetence right now. 

You know, were there weapons of mass destruction? There was 

bipartisan, it was agreed that there were. And yet it was a colossal 

intelligence failure. You know, if there were, we couldn’t find them. 

We’ve spent I think $120,000,000,000 in the Gulf, and maybe the 

face of the storm is 35,000 mobile homes dripping with formaldehyde or emitting formaldehyde or whatever. 

And so there is this competency thing. And what I would love to 

hear more from the FDA on is, you know, ‘‘We’re doing a doggone 

good job, and here’s why.’’ 

Now, I’ll tell you, my brother-in-law is a physician, and he deals 

with lots of senior citizens. He is the biggest pro-FDA guy. 

And he’s, you know, on the road, he’s very, very non-political, but 

he tells me that your balance between scrutiny and approval is 

about where it needs to be. 

And this is a guy who has, to me, a lot of influence, because he 

has no political agenda. 

You can always find somebody who says you’re approving too 

fast, and somebody who says you’re approving too slow. 

So, you know, I guess what I’d like to see you do more of is just 

sort of talk about some of the successes, because right now, there’s 


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a lot of criticism out there, and we as members of the, you know, 

elected public, or representatives of the public, we’re going to—you 

know, we’ve got to be very careful to make sure that the job is 

being done with competency. 

Dr. WOODCOCK. Well, I thank you, and I think there is a great 

story to be told, despite all the issues that have been raised, that 

we really have a very strong program. We are the gold standard, 

still, in the world. 

People around the world look to the FDA and the FDA drug program as where they want to be with their drug review programs, 

and we are continuing on that trajectory. 

Mr. KINGSTON. Thank you. 

Ms. DELAURO. There are going to be a couple of votes, and we 

do have a second panel. 

Mr. ROTHMAN. Thank you, Madam Chairman. Dr. Woodcock, I 

agree with my colleague from Georgia, and I think every one of us 

here appreciates the enormity of the tasks and challenges before 

you and your colleagues at the FDA. We depend on you. We, as the 

chairwoman has said, we want to do everything in our power to 

provide you the resources and the tools to accomplish the very difficult tasks that you have to perform. You have witnessed this frustration at our inability to find out how we can best give you the 

resources that you need and encourage those in the administration 

to allow you to come to us with the information that we require to 

responsibly address our job, which is to be stewards of the public 

money as we give you what you need to do the work that serves 

our constituents. My question has to do with the morale at the 

Center for Drug Evaluation and Research amongst the employees. 

How would you describe the morale today? 

EMPLOYEE MORALE

Ms. WOODCOCK. Well, we have recently done a comprehensive 

survey. We hired professional contractors. They did an anonymous 

survey of the staff as to the culture of FDA, and this was a professionally done survey, we had nothing to do with it, the management, except that we received the results, and we looked at what 

people think. I would say morale is fair, not terrible, it is not great. 

The amount of ad hominem attacks that the members of my staff 

have undergone over the past several years has caused some of our 

best scientists to leave the agency, and it has really diminished 

people’s ability to feel comfortable doing their jobs. 

Mr. ROTHMAN. Madam Chairman and doctor, you are quoted as 

saying that the reason for low morale was the user-fee mandated 

schedules, again this is from, to be fair, apparently in an article 

you wrote in September/October 2000, it is now 2008, do you still 

attribute some of this low morale to the PDUFA Act, is the PDUFA 

Act therefore counterproductive? 

Ms. WOODCOCK. I would say that the workload installed by this 

Act has over time been a negative impact on morale. Currently, the 

Center is 550 people under the ceiling that was established by the 

increased resources that were provided this year. They were 150 

people under the 2007 ceiling, and now we have received additional 

resources. If we can get that staff on board and trained, I think 

people are going to feel a lot better about the workload part of this. 


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But we are an agency under assault, and it is going to be difficult 

for us if this continues to attract the world-class scientists that we 

need. 

Ms. DELAURO. I thank the gentleman. I understand what you are 

saying, Dr. Woodcock, but I think that several of your people have 

come under ad hominem attacks from the agency itself, that forced 

them to leave after having given opinions and given what may 

have seemed to be advisory opinions that someone somewhere at 

the top of the heap did not like, and they have been told they 

would be ‘‘traded from the team,’’ and that is a quote. Mrs. Emerson? 

FDA MEDICATION GUIDE

Mrs. EMERSON. Thank you all again so much for being here 

today, and we just want to help, so please know that. I have two 

questions I want to make for the record if you all could get back 

to me in the next week with answers, I would be grateful to you. 

The first one has to do with the FDA medication guide program, 

those leaflets that you all require when we go get medication. I just 

would like to know what the status of the Agency’s reformed that 

medication guide or program, I think we asked you all to give us 

several steps last year to make it more effective for patients and 

more efficient for our pharmacists to obtain. You do not have to answer these now. 

Ms. WOODCOCK. Well, we have had a public meeting on this, and 

we are moving on this, so we will be happy to get back to you. 

[The information follows:] 

FDA is examining its internal process to promote consistency in the selection, content, and format needs of medication guides. FDA is also implementing an enforcement strategy to ensure that sponsors are meeting their statutory obligations. In 

addition, FDA is exploring the means to improve electronic access to Medication 

Guides. 

FDA plans to collaborate with pharmacy groups, including the National Boards 

of Pharmacy, to ensure that practicing pharmacists understand their responsibilities 

and the requirements for distributing medication guides. 

Furthermore, under the Food and Drug Administration Amendments Act 

(FDAAA) most MedGuides will now be approved as part of Risk Evaluation and 

Mitigation Strategies (REMS). FDAAA includes enforcement provisions, including 

misbranding charges and civil money penalties, for failing to comply with the REMS 

provisions. FDAAA also requires FDA to provide postmarket drug safety information on a website, including a link to a list of all drugs with MedGuides, and to post 

approved professional labeling and required patient labeling. 

CITIZEN PETITIONS-GENERIC DRUGS

Mrs. EMERSON. Okay, so hopefully in the next week. And then 

also, my last question has to do with the whole issue of citizen petitions with regard to generic drugs. I know that back in September 

the President signed the Food and Drug Administration Amendments Act, and we had a provision in there to deter the filing of 

the frivolous citizen petition. 

Ms. WOODCOCK. Right. 

Mrs. EMERSON. I just wanted to know where you all are in that 

process and why these delaying citizen petitions continue to hold 

generics off the market, and you can get back to me on that. 

Ms. WOODCOCK. The lawyers tell me it is a very challenging provision, so we will be happy to get back to you. 


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[The information follows:] 

FDA is making every effort to comply with Section 914, which added new section 

505(q) to the Federal Food, Drug, and Cosmetic Act. This provision of FDAAA took 

effect upon enactment. Therefore, FDA is in the process of interpreting the new provision and developing implementing procedures while simultaneously addressing citizen petitions and petitions for stay that are subject to the new requirements. FDA 

has received at least 13 petitions subject to section 505(q). 

FDA has taken a number of steps to implement this new statutory mandate. We 

have established a working group that includes members of several offices within 

the Center for Drug Evaluation and Research and the Office of Chief Counsel to address questions about interpretation of the statute, as well as new implementation 

procedures. FDA has had to make determinations relating to the certification requirements, scope, and whether particular petitions should delay the approval of a 

generic drug application. The first two petitions subject to section 505(q) were submitted on October 15, 2007. We issued our response to those petitions on March 24, 

2008, within the required 180-day timeframe. We are working on responses to all 

the pending petitions that are subject to section 505(q). We note that although this 

provision may have been designed to limit the delay of drug approvals because of 

petitions submitted on behalf of innovator drug companies, almost half of the 505(q) 

petitions we have received were filed by or on behalf of generic drug manufacturers 

seeking to block or delay approval of other generic drugs. 

We believe that it is too soon to evaluate the effects of the new provisions on the 

citizen petition process. We note that section 914 requires us to submit a report to 

Congress annually on the numbers of covered petitions and applications affected by 

those petitions, and we will submit that report after our first year’s experience with 

implementing the law. 

Mrs. EMERSON. Thank you so much. 

RISK-BASED INSPECTIONS

Ms. DELAURO. I just have an expanded question for the record, 

but let me just mention that there has been a mention of riskbased inspections and that you are moving forward with plans to 

deal with risk-based inspections of drug manufacturers. And, as I 

have said to FSIS on the USDA side, I have no problem with riskbased inspections but risk-based inspection is only as strong as its 

scientific base. I must tell you, and I will submit the question to 

you, I was concerned when I did see the science report that called 

into question the agency’s basic capacity in risk assessment and 

analysis, and it said there is insufficient capacity in modeling risk 

assessment and analysis. So I believe we ought to be cautious in 

moving in that direction without establishing the kind of risk-based 

analysis that we need. 

The final question is again the Institute of Medicine, there was 

a report in 2006 that said there were problems with cultured FDA 

complex relationships between pre-approval group and the Office of 

New Drugs and the Office of Surveillance Epidemiology. Also, I 

guess in page eight or nine of your testimony, Dr. Woodcock, you 

say—and this is what is of concern to me, and this is Office of Drug 

Safety has become OSE, Office of Surveillance and Epidemiology, 

but you seem to be loading OSE up with tasks to relate less directly to the kind of work they have been doing on the safety profiles of drugs already on the market, such as the names of drugs 

and medication areas. And at the same time, you look as if you are 

loading up the Office of New Drugs with multiple people to take 

on a post-market safety in the very offices that have approved the 

drug for the market in the first place, and that seems to go back 

to what was said in 2006 in terms of the difficulties or the tension, 

if you will, between—this seems to be in opposite of what people 


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think is needed, which is a greater differentiation between premarket and post-market safety reviews. Could you just address 

that, please? 

OFFICE OF SURVEILLANCE AND EPIDEMIOLOGY

Ms. WOODCOCK. Certainly, yes. First of all, your first issue, no, 

the Office of Surveillance and Epidemiology, in its very incarnation, has already dealt with the name confusion, the trademark 

names, the medication errors and all these different issues, so that 

has been one of their responsibilities all along. We are going to try 

and beef up that function and clarify the roles and responsibilities 

and give them the lead. We are making agreements between OSE 

and OND and other offices within the Center for Drugs, so that everybody is clear about what their roles and responsibilities are. 

And these agreements have provisions that every office will have 

an equal voice in these decisions, their voice will be heard. OSE 

will take over, as it develops the capacity—— 

Ms. DELAURO. Could we get those agreements? 

Ms. WOODCOCK. Of course. 

[The information follows:] 

FDA is in the process of finalizing a Memorandum of Agreement (MOA) between 

CDER’s Office of New Drugs (OND), the Office of Pharmaceutical Science (OPS), 

and the Office of Surveillance and Epidemiology (OSE). This document outlines how 

OND, OPS and OSE will manage significant postmarketing safety issues associated 

with pending and approved human pharmaceuticals. Recognizing the expertise of 

OSE in observational epidemiologic studies, pharmacovigilance activities, pharmaceutical risk management plans, proprietary name review, and medication error prevention, as currently drafted, this agreement will designate OSE as the lead and 

primary decision-maker for certain regulatory actions in these areas. 

Ms. DELAURO. Thank you. 

Ms. WOODCOCK. I would stress that we are very close to signing 

it. OSE will take the lead on the pharmacology epidemiology studies, that is where their expertise lies. My goal, say if it is a clinical 

pharmacology problem, such as Warfarin, a drug safety problem, I 

want the clinical pharmacologist to have the lead voice, okay. I 

want the right lead voice in the center. If it is an epidemiologist, 

fine. If it is a medical specialist, fine. If it is a clinical pharmacologist with some of the problems we are having with Heparin, it 

is our lead chemist, that is the lead in trying to solve this problem. 

So my goal is not to say this office or that office, my goal is to get 

the right person and the right team on each problem. 

Ms. DELAURO. I understand that, but you do have an office that 

is set up specifically to deal with the post-market effects of this effort. If you have charged them with that duty, one would presume 

that you have the competence and the capability in that unit in 

order to be able to react and not have the fox in the chicken coop. 

I have to go to vote. I have about two minutes now to do that. 

I thank you very, very much and all the folks who have come from 

the FDA this morning. Contrary to what—I begin and end with 

this, more resources, better management, less influence of PhRMA 

and more influence for your scientists. That is where I come out 

of this and that is what my goal is about. Thank you. 

Ms. WOODCOCK. Thank you. 

Ms. DELAURO. And if we could ask our next panel to take their 

seats, we will be right back. 


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[Recess.] 

WEDNESDAY, FEBRUARY 27, 2008. 

CENTER FOR DRUG EVALUATION AND RESEARCH 

WITNESSES 

SIDNEY M. WOLFE, M.D., DIRECTOR, HEALTH RESEARCH GROUP OF 

PUBLIC CITIZEN 

JOHN H. POWERS, III, M.D., FACP FIDSA, ASSISTANT CLINICAL PROFESSOR OF MEDICINE, GEORGE WASHINGTON UNIVERSITY SCHOOL 

OF MEDICINE AND UNIVERSITY OF MARYLAND SCHOOL OF MEDICINE 

JOHN E. CALFEE, RESIDENT SCHOLAR, THE AMERICAN ENTERPRISE 

INSTITUTE 

Ms. DELAURO. The hearing will resume. Let me just thank the 

panel. I thank you for your patience. I know we said we were going 

to go to one o’clock but it is a little after 1:00 here. 

Dr. WOLFE. Pacific Time this morning. 

Ms. DELAURO. Right, okay, thank you. Let me make introductions, and then we will move forward. We are very, very pleased 

to have Dr. Sidney Wolfe. Dr. Wolfe is the founder and the director 

of the Health Research Group at Public Citizen. Dr. Wolfe is an expert on issues of drug safety, medical devices, health care policy 

and the Food and Drug Administration. His background includes 

conducting research at the National Institutes of Health, specializing in aspects of blood clotting and alcoholism and was the adjunct professor of internal medicine at Case Western Reserve University School of Medicine. 

Dr. John Powers currently is assistant clinical professor of medicine at the George Washington University School of Medicine and 

the University of Maryland School of Medicine. Prior to his current 

academic roles, Dr. Powers was the lead medical officer for the 

Antimicrobial Drug Development Resistance Initiative at the FDA. 

John Calfee, I am pleased to welcome, is a resident scholar with 

the American Enterprise Institute where he studies pharmaceuticals, the Food and Drug Administration health care policy, advertising, the tort liability system and tobacco. He is the author of 

Prices, Markets and the Pharmaceutical Revolution, and a book 

published this fall about biotechnology and the patent system. Mr. 

Calfee writes for AEI’s Health Policy Outlook series and has taught 

at the University of Maryland and Boston University School of 

Management. 

I might just say I know you all have many, many, many, many 

more credentials. I am sorry to be brief, but I want us to try to 

move along and be able to listen to you. And I would also ask you 

that if you could, obviously your entire testimony will be part of the 

record, and if you can summarize in this time, it would be helpful, 

and then we would move on. 

Thank you. Dr. Wolfe. 


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OPENING STATEMENT

Dr. WOLFE. Thank you for the opportunity to discuss what I 

think this morning confirmed is a dangerously deepening crisis at 

FDA, a crisis in management I think was illustrated this morning. 

Between when I left NIH in early 1972 to start the Health Research Group and now, about two-thirds of our work has focused 

on the FDA, particularly drugs. The situation of the FDA has never 

been worse than now in the 36-plus years, and this can be attributed to a confluence of three factors: First, terrible leadership at 

the FDA, including the Commissioner and most, not all, but most 

of the center directors; two, increasing reliance on industry to fund 

FDA activities with almost two-thirds of the drug approval budget, 

and as you heard this morning, over half of overall CDER budget 

coming out of the $400 million last year PDUFA allocation; third, 

relative to the 1970s and 1980s a perilously, and I emphasize perilously low level congressional oversight notwithstanding this hearing today and previous hearings by Congressman Durbin when he 

was the head of this committee. I was speaking to one of your staff 

people and pointing out that one Senate committee, the Senate 

Small Business Committee, had 135 days of FDA oversight hearings in a 10 year period in the 1970s and the 1980s. There is nothing remotely like that now. And, of course, this is the same Congress that has abdicated funding for the FDA to the industry. They 

were also abdicating too much of their oversight. There needs to be 

much more. 

So I will look at the CDER budget from funding of activities up 

through and then through approval and then post-approval. For 

the pre-approval budget and function, I do not think that the size 

of the budget is inadequate but the source is entirely wrong. The 

FDA’s public health mission is too important to be left to funding 

by the drug industry with all the concessions and negotiations that 

industry extracts for paying the majority of the bill for the FDA approval process. Instead, adequate funds need to be appropriated by 

the Congress as they were for the first 86 years of FDA’s existence, 

from 1960 to 1992, with structured regular mandatory oversight by 

appropriations and oversight committees. 

I do not have time to go through the details of these examples, 

which are serious pre-approval mistakes, each of them based on 

data available to the FDA before approval, the drugs got approved, 

and when enough additional people were killed or injured from the 

same kinds of problems that were elucidated before approval, the 

drugs came off the market. None of these were really breakthrough 

drugs, so if there was a safety question, the FDA should have, as 

they did 20 or 30 years ago, say, ‘‘Wait a minute, let’s answer this 

question before approval,’’ and not with never-to-be-done properly 

post-approval studies and with the whole population being exposed 

as guinea pigs to a drug with safety problems. 

Going to the third page of the testimony, because of a lot of these 

problems and a record number of drugs being approved in 1996 

and 1997, 91 drugs, about twice as many as normally approved in 

a two year period, we decided to see what the problem was by conducting a structured survey of FDA physicians, medical officers. 

And we did that in late 1998. We actually got a higher response 


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rate to that survey than FDA did in a subsequent survey they did 

for a slightly different reason. And I will just hit some of the highlights of the response from 53 physicians, who were primary reviewing medical officers. 

Nineteen of them identified 27 drugs in the past three years, 

which was 1995 to 1998, that they should not have been approved 

but were approved. A tiny number in comparison identified drugs 

that they thought should have been approved but were not, four or 

five drugs as opposed to 27. They felt the standards for safety and 

efficacy were getting lower. Twelve of them identified 25 new drugs 

that were approved too quickly, including a number of them winded up coming off the market. And 34 of them stated that the pressure to approve new drugs was somewhat greater or much greater 

compared with the earlier period, pre-PDUFA. 

Participated in part by Dr. Woodcock’s own concerns about 

PDUFA, the FDA did a survey to find out why everyone was leaving, why they were bailing out and leaving ship, and Dr. 

Woodcock’s I think now famous remark about what she felt the impact of PDUFA was that because of PDUFA, Woodcock, 2000, ‘‘The 

intense schedules,’’ these are free mandated approval schedules, 

‘‘create a sweatshop environment that is causing high staffing turnover.’’ If that does not tell you about the morale question. And 

when she was asked that this morning, she said, ‘‘Well, it is sort 

of fair,’’ and that is an outside one. So the second survey finding 

on this problem was the FDA’s own in 2001. 

A third of the people surveyed by the FDA felt their work had 

more impact on product labeling and marketability than it does on 

public health. A third felt that the decisions, such as holds or refusal to file actions and non-approvals are stigmatized by the agency, so the idea of ad hominem attacks, as you pointed out this 

morning, is coming more from the bosses in the agency than from 

someone else. 

If that were not enough, the inspector general in 2003 did a 

study looking at the same problem again at the FDA, 18 percent, 

almost one out of five, of FDA physicians surveyed felt pressure to 

recommend a drug be approved for sale despite the reservations 

about safety, efficacy or quality. Their conclusion five years ago 

was that these findings present a significant warning signal, Union 

of Concerned Scientists did a study a year and a half ago and then 

the one mentioned this morning also has really grim responses. 

She calls them ‘‘fair but not terrible,’’ but ‘‘fair’’ in the context of 

what was being talked about is pretty terrible. 

So that gets us to the post-approval part of the budget and FDA 

function. Post-approval safety review is so often, most of the drugs 

have been taken off the market, the removal was precipitated not 

by randomized trial as in Vioxx but by a number of adverse reaction reports that had no other explanation; the liver toxicity or 

whatever could not be explained by anything other than the drug. 

This practice does not work if the people who are raising these 

warning flags do not get paid attention to, and no amount of paper 

shuffling, safety first, to hear at 8:30 last night for the first time 

in 36 years that safety is first is an insult to start out with, and 

it is really a misrepresentation of what FDA’s priorities are. Approval first is certainly the real priority, and there are too many 


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current examples at the FDA where safety is not first. We have 

been trying to get the FDA to ban these so-called third generation 

oral contraceptives because the FDA missed they double the risk 

of blood clots. They are still on the market. Darvon, a drug that 

kills about 200 people a year because accidental deaths from its 

cardio toxicity is still on the market. So these sort of belie the idea 

that safety is first. 

Increased funding, especially with much of it coming from 

PDUFA and the absence of increased independence, and we are 

talking about drug safety post-approval, that would occur if the Office of Drug Safety were made independent of CDER, which is what 

we have recommended and others, Congress people, Senators 

Grassley and Dodd. So just more funding and paper shuffling is not 

likely to solve what is a dangerous imbalance of power between the 

post-market approval parts of the FDA and the review divisions. 

The funds must be directly appropriated from the government. 

A couple of examples of decreased enforcement, again post-market, we have regularly been monitoring FDA’s oversight over drug 

advertising, prescription drug advertising, and the chart we have 

is accounting one by one from the FDA’s website. And what it 

shows is that from a peak of 157 illegal drug ads that were stopped 

by the FDA in 1998, these are ads that overstating the benefits, 

understating the risks, 157 stopped in 1998, last year 20 stopped. 

This is an 87 percent decrease and it started during the Clinton 

Administration and it has sort of plateaued down below 30 for the 

last six years. This means that companies can design ads, put them 

out there, not infrequently overstate the benefits, understate the 

risks, mislead doctors and patients into using these drugs thinking 

that they are safe or more effective, and the companies do not have 

too much worry about these ads being stopped as they did at least 

10 years ago. 

The next chart I have in here is from FDA’s website again, it is 

overall warning letters from FDA to regulated companies, not just 

drugs, everything else, so in case someone thinks that things are 

only bad in the CDER, in the drug area, the chart shows a 53 percent decrease from the peak in 1997 of warning letters going out 

to companies down to 538 in the last year that we have data from, 

2006. 

Finally, or semi-finally, in the area of foreign drug inspections, 

as Dr. Woodcock admitted, for 10 years we have been finding out 

and knowing that there is a rocketing increase in manufacturing 

of drugs and ingredients in the foreign area. Why is it then that 

in the last five years, from fiscal 2002 to fiscal 2007, there has been 

a 25 percent overall decrease in the foreign inspection budget, not 

as great as the decrease in domestics but 25 percent. How many 

more of these drug disasters, whether it is coming from China or 

elsewhere, are we going to have to tolerate before the relatively 

small amounts of money compared with CDER’s budget, the FDA 

budget, are expended and then some to get way more foreign inspectors and domestic ones as well? 

And, finally, the last issue is China, more drug disasters waiting 

to happen. And this is extracted from GAO’s own analysis on foreign inspections. Basically, what it finds, again these are using 

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facturing things for the United States, the one with the largest 

number of establishments, 714. India was second at 410. But contrast India with China, India’s 410 establishments made up about 

one-eighth, 12.65 percent of all foreign establishment and was appropriately the subject of 22 percent of all FDA foreign inspections. 

China, which has 714 establishments, made up 22 percent of all 

foreign establishments, was the subject of only 13 inspections in 

fiscal 2007 or only 4 percent of FDA inspections in foreign countries. 

In summary, the FDA pre-approval budget is increasingly coming 

from industry, a trend which must be reversed as soon as possible. 

The post-approval budget for inspections was not only grossly inadequate in fiscal 2002 but has decreased a further 25 percent by fiscal 2007. There is an enormous amount of tough policing of the relatively toothless FDA in its budget needed by your appropriations 

committee. We will help you in whatever way we can. 

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

OPENING STATEMENT

Dr. POWERS. Good afternoon. Thank you, Ms. DeLauro and members of the committee, for inviting me to testify. I am a practicing 

physician, a medical researcher, a scientist at FDA for almost eight 

years until I left a year ago, and a consultant for several companies. I will share with you today my perspectives regarding the resources needed for FDA to protect the public health. 

FDA cannot protect and advance public health without adequate 

resources. In 2007, the budget for the Montgomery County Maryland Public Schools was $1.9 billion while FDA’s budget was $1.6 

billion. Obviously, public education is essential, but it is important 

to realize that the funds allocated to educate 138,000 children in 

a single county is more than the funds allocated to regulate $1 trillion worth of food, drugs, biologics, devices and cosmetics for almost 

300,000,000 Americans across the country. 

However, if Congress appropriates more funding to FDA, Americans should expect something in return. The user fees paid by companies as part of prescription drug user fee acts come with negotiated expectations that FDA personnel accomplished certain tasks 

and meets specific timelines to expedite drug review. Likewise, it 

is only logical that Congress should require FDA personnel to develop a comprehensive plan for allocating appropriated funds with 

specific action items, due dates and accountability for completing 

non-PDUFA-related activities. And, in fact, this morning it seemed 

like a lot of the questions related to accountability of where the 

money is going. 

This need for accountability is highlighted in the 2007 FDA 

Science Board Report, which noted a history of excellent evaluations of FDA’s functioning ‘‘followed by little to no action to achieve 

the recommendations.’’ Congress and FDA should include several 

action items in a plan for use of appropriated funds, such as updating the adverse event reporting system, modernizing information 

technology, providing resources to inspect manufacturing sites, ensuring the integrity of the data companies submit, overseeing the 

conduct of clinical trials and institutional review boards, and evaluating the accuracy of drug advertising in a timely manner, many 

of those things discussed already this morning. 

Recent reports by the Institute of Medicine, the inspector general, the GAO and the FDA Science Board that now go back actually for over a decade, all show a need for FDA to improve in these 

areas. 

FDA’s most precious resource, however, is the people who work 

there. In the 1970s, the court clarified that the experts to whom 

Congress referred in the Food, Drug and Cosmetic Act were the scientists at FDA. There is no single ‘‘the FDA,’’ although I just said 

‘‘the FDA.’’ FDA is composed of individuals, just like any organization, and can only function as well as those individuals function, 

both singly and together as a team. 

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ties, such as attending and presenting at scientific meetings and 

publishing articles in books and medical journals. FDA scientists 

see a vast amount of data that no one else has the opportunity to 

see and taxpayers will benefit if FDA scientists are able to share 

that knowledge with the scientific community, as well as gain 

knowledge from scientists outside of FDA. In fact, the purpose of 

clinical research is to acquire generalizeable knowledge, which obviously cannot be generalized unless you share it with other people. 

FDA scientists should be scientists first, not bureaucrats first. 

The evidence, however, shows that there are issues with morale 

among FDA scientists, as we have already discussed. They perceive 

that priorities other than good science are used in regulatory decision-making. As a result, many well-trained scientists choose to 

leave FDA. Surveys of FDA scientists in 1998 by Public Citizen, as 

Dr. Wolfe just discussed, again in 2002 by the Office of Inspector 

General and a third time in 2006 by the Union of Concerned Scientists, all raise the issue that FDA scientists are concerned about 

the state of science at FDA. 

In regulatory decision-making, good science needs the appropriate explanations, consistent application and enforcement of the 

appropriate scientific standards as they are legally mandated in 

the Food, Drug and Cosmetic Act. The law and regulations clearly 

define the meaning of ‘‘adequate and well-controlled trials’’ for 

drugs and biologics. Unfortunately, medical devices are not held to 

this same standard. However, FDA officials do not always uniformly adhere to their own legally-mandated standards. 

The Institute of Medicine Report addresses issues of the culture 

at FDA, and to address these issues, there needs to be transparency in the decision-making process with scientific justification 

and explanation for how and why decisions are made, with that 

documentation of those decisions made publicly available. Public 

presentation of one’s work is part of the scientific process and 

should not be seen as ‘‘second guessing.’’ Also, there needs to be individual accountability for the decision-making that does occur. As 

I said, FDA is not one unified body, someone makes a decision and 

those people should be held accountable for those decisions. To accomplish these goals, FDA needs leadership that shows in actions 

as well as in words that it is dedicated to protecting the public 

health first. 

FDA needs adequate resources to protect the public’s health and 

Congress should provide oversight to make sure that those resources are spent wisely. It appears that the public is losing confidence in FDA’s ability to protect citizens with a Harris poll showing seven out of every 10 adults giving FDA a negative rating. A 

Consumer’s Union Survey showed 84 percent of respondents agreed 

that the government should ‘‘have the authority to take any action 

necessary′′ to ensure drug safety. Therefore, it seems the public is 

in favor of FDA exercising its authority to protect them. 

We need to restore public confidence in FDA by providing the authority, funding and leadership FDA needs to do the job of protecting and advancing public health. 

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Ms. DELAURO. Thank you very much, Dr. Powers. I just want to 

tell you I have a copy of your article, and I didn’t get all the way 

through it, but I promise you that I will get all the way through 

it and get back to you with some questions. 

Dr. Calfee. 

OPENING STATEMENT

Dr. CALFEE. Thank you, Ms. Chairwoman. I am honored, as are 

the others, to testify in these hearings on drug safety. I would like 

to summarize five points, each of which are presented in greater 

detail in my written testimony. 

First, there is no systematic evidence that the United States 

faces a drug safety crisis or that drug safety is appreciably worse 

now than it was a decade or two ago. In a September 2006 report 

on drug safety, the same report that motivated the recent FDA 

Amendments Act of 2007, the Institute of Medicine stated, and I 

quote, ‘‘The committee did not attempt to document whether or not 

a drug safety crisis exists and this report should not be interpreted 

as commenting on that claim one way or the other.’’ 

That same report emphasized that no matter how well the FDA 

does its job, some drugs will reveal unexpected safety problems. We 

may be surprised at exactly which drugs reveal problems but the 

fact that some drugs prove problematical is not surprising. The 

question is whether in dealing with these drugs before or after approval, the FDA staff inappropriately de-emphasized safety. The 

record has failed to reveal that anything like that has happened. 

In the case of Vioxx, for example, extensive research has now made 

clear that practically all drugs in the much-prescribed NSAID 

class, including older drugs such as Viclophenax along with Vioxx 

and other COX-2 inhibitors probably involve elevated risk of heart 

attacks and strokes. That risk was discovered for the COX-2 inhibitors simply because those drugs have been researched far more extensively than the older NSAIDs with which they compete. 

And I recommend that the committee also pay attention to Janet 

Woodcock’s remarks earlier this morning in which she made much 

the same point about the fact that we learn more about drug safety 

problems these days than we used to because we learn about drugs 

period than we used to, at least we learn far more rapidly. 

Second, it is extremely unlikely that the FDA staff will ever 

downplay the risk of new drugs. Over and over again, the FDA 

staff has been reminded that when an approved drug causes serious problems, an onslaught of public criticism is sure to follow, as 

we can see today in these very hearings. On the other hand, when 

the FDA staff gives too much weight to safety so that new drugs 

take too long to reach market, public criticism is far more muted. 

Economists call this a Type 1/Type 2 error problem. Its effects have 

been well documented. And just as this reasoning predicts, what at 

first appears to be a dereliction of duty by the FDA usually turns 

out to have a far more benign explanation. 

Third, the constant pressure on the FDA to ratchet up its emphasis on drug safety must in the end upset the balance between risks 

and benefits. In the case of SSRI antidepressants, for example, the 

FDA’s hasty imposition of strong suicide warnings seems more likely to have increased suicides by discouraging treatment than to 


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have prevented suicides. At the same time, the FDA seems to be 

getting tougher on new drug testing and approvals even as remarkable advances in biological science offer a rich variety of promising 

new therapeutics for cancer and many other diseases. 

Fourth, far more attention should be paid to another potent 

force: market-driven manufacturer incentive to maintain drug safety. These incentives operate with powerful effect in other high-tech 

markets such as automobiles, petroleum and electronics. As in 

other industries, pharmaceutical manufacturers rely heavily on 

maintaining a good reputation with customers. 

Fifth and finally, there are ways to improve drug safety without 

making the FDA ever more cautious in approving new drugs and 

uses for old drugs. The FDA clearly needs more resources, especially for information technology and basic and applied science. 

And as former Commissioner Mark McClellan and others have 

pointed out, there are fruitful opportunities to collaborate with the 

private sector to make far better use of mechanized databases and 

other tools. Carefully targeted increases in FDA funding could open 

up numerous pathways to improved drug safety. 

Thank you. 

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Ms. DELAURO. Thank you all very, very much. I think maybe 

Congressman Kingston and myself should leave and have this reviewed just to sift this out with your various viewpoints. I think 

that would be quite an interesting and informative discussion. 

LACK OF FUNDING

Let me just try to move to some questions. Dr. Powers, let me 

just ask you one thing that I have become concerned about is the 

FDA using, and I stated this earlier today, using the lack of funding as an excuse for not accomplishing congressionally-mandated 

goals? During your time at the agency, did you get a sense that the 

agency was using this excuse too much? 

Dr. POWERS. I think first of all it is important to say that there 

are things that FDA cannot accomplish because they do not have 

the resources to do so, and we heard a lot about that this morning. 

I think though that when you get into the situation where there 

is something that is controversial or difficult that you do not want 

to address, it can become convenient to say, ‘‘Well, we just cannot 

get around to this because we do not have resources.’’ And I would 

like to give an example. We know, for instance, in that what I deal 

with in the antibiotic world that in the past people thought that 

the amount of resistance to good old penicillin was actually going 

up in an organism that causes pneumonia. We now have a body of 

information that says maybe we did not define resistance correctly 

and penicillin is still quite effective for the majority of people. A 

bunch of academics put this information together and actually submitted it to FDA in a citizen’s petition and get back a response that 

was several sentences long that said, ‘‘We still need to think about 

this.’’ And when they brought it up to FDA personnel, we are told, 

‘‘We really do not have the resources to get around to this.’’ I know 

having worked there, since resistance was what I did, that this is 

something that the microbiologists and the scientists at FDA are 

completely capable of addressing, and all that information was put 

together in that citizen’s petition. So it seems like is this a case 

where really we do not have a lack of resources or do we have a 

lack of will to want to address the problem in that situation? 

OUTSOURCING REGULATORY FUNCTIONS

Ms. DELAURO. Let me just do a quick follow-up there, and then 

I have a question for Dr. Calfee as well, and then we will do a few 

rounds here. Another issue that gets brought up is that the lack 

of resources, and I would be interested in your view, it might lead 

to some inside and outside the FDA to suggest that regulatory 

functions be outsourced. My view, and I am not a scientist, but my 

view would be that that would cause more problems. Would it not 

cause more problems? 

Dr. POWERS. I think the example I just gave relates exactly to 

that, and that is that when you are going to define antibiotic resistance, which we all agree is increasing, it is a public health issue, 

who defines resistance? Actually, it is the FDA scientists who do 

that at the time that a drug is approved. But unlike other classes 

of drugs, the effectiveness of antibiotics changes over time too, not 

just the safety issue. So this is how effectiveness and risk are really two sides of the same coin. 


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The new FDA Amendments Act requires FDA to re-look at all 

these antibiotics at least every five years. During the discussions 

for that Act, there were several suggestions that that function be 

outsourced to people outside of FDA. It seems though that something so directly related to the conditions of use of a drug like antibiotics is clearly within FDA’s purview. And then there were insinuations and letters sent to FDA that FDA personnel did not 

have the expertise to be able to do that, which I know is actually 

not true. The folks at FDA are very qualified to be able to do these 

things. 

And you can see the potential conflict of interest that would come 

trying to put these things outside of the FDA. And one of the 

things about working at FDA is that you are really one of the only 

folks that are really completely devoid of any kind of conflict of interest, to be able to look at this in a dispassionate way. So I agree 

with you, I think sending some of these things outside the agency, 

including the issue of inspections, et cetera, probably is not a good 

idea. It is why the FDA is there, to be the dispassionate arbiter of 

some of this information. 

Ms. DELAURO. I beg apologies for ignorance. In terms of the final 

amendments under PDUFA, we are not moving in the direction or 

should we be vigilant about watching to see whether or not any of 

those functions are outsourced? 

Dr. POWERS. That did not happen as part of the FDA Amendments Act, but I think we still need to be vigilant that those things 

do not get outsourced. It is vogue to talk about public/private partnerships. As a part of my testimony, I talked about FDA does not 

need to be a silo, we do need to get information from outside. That 

doesn’t mean you send the actual functions of determining safety 

effectiveness and appropriate conditions of use outside the agency 

for others to decide. I think this also relates to the use of advisory 

committees as well. In the advisory committees, really they are 

called ‘‘advisory’’ for a reason. They do not make ultimate decisions 

on drug approvals and yet they are often asked if there is substantial evidence of safety and effectiveness. But in almost 10 years of 

going to advisory committees, I never heard an FDA official explain 

what ‘‘substantial evidence’’ was to the committee. And that is the 

article that I submitted to the docket there on what is substantial 

evidence? It is very clearly defined in FDA’s regulations what it is, 

but if you do not tell the advisory committee members what that 

standard is, how are they supposed to give the agency good advice? 

Instead, if you do not instruct the jury, they then substitute their 

own opinions, which may not actually be coinciding with what 

FDA’s legally-mandated standard is. 

And I wanted to go back to what Mr. Kingston said, that the 

FDA does not taut itself enough about how good a job it does nor 

explain to people what the standards are. And they are actually 

pretty good standards when you actually look at it, and they are 

scientifically justifiable standards as well. They may be higher 

than some people might want, but that is what FDA is legally 

mandated to use, so it is not a surprise sometimes that there is a 

disconnect between what advisory committees advise and what 

FDA then ultimately does because the advisory committee is not 

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Ms. DELAURO. That is an interest angle, if you will, on the advisory committees. I am glad my colleague, Mr. Hinchey, is here because he has been particularly concerned about the conflicts of interest that exist with the advisory committee, which should bring 

up another point, which is about really the charge to the advisory 

committee and our having to make sure what that charge is or the 

explanation of it in terms of those determinations because it is a 

mystery sometimes. With this Avastin, that there was a decision in 

December it was no, and now just about a week ago, they have now 

said yes. And, look, I do not claim to be a scientist, and I do not 

know what the basis of the decisions were but they are interesting, 

more than interesting, they are quite important in terms of overall 

efficacy and outcomes of its decisions. 

My time is up. I will move to Mr. Kingston. 

Mr. KINGSTON. Thank you. Dr. Powers, let me engage in a philosophical discussion with you about your example on the Maryland 

Public Schools $1.9 billion versus the FDA budget and so forth. As 

you know, with $1 trillion worth of food and drugs and so forth and 

medical devices, that there really would not be enough money 

under any conceivable scenario to have inspectors at every step of 

whatever process, therefore the reliance on the private sector is 

certainly tremendous, and it has served us well along the way. The 

reason, as I understand it, PDUFA—and how old is PDUFA? 

Dr. POWERS. 1992. 

PRESCRIPTION DRUG USER FEE ACT

Mr. KINGSTON. Twenty or twenty five years old. The idea was to 

infuse a little bit more in it, and I think in terms of Congress and 

the demands for money, PDUFA was probably a good concept, but 

having worked at FDA, do the scientists there actually know who 

the contributors are, so to speak? I will give you an example, in our 

congressional offices, we are better served when our legislative 

staff, who advises us and reads legislation, where they do not know 

who your donors are. They might know if you are pro-life or prochoice or some of the big picture stuff but 99 percent of the bills 

do not fall into a well-known category like that, and therefore it is 

better when they do not know really where the money is. Do the 

scientists who are in the lab, do they know who the participants 

are under PDUFA? 

Dr. POWERS. I think the issue is actually a more subtle one than 

that, and that is that since the goals of PDUFA are negotiated with 

members of the pharmaceutical industry before the bill is passed, 

it is not that the individual staffers at FDA are very cognizant that 

their check is being signed by PhRMA, it is that those goals then 

come down to those reviewers and those goals are specified in 

PDUFA. And I will give you an example. For instance, when I was 

at FDA, we had to fill out regular time sheets, which calculated 

how much time we spent on PDUFA-related activities, and some of 

the codes that went into that were how much time you spent at the 

copy machine, how much time you spent emailing, things of that 

nature. So your every minute was documented as to whether it 

went to a PDUFA-related activity or not, so you were not really 

thinking that this is influencing what I am doing but in a more 

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thing that was related to PDUFA. Now, I think actually that that 

accountability is a good thing, but I think that accountability also 

needs to be on the other side related to non-PDUFA-related activities and drug safety as well. It makes sense if we are doing it on 

the one hand that we should be doing it on the other. 

Mr. KINGSTON. Well, you could put in a firewall though that 

would be a better protection from the scientists, correct? 

Dr. POWERS. The way I look at it is this, to get my medical license I have to pay a fee to defray costs. To get my driver’s license, 

I have to pay a fee to defray cost, but I do not walk into the Division of Motor Vehicles and walk up to the counter and negotiate 

with that person how those fees are going to be used, so it seems 

to me logical that when a sponsor submits something to be reviewed, defraying that cost makes sense for people reviewing that 

at FDA but then to have to negotiate what those monies are used 

for, I think that is where the firewall breaks down that you are 

talking about. 

Mr. KINGSTON. It is a parallel study though, correct? Would it 

not be true that Pfizer or whomever has already studied this drug 

and knows a tremendous amount of the science already, if not all 

the science, but FDA is the third party objective going in there and 

saying, yes, your conclusions are right or wrong? 

Dr. POWERS. Well, actually FDA follows along all during the development of that drug, so when a drug is first studied in animals, 

for instance, a drug sponsor will submit that information to FDA. 

FDA reviews it to see if it is even safe to put that drug into a 

human being or not. So FDA is actually following along all the 

way, it is not just at the end they say yea or nay. And that is why 

I said it is really important for them to publish information because they have got this great view of not only that drug but other 

drugs related to it that could help other drug sponsors as well to 

be more efficient about how they develop their drug. 

UNION OF CONCERNED SCIENTISTS

Mr. KINGSTON. Okay, now I am not familiar with the Union of 

Concerned Scientists. I do know that groups generally have a bias, 

can you tell me about them? 

Dr. POWERS. Well, I am not speaking for them obviously. 

Mr. KINGSTON. But you go to them, right? 

Dr. POWERS. Right, right, and they are a consumer group that is 

interested in integrity in science. 

Mr. KINGSTON. Well, okay, I understand everything on the boiler 

plate, I really and truly do not know, is this a purist group or do 

they have—— 

Dr. POWERS. It is a nonprofit group and, again, the reason I 

know about it was because I was at FDA and filled out the survey 

when it came. 

Mr. KINGSTON. But do you know them to be an objective group? 

Dr. POWERS. I would say they are, yes. 

Mr. KINGSTON. Because I am not familiar with them, but I do 

know that many, many groups have great names and great mission 

statements and they are absolutely—they have a bias as worse as 

anybody they are pointing a finger to, and I do not know if this 

group does. Now, the reason why that is relevant is that the most 


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current study, the 1998 study, which Dr. Wolfe mentioned, that is 

eight years—excuse me, 10 years old now, and so I am trying to 

find out how accurate that data is in terms of the pressure on scientists or the pressure that they feel to approve something. 

Dr. POWERS. Right, I think when you look at any one of these 

things, instead of taking them in isolation, and that is the reason 

why I put three of them in there, is that you could make some 

claims about maybe they are not entirely accurate or maybe they 

should have surveyed more people. 

Mr. KINGSTON. But a 10 year old survey would not even be relevant. 

Dr. POWERS. Exactly but the point is—— 

Mr. KINGSTON. And then you also quoted a 2002 survey. 

Dr. POWERS. Right. 

Mr. KINGSTON. The reason actually that I am really not even interested in the survey, here is what I am interested in the Type 

1 and Type 2 error that Dr. Calfee mentioned because I see a tendency in all bureaucracies not to make a decision. Now, you have 

brought up something very important, that the FDA is not a ‘‘the,’’ 

it is a collection of scientists, and it would probably be a whole new 

dynamic to say Dr. Jones stamped this drug. And I know that the 

Chair and the whole committee, we would love to see the USDA, 

for example, have a little bit more accountability, but they do not 

make decisions because you cannot be wrong when you do not 

make a decision. And then if you make a decision and there is 

something that goes awry, the consequences of that are just as bad. 

As Dr. Calfee says, one of them is a public error that is well known 

but the other one, of making a decision, is private and you do not 

really ever know. Now, I know I am out of time but that is what 

I really want to head to on what goes on when the guy wearing 

the white coat in the lab. 

Dr. POWERS. Right, so I think one of the issues there is though 

if you can hide behind the term ‘‘the FDA,’’ and there is no personal accountability, it is not like me going to a scientific meeting 

and getting up and presenting my research, and then other people 

get up to the microphone and say, ‘‘Excuse me, Dr. Powers, but my 

lab shows this, it does not coincide with your results.’’ That kind 

of—I call it critiquing rather than criticism—is actually a good 

thing. And if you are making a decision that is going to affect millions of people, I do not see why you should not be able to defend 

that and the science behind what you did. 

Mr. KINGSTON. I agree, and I think frankly sometimes you have 

to encourage people. The transparency—and I am out of time, I am 

going to ask you about this some more and the transparency issue 

because it does touch on that, which I know gets into patent issues, 

so let me quit talking and let Steve talk. 

HUMAN CAPITAL SURVEY RESULTS

Ms. DELAURO. Well, I just thought, Jack, that you ought to know 

in terms of the surveys, FDA Human Capital Survey results, management at FDA, there are a lot of federal agencies, the FDA participated in OPM, this is OPM, 2006 Human Capital Survey. I 

think it is important that you know about that the morale at 

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ernment-wide survey by OPM. The report found that more than 30 

percent of FDA employees disagreed with statements that, ‘‘Employees feel free to speak their mind about what they believe.’’ For 

example, there is no fear, threat or repercussion for disagreeing or 

dissenting. They expressed concerns. Twenty-nine percent said that 

they were not satisfied with the policies and practices of senior 

leaders. Okay, you could say that that is disgruntled. Nineteen percent disagreed that their organization’s leaders maintain high 

standards of honesty and integrity. Twenty-five percent said that 

they did not have high-level respect for the organization’s senior 

leaders. Thirty-five percent disagreed that in my work unit steps 

are taken to deal with a poor performer who cannot or will not improve. Forty-two percent disagreed that pay raises are dependent 

on how well employees perform in their jobs. They said their workload was unreasonable, 24 percent of them did. 

Mr. KINGSTON. If you will yield a minute, they are saying that 

it is a problem that they are getting paid based on performance? 

Ms. DELAURO. No, no, but the opposite. 

Mr. KINGSTON. Okay, they want that, okay. 

Ms. DELAURO. They do not get paid on performance. But I think 

it is important to note that they view that there is fear, there are 

threats and repercussions for disagreeing or dissenting. I think 

that is a pretty staggering number of people, and that is 2006, no 

private group, no nonprofit group, this was OPM. This was the 

Federal Government that conducted this survey. 

Mr. KINGSTON. That is important, that is interesting. I wonder 

how that compares to other federal agencies because I bet you Fish 

and Wildlife or the U.S. Army, half of human resources, you would 

have the same kind I do not want to rock the boat kind of push 

back. 

Ms. DELAURO. What do you say if you have an agency with real 

serious matters of public health and a lot of instances life and 

death matters. This is not a park, it is not a bridge, it is not some 

sort of—but they are serious, serious—and the point has been 

made over and over again, a lot of the ad hominem attacks have 

been on people within the agency who resigned or left and so forth 

and have come back after several months. I think that was the case 

with AVNDIA and other places where the accusations were correct 

and a person was berated and left, maybe of their own volition, but 

then in fact you saw that there were substantial difficulties with 

the product. 

Mr. Rothman. 

PROBLEMS WITH THE ADMINISTRATION

Mr. ROTHMAN. Thank you, Madam chairman. A question for each 

of our panelists, and thank you for being here. You each touched 

on this to some degree, but I would like you to expand on it a little 

more, are things that bad and out of whack, out of the norm at the 

FDA? And, if so, how did that come to be? There is a public perception that in this administration it might be a matter of ideology to 

under-fund or under-regulate this industry or is it a matter of poor 

management if in fact one believes that things are abnormally bad 

or dysfunctional at the FDA? Dr. Calfee, would you like to begin? 


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Mr. CALFEE. Well, frankly it is difficult because if there is anything dysfunctional at the FDA, most of that is very well hidden 

from what the rest of us can see. I was very interested by the 

things that Dr. Powers said because he has been there and been 

there relatively recently. I am the last person who would be surprised at learning that there are many ways in which this government bureaucracy operates in ways that are quite inefficient and 

which there are lots of disagreements among the various levels, 

and that there are some people who do good jobs and do not get 

rewarded, there are some people who do bad jobs and do get rewarded, et cetera. 

I am struck by looking at these surveys, the only one I have 

looked at carefully has been the Union of Concerned Scientists because that was published, and I have a lot of doubts about how 

much we can learn from that survey. As I recall, when you read 

this survey, the questions it asks are rather leading questions. 

When it explained why they were conducting this survey, it was 

made perfectly clear that they were conducting the survey in order 

to reach people who were upset with what was going on. 

Mr. ROTHMAN. Doctor, can I interrupt you for a second? 

Mr. CALFEE. Yes. 

Mr. ROTHMAN. Is then the absence of objective criteria on which 

to make a judgment in and of itself a failure of the agency of transparency, if you will? 

Mr. CALFEE. That might be a failure in the sense that it would 

be very good if the agency could get a much better handle on how 

their staff is doing, what their attitudes are and so on. I do not 

know how well they know about their staff—— 

Mr. ROTHMAN. Well, not just on staff morale but on the issue 

of—— 

Mr. CALFEE. Well, my experience from being in government elsewhere is that you are right, they really ought to know a lot more 

difficult than one might think to get really concrete data on—— 

Mr. ROTHMAN. So the point is you don’t have really enough data 

to answer my question? 

Mr. CALFEE. I think that is probably true. 

Mr. ROTHMAN. Okay, Dr. Powers? 

Dr. POWERS. I want to get back to something Dr. Calfee said, 

that even if you say there is not a crisis currently, the old adage 

that ‘‘an ounce of prevention is worth a pound of cure,’’ all of the 

reports, through the inspector general, the GAO, the Institutes of 

Medicine, the recent Science Board report, all point to if not we are 

on the edge of a big problem, we are going to have one very shortly, 

so rather than allow that to proceed, it makes sense to try to do 

something about it now at this point. 

I think the point I wanted to make, to get back to Mr. Kingston’s 

question too, was you can poke holes in any one of these particular 

surveys but what is interesting about them is they are all consistent in their findings, both the ones that come from the government and the ones that come from the nonprofit organizations as 

well. Obviously, if some were showing one thing and some were 

showing the other, you could have some doubts but they all tend 

to point in the same direction. 


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I think one of the other issues about FDA is not like other government agencies, it is like some, is that you have got this inherent 

tension between science and management, and the IOM report 

points this out, because you are a good scientist, it does not mean 

you are a good manager and because you are a good manager, it 

does not mean you are a good scientist. So you have to manage— 

somehow get those two things to jive at the same time. 

Mr. ROTHMAN. I know that we are going to hear from Dr. Wolfe 

also, but this may just be part of the—not substantiated or substantiated goal but there is a view in some quarters that the ideology, in terms of the strength of intervention in the marketplace 

or this industry is in some way affecting the work at FDA. Do you 

accept that in whole or in part or do you dismiss it? 

Dr. POWERS. Well, I think that again you cannot color everyone 

at the FDA with the same brush, but I can tell you from personal 

experiences, when you sit in a FDA meeting and someone says, 

‘‘Well, we cannot ask them to do this trial in the correct way because we are enrolling too many patients and the company will not 

want to do it that way,’’ that to me says that there are things impacting on the decision of how—and let me be clear, companies do 

not want to have inappropriate advice, they want to know up-front 

what the right way to do things are. The worst thing the company 

wants is to be told one thing by FDA, go out and spend millions 

of dollars to do the study, and then FDA says, ‘‘Oh, sorry, that did 

not meet our standards.’’ So I have a friend in the drug industry 

that says, ‘‘Tears today is better than tears tomorrow.’’ They want 

to know what that advice is up-front. So FDA is not doing people 

any favors by giving them inappropriate advice up-front, but the 

fact that that statement is even made about how is this going to 

impact a company—and, in fact, how can anybody at FDA know 

how it is going to impact a company financially? You have no data 

upon which to make that decision. So the fact that that is even said 

or hinted at, I think gets to the point that there are things other 

than science that are being—and I do not mean to say that that 

is across every division in FDA. I think some of them function very 

properly but the question is do we want an agency where everyone 

is on the same page. 

Mr. ROTHMAN. Dr. Wolfe, could you just address these questions? 

Thank you, chairman. And one other aspect, do you have an opinion as to whether to the extent you agree with Dr. Powers there 

is any element of undo concern about industry sensibilities, what 

does exist, is that ideological, if you will, or a particular bias 

present in any greater or lesser extent in any other administrations 

that you are aware of? 

PRESCRIPTION DRUG USER FEE ACT

Dr. WOLFE. I do not think that, much less so than almost any 

regulatory agency, FDA staff does not turn over with a new administration with the exception of the Commissioner, people in the circle around the commissioner, the general counsel, the rest of the 

people stay the same. The problems that we focused on really arose 

during the Clinton Administration. They were I believe in part due 

in the passage in 1992, right in the beginning of the Clinton Administration, of the Prescription Drug User Fee Act. And the way 


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we designed our questions in our survey, which again as Dr. Powers says, the findings are consistent with surveys by the FDA, by 

the inspector general, by everyone else. Things have gotten worse 

since PDUFA was passed, and they have felt in 1998 that going 

back to the way things were more or less pre-PDUFA’s full impact, 

things had gotten worse. The standards were different, they were 

more under the gun of the negotiated kinds of deadlines and so 

forth, so I think that it is PDUFA more than a political philosophy. 

PDUFA itself can be looked upon as a political philosophy, it is the 

philosophy that the appropriations for the FDA should not be coming from the Treasury, as they have been, as I said, for 86 years, 

but the industry should pay for it. And, as a matter of fact, have 

a certain amount of say not on a drug by drug basis but on the 

overall way in which user fees are structured. So I think that not 

the administration, it is PDUFA. It really needs to be reversed. It 

is growing like cancer, it gets bigger and bigger every year. It started out with drugs, it is devices, it is a number of other things now, 

and I think that there is no question that substantial numbers of 

people at the FDA feel that impact. When the head of Drugs says, 

‘‘It creates a sweatshop mentality,’’ and by ‘‘it,’’ she is talking about 

PDUFA, not this administration. It is a serious warning signal, 

that was several years ago, and the sweatshop has gotten more 

sweaty since then. 

Mr. ROTHMAN. Thank you, madam chairman. 

Ms. DELAURO. Thank you. At some point, let me just leave this 

piece with regard to PDUFA because it was never meant to create 

the imbalance that it has, and I think that the Congress has not 

kept its part of the bargain in terms of the appropriations side. I 

would truly love to have a conversation with all of you about how 

we tried to address that imbalance, and how we can try to move 

forward and not deal with creating impasses like there were 10 

years ago when folks decided that this was a direction to go in. 

TRASYLOL

Dr. Wolfe, let me, I have a question. You are currently investigating the drug, is it Trasylol, which is used to reduce bleeding 

during open heart surgeries. Studies in the New England Journal 

of Medicine linked the drug to an increased risk of death and kidney damage. According to the report, patients taking Trasylol were 

found to be 27 percent more likely to die a decade after surgery. 

Another study found that 78 percent increased risk of death within 

week following surgery. And there were two FDA advisory committees that recommended that Trasylol remain on the market despite 

the concern. I also understand that the Bayer Corporation had information in studies which in fact the advisory committee was not 

made privy of too. And that is an issue of how do we feel with finding out that that is the case? And also what could FDA have done 

differently to avoid the problems with the drug Trasylol? 

Dr. WOLFE. Well, I think there are two issues with Trasylol, 

which is now off the market, much later than it should have been, 

after killing large numbers of people. They may not be as large as 

estimated by Dr. Mengano in this 60 Minutes program but there 

are large numbers of people who have died needlessly from it because it should not have been on the market when a lot of them 


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were given the drug. One is the regulatory issue, why even after 

FDA learned from more than one study that there was a problem, 

they did not demand that it be taken off the market? And the other 

is an issue of possible criminal liability. There is no question that 

Bayer had the results of the study that was published a week ago 

in the New England Journal, that they had these results in the fall 

of 2006 before the committee met, and there is no question that 

they did not send the results to the committee until one of the people that did the study said that that is not right and belatedly, 

after the committee had met without seeing these results, that they 

were sent to the FDA. To my knowledge, the FDA has not initiated 

any criminal investigation as to why Bayer did not send the study 

in the first place and why Bayer basically lied during the hearing. 

They were specifically asked, ‘‘Do you have any other kinds of studies that shed light on this issue?’’ and they said, ‘‘No.’’ It is not likely or possible that the huge number of people testifying for Bayer 

that day, back in fall of 2006, did not know about this study because they paid for the study, and the main study purpose in their 

view was to try and neutralize their earlier study that showed 

harm. And when it did not neutralize it but it confirmed it, they 

did not like that, they did not want to talk about it at the hearing, 

they did not want to acknowledge that it existed. Only when 

pushed by someone else did they submit it. So a regulatory decision 

to ban a drug too late, the company initiated way later, the FDA 

should have initiated it sooner, and the company did its own internal investigation of this issue of lying or whatever, hired a fairly 

prominent Washington law firm to do an investigation and guess 

what? They were all exonerated. This is no way to pursue justice, 

to have a company fund a study where the answers are sort of, hey, 

they did not do anything wrong, there is just a little mistake here, 

a mistake involving a study with 78,000 patients taking this drug 

and having a substantially increased risk of death, so two regulatory lapses: they didn’t take a drug off the market soon enough 

and, to my knowledge, they have not initiated a criminal investigation. 

Ms. DELAURO. Do they have the authority to do that? 

Dr. WOLFE. They certainly do, and there are laws that prevent 

companies from withholding information from the FDA and there 

are certainly laws, they were not under oath, but there are laws 

that sort of say it is not nice to lie before a FDA advisory committee. 

Ms. DELAURO. I am going to ask you to strike this conversation. 

This goes back to December, this article that was in the Wall 

Street Journal, ‘‘FDA and Drug Marketers Plan to Tell Doctors of 

Off-Label Uses as Being Crafted.’’ Can you just comment on that? 

Again, I am not a doctor, I am not a scientist. 

UNAPPROVED USES OF DRUGS

Dr. WOLFE. Yes, before 1997, it was illegal in way, shape or form 

for a company to promote a use of a drug that had not been approved. So a drug is approved for treating one disease, and the 

company was not allowed to approve it, to market it for a disease 

for which it had not been approved because by definition there was 

not sufficient evidence that the benefits outweighed the risks. If 


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there were, they would have submitted these, and they would have 

been approved. There was some pressure from the industry in 1997 

to try and change that law to allow companies to submit, to doctors, hundreds of thousands if they wanted to, copies of medical 

journal articles, from peer-reviewed medical journal articles that 

talked about the unapproved uses. And the proposal, legislatively, 

started out with just that, if you have an article, a peer review 

journal that says that this drug works even though it is not approved, you can send that out. The FDA then, in a much more cautious mode, in 1997, strongly opposed this provision. They said it 

is too dangerous because it allows information that may not in the 

final analysis show benefits outweigh risk to essentially send out 

as promotional material. A compromise was reached in 1997 so 

that instead of just being able to hand out the hundreds of thousands of pamphlets, the companies had to first send them to the 

FDA, to have the FDA look at them and approve them in the context of other studies that had been done. And, secondly, the company had to promise within three years, they would actually submit a new drug application amendment to get the drug approved 

for that new use, and that is the law that passed. And that law, 

I didn’t think it was a good idea but at least it was a reasonable 

compromise with more safeguards than what has been put forth by 

the industry and opposed by the FDA. The law expired in October 

of 2006, and the companies came crawling to the FDA, the former 

FDA lawyer, Dan Troy, brought some of his industry friends into 

the FDA, and they literally asked the FDA to do something that 

eventually was put forth as a proposed regulation two weeks ago, 

to go back to this original version, only to send out these pamphlets 

without having the FDA clearance, without having the promise to 

get the drug approved, and that is now completely opposite of what 

FDA’s stand on this was 10 years ago, it is now FDA’s policy. There 

is a serious question as to whether it is legal or not. The industry 

has argued, I think falsely, that there is some legal precedence that 

have occurred in between that affected that. That is disputed by a 

number of people. So the FDA has again gone backwards on where 

they were 10 years ago in proposing, with 60 days of comment allowed, that for the first time allow promotion of unapproved uses 

without these safeguards that have existed for nine years. 

Ms. DELAURO. Well, fast forward to February 15th, a week ago, 

‘‘The FDA Seeks to Broaden Use for Drugs,’’ that was in the New 

York Times. Let me just ask you this—what kind of tools, and I 

suppose I should know this but I do not, what kind of tools do we 

have to stop this? What are our opportunities? There is a six day 

comment period, how do we prevent this from happening? 

Dr. WOLFE. Well, what this guidance does, which is exactly what 

former FDA lawyer, Dan Troy, wanted is a promise from FDA that 

even though they, in my view, violate the existing law because the 

existing law goes back to pre-1997, cannot do any of this at all, the 

FDA promises not to prosecute them, they promise not to go after 

them as long as they follow this guidance, which is a pretty loosely 

worded guidance compared to what was in existence for nine years. 

So I think serious questions should be asked of FDA why they completely reversed the policy that the FDA had and testified on 10 

years ago, what new things are there? And if they cite these legal 


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cases, they will be very easily disputed because they do not point 

in this direction. I think they need to be asked that. No one has 

really asked them that yet. 

Ms. DELAURO. Thank you. Mr. Kingston. 

HATCH-WAXMAN

Mr. KINGSTON. Thank you. Dr. Wolfe—well, actually all of you, 

are you familiar with Hatch-Waxman? 

Dr. WOLFE. Yes. 

Mr. KINGSTON. Under Hatch-Waxman, do you think that it can 

be gained and do you think there is pressure on the scientists to 

believe that a drug really has changed in order to keep the generic 

off the market so that the patent gets renewed when the original 

patent is expired? 

Dr. WOLFE. Do I start? 

Dr. POWERS. Yes, I am not clear on the question yet. 

Mr. KINGSTON. I understand that when the patent expires, that 

the drug companies have a certain amount of time to prove to the 

FDA that they have changed the drug in order to keep the generic 

off the market, and sometimes I have heard that that change can 

be as simple as a redesign of the bottle or a re-scoring of the shape 

of the tablet or whatever, and I was wondering if that is the case, 

do scientists at FDA have pressure to extend the patent or to approve this as a new drug as opposed to, no, let’s let the generic get 

out on the market? 

Dr. POWERS. Actually, I think the folks in the Office of Generic 

Drugs work hard to make sure that generics are available to people. I think the issue has been more outside of FDA and that is 

that it is almost routine for people to file these things that hold up 

generic companies from actually making the drug. 

Mr. KINGSTON. So it just buys time? 

Dr. POWERS. Right, but that has nothing to do with FDA. That 

is outside of their purview, that they file in court to say we are 

going to delay this. 

Mr. KINGSTON. Okay, that is a matter of the law, that is not regulatory. 

Dr. WOLFE. Can I just try and answer that, which is an additional outside FDA mechanism, which has been documented very 

well, and there are still more examples, I do not know the details 

being pursued, is that the brand name companies selling $50 to 

$100 million a year of the drug and for economic reasons, they do 

have a fiduciary responsibility to their stockholders, they want to 

keep making more money, they bribe literally the generic company, 

pay them $50 to $80 million to delay making the application for 

putting the generic drug on the market. This is not rhetoric, this 

has happened a number of times. Hopefully, it will be stopped but 

it is something—the issue that you are raising, whether it is really 

different or not, here it is exactly the same drug, no one is even 

claiming that it is different, but the generic company succumbs to 

this large amount of money and allows the brand name company 

to make a much larger amount of money than they are paying the 

generic company to keep selling exclusively. 

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tical isomers, and frequently the first drug patented is a combination of the left and right, so the company, in order to extend their 

patent, will look at just the left, if that is the right one, which it 

often is, and get a patent just on the left-hand version. Nexxium 

is essentially an example of that. There are a number of other examples of that. From the standpoint of benefits and risks, there is 

absolutely no difference but by promoting it, with the FDA not enforcing the promotional laws, they make it appear as though the 

new left-hand version of what was a mixture is better even though 

there has really never been any evidence that they are. So there 

are a number of tricks—I could go on but I will not—that allow 

brand name companies to keep their hands in an iron grip on their 

product by changing it minimally, getting a new patent on it. I 

think it is a fault, as Dr. Powers said, a lot of it is outside the FDA, 

there are serious problems with the patent laws that allow a new 

patent on something that functionally has no difference from the 

old one. 

Mr. KINGSTON. Dr. Calfee. 

Mr. CALFEE. Yes, if I could get back to your original question, 

which is whether Hatch-Waxman can be gamed. I think the short 

answer is it can be gamed. It sometimes is. It fortunately is not 

gained very often. This is usually a matter, as these gentlemen 

have said, not of FDA law or regulation, it is usually either patent 

law or antitrust law. The FTC has looked at this quite carefully, 

and basically their conclusion is pretty close to what I said before, 

which is you can have situations in which people are gaming the 

law. It is not obvious. It is a fairly fact-intensive situation, especially these arrangements between a manufacturer of a pioneer 

drug and a generic firm, such as Dr. Wolfe was referring to, because sometimes there are genuine uncertainty as to when a patent 

really will lose all of its protection. In that case, there can be situations in which a settlement between the manufacturer and the generic firm does make sense from an economic standpoint and public 

policy standpoint and situations in which those arrangements are 

actually quite contrary to the public interest. It is being sorted out 

by the FTC and the antitrust authorities. Like I say, it is not a perfect system but is working actually remarkably well on the whole. 

We are getting an awful lot of very cheap generic drugs. 

Mr. KINGSTON. It is amazing, I never thought the generic drug 

industry would be so saturated as it is now. Ten years ago, it just 

seemed like everything was lined up against them. 

I have a question for you, Dr. Powers. In terms of PDUFA, and 

I do not quite understand the negotiation between the pharmaceuticals and FDA when they saying this is what we would like to 

finance or whatever, but is it a result of that that the higher profit 

drugs are approved and getting the most attention as opposed to 

something that might be a lower profit? 

Dr. POWERS. I do not think that is the case. 

Mr. KINGSTON. Well, does it follow medical demand? 

Dr. POWERS. Yes—well, in a way. So FDA already has guidances 

in place about, as Dr. Woodcock brought up this morning, what 

would result in a drug getting a priority review. The things about 

profit have nothing to do with that. It does have to do with though 

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tive and safe in places where there is no therapy for people? So 

there is a guidance on what qualifies as priority review but it does 

not include how much money a sponsor makes on the other end. 

Mr. KINGSTON. Well, that might be something that we as a committee would like to see and could get from Dr. Woodcock would 

be what are those questions when they decide how the PDUFA 

money is going, what is the battery that it goes through. I think 

that might be helpful because you could direct some things through 

that. 

Ms. DELAURO. Well, I think you are absolutely right, and I think 

unfortunately even with the latest PDUFA agreement, which I had 

a serious problem with, but they were passed both in the Senate 

and in the House, we ought to be making, in my view, the determination of what we are doing there rather than having to respond 

to what the industry wants to get out of this in terms of approval, 

time frames, et cetera, so that I do think we have a reasonable 

chance at that level. It may be too late this go around to do something about it, but I think—I am not sure, I think we ought to have 

more to say about what happens here but not be listening to the 

industry in terms of how those negotiations go. 

Dr. WOLFE. Could I just comment on that? 

Ms. DELAURO. We appropriate the user’s fees for God’s sake and 

therefore, as an appropriations committee, we ought to know the 

terms of the agreement and if the terms of the agreement do not 

set with us, then we ought to go back and figure out what needs 

to get done. Dr. Wolfe? 

Dr. WOLFE. Just a quick comment on what you were saying, 

which is in some ways, even though you appropriate the amount 

of the user’s fees in the appropriations committee, the appropriation is handled by the industry so you have a whole new dynamic 

going on between the industry and the FDA saying, ‘‘Okay, we gave 

you $400 million last year. CDER, these are the terms of it.’’ And 

I think some of these negotiations are not public. I would think 

that it would be much more appropriate, the most appropriate 

thing would be just to repeal PDUFA and go back to the government funding of it, and in the interim, the appropriations committee really has as much or more to say than the industry does 

as to how the money is spent. 

Ms. DELAURO. If I could say, there is one effort, I do not know 

if we will get around to talking about it but the whole area of what 

we did as a subcommittee level with the consumer advertising 

user’s fees is said no. And what we did, and I am not talking about 

the millions of dollars involved in the approval of profits, but we 

talked about $6 million because of the President saying he was 

going to veto the bill. We lowered that number to something like 

$5 to deal with direct consumer advertising, and I think sometimes 

we have to really push very hard. Well, we are not authorizers as 

well, and there is a lot of very big forces here that are addressing 

these issues, but I think we have to get more aggressive and have 

quite frankly more stomach in turning back some of these areas. 

Dr. WOLFE. Stomach and spine both. 

Ms. DELAURO. Thank you very much. Dr. Calfee? I apologize to 

you. 


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Mr. CALFEE. Yes, I am concerned that PDUFA is getting a bum 

wrap here that it does not really deserve. I think we have to remember the basic outlines, which is industry provides money to 

CDER, CDER has to meet certain deadlines, it has to make decisions by a certain time. It does not have to make the decisions for 

the drug, it just has to reach a decision period. This has generated 

a lot of research, and of the nice things about the IOM report is 

that it did a good job of summarizing the scholarly research of 

PDUFA, partly because one of the authors happened to be someone 

who had done quite a bit of research, and the research is interesting and it is impossible, when you read that research, you simply do not get an indictment of PDUFA. It has accelerated drug approvals. There is no evidence it has compromised drug safety. 

There is no evidence that it has done anything harmful. 

Dr. WOLFE. Other than create a sweatshop environment at the 

FDA for drug approval. 

Mr. CALFEE. Well, that is not the same issue. 

Dr. WOLFE. It is the same issue. 

Mr. CALFEE. It does not matter. If you have those deadlines, if 

you had the same deadlines and the same number of people, it does 

not matter who is paying for it, you still have the sweatshop mentality. The problem there is resources, not the source of the money. 

Ms. DELAURO. Well, I think one has to question, and again I 

would have the views of others in terms of those deadlines and are 

they in fact deadlines that can be met, are they deadlines just to 

deal with the industry, that they view that the deadline is imperative and is it a real deadline? And I for one am not going to say 

I am an expert at doing that. I would go to others and talk about 

whether or not that makes any sense and, frankly, I have heard 

from a number of folks that the imposition of those deadlines and 

some of the other demands have created very difficult situations 

within the FDA, which I think compromises in many respects some 

of what their outcomes can be. 

Dr. Powers. 

Dr. POWERS. I think that Dr. Calfee has a point though in that 

there has to be a balance between these two things. Dr. Woodcock 

pointed out this morning that before PDUFA, that there were no 

deadlines on when you had to finish a drug review and let’s face 

it, you do the things that are on your calendar that have to be completed, but there needs to be a balance of when that gets to the 

point of that—it is sort of like keeping the trains running on time 

at FDA, everybody has got to work based on these deadlines. And 

although you are right, you do not have to make a decision to approve a drug, there is an insidious pressure to do so, so if not for 

anything else than to get the work off of your desk, and I do not 

think people should have that attitude. 

It should be what does the evidence really show? And the way 

to really handle this is again using an appropriate scientific standard: does the drug measure up to what FDA has legally mandated 

standard is or doesn’t it rather than trying to say things like do 

you feel comfortable that this drug is safe and effective, which I 

have heard at many advisory committees. It is not whether you feel 

comfortable, it is does it meet what the standard is? But the 

science, the science has moved so very, very quickly that we need 


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to do something so that they are more aware of what is going on, 

they can interact better, et cetera. 

OFFICE OF SURVEILLANCE AND EPIDEMIOLOGY

Ms. DELAURO. Let me just, I got into this at the end of our last 

panel with Dr. Woodcock, and I would love to have you all respond 

to this. This is what was the Office of Drug Safety and now the 

Office of Surveillance and Epidemiology and ONB, and the tension 

within those agencies in terms of pre-market approval, post-market 

approval, and now this new configuration, which the FDA is moving toward with the agencies, and, as I have pointed out, looking 

at medication errors and looking at some of the labeling issues, I 

suppose let me just put it this way to you, I need to have your view 

as to are we not going in the right direction with regard to premarket and post-market based on what we have heard are significant problems there, but are we going to create more problems and 

is there a better way to try to deal? And I would welcome, Dr. 

Wolfe, Dr. Powers. 

Dr. WOLFE. Yes, this is the seventh or eighth time in the 36 

years that I have been doing this that they have changed the name 

of that part of the FDA, usually in response to some crisis, and it 

is essentially have form trump function. The function of that division, the post-marketing surveillance, any of these names apply to 

mainly the same thing, has not really improved at all. And the 

amount of energy in changing names and getting these kinds of 

people and then you say, ‘‘Well, it is too early to tell whether it is 

working at all,’’ and then by the time another crisis comes along, 

they say, ‘‘Yes, we better change the name again so we will buy 

some more time to see whether it works or not.’’ And I think, as 

I mentioned in the testimony, I did not get into the details at the 

time, is that there is a historic imbalance of power that has been 

going back to when I started this group in 1972. The people who 

are most funded is the Drug Review Division, now by the industry. 

They have a lot at stake, some understandable, that when they 

made a decision to approve a drug, that they were right. And in 

the face of evidence to the contrary, either before approval or after 

approval, they are more resistant to admitting that there is such 

a problem that merits taking the drug off the market or putting on 

a black box warning. The people in the Office of Drug Safety do not 

have that ‘‘vested interest’’ in the sense that they did not approve 

the drug. They are to look to see what happens afterwards, and 

there are too many instances to even mention where they have 

been right, and they have raised an issue where only one or two 

or three years later, after many people were needlessly killed or injured, did their suggestion get taken. Why was it not taken earlier? 

As Dr. Powers has said, both in the reviewing division is it safe 

and effective through randomized controlled trials and afterwards 

is there new evidence, not available at the time of approval, that 

suggests we should take it off the market or have a new black box 

warning. That is not the way it works now because the latter kind 

of evidence is poo-poohed and kicked under the rug, which is why 

again, as I said earlier, Senators Grassley and Dodd proposed empowering the Safety Division, leaving it in FDA but taking it out 

from under the thumb of CDER. The brief outline that I saw last 


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night at 8:30, whenever they put it up, is to pretend that you are 

doing that but it is no more than a pretense. Ultimately, the decisions are made by the same industry-funded bureaucracy at CDER 

who have been making them in the past. There is a pretense of 

more independence and more power, I do not believe it because I 

have seen it happen too many times. 

Dr. POWERS. So I think that when you look at—Dr. Wolfe is 

bringing up sort of the interplay between form and function. When 

you look at organizations that function properly, and I think the 

Founding Fathers got it right with our government, it is systems 

that have checks and balances built into them already. That is why 

there are three branches of government. Right now, the Office of 

New Drugs controls the decision that gets made before the drug 

gets approved, and they also control the decisions that get made 

after the drug gets approved with consultative input from the name 

of the week, Office of Surveillance and Epidemiology. So that is a 

far cry from OSE having the authority to do something about it. 

And to me it seems like regardless of—putting aside who has expertise where, that a system that has checks and balances built 

into it might function better. Now, comes the question of, well, do 

the people in the Office of Surveillance and Epidemiology know this 

drug really well like the people in the Office of New Drugs do? 

Well, but that is a form issue then. We can put people in both sides 

of that that actually understand, and one of the suggestions in the 

IOM report is to have people over here on the Office of New Drugs 

side who follow the drug along as it goes, but it seems to me that 

having sort of a balance of power built into the system, and that 

does not mean that the people in the Office of Surveillance and Epidemiology just see a small signal and take the drug off the market. The problem here is observational studies are more prone to 

systematic biases and error than are the randomized trial that get 

a drug approved in the first place. But Austin Bradford Hill in 

1965 pointed out that smoking and lung cancer and got fought 

against for many years before people accepted that. That is what 

you do not want to see happen. It is when you warn, it is once a 

signal becomes available. You do not tell people this drug is causing this problem, you say we are seeing an association with this, 

we are still looking into it. I think the FDA is doing a better job 

of that now, and Dr. Woodcock in her testimony pointed out that 

now they are doing early communications and trying to get that 

out to people in a better way, but then you have got examples of 

like Avandia where my aunt landed in the hospital with heart failure on Avandia, thank goodness I worked at FDA at the time, and 

I knew about the problem but it had not been labeled that way yet, 

so you wonder how many other people had that kind of an issue 

and it is getting the warning out to people in a timely way. When 

FDA does do that warning, such as neurological problems with a 

flu drug, nobody is criticizing FDA. We do not know that that flu 

drug causes neurological problems but now that studies are done 

with it, people are looking into it more, so warning allows you to 

actually do the studies which figure out whether there is a causal 

relationship in the end. 

Mr. CALFEE. I think there is a reason why there has been so 

much fumbling on this issue for so long, and that is when you get 


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right down to it, it is impossible to really separate the assessment 

of risk from the assessment of benefits. You have to balance the 

two. Dr. Wolfe and others have argued that the Office of New 

Drugs, that they have a bias after they have approved a drug. That 

may be true. I doubt that it is a big bias but it may be there. And, 

as Dr. Powers pointed out, if you had a separate group whose only 

job is to sound the alarm and even perhaps have the authority to 

pull off a drug, you are going to get too many alarms and you are 

going to get too many useful drugs that are pulled off the market. 

You cannot really separate those two. 

And I would note that the Institute of Medicine in their investigation, it is perfectly clear from their report that they very, very 

carefully considered the idea of having a totally independent Office 

of Drug Safety, and they rejected that option precisely because they 

do not want to separate the assessment from risk and benefits. It 

is not an easy job, but it is not obvious to me that it is being done 

badly, and I am not sure that what FDA is doing right now is really going to make much of a difference. 

Ms. DELAURO. Dr. Wolfe. 

Dr. WOLFE. Just to comment, unfortunately, talking about conflict of interest as it was talked about before, the FDA funded this 

Institute of Medicine study and it was to me highly unlikely—I was 

asked to testify there—that they were going to come out with any 

conclusion that really offended FDA, which would be to make that 

kind of suggestion. There are certainly others who have made that 

kind of suggestion, but I think the number of incidences where 

someone in Drug Safety says there is a problem and something 

should be done about it, I am not sure I am aware of any really 

false positives, false signals. If anything, they have been right such 

an extraordinary amount of the time that a mechanism of having 

them more empowered to act on these things just needs to be done, 

otherwise you are going to just keep limping along, waiting one or 

two or three or four years. We told people who read our website 

to stop using Vioxx in 2001 based on a randomized control trial. 

The FDA got pushed around by Merck for several years and did not 

even do anything, never put a black box warning, as we and others 

advised them to do, so huge amount of valuable time went by, massive promotion and misleading by Merck, ignoring the fact of the 

heart attacks and more people got the drug, got heart attacks and 

died because the FDA’s people on the side, the post-marketing, 

were pushed into the ground. 

Dr. POWERS. I want to get back to something Dr. Calfee said and 

that is that there are instances in the Office of New Drugs though 

as well where a risk comes up with a drug, for instance there was 

an antibiotic that caused liver failure, at the time then you need 

to also reassess effectiveness at that point. When you are going to 

reassess safety, what do you need to reassess about the benefits of 

the drug that we did not know at the time the drug was approved, 

so there was a lot of discussion that no, no, there is a safety problem, we can only look at the safety. Well, it turned out that we 

knew at the time that the studies that were used to evaluate effectiveness for those antibiotics in self-resolving diseases, like sinus 

infections and bronchitis did not prove—or provide evidence, I 

should not say ‘‘prove’’—that those drugs were any better than a 


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placebo but there were people internally who did not want to address that issue. Well, I agree, we need to readdress the effectiveness part as well as the safety, so even on the OND side, there 

needs to be a realization that when something comes up, we need 

to reassess both sides of the coin, the effectiveness as well as the 

risk side. It is constantly reassessing what you thought you knew 

before based on new evidence. 

Ms. DELAURO. Mr. Kingston. 

Mr. KINGSTON. Thank you. Dr. Calfee, a question on the empirical results of PDUFA because I guess when it started in 1992, 

there was a need, presumably a backlog or something, do you think 

that FDA keeps adequate records in terms of here are the results 

of it? Because it is interesting Dr. Wolfe wants to eliminate it, you 

want to preserve it, but there ought to be some relatively empirical 

evidence that says here is what good it has done? 

Mr. CALFEE. The easy data I think FDA does a pretty good job 

of collecting that is how long they spend reviewing drugs, when 

they make decisions and so on, it can be fairly complicated because, 

as Dr. Woodcock mentioned earlier, sometimes they do not actually 

reach a decision. They sort of send it back to the company, ask for 

more information and so on, and that makes it a little bit difficult 

to actually tally the times that are spent, how the review times relate to deadlines, et cetera. The much more difficult issue is whether or not when they approve new drugs, meeting these deadlines, 

whether in any sense they are pushing themselves to approve rather than reject a drug, whether they are in some sense compromising safety a little bit, and people have argued about that. I do 

not think that there is any data that that has actually happened. 

And when several economists have looked at this in a fairly systematic way by looking at things like the speed of approvals, when 

they were approved, how often drugs were removed from the market, how often you get warnings and so on, it is very difficult to 

tease out from all that data any tendency for the FDA to sacrifice 

drug safety since the PDUFA thing became operative. So, yes, they 

collect a lot of data, the data does not tell you everything you 

would want to know about this program. 

CONGRESSIONAL OVERSIGHT

Mr. KINGSTON. Now, on the subject of oversight, Dr. Wolfe, why 

do you think in the 1980s Congress quit having hearings? 

Dr. WOLFE. They did not quit having hearings, just the volume 

or frequency of hearings is probably just a tenth or less than it 

used to be. And I think it is related—if Congress is the sole appropriator of funds and all of the accountability is to the Congress, I 

think that is a whole era or spirit in which there is likely to be 

more oversight. If, as occurred 16 years ago, Congress says, okay, 

now, we are sort of bringing the industry in on the funding and the 

accountability and everything, I think it changes the atmosphere, 

but that is just part of it. The larger part is that there were a number of people in the Senate and in the House then who had decades 

of history with FDA oversight and conducted hearings—particularly on the Senate side, there were way more staff people there 

with expertise in the FDA that could ask the questions and instead 

of the FDA making a serious mistake, of which they have made 


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many, and not having to worry, as they do today, not having to 

worry about being called on the carpet. Senator Grassley’s hearing 

was three years ago on Vioxx and those kinds of things, there have 

not been too many more drug-specific hearings since then, so I just 

think it is a different era of the kinds of people and staff in Congress, present company excepted, and a difference in the general 

attitude of the Congress as manifest by the fact that they passed 

PDUFA, those two things. 

Mr. KINGSTON. One of the things that is interesting about 

PDUFA is the medical device folks are telling us they cannot get 

fast approval, and there is a whole new wave, as you know, of technology coming out in medical devices and it is a lot more sophisticated stuff, and they want—and I do not know how to pronounce 

their medical equivalent of PDUFA. 

Dr. WOLFE. MADUFA. 

Mr. KINGSTON. They actually I think want to ramp that up. Similarly, the folks involved in packaging have to get approval from the 

FDA to change a package and the material used in packaging. And 

last year, I believe it was zeroed out in the budget, and I do not 

know that they want a PDUFA model but there could be an application for them. Do any of you guys want to comment on that? 

DIFFERENT STANDARDS FOR DEVICES AND DRUGS

Dr. POWERS. I just want to make a comment on devices first of 

all. There is a very clear standard, back in 1962 when the evidence 

standard was passed for FDA, for drugs and biologics, there is a 

very clear standard for that that by 1976, when the device legislation came along, the hearings in 1962, President Kennedy actually 

sent a memo saying that a reasonable standard is not good enough, 

we need to have very clear standards when in fact what it says for 

devices is ‘‘reasonable evidence.’’ So from 1962 to 1976, we have 

two very different standards. It has never been clear to me why 

that should be. We want just the same kind of evidence for devices 

as we do for drugs and biologics. 

The other issue though is that we have talked about sort of all 

the issues with what PDUFA has done in terms of timelines and 

morale at CDER, why would one want to replicate that in the Center for Devices and Radiologic Health? You already brought up the 

issue of putting up a firewall, so it may be that here is a way that 

you can do it in a different way that allows people to get timely 

reviews done. And I think CDRH has done a good job with timely 

reviews, so take the good things from PDUFA and not the bad 

things and maybe create a different system. 

Dr. WOLFE. Just a comment on devices, not only is the standard 

for approval different but if you change one atom from a chlorine 

to a fluorine for instance in a drug, you have got to go back and 

do animal studies and do human studies. If you change half a device and can convince the FDA that it is ‘‘substantially equivalent’’ 

to an old device, you do not have to do pre-market studies at all. 

Most of the new devices that go on the market do not go through 

anything that even resembles, even with its lower standard, the 

FDA approval standard for drugs. There is a huge problem of the 

standard for approval at the device division as opposed to drug, 


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which it is now 31 years or 32 years since the law was passed, that 

may need to be revisited. 

Mr. CALFEE. And there are a lot of reasons why devices would 

be treated so very differently from drugs. You have an imaging device, you can improve the software so you get a slightly sharper images. Well, if it was a drug, you could never simply say to the FDA, 

‘‘Our drug is a little bit more potent, is that okay?’’ They would not 

say that. 

Dr. WOLFE. But that does not go through a whole prior approval. 

Mr. CALFEE. But devices where you have—a lot of these things 

are basically tools. If you make your tool better, it does not make 

sense to start all over. 

Dr. WOLFE. Like a heart valve, for instance? 

Mr. CALFEE. Right, that is true. 

Dr. POWERS. There is an incredible variety of issues, you take a 

stint and now you coat it in a drug. So I think Dr. Calfee is right, 

if you make a catheter and you just make another catheter and 

that is what you are supposed to do, but suppose you then take 

that catheter and you coat it in something else, and then you make 

an inferred claim of, well, all that coating is supposed to do is preserve the life of the catheter when in fact you coated it with an antibiotic and what you are really trying to do is assume that you are 

preventing infections. Well, is that substantially equivalent? I 

would not say so. Suppose you are allergic to the antibiotic that it 

has been coated in, so I think it gets to the balance of when do you 

determine when it is different enough that you need to do studies 

or similar enough that you do not? 

Mr. KINGSTON. Where do you decide devices need to have a prescription? 

Dr. WOLFE. A prescription by a doctor, is that you mean? 

Mr. KINGSTON. Yes. 

Mr. CALFEE. I think anything that goes through the PMA process 

requires a prescription, but I am not certain about that, most do 

not but some do. 

Dr. WOLFE. The Class 1 devices are band-aids, tongue depressors, things like that, and those obviously are available over the 

counter in drug stores or supermarkets. There is no reason on 

earth that they should require a prescription. I think that is true 

of most if not all so-called Class 1 devices, but when you get to the 

ones that have to go through pre-market approval, most—I think 

all of those really require a doctor’s. As everyone has said, there 

is a huge spectrum of devices ranging from the simple obvious to 

ones that are much more complicated, that need to be surgically 

implanted. Obviously, anything in that category needs a physician 

to do it. 

Mr. KINGSTON. I have another question. 

Ms. DELAURO. Go ahead. 

VIRTUES OF MARKET-DRIVEN INCENTIVES

Mr. KINGSTON. Dr. Calfee, I want you to talk about the virtues 

of market-driven incentives, as I believe those are very important. 

Mr. CALFEE. I will give an example at the risk of offending some 

friend I might have somewhere, the Heparin issue in China. Basically, the wrong ingredients were used by Baxter in manufacturing 


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their brand of Heparin. The question was about the market-driven 

incentives for manufacturers, which I think can be quite impotent—quite potent. And when I heard about the issue with Heparin 

and China, my reaction was I am not nearly concerned with the 

FDA is doing as with what Baxter is doing. I would go to Baxter 

and say, ‘‘We have got a problem.’’ I am not sure that I know anyone from Baxter, but I strongly suspect that Baxter is going to fix 

their problem. They are going to figure out how they can put a 

product out there that their customers can trust. They have a bigger interest than anyone else does in figuring out where they can 

get good ingredients, whether this particular outfit China is not reliable and it is not reliable and so forth. 

Let’s face it, half of us drove to work today in a car, most of them 

with anti-lock brakes, which rely upon incredibly complicated 

mechanisms, including a software and hardware, computer chips 

and so on, none of which—I mean all of which is manufactured in 

plants all over the world, none of them are inspected by anyone but 

the manufacturers who sell the cars have a huge incentive to make 

sure things do not get screwed up. 

UNAPPROVED UUSES OF DRUGS

Dr. POWERS. To make a comment about market incentives in 

terms of at least drugs, and it relates back to Congresswoman 

DeLauro’s issue about off-label usage of drugs and passing out reprints, one of the dangers of that is if you get your drug approved 

for a single usage, you can then pass out all sorts of reprints. One 

of the dangers of that is that if you get your drug approved for a 

single usage, you can then pass out all sorts of reprints about other 

things that have not been adequately studied. Maybe it has been 

studied in 10 people without an adequate control drug, et cetera. 

The problem with that is that it is very difficult to actually know 

whether those drugs are safe and effective in that setting, but if 

you infer that they are and you choose to believe it, you have got 

yourself a nice, big market there. So I think that there are places 

where the market incentive does not jive with what good science 

or good safety would tell us to do, and I think that is the concern. 

The other issue is that we know that there are issues in the peerreviewed literature, and it is not perfect. There was a recent study 

in JAMA that said that many clinicians do not understand the 

basic principles of how to analyze clinical trials data. 

And friends of mine that are out in practice used to tell me when 

I was at FDA, ‘‘We are relying on you guys to synthesize this information for us.’’ And one of the things at FDA that you do is that 

you synthesize a whole body of information. Passing out a single 

study, any single study can be wrong. Suppose there is a single 

study that says something is effective for use but there are four 

other studies that say it is not. How would you balance that out 

when you are passing out reprints? So I think in this setting, the 

market incentives do not always jive with what is best for public 

health in some instances. 

Ms. DELAURO. I would just add to that though if you just take 

a look, and I know and maybe this is legalistic, and I know, Mr. 

Calfee, that you do liability and tort reform. Merck Vioxx, $4.8 billion to settle the lawsuits, Cephalon checked into its marketing 


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practices. That has to do with safety. Drug makers, insuring products and for factory lapses, that is safety. Bayer agrees to pay U.S. 

$257 million in drug fraud. Yes, this is all related to safety. 

Mr. CALFEE. Can I address some of those? 

Ms. DELAURO. Go ahead. 

ABBOTT MANUFACTURING VIOLATIONS

Mr. CALFEE. For example, on the manufacturing violation, Abbott went through years of negotiations with the FDA, had a bunch 

of plants that shut down, eventually settled for something like 

$600 or $700 million, a really big settlement. There were lots of 

products that went through those plants. What is interesting is 

that not for a single one of those products, from a single plant did 

the FDA ever suggest that anyone should avoid using what came 

out of those plants. They were very concerned about how the plant 

was organized, recordkeeping and so on, but they never thought 

that there was any safety issue with any of the stuff going t 

through there but these manufacturers, when they were hit by the 

FDA on manufacturing issues and so on, they have to negotiate, 

they have to settle. They cannot go to court. They cannot go to the 

court—General Motors if they are fighting with NITSA, they can 

go to court. They can say, ‘‘We think we are right, they are wrong.’’ 

Manufacturers cannot do that because if they lose in court on any 

issue whatsoever, no matter how minor, than they are prohibited 

from selling anything to CMS and the penalties are gigantic, and 

they always settle, and usually—not always—but usually the products involved are actually with the manufacturing issues, actually 

usually there is no safety issue at all. It has to do with how things 

are organized, recordkeeping and so on, but usually the products 

flow right along, they are not recalled. Heparin is unusual. 

Ms. DELAURO. How do you square your notion like in the Baxter 

incident, Baxter ought to be held accountable and not the agency, 

they just said the agency did not say anything here so therefore— 

does the agency have any responsibility in terms of the Heparin 

issue in China and to find out what they are doing, what the ingredients are, et cetera, and deal with inspections and equivalent 

standards, all those things, they are a regulatory agency. The point 

is like on food safety, we do not make food, we do not do that, but 

our job is to set up the framework that says these are the performance standards, we now deal with inspection of that, and we deal 

with accountability and we deal with enforcement, but there is a 

tendency that regulation has maybe such a bad connotation that 

the mission of the agency is just not—it does not hold sway any 

longer? 

Mr. CALFEE. One can debate all day, I think it is clear from what 

Dr. Woodcock said and from what others have said that on both 

drugs and especially on foods, you will never have a regulatory 

agency that is on top all the factories all over the food, but we will 

have a bunch of manufacturers with brand names who are jealousy 

guarding their brand names and they have overwhelming incentives for things not to go wrong with their brands. 

Ms. DELAURO. Well, I think that that is true, I think it is partially true, but I also believe that I do not think that these folks 

determine that it is so bad in terms of whatever they are paying 


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for or what they are doing that they will go on and continue, but 

they would rather not have a strong regulatory agency dealing with 

them ultimately. I think that that is what we have seen with regard to the culture, I think you are right in terms of your brand. 

And my point in terms of food safety, I cannot imagine the industry, I know the western growers have come and asked us for regulation because they are going out of business, but these folks are 

not going out of business. They have a ton of money, they keep 

making it, so if there are big bumps, if there are small bumps and 

big bumps along the way, they can take it. That is my personal 

view. 

REGULATORY BURDENS

Mr. KINGSTON. My personal view is more free enterprise on this, 

but I think it is important that as we put regulatory burdens on 

that what you end up with is only the big boys can play. 

Ms. DELAURO. I challenge the term ‘‘burden.’’ Our job, that is our 

responsibility is to regulate the agency. 

Mr. KINGSTON. Well, I believe the regulatory burden is an appropriate term, it might not necessarily be a bad burden. I might be 

a burden on you, but you know I am a very good one. 

[Laughter.] 

So I am a burden of your conscience for capitalism but the problem that I see over and over again in regulatory issue, you know 

what happens in Congress, who gives the campaign contributions? 

It is not the small companies, it is the not the small medical manufacturers, is it the big ones, and they will live all day long with 

more regulation because they want it. It will eliminate their pool 

of competitors and so you will have a oligopoly. And so one of our 

challenges is to keep that Steven Jobs working out of his garage 

thinking so that he can come up with the Apple Computer of drugs 

but if we say, ‘‘You have to have $5 million to start,’’ then what 

we have done is something we cannot measure and that is that 

Type 2 error where we have gotten hundreds of thousands of people suffering from something, and we do not even know that we 

could have had a cure for it. So it is very important to kind of keep 

this—— 

Dr. POWERS. I think the point you are making, and you see this 

all the time in government, is you have a layer of regulation and 

then you add another layer and then another layer and then you 

get to the end where you are right, boy, it takes an awful lot of 

money to do that. And sometimes maybe it takes going back and 

looking at this, ‘‘Can we do this more efficiently?’’ But efficiency 

does not mean—I can not drive here from Connecticut on an eight 

of a tenth of gas, I am not going to make it no matter way, it 

means getting to where you want to go but using less resources to 

get there. So sometimes it takes reassessing what are we doing to 

folks and then reassessing what are we doing to folks and then reassessing all those layers that we have laid on them and can we 

condense them? 

Mr. KINGSTON. Which is why I have asked a couple of times 

today about the results of PDUFA because I do remember Richard 

Kesler sitting in the chair you are sitting in a hearing talking 

about the average approval time was eight years for a new drug 


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from lab to market or whatever, and in Europe it was three years, 

and our goal as a society was to reduce that so we could get it out. 

You just want it so that the entrepreneur and the competitiveness 

is out there because I think that the generic drug thing is a great 

success story but it sort of happened despite lots and lots of boundaries and not because of. 

Dr. POWERS. Well, look what happens when user fees go up. This 

gets to the exact situation you are talking about. The more user 

fees go up and up, the more only the big boys can play because 

maybe a small company cannot afford to pay that amount of user 

fee to get in the door. 

Dr. WOLFE. Or if that were appropriated from the Congress, you 

would have more competition, to use your phrase. 

PRIVATE-SECTOR INCENTIVES

Mr. KINGSTON. Yes, however, I am going to give you a parallel. 

There are 74 million food-borne illnesses a year, we have had lots 

of testimony on this. It is a pretty high number, 74 million cases, 

250,000 or 260,000 people go to the hospital, about 4,000 to 5,000 

people die. That is a lot of folks but now take a step back and multiply 300 million people in America eating three meals a day, we 

do not eat snacks, we are very careful, there is no obesity problem, 

and then multiply that times 365 days a year and suddenly you 

have got like 32 billion meals a year that are eaten and put that 

into 74 billion food-borne illnesses, and you have got a success rate 

of 99.98 percent in food and it is not because of FDA, it is because 

of the private sector because the FDA simply is not big enough to 

monitor all the plants. Now, I am not saying there is not a role of 

FDA or USDA in it, but I am also saying the miracle of the private 

sector is there are huge incentives in there for them to worry about 

drug safety or food safety or whatever and it can be pure Adam 

Smith ‘‘invisible hand in search of the profit,’’ but that is something 

that we always have to keep in mind. 

Dr. POWERS. When you think about it, FDA is supposed to be the 

back stop in terms of if something gets to the point of where FDA 

inspects and it has gone wrong, it is because a number of risk evaluation points even in that factory have gone wrong. And Dr. 

Calfee’s point, these folks do not want this to go wrong in their own 

factory, so I look at it like speeding on the highway, right, the police do not stop every single person who speeds but the fact that 

they stop some people is a positive reinforcer for people to do the 

speed limit, so FDA is really there only as a backstop. They cannot 

possibly inspect everybody but it is an incentive for people to do the 

right thing. 

Mr. KINGSTON. And I am in total agreement with you on that. 

Ms. DELAURO. My friend, it is almost three o’clock. 

Mr. KINGSTON. And I do not remember saying that Dr. Wolfe 

could excuse himself suspiciously from a minute ago maybe to eat 

or drink or to relieve himself. Was that okay, I do not know? 

[Laughter.] 

Dr. WOLFE. I have written permission from my doctor. 

Ms. DELAURO. I just want to say thank you, yes, for your patience in waiting and the amount of time you spent with us today, 

but for your testimony and the clarity in which you deal with these 


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issues. There are some things that we just did not get to. I would 

very, very much like the opportunity to talk about how we deal 

with tightening up post-market surveillance, how we do deal with 

PDUFA, and what should be as part of those negotiations, where 

are the areas where additional money ought to be channeled and 

what can we do? What kind of restructuring can be done? This is 

not just about the highlighting of problems but are an attempt to 

try to move to look at, whether they are structural changes and 

whether they are management changes or just resources or what 

I talk about in terms of the influences, less from the industry and 

more from the science, and how to try to get that. And I understand as well that you do not do that overnight, and you do not 

do that in one year of a two year session of the Congress. So I 

would love to have the opportunity to meet and talk with you about 

how in fact we do try to move in this direction and what kind of 

legislation we ought to be looking at in terms of tightening up the 

structure. 

I mentioned to you that we have got the FDA biologics hearing 

come up in the next couple of weeks as well, and we will try to address some issues in those areas as well, so I thank you very, very 

much, and I know my colleagues thank you for all the time that 

you put into this hearing. 

Mr. KINGSTON. And I just want to go back to your opening statement, if the three of them want to go out and have lunch and work 

this out and come up with a list of recommendations, we will be 

very open to it. 

Ms. DELAURO. Thank you. 

Dr. WOLFE. It is almost dinner time. 

[Laughter.] 

Ms. DELAURO. I thank you. 


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(213) 

WEDNESDAY, SEPTEMBER 17, 2008. 

CENTER FOR FOOD SAFETY AND APPLIED NUTRITION 

WITNESSES 

DAVE ACHESON, M.D., F.R.C.P., ASSOCIATE COMMISSIONER FOR 

FOODS, FOOD AND DRUG ADMINISTRATION 

MICHAEL R. TAYLOR, RESEARCH PROFESSOR, GEORGE WASHINGTON 

UNIVERSITY SCHOOL OF PUBLIC HEALTH AND HEALTH SERVICES 

JEFFREY LEVI, PH.D., EXECUTIVE DIRECTOR, TRUST FOR AMERICA’S 

HEALTH 

GREG MURRAY, MURRAY FARMS, GA 

Ms. DELAURO. The hearing will come to order. 

Thank you all very much and I want to say thank you to the subcommittee and welcome back. August seems a long way off, in any 

case, but it is the first hearing since we’ve been back after the August recess; and, I want to thank all of you for being here and 

again say thank you to you for your patience. 

FOODBORNE ILLNESS OUTBREAKS

We were scheduled to move before the August break, but the appropriations schedule took precedence and so I appreciate your all 

coming back here today. We are here today to examine the salmonella outbreak this year that sickened over 1,400 people across 

43 states and the District of Columbia, providing yet further evidence that our current food safety system is broken. It fails to protect consumers from unsafe foods and has the capacity to harm 

producers and growers in the process. 

My goal this afternoon is not simply to rehash this summer’s salmonella outbreak. We are looking for bigger answers, searching for 

the solutions that will allow us to avoid these breakdowns in the 

future. Certainly in recent months food safety has taken center 

stage like never before, and I am encouraged to see many issues 

that have been on the back burner for years such as traceability 

finally make their way into the mainstream discussion. 

Now, it’s time to put the words into action. Seventy-six million 

food borne illnesses, 325,000 hospitalizations, 5,000 deaths occur 

each year because of unsafe foods, and their cost to our nation is 

great—$7 billion economic losses annually. A major outbreak’s impact lasts long after it has faded from the headlines. Mr. Farr can 

attest to that. The spinach market still has not fully recovered from 

an e-coli outbreak two years ago. 

According to the California Department of Agriculture, spinach 

production in California is still approximately $60 billion less than 

pre-outbreak levels. As Mr. Murray will discuss and our colleagues 

from Florida and from Georgia have seen first-hand, the tomato industry now faces a similar struggle. FDA first implicated tomatoes 


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as the potential source of this summer’s salmonella outbreak, before turning its attention to jalapeno and Serrano peppers. 

Now the FDA may be looking into the possibility that tomatoes 

caused the earlier infections and peppers were the source behind 

later cases of the outbreak. Most distressing, however, is that no 

one seemed to be in charge. And, in fact, no one is in charge. During a complex and constantly evolving food safety crisis, the public 

and the industry both looked to their government for guidance and 

assurance that the situation was under control, but with little leadership, the situation quickly got out of control and continued to 

threaten public health and consumer confidence for weeks. 

FOOD SAFETY MODERNIZATION ACT

For 15 different agencies responsible for administering 30 laws 

related to food safety, it is no wonder investigations are mismanaged, short-sighted and stalled. Address these failings and prevent dangerous products from slipping through the cracks, I believe 

we need to create a single food safety agent. As an incremental 

step toward that goal, next week I plan to introduce the Food Safety Modernization Act, creating a food safety administration within 

the Department of Health and Human Services with responsibility 

for all food safety issues currently administered by the FDA. 

While maintaining the USDA’s independent food safety responsibilities, the new law would establish a commissioner of Food 

Safety and Nutrition Policy, a presidential appointment requiring 

advice and consent of the Senate to lead the new Food Safety Administration designed to create a streamlined federal agency focused exclusively on protecting our food supply. Instead of having 

to balance food safety with competing priorities, it would allow food 

safety experts and researchers to do their jobs. To be sure, our ultimate goal must remain an independent, single food agency. But I 

believe in order to begin fixing our broken system, we must act 

now, and this is the best way forward. 

The Food Safety Modernization Act will address traceability, 

process controls, inspections, and imports. We have further to go to 

be sure, but with this first step, we will have come a great distance, allowing the food safety experts and researchers to do their 

jobs, provide increased oversight, and fulfill their regulatory responsibility. 

GAO REPORT

A recent GAO report outlined the critical components that are 

necessary for an effective food safety system, including trace-back 

procedures, cooperative arrangements between public health issues 

and mandatory recall authority. I believe these measures could be 

implemented most effectively under a system governed by a single 

food safety agency. While there has been movement on food safety 

reform, we are not there yet. 

Finally, it is worth noting that the GAO report highlighted other 

nations’ effective farm to fork approach to food safety. If we want 

to see similar success and restore our own country’s gold standard 

for food safety, we must also focus on the entire food supply chain, 

place primary responsibility for food safety on producers and ensure that food imports meet equivalent and safety standards. 


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We know what is at stake, and today we will hear about the consequences of our inaction and the opportunity to embrace tangible 

reforms. It is time to show that we have learned these hard lessons 

and make public health our top priority. We cannot afford to wait 

any longer. 

Thank you, and before I introduce today’s witnesses, let me turn 

things over to our ranking member, Mr. Kingston, for an opening 

statement. 

PRIVATE SECTOR CONSEQUENCES

Mr. KINGSTON. I thank the chairwoman for convening this meeting. This certainly is an important topic and certainly one that she 

and the committee feels very strongly about. 

I do have a view that’s a little more grounded in the private sector in their actions than probably most people in this town. And 

that is basically from numbers we get in our hearings here. There’s 

74 million food-borne illnesses a year in America that we know of, 

a big number, 74 million people. But it is a number everybody 

agrees on. 

Now, if you take that number and you look at the number of 

meals we have per day in a country of 300 million people eating 

three meals a day, we have no visitors and we never eat any 

snacks. So just say that’s 900 million meals a day, 365 days a year. 

When you look at the 74 million, that number becomes smaller in 

fact. The food-borne illness number comes down to something like 

.02 percent, a very, very small number. 

But, if you’re one of the 74 million, certainly it is very significant 

and I would not tell you that it isn’t. But here’s why I use those 

numbers for this illustration is that why is that food system so 

safe. And if we can agree that it’s 99.98 percent safe, according to 

the statistics, which have been testified over and over again to this 

committee, then we need to ask ourselves why is it safe? Because 

one thing we do seem to have a constant theme of is the government is broken down. Indeed, in this case, the FDA added to the 

problem and wiped out the tomato production profit for this year 

in many states and many sectors. 

Why wasn’t the government a voice of reason? And it wasn’t because government is going to err on the side of caution and bow 

to the political pressure that we in the elected side of government 

always seem to add to the problem. So think about the private sector. Let’s just say I don’t really care about customers, but they 

want the customers to come back and buy more so they can make 

more money. 

Therefore, they’ve got to have a good product whether they like 

the customer or not. As Adam Smith said, over and over again, the 

search, the invisible hand, the individuals, the market force moving 

towards a profit incentive is a great mechanism. The market has 

served well for food safety, far better than the government. And so 

I have concerns about giving government increased powers or increased money. 

I’d kind of like to hear today, Dr. Acheson, who in the FDA was 

responsible for the hysteria. You know, I’m sure it was an honest 

mistake, but nonetheless it was a mistake that caused the private 

sectors and farmers like Mr. Murray millions of dollars—not necVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00215 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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essarily him individually, but him collectively—millions and millions of dollars. 

So my job, I feel, often is to try to bring in some of these numbers and look at what is going on in food safety right now. The success that we have, I would say, is because of the private sector, far 

more than because of the government. I would never tell you the 

government doesn’t have a role to play in it at all; and, I think that 

there’s plenty of room for discussion on that and particularly doing 

a better job than we are. 

But, I would say the food you ate for lunch an hour or two ago 

is safe, largely because of the private sector, not because of the government, not to say the two can’t have a shared, common interest 

in the friendliness of the ham sandwich and the tuna that you ate, 

but we need to keep that in mind as we go through this process 

as we continue to do so. 

And, Madam chair, would it be appropriate for me to introduce 

Mr. Murray at this time? Or are you going to do that later? 

Ms. DELAURO. After you do this, I will do that and introduce Mr. 

Murray. 

Mr. KINGSTON. Okay, great. Thank you. 

Ms. DELAURO. I thank the gentleman and let me move forward 

to introduce today’s witnesses and I thank you all again for being 

here. And why we don’t often hold to the five-minute rule here in 

terms of statements, we are going to ask you to make your statements five minutes long. 

INTRODUCTION OF WITNESSES

Dr. David Acheson is Associate Commissioner for Foods at the 

Food and Drug Administration where he provides advice and counsel to the commissioner on strategic and substantive food safety 

and food defense matters. Previously, Dr. Acheson served as chief 

medical officer and director of the Office of Food Defense, Communication and Emergency Response at FDA’s Center for Food Safety 

and Applied Nutrition, leading the emergency response, as well as 

outreach and communications to industry, state and consumers on 

issues pertaining to the center. 

Dr. Steven Sundlof, who is head of the Center for Food Safety 

and Applied Nutrition, was formerly head of the Center for Veterinary Medicine. 

Mr. Michael Taylor is research professor for health policy at the 

George Washington University, has previously served as administrator of USDA’s Food Safety and Inspection Service, Deputy Commissioner for Policy at the Food and Drug Administration, and 

FDA staff lawyer and executive assistant to the FDA Commissioner. 

Jeffrey Levi is the Executive Director of Trusts for America’s 

Health, where he leads the organization’s advocacy efforts on behalf of a modernized public health system. Dr. Levi oversees 

TFAH’s work on a range of public policy issues, including its annual reports assessing the nation’s public health preparedness and 

investment in public health infrastructure. 

Mr. Kingston, would you do the honors for Mr. Murray? 

Mr. KINGSTON. I thank the chairwoman, and I wanted to introduce Mr. Greg Murray at the same time. I wanted to co-introduce 


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him with Mr. Bishop, because he is actually a constituent of Mr. 

Bishop’s and not mine, and so I wanted to yield the floor to you. 

Mr. BISHOP. Thank you very much. It is really a privilege for us 

to have Mr. Greg Murray, who is the person who knows first-hand 

what the challenges are, particularly with our fruit and vegetable 

growers, and in particular, tomatoes in the last few months. He is 

very active with the Georgia Fruit and Vegetables Association. He 

was active with the Farm Bureau of Vegetables, and he does a tremendous job and offers tremendous leadership in the industry, particularly with regard to production quality and quality assurance, 

as well as food safety. 

And so I certainly am delighted that we have a person of the 

stature of Mr. Murray with us today and that he can bring us, I 

think, cogent information that will help us as we examine these 

very, very important food safety issues, and as we also reflect on 

the impact that mismanagement by the agency has had on the private sector with tremendous losses that have been incurred by particular tomatoes and other vegetable growers because of 

misdiagnoses of where some of these problems have arisen. 

So I want to welcome Mr. Murray and I want to thank Mr. Kingston for yielding back. 

Mr. KINGSTON. Thank you, and I wanted to point out that Mr. 

Murray actually farms on a farm that’s 109 years in your family 

at this point. And sitting right behind him is his fine looking young 

man, grandson Zack, and Zack actually sneaked out of school 

today, Mrs. Chairwoman, so he claims he is getting credit. [Laughter.] 

Mr. KINGSTON. I am going to have to sign-off on that. I don’t 

know. 

Ms. DELAURO. Welcome, Zack, and it’s a joke, but Congressman 

Kingston is right. I guess Mr. Murray’s great grandfather started 

the farm in 1899, so it is generational. 

So, welcome to you all, and Dr. Acheson I’m going to ask you to 

begin. And, again, I’m going to ask obviously the entire statement 

will be part of the record. And if you could keep it to five minutes, 

we would be appreciative. Thank you. 

DR. DAVID ACHESON TESTIMONY

Dr. ACHESON. Thank you. 

Thanks for allowing me to appear today. Joining me is Dr. Steven Sundlof, Director of CFSAN, and Dr. Steven Solomon sitting 

behind me, Deputy Associate Commissioner for Compliance Policy 

in FDA’s Office of Regulatory Affairs. 

As you know, on June 30th, the President signed the Fiscal Year 

2008 supplemental into law, and thanks to the efforts of this subcommittee, the supplemental provided a budget increase of $150 

million to FDA. These increased appropriations will allow the agency to further implement the Fruit Protection Plan and the Action 

Plan for Import Safety. The supplement contains $72.3 million to 

support the Fruit Protection Plan, and these resources combined 

with the appropriation from 2008 will allow FDA to launch a number of important priorities, including hiring more investigators, the 

ability to hold public meetings in the fall, to follow-up on 

traceability, establishing offices in five countries and different 


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parts of the world, providing technical assistance to foreign countries building a database of information for foreign partners, conducting research to improve risk-based preventions, validating 

rapid detection tools, identifying food vulnerabilities, and establishing better assistance to inform consumers rapidly when problems occur. 

In 2008, the administration released the 2009 budget request, which proposed an additional $50.7 million for FDA, including 

$42.2 for food programs. Then on June 9, 2008, the administration 

announced a budget amendment to further increase the ’09 request 

by $275 million. And we appreciate the subcommittee’s action on 

June 19 to approve the President’s amended budget request. 

The June budget amendment brings the administration’s total proposed 2009 budget authority to FDA to $325.7 million. More 

than half of this amount supports the important food safety priorities. Our food protection investments for ’08 and ’09 will allow the 

agency to increase our professional staff by at least 500 FTEs 

across public health programs. This increase includes 375 FTEs to 

support domestic and foreign inspections. By the end of 2010, when 

these individuals are trained and deployed, we will be conducting 

850 more foreign food inspections on an annual basis, 2,000 more 

domestic food inspections, and 40,000 more import food field 

exams. 

Turning now to the St. Paul salmonella outbreak, as you are well 

aware, this was one of the most complex investigations in recent 

memory. I’d like to provide, initially, a brief description of a typical 

product tracing process, which begins when CDC’s epidemiological 

investigation identifies a possible food associated with the foodborne illness. 

At that point, CDC notifies FDA, and then FDA begins its trace 

back process. We do this by tracing the food suspected of being the 

vehicle for transmitting the pathogen and trace back through the 

whole supply chain from the retailer or the restaurant, by inspecting and investigating points throughout the supply chain to determine where that contamination may have occurred. 

That includes examining documents, bills of lading, invoices, and 

other records maintained by the firm. Product tracing investigations for fresh produce are particularly difficult because the food is 

perishable, often no longer available. Fresh foods and vegetables 

are often sold loose without packing. And practices such as commingling make the whole process more complex. 

It was on May 31 the Centers for Disease Control notified FDA 

of a significant statistical association between the consumption of 

certain types of tomatoes and the multi-state outbreak of salmonella St. Paul, and in response on May 31 the FDA began its 

trace back process. On June 30, CDC advised FDA that the epidemiological data from the ongoing outbreak indicated that jalapeno 

and Serrano peppers might also be implicated, and in response to 

that, the agency expanded its investigation into peppers. 

On July 17 FDA lifted its warning to consumers regarding tomatoes and announced that tomatoes on the market were no longer 

considered to be a possible source of the continued illnesses. And 

it was on July 21 that FDA announced that jalapeno pepper samples obtained during inspection at a distribution center in Texas 


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were contaminated with the outbreak strain. The peppers were 

grown in Mexico, but that didn’t mean that the contamination occurred in Mexico. But based on those findings we advised consumers to avoid eating jalapeno peppers and foods made with 

them. 

Further investigation took us back towards Mexico, and FDA’s 

investigation took us to farms and packing facilities and distributors in northeastern Mexico. And a sample of Serrano peppers and 

a sample of irrigation water collected from a farm in Mexico contained the outbreak strain of salmonella St. Paul. On August 28, 

the CDC announced that the outbreak appeared to be over. 

I would like to address FDA’s efforts to improve product tracing 

and to better understand the universe of track and trace systems 

and best industry practices. FDA is reaching out to a variety of external entities to do this. Using this information, we want to develop recommendations for the fresh produce industry to improve 

its internal product tracing systems. We plan to hold public meetings this fall—one in Washington and one on the West coast—to 

examine the information technology systems best practices that 

will enhance product tracing. We have been working extensively 

with the states and the fresh produce industry to encourage incorporation of product tracing procedures and technology. 

Finally, I would like again to thank you for your support of 

FDA’s budget. Thank you for the opportunity to discuss these important food safety issues and FDA’s continuing efforts to secure 

the safety of the food supply in the United States. 

[The information follows:] 


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MICHAEL TAYLOR TESTIMONY

Ms. DELAURO. Thank you, Dr. Acheson. 

Mr. Taylor. 

Mr. TAYLOR. Thank you, Madam Chairwoman, ranking member 

Kingston and members of the Committee. I thank you for the opportunity to testify today. 

The outbreak of illness that Dr. Acheson has just discussed 

sickened over a thousand people all across the country and did devastate the tomato industry, and the inability of public health officials to promptly and definitively identify the food vehicle and ultimate source of contamination has been a matter of great public 

concern. And I agree that the management of this outbreak must 

be carefully examined, both to see what if any breakdowns occurred 

and to learn lessons for the future. 

However, regardless of whether we find that this particular outbreak could have been managed better, one thing is crystal clear 

to me. The fundamental problem is with the system itself, not with 

how it operated in the case of salmonella St. Paul. Many capable 

people work hard and do the best they can to investigate outbreaks, but they work with an institutional arrangement and with 

tools that are not up to the task. 

Unfortunately, these same observations hold for the food safety 

system as a whole. Thus, I hope Congress will invest effort not only 

in fixing outbreak response and investigation, but also in modernizing our entire food safety system. Fundamental system change is 

badly needed to achieve a cost-effective food safety system that 

does a much better job of preventing outbreaks and other occurrences of food borne illness. 

To be sure, prompt, accurate, and complete outbreak investigations are an essential part of an effective food safety system. First 

and foremost, they enable us to contain outbreaks, which prevents 

more people from getting sick, but equally important, good outbreak investigations provide critical information that both industry 

and government can use to prevent future outbreaks. 

As we have been reminded recently, however, large multi-state 

outbreaks are inherently difficult to investigate. Time is of the essence, and any agencies are involved at all levels of government, 

and they come with widely varying degrees of expertise and resources. Data from multiple sources must be compiled and analyzed, and decisions with potentially great public health and economic impact must be made and communicated in the face of unavoidable uncertainty and unrelenting scrutiny. To perform well in 

these circumstances, the system for responding to investigating 

multi-state outbreaks must include at least 87 elements in my 

judgment, and they’re really just a matter, I think, of common 

sense. 

The first is focused federal leadership and accountability for 

managing the overall effort. The second is well-defined institutional 

roles all across the federal, state, and local system. Third is necessary expertise and capacity at all levels in the system. We also 

need effective trace back systems as we’ve heard, much more seamless data collection and sharing across this system. 


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Industry engagement is critical in coordinated public communication. I think these are the seven elements that are necessary for 

effective outbreak investigations, multi-state in particular. And, 

fortunately, I think we’ve learned that the current system is really 

lacking in various respects in every one of these basic elements. 

At the federal level there is no single agency, the chairwoman indicated, or federal official who is clearly in charge and accountable 

for the overall management of the effort. Collaboration among federal, state and local agencies during multi-state outbreaks is essentially ad hoc. The expertise and capacity of state and local agencies 

vary widely. The trace back system is antiquated and slow. There 

are no standardized approaches to collecting, analyzing, and sharing the epidemiological data and other information needed to flow 

unobstructed in multi-state outbreaks. 

And, finally, there are no established mechanisms for tapping the 

expertise and information of the food industry. And in some cases, 

there is a lack of adequate coordination of communications with the 

public. 

Madam Chairwoman, these observations are not new. They’ve 

been made by others before, but I hope the most recent salmonella 

outbreak will finally provide the motivation to act and to establish 

a real system for managing multi-state outbreaks. As I’ve noted, 

however, the problems with outbreak response and investigation 

are just a microcosm of what plagues the food safety system as a 

whole. Lack of a clear focal point for leadership and accountability, 

fragmentation of government food safety efforts, and a lack of adequate resources and modern tools, Congress needs to fix the system 

as a whole. 

The most fundamental step, I believe, is for Congress to give the 

government’s food safety system something it has never had before, 

which is a modern, public health mandate, to prevent food borne 

illness. Our current statutes don’t provide that basic mandate. Experts in government industry and academia, I think, all agree that 

the adoption of science and risk-basked preventive controls 

throughout the food system is the only way to truly protect public 

health and ensure public confidence in food safety. 

Madam Chairwoman, you have recognized for years the need for 

comprehensive reform of the nation’s food safety system, including 

a modern, prevention oriented, statutory mandate and the unification in a single agency of all federal food safety programs, including 

those at FDA, USDA, and EPA. Over the long run, I agree such 

unification to a mandate is the only way to make cost-effective use 

of the resources the Federal Government invests in food safety. 

But you also realized the first major step towards comprehensive 

reform should be to address the fundamental problems, I should 

say, in the HHS, food safety programs, including this at both FDA 

and the Centers for Disease Control and Prevention. And I’m delighted to hear of your announcement of plans to introduce legislation to address this. Their efforts, as well, of course in the Senate 

and elsewhere in the house, address this issue of modernization of 

a statutory mandate for FDA. But, again, in my view Congress 

should not stop there. 

You have indicated organizational reform is also essential, and I 

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ture within HHS, the cures of the fact that the current system at 

FDA is fragmented, is buried in the bureaucracy, and really doesn’t 

have the cloud in the system to provide the necessary leadership, 

nationally and internationally on food safety that we should be getting from the FDA and HHS food safety efforts. 

Finally, this subcommittee is well aware of the resource challenge facing FDA’s food safety program; and, as Dr. Acheson indicated, the appropriations for 2008 are I think a healthy step in the 

right direction, but further increases are needed in 2009, I believe, 

and beyond, to support the necessary modernization of the system. 

I would urge Congress to step back and undertake a serious 

study of how to establish an adequate, stable, and predictable funding base on the HHS, FDA, food safety program, for the long term, 

and to consider the full range of options for funding that budget. 

In the meantime, however, this subcommittee can help drive 

change toward the risk-basked and prevention oriented system to 

which we all aspire by funding high priority initiatives to implement the risk-based, prevention oriented approach to food safety 

embraced in FDA’s own food protection plan and in the kind of legislative proposals that you’re talking about. 

Such funding initiatives could include identifying the highest priority risks and devising risk management strategies to reduce 

them. It could include establishing and funding within HHS a real 

focal point with increased resources for food safety epidemiology 

the tools we need to detect and prevent problems, implementing 

preventive controls to ensure the safety of fresh produce, which the 

industry itself is calling for, and conducting an independent, I 

think, important foundation if we’re going forward to conduct an 

independent compliance audit of FDA’s seafood HACEP program to 

learn from experience how best to ensure the effectiveness of preventive control programs. 

Madam Chairwoman, recent events do provide strong motivation 

to improve our organizations food safety system, and I do applaud 

the efforts of this subcommittee to drive change and to achieve assistance, to which we all aspire. 

Thank you. 

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JEFFREY LEVI TESTIMONY

Ms. DELAURO. Thank you, Mr. Taylor. 

Mr. Levi. 

Mr. LEVI. Chairwoman DeLauro, Ranking Member Kingston, and 

members of the subcommittee, thank you for the Specific to testify 

before you today regarding the appropriations for food safety activities at the FDA. Trust for America’s health is a nonprofit, nonpartisan organization dedicated to saving lives by protecting the 

health of every community and working to make disease prevention 

a national priority, and we applaud the committee for continuing 

its examination of the food safety functions at the federal level. 

My written testimony describes some findings from our report on 

food safety and my oral remarks. I want to focus on two issues related to assuring a modernized food safety system: The FDA’s Food 

Protection Plan and the funding levels needed by the FDA for implementing that plan. Anyone who picked up a newspaper in the 

summer of 2008 knows America’s food safety system is broken. Too 

many people got sick, and too many millions of dollars were lost 

from American businesses before the real problem was correctly 

identified. More than ever, the American people deserve an FDA 

with a plan and resources it needs to protect them, or an independent food safety agency with the plans and resources it needs 

to protect. 

The Food Protection Plan issued in November 2007 sets broad 

goals for improving food safety in the United States. However, 

while it provides an agenda for Congress, it lacks the specificity 

about goals and objectives and implementation strategies that 

would allow the Congress and the public to determine what resources are needed to implement the plan and what milestones 

could be used to measure the progress of the FDA in making our 

food system safer. 

At a hearing in June, Dr. Acheson was unable to report exactly 

how much money the FDA actually needed to be more effective and 

to implement the Food Safety Plan. I fail to see how the FDA can 

go from being an agency in crisis to a modern, capable preventive 

body without clearly stating its funding needs. 

We would suggest that if the agency cannot identify the dollars 

that are needed to implement the Food Safety Plan that Congress 

should deny the FDA the ability to spend increased funds until it 

receives a realistic budget request for the FDA’s long-term modernization road map. We’re not asking you to cut the base funding, 

but to withhold any increases until they deliver that detailed plan. 

Dr. Acheson’s testimony today is a good start in identifying how 

the agency plans to spend the fiscal 2008 increases, but it is unclear how these allocations fit into the mid- and long-range implementation of the Food Protection Plan. The FDA should be able to 

provide similar details regarding the fiscal 2009 increases that 

have been requested. In any event, this doesn’t answer—even that 

information does not answer the fundamental question about longterm cost of implementation of the Food Protection Plan and measurable milestones associated with funding increases. 

TFAH has always advocated for a stronger investment in the 

public health system, but we also expect accountability and transVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00248 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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parency with respect to that investment. Indeed, if the administration is serious about modernizing the food safety system, each step 

of the implementation plan would carry with it a professional judgment budget number describing the appropriations necessary to 

achieve the goal, not just the legislative authority needed. FDA 

should then regularly report to Congress and the public with measurable benchmarks of its progress in implementing the plan and 

the funding levels to move it forward. 

We recommend that in the upcoming, as I mentioned, in the upcoming appropriation for the FDA, the committee deny the authority to obligate some or all of the increased funding contingent on 

the committee’s receiving a detailed multiyear budget for implementing the Food Protection Plan, or in the event of a continuing 

resolution, the committee could indicate its intention to make additional funds in the final appropriation, conditional on FDA leadership sharing its plans for expenditures before the expiration of the 

CR. 

Let me also address the issue of specific funding levels. Others 

with far more expertise than we have identified a series of shortfalls within the FDA’s budget overall and for food safety. We 

strongly endorse the recommendations of the FDA Science Board 

and recommend that Congress provide the requested funding levels 

in two ways. 

Congress should provide no year funding to allow FDA to develop 

a long-term plan for infrastructure transformation. The kind of rebuilding the FDA must undertake requires capital investment. The 

Science Board recommends increasing FDA’s base by $450 million 

over the next five years for information technology modernization 

alone. Knowing that the full funding for a multiyear endeavor is 

guaranteed will facilitate this kind of investment. That said, Congress can and should expect definition of milestones and regular 

progress reports on spending that money. 

Absent specific budgetary goals associated with the Food Protection Plan, the committee can provide targeted funding in fiscal 

2009 for specific policy initiatives such as those identified by the 

Science Board and by Professor Taylor in his testimony today. 

Congress must also assure that increases are provided in the 

FDA’s base appropriation to sustain the investment that was made 

as part of the supplemental funding recently approved. We are 

pleased that the administration asked for and Congress approved 

that supplemental funding, but increased funding must be sustained over time to allow for effective strategic planning. FDA has 

added 1,300 professional staffers in the last five months, so funding 

must be consistent from year to year to sustain this level. 

Our federal food safety system is broken. The American people 

are looking to this committee and the Congress to assure that the 

FDA both has the resources it needs to fix the system, and provides 

us a clear road map for achieving a modernized food safety system. 

Madam Chairwoman, you and your colleagues have the opportunity to begin that process through the appropriations before you. 

Thank you for including me in this important discussion, and I 

look forward to your questions. 

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GREG MURRAY TESTIMONY

Ms. DELAURO. Thank you. 

Mr. Murray. 

Mr. MURRAY. Madam Chairperson, Ranking Member Kingston, 

Congressman Bishop and other members of the Appropriations 

Committee, thank you for holding this hearing and allowing me the 

opportunity to speak with you. I’m Greg Murray of Bainbridge, 

Georgia. I farm in partnership with my brother Dale. We have 

farmed together since 1979 on the same farm that our great grandfather started in 1899. 

Over the years we have grown various crops, but today we depend on tomatoes as our primary crop. Tomatoes provide more 

than 90 percent of our farm income. In 2007, Georgia’s tomato industry represented a value to our growers of over $60 million with 

approximately 6,000 acres of tomatoes in production. However, 

Georgia’s tomato acreage is decreasing due to the economic pressures faced by our growers. According to a survey from the University of Georgia, the amount of acres planted in 2008 is down by 20 

percent from 2007. 

In the 25 years of growing tomatoes, our farm has experienced 

floods, hailstorms, freezes, droughts, poor yields, poor markets, disease and insect infestations and many other difficulties. But the 

one thing we have never had to face was the public hysteria attack 

caused by the media and the agencies of the Federal Government. 

The 2008 crop started out very good. We started picking tomatoes on June 2, 2008. The next day, the FDA issued a nationwide 

consumer advisory not to eat Roma red round tomatoes, which are 

the varieties that we grow, grown in Florida or Mexico. At first it 

did not appear to be a big problem. Tomato prices fell from $18 a 

box to $16 a box. Still a good profit. 

Shortly thereafter, the FDA issued an advisory and recommended retail outlets and restaurants in Texas and New Mexico 

take fresh round and fresh Roma tomatoes off their shelves or 

menu. The tomato market crumbled overnight. Immediately, retail 

and food service providers across the nation, not just in Texas and 

New Mexico, began alerting the consumers that tomatoes were no 

longer available due to the salmonella St. Paul outbreak as announced by the FDA. 

We are very appreciative that the FDA established a list of safe 

states that were identified as not being part of the outbreak. However, every day the salmonella St. Paul outbreak was the leading 

news story. New salmonella cases were reported, but these are 

from a safe state. The message was very confusing. This was being 

treated by the media as if it was a disease that was killing millions. The safest thing to do was to just not purchase retail or consume tomatoes. 

Over the next four weeks, tomato sales and prices at Murray 

Farms dropped to almost nonexistent. Even though we used good 

agricultural practices that provide a safe and traceable product, we 

left half of our crop in the field because we could not sell it. Of 

those tomatoes that we could sell, the price dropped to as low as 

$2 per box rather than a normal year at more than $12 a box. The 

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lem did not matter. With prices at $2 a box, we finally threw in 

the towel and left over a million-and-a-half pounds of tomatoes in 

the fields to rot. This many tomatoes would have fed 90,000 Americans for a year. 

The University of Georgia’s Center for Agribusiness Development 

released a study on July 25 estimating Georgia’s growers suffered 

more than $14 million in economic losses based on a three-year average price of Georgia tomatoes as reported by the National Agricultural Statistics Service. The study also reported more than 41 

percent of Georgia’s tomato crop was not harvested, or the tomatoes were harvested and packed but dumped because the product 

could not be sold. The tomatoes that never made it to the market 

cost growers from 12 to 17 thousand dollars per acre. 

Who is to blame for this fiasco? We understand the need for an 

agency to be responsible for the safety of America’s food supply. 

However, the economic disaster and loss of consumer confidence 

caused by the tomatoes and the jalapeno pepper announcements 

have been devastating to our growers. This is evidenced by the reduction in tomato acreage on our farm and other farms in Georgia 

now for the fall crop. We normally plant over 100 acres of fall tomatoes. However, this fall we cut back to 57 acres. 

In closing, I ask you to do three things. First, I ask for you to 

take swift action to pass mandatory food safety guidelines for 

produce that take into consideration regional production differences, product risk levels, and not be a one-size-fits-all. 

Second, I ask you to require FDA to develop a plan of action that 

demands state and federal agencies to work together within the industry so that future responses will not become another false food 

safety awareness fiasco. 

And thirdly, I ask for swift passage of H.R. 6581, which will partially compensate farmers for some of the losses due to the food 

safety scare caused by the Federal Government. We believe we are 

in the same situation as growers of other commodities whose crops 

were destroyed by a natural disaster. In this case, our natural disaster was initiated from Washington. 

Thank you for this opportunity to share this with you. I will be 

happy to answer any questions. 

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FDA AUTHORITIES

Ms. DELAURO. I’d like to say thank you to all of you for your testimony. Dr. Acheson, as I said in my opening statement, I do not 

want to spend a lot of time re-litigating the salmonella St. Paul 

outbreak investigation. 

Dr. ACHESON. Yeah. 

Ms. DELAURO. But given the enormity of the public health issue, 

the upheaval to parts of our produce industry, and the public confusion about exactly what went wrong here, I would like to ask you 

a simple, forward-looking question. Is there a critical piece of authority or tool that FDA currently lacks that we did not have that 

would have been helpful to you in getting to the bottom of the salmonella outbreak faster and would have lessened the problem? I 

would also like to ask Mr. Taylor, Mr. Levi, and Mr. Murray to 

comment on that as well. So I want to get your answer about what 

critical piece of authority or tool. 

Dr. ACHESON. Thank you. Let me caveat my answer with supporting earlier comments about the need to look at the whole public health infrastructure. Protecting the public health along the 

lines that we’re discussing is not just FDA’s role. It involves local, 

states and CDC. 

But to your question, specific FDA authorities, the key piece is 

prevention. We’ve already requested authority to require preventative controls for high-risk foods, which would unquestionably include fresh produce of certain types, and tomatoes would be part 

of that, as would leafy greens. So that’s one piece, prevent the 

problem in the first place. 

TRACE-BACK AUTHORITY

The second critical part to this is something that wasn’t included 

specifically in our legislative proposals, is to consider whether a 

mandatory requirement for traceability would be appropriate. We 

are going down a road of examining what is going to work, what’s 

the characteristics of an intraoperable system that is connected 

from one end to the other, and that needs more thinking, but I 

think if that were in place and everybody was adhering to it, from 

the very small to the very large, it would have an impact. If it was 

just the large, it would not be effective. 

Ms. DELAURO. Quickly, in your opinion, does FDA currently have 

the authority to mandate trace-back? 

Dr. ACHESON. FDA does not have explicit authority to do that, 

although there is some legal question whether it could be worked 

in through—— 

Ms. DELAURO. Former Commissioner Kessler says that you do 

have that authority. 

Dr. ACHESON. Our attorneys do not believe we have explicit authority. 

Ms. DELAURO. Whose responsibility is it, a trace-back? 

Dr. ACHESON. FDA’s. 

Ms. DELAURO. It’s FDA’s? I’m happy to hear you say that. Earlier on, my understanding was that the response was the industry’s 

responsibility. That was a quote from—that trace-back is an indusVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00267 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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try responsibility. But your view—I want to get to the answer 

today, which is it’s FDA’s responsibility. 

Dr. ACHESON. It’s FDA’s responsibility from a federal level, but 

it’s industry’s responsibility to have a system that will allow us to 

do it. 

Ms. DELAURO. But it’s FDA responsibility at the federal level to 

have a trace-back mechanism? 

Dr. ACHESON. I would say so, yes. 

Ms. DELAURO. Okay. Mm-hmm. Let me ask—and the question 

that I ask, because I want to hold to my five because there will be 

several rounds here today. Critical piece of authority or tool the 

FDA lacked in terms of this issue. Mr. Taylor, Mr. Levi, Mr. Murray, and then also ask you about the trace-back piece. Mr. Taylor? 

Mr. TAYLOR. I think we would all agree that prevention in the 

first place and the authority to require preventive controls and to 

actually go forward and do that I think is a critical piece of the tomato industry. 

Ms. DELAURO. Mandatory? 

Mr. TAYLOR. Mandatory, enforceable standards on the farm for 

preventive controls. 

Ms. DELAURO. As Mr. Murray was pointing out? 

Mr. TAYLOR. Yes, the same basic idea. 

FDA AND CDC INTERACTION

Ms. DELAURO. Okay. Mm-hmm. 

Mr. TAYLOR. The issue of—it’s not a legal authority issue per se, 

but the separation between CDC and FDA in treating the CDC epidemiological investigation to identify the food vehicle and then 

turning it over to FDA to do the trace-back as though those aren’t 

really the same integrated investigation is a serious mistake, and 

that’s why we got off on the wrong track I think and didn’t have 

the information, all the information on the table at the same time, 

including what industry could say about distribution patterns and 

so forth. And so it slowed the process down. 

The trace-back issue, I’ll give you my take on trace-back. I think 

the government should set a standard and hold companies accountable for being able to give to FDA promptly the information about 

where food came from, whether you’re a retailer or a processor. The 

government shouldn’t be doing gumshoe, you know, shoe leather 

work, to go through records and trace this down. Companies need 

systems, but there ought to be a public accountability for being 

able to turn over that information quickly so then government can 

go and investigate the places where the product has been and determine what the problem was and to do that containment work, 

and also that discovery of root cause work. 

Ms. DELAURO. Mr. Levi. 

Mr. LEVI. I would second all that and add one other piece to it, 

which is it’s not just the communication between CDC and FDA, 

but also the information flow from the states to the CDC. CDC is 

in a sense dependent on what comes from the states, and the capacity of states to provide timely, accurate information is also tremendously variable. And I think there’s a national interest given 

how food production occurs for the Federal Government to assure 

a minimum standard that occurs at the state level as well. 


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Ms. DELAURO. Mr. Murray. 

Mr. MURRAY. Well, it has to be mandatory. I mean, I already do 

it voluntarily, but it doesn’t matter, you know, if someone, you 

know, damages the food supply. But the question is, can we mandate what Mexico does? This problem apparently came from Mexico. 

The other question with the trace-back is—I mean, that’s to me 

not a difficult situation. I mean, we already code our boxes with the 

date and the harvest. We should be putting, you know, each 

produce farm should have a number, an identifier number that’s 

unique to that farm. I think we already have one with the Biosecurity Act of 2002. But, you know, it’s simple enough. It’s not rocket 

science, I mean. 

PRODUCT TRACEABILITY INITIATIVE

Ms. DELAURO. Your point is well taken, Mr. Murray. I’ll make 

a couple of just quick points. The fact is, Dr. Acheson, and I think 

you know this, that the industry effort called the Produce 

Traceability Initiative has been just finalized a plan, timeline for 

implementation of case-level traceability standards. Industry has 

learned a lesson after working with weakened trace-back rules 

under the Bioterrorism Act. They’re now being very proactive on it. 

I don’t happen to believe that that ought to supplant a Federal 

Government regulation, but I applaud the work of the industry on 

this effort, and a comment I’m going to just make, FDA has come 

late to this issue of trace-back and this initiative, to the table, in 

my view. 

In terms of prevention, as Mr. Taylor pointed out as being mandatory, this prevention aspect, when you said prevention in your 

view is that mandatory as well? 

Dr. ACHESON. Absolutely. 

Ms. DELAURO. Okay. Thank you. Mr. Kingston. 

IMPORTED FRUITS AND VEGETABLES

Mr. KINGSTON. Thank you, Madam Chair. Mr. Murray, on market share to Mexico and other countries, do you have any statistics 

on, say, fruit and vegetable and how much we’re buying overseas? 

Mr. MURRAY. The last figure I’ve seen a year or two ago was we 

were at the point that we were soon going to be buying more of our 

food from overseas produce. We were reaching that point. 

[Interruption to the proceedings.] 

Mr. MURRAY. We were reaching the point about a year or so ago 

where we would be importing more of our food than we were exporting. 

Mr. KINGSTON. And Dr. Acheson, what are you going to do about 

that? 

Dr. ACHESON. That’s economics and consumer preferences that’s 

driving that. Our role is to ensure that it’s safe, whether it’s coming from a foreign country or domestic. 

Mr. KINGSTON. Well, the economics may be driven by an inefficient, ineffective government regulatory environment, which we 

could be approaching pretty quickly. Mr. Levi made a very good 

point about lavishing money on a government agency without a 

plan, which is in fact what happened last year, $150 million on 


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FDA without any plan whatsoever. And we’re seeing the plan now, 

but it’s funny. I’ve never seen a plan in Washington that did not 

ask for more spending and more authority, because that’s what 

government agencies tend to do. But it would appear to me that, 

you know, under the good intentions of food safety that the next 

thing we know, even though Mr. Murray is calling for mandatory 

regulatory environment, the next thing you know, the government 

is going to be his partner down on the farm, and might be big 

enough to afford it, but there will be others who can’t afford that, 

and then we’ll have less opportunities for mom and pop farms, 

more opportunities for the big farmers, not necessarily the Murray 

family, but big corporate kind of farms. And, you know, it’s going 

to be great for the big guys, but it’s going to run off the small players who often are the market mechanism that keeps the food supply affordable. And what you just said is that, you know, you don’t 

have any authority on imported food, correct? 

FDA BEYOND OUR BORDERS

Dr. ACHESON. That’s not what I said. 

Mr. KINGSTON. Oh, okay. Excuse me. You said it was a function 

of market or—— 

Dr. ACHESON. Well, you were asking me what we’re going to do 

about the fact that imports are rising. 

Mr. KINGSTON. Yes. 

Dr. ACHESON. And there’s nothing we can do about that. 

Mr. KINGSTON. Well, I’m talking about from the food safety 

standpoint. 

Dr. ACHESON. Oh, absolutely. There’s a great deal we can do 

about that. 

Mr. KINGSTON. And what are you going to do? 

Dr. ACHESON. Well, we’ve developed a whole approach in terms 

of FDA beyond our borders, because philosophically, the agency has 

been focused on inspecting at the port of entry. We recognize that 

is not going to get to the production life cycle, which is what’s key, 

what’s going on in a manufacturer in China, in a farm in Mexico, 

and a cantaloupe grower in Honduras. Whatever it is, are those 

preventative controls in place? What’s the production life cycle? To 

do that, we’ve got to understand where the risks are. To help do 

that, we’ve got to integrate better with industry, to understand 

what they’re doing, with the foreign governments, to understand 

what they’re doing to begin that process. We’re establishing a presence overseas in a number of key areas, as I mentioned, in five different parts of the world, to begin that process. At the port of entry 

we are reexamining how do we use our risk-based approaches so 

that the inspections that are being done—because there’s no way 

you can inspect or test your way through this. You can’t test everything and you can’t inspect everything. So you need a risk-based 

approach. How do we get there? We need the data from this information from overseas, from other sources, to help inform what 

should that risk-based inspection be, so you’re actually testing the 

foods that are of greater concern, increasing your chances that 

there will be a problem. 


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PREDICT

The tool that we’re currently examining to do that is something 

called PREDICT. We’ve rolled that out. We’ve experimented with 

it with seafood in the Port of Los Angeles that looks like it’s good. 

It needs peer reviewing. It needs looking at, but my belief is that 

that will extend to seafood in other ports and ultimately to other 

foods. To do that, you’ve got to empower that system with the riskbased information, because it’s only as good as the information 

flowing into it and the data. 

Mr. KINGSTON. Why couldn’t you do PREDICT on domestic food? 

Dr. ACHESON. You could. You could. PREDICT was built to essentially focus on imports, but the concept of risk-based approaches 

to determining where you put your inspectional resources is a foundation of the intervention part of the Food Protection Plan. 

Mr. KINGSTON. And just so that we’re all on a common definition 

of risk-based inspection, what is that? 

Dr. ACHESON. It means that where an inspector goes and what 

they sample and what they inspect is determined by the likelihood 

that where they’re going and what they’re inspecting will be linked 

to a foodborne illness, so you’re not spending your time going and 

inspecting a facility which is very likely to be perfectly okay. 

Mr. KINGSTON. Have you ever discussed that concept with our 

friends at the USDA? Dr. Raymond? 

Ms. DELAURO. Dr. Raymond. 

Mr. KINGSTON. Have you—— 

Dr. ACHESON. I have talked to Dr. Raymond about some of those 

things, yes. 

Mr. KINGSTON. Well, I would encourage you to pursue that discussion. And my time is out. 

Ms. DELAURO. A quick point of clarification, Dr. Acheson, and I 

talked about mandatory prevention. We’re talking about mandatory 

prevention standards. Is that—when you talk about standards, performance standards, mandatory standards, is that what you mean 

by enforceable standards? 

Dr. ACHESON. Absolutely. Yes. 

Ms. DELAURO. I just wanted to have clarity on that in terms of 

traceability and on the standards in the way that folks have been 

talking about here today. Mr. Hinchey. 

INCREASE IN TOMATO IMPORTS

Mr. HINCHEY. Thanks very much, Rosa. This is a very fascinating subject, frankly, and I very much appreciate everything 

that you’ve said. All the testimony has been very interesting. One 

of the interesting things to me, frankly, is the way in which the 

downgrade in the quality of agricultural products imported into the 

country and the impact, the health impact that they had on even 

vets in a couple of cases, has not just on those people but on the 

agricultural industry here in the United States. Now the initial reaction was to focus attention on a domestic product, and then the 

impact that had on that domestic product, if I understood Mr. 

Murray’s testimony, it certainly did have a very positive impact on 

his economic situation there, isn’t that correct? 

Mr. MURRAY. Very negatively, yes. 


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Mr. HINCHEY. And you said that the amount of agricultural products is down by 20 percent over the course of the last year, or the 

tomato product, actually? 

Mr. MURRAY. Yes, tomatoes, yeah. Tomatoes are—we are receiving a lot of imports now from Canada and Mexico that’s hurt the 

tomato industry greatly. 

Mr. HINCHEY. And as the imports come up, our dependence on 

foreign agricultural products, our ability to oversee, though, the 

safety and security of those agricultural products is downgrading, 

isn’t it, Mr. Acheson? 

Dr. ACHESON. Without an increase in resources and new technology and new approaches, the numbers of inspections that are 

going to be done are going to be dwindling relative to the total 

numbers of shipments. 

Mr. HINCHEY. They’re going to be dwindling, and they have been 

dwindling. 

Dr. ACHESON. They have been, yes. 

Mr. HINCHEY. And that’s one of the deep causes of our concern, 

because we can be pretty secure that in a lot of places, the oversight, the dealing with these products, is not going to be handled 

in the most effective and efficient way, and safety and security is 

going to continue to decline unless we do something serious about 

it. I think what our chairwoman was suggesting was the establishment of a very specific security operation within FDA to oversee 

the safety of the agricultural products. I think that’s a positive step 

forward. Don’t you think so? 

Dr. ACHESON. I would question whether it’s wise to focus specifically on agricultural products. I think we need to be looking at the 

food safety system across the board. I mean, look at what we’re 

dealing with right now is melamine contamination of infant formula in China. We need to be nimble to be able to respond to anything and everything whether it’s microbiological, chemical and 

wherever in the world it comes from 

Mr. HINCHEY. Well, that’s what I’m talking about. I’m not just 

saying that it’s the quality of what’s grown, it’s the way the products are handled as they’re developed, as they’re grown, and then 

as they’re marketed. That’s really the problem, and it doesn’t get 

nearly enough supervision. There’s not nearly enough security. 

Isn’t that correct? 

Dr. ACHESON. Let’s differentiate security from safety. I think 

when you say security, do you mean food safety? 

Mr. HINCHEY. What I mean by security is securing that when the 

products come into this country that enough oversight has been engaged in to make sure that they’re not going to be contaminated 

in some way or they’re not going to have some negative effect on 

the health and safety of America. 

Dr. ACHESON. Exactly. And that gets back to the requirement for 

preventative controls. 

Mr. HINCHEY. Preventative controls? 

Dr. ACHESON. Exactly. And that—but that’s only as strong as the 

enforcement capabilities to make sure that they are being followed. 

Simply writing the legislation and putting the law in place is only 

a part of it. You’ve got to be able to enforce it. 


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Mr. HINCHEY. Well, yes, but what’s the defect in terms of the enforcement, providing you have those operations in place? 

Dr. ACHESON. A defect? What—— 

Mr. HINCHEY. What is going to undermine the ability to enforce 

it, if you have those operations? 

Dr. ACHESON. Frankly, a lack of inspectional resources to do 

that. 

Mr. HINCHEY. Oh, yes. Okay. So that’s what this—that’s one of 

the main reasons why this committee is holding this hearing. 

Dr. ACHESON. Yeah. 

Mr. HINCHEY. Because it has the responsibility to ensure that 

the funding is proper and—— 

Dr. ACHESON. Well, it’s critical to link the two. 

Mr. HINCHEY. Yes. 

Dr. ACHESON. You require the preventative controls and you 

make sure that they are being followed. 

Mr. HINCHEY. Oh, yeah. We know that very well. But we’ve had 

a lot of disappointments with the Food and Drug Administration 

over the course of years, seeing the inadequacy and the way in 

which they deal with their obligations and responsibilities, and the 

impact that the expression of that adequacy has had on the safety 

and health of people. 

So, it’s not just the law, it’s not just the funding. It’s the seriousness of the people who are given the responsibility to carry out this 

obligation. 

Dr. ACHESON. Let me assure you, we’re very serious about FDA 

about ensuring food safety. 

Mr. HINCHEY. Well, I like to believe that. 

Dr. ACHESON. Please do. 

Mr. HINCHEY. But I don’t. 

Dr. ACHESON. What can I do to convince you? 

Mr. HINCHEY. You can continue to do something more than 

what’s going on, because we have seen a lot of examples of a decline in food safety in a variety of ways. I mean, this is one example. It’s a very serious example, but it’s not the only example. We 

have seen a lot of examples over the course of the years. I don’t 

think we’ve had a chance to talk to you about it before specifically, 

but we’ve talked to a lot of other people in FDA about this, and, 

frankly, got the clear understanding that in many cases, they 

didn’t know what they were doing or how to do it. So that’s one 

of the things that is of deep concern to us. 

What about this issue of radiation? Isn’t it possible, if not likely, 

that the idea that you’re going to improve the safety of a product 

by radiating it, making it potentially possible that that’s going to 

downgrade the security in some other way, the safety in some other 

way? 

Dr. ACHESON. Irradiation is unquestionably to FDA’s view not a 

silver bullet. 

Mr. HINCHEY. Pardon me? 

Dr. ACHESON. It is not a silver bullet. Irradiation is not a fix to 

the critical need for preventative controls. If you irradiate thinking 

you’re going to be able to forget about preventative controls at the 

farm level, you’re deluding yourself. 

Mr. HINCHEY. Right. 


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Dr. ACHESON. It’s not going to work. It’s not going to be effective. 

Mr. HINCHEY. How much attention is being focused on irradiation? 

Dr. ACHESON. How much attention? 

Mr. HINCHEY. Yeah. 

Dr. ACHESON. At FDA? 

Mr. HINCHEY. Yeah. 

Dr. ACHESON. We just, as you know, we just put out this notice 

about iceberg lettuce and spinach to allow irradiation. There is a 

petition submitted to FDA looking at a number of other products. 

That’s working through. Dr. Sundlof could certainly speak to what 

his center is doing on that. 

Mr. HINCHEY. Thank you very much. 

Ms. DELAURO. Mr. Latham. 

MORE FUNDING FOR FOOD SAFETY

Mr. LATHAM. I thank the Chairwoman and I know her interest 

in food safety and we’ve shared that together for many years, and 

as all members of the subcommittee, we all know we need to do 

more to insure that the safety of our food supply is at optimum 

level. 

And let me express frustration here today. Today is September 

17, it leaves us only 13 days left in the fiscal year 2009 budget, and 

we passed only appropriation bill off the floor of the House. It has 

nothing to do with food safety or this subcommittee. And because 

we’re facing the CR, this means that the 2008 levels of funding are 

going to continue in the next year. And FDA, we may have an 

anomaly here as far as a bump in the CR, but everybody here is 

arguing about more funding for food safety, and the fact of the 

matter is it isn’t going to happen under a CR. 

And it’s not a fault of the Chairwoman; there’s no question about 

that. It’s not a fault of the administration. They don’t pass appropriation bills. You can argue about funding levels at the end of it, 

but it’s up to Congress to actually pass appropriation bills, and we 

have not done our work and woefully not done our work. 

But whatever we decide is the proper funding for ’09 for FDA, 

we need to have an appropriation bill to make that happen. And 

I just hope with the Chairwoman that we can get this done some 

day around here. Just when? 

TOMATOES AND THE SALMONELLA OUTBREAK

So I ask you a question. Dr. Acheson, I just really am curious as 

to what actually happened. I mean you’ve got Mr. Murray here, 

who has been devastated, that it certainly appeared to everyone 

that, you know, there was the tomato problem, and then it’s not 

the tomatoes. We don’t know where they came from. I believe it’s 

from Mexico, but let’s, you know, wipe out the Georgia tomato producers in the meantime. 

What is the responsibility? Have you actually identified what it 

was yet? 

Dr. ACHESON. Do I need to take you through the process of a 

walk-through, or—— 

Mr. LATHAM. Well, where is your jurisdiction, and have you identified the cause of the outbreak? 


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Dr. ACHESON. The response to an outbreak is an integrated approach, as we’ve been discussing, beginning with local health departments, actually beginning with physicians and patients, and 

identification of a Salmonella outbreak, which starts at a local 

level. Ultimately, if it’s multi-state it works up to the Centers for 

Disease Control. 

This began in mid-April, the first people started to get sick. It 

took from then until the end of May before essentially the Centers 

for Disease Control and the local and state health authorities implicated tomatoes through epidemiological studies. 

Mr. LATHAM. On what basis? 

Dr. ACHESON. That was done through epidemiology case control 

studies. That is under the jurisdiction and control of Centers for 

Disease Control and the local and state health authorities. FDA 

has nothing to do with that, other than observing it and following 

it. 

Mr. LATHAM. Okay. So you were not in the loop at that point? 

Dr. ACHESON. We’re in the loop in that we know that something 

is—— 

Mr. LATHAM. You’re watching? 

Dr. ACHESON. We’re watching. We have liaisons at CDC. It’s not 

like we don’t know that something is coming. We know there’s a 

Salmonella outbreak. What’s it due to? 

Then on May 31 FDA is told the case control study indicates that 

this is tomatoes, with a high degree of statistical probability. That 

was the same sort of information that was used to go after peanut 

butter with Salmonella. No positives in any samples at that time. 

It’s just a strong statistical epidemiological association with a specific brand of peanut butter. That was in 2007. 

Mr. LATHAM. No samples identified? 

Dr. ACHESON. No. But that’s typical. That’s not unusual. At that 

point FDA on June 1 begins the trace-back process. And what does 

that mean? It means FDA goes to the restaurant or the retailer 

where that person purchased the tomato that made them sick, and 

asks, ‘‘Where did you get your tomatoes?’’ And they’ll say, ‘‘Well we 

got them from three suppliers.’’ 

You go to each one of those suppliers, ‘‘Where did you get your 

tomatoes?’’ Each one will send us back to three distributors. And 

it just mushrooms out into a spider web of complexity. And we’re 

doing this, and every one is one-up, one-back, one-up, one-back, inspect, get the records. 

Many of the suppliers and distributors here were small, so they 

only had paper records. There was nothing electronic. We have to 

get these paper records, get them back to headquarters, look at 

them, analyze them, connect them to the next piece. 

That essentially took us through the month of June, as we were 

working our back here. And we were implicating two growing 

areas. Because the goal here is to find out where did the problem 

occur—— 

Mr. LATHAM. At this point, had you put out the advisory at that 

point yet to the public? 

Dr. ACHESON. Yes, we had. 

Mr. LATHAM. So, okay. Go ahead. 


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Dr. ACHESON. And that advisory is put out based on the epidemiological association. 

And we have two choices there. We either simply stay silent, 

waiting to try to find a positive as people continue to get sick. Or 

we go out with the best information that we have to inform consumers. And we choose the latter, because that’s the optimal track 

to protect public health. 

As was pointed out, in this particular outbreak, we tried to limit 

industry damage by developing a list of growers, which included 

Georgia, California, and other places, which were not implicated 

because they weren’t in the growing season when this all began. 

And we were making concerted efforts to—— 

Mr. LATHAM. Did you tell the public that? I mean basically all 

I remember is you told, don’t eat tomato. 

Dr. ACHESON. We did tell the public this—— 

Mr. LATHAM. That it’s okay if they came from Georgia or Florida, 

or no? 

Dr. ACHESON. Let me rephrase this. We told the media many, 

many times about our exclusion lists. We did many media calls, we 

discussed that. What the media choose to report to the public is not 

under our control. 

The fact that FDA has an exclusion list—— 

Mr. LATHAM. Now we have a common enemy. [Laughter.] 

Dr. ACHESON. So this extended through the month of June. Focusing on tomatoes took us back to two places geographically, Florida, Mexico. We sent investigators down there. Could we find a 

problem? At the same time the outbreak was continuing, CDC and 

the locals were going back, asking new patients, ‘‘What did you 

eat? Where did you eat it?’’ And that’s when Serrano and Jalapeno 

peppers began to come out as a potential problem. 

Mr. LATHAM. Did they ever find a trace in the peppers? 

Dr. ACHESON. Yes. We were able to trace peppers back through 

originally to a distribution center in Texas; we found positive pepper samples at that distribution center that had the outbreak 

strain. That took us back to farms in Mexico, and we found the 

positive outbreak strain in irrigation water in Mexico—— 

Mr. LATHAM. Aren’t you still—— 

Ms. KAPTUR. Will the gentleman yield—Mr. Latham, could I just 

ask where in Mexico? 

Mr. LATHAM. I have very limited time is the only thing. 

Ms. KAPTUR. Where in Mexico? 

Dr. ACHESON. Talapuas, yes. 

Mr. LATHAM. Okay. But you said earlier that you’re investigating 

tomatoes? 

Dr. ACHESON. No. 

Mr. LATHAM. You’re not? Tomatoes are all okay now? 

Dr. ACHESON. Well, we made an announcement in the middle of 

July that tomatoes were okay. 

Mr. LATHAM [continuing]. Pepper—maybe, you never conclusively 

said that. 

Dr. ACHESON. No, we—— 

Mr. LATHAM. Never reported that you had completely eliminated 

tomatoes as a cause of the outbreak. 


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Dr. ACHESON. No, that’s not what I said. Don’t let me confuse 

you. In the middle of July we announced that tomatoes that were 

on the market in the middle of July were not associated with the 

outbreak and were perfectly okay to consume. 

Mr. LATHAM. Did they ever test the peppers? 

Dr. ACHESON. Who? 

Mr. LATHAM. The CDC? 

Dr. ACHESON. The CDC typically don’t test the foods, we do. And 

so do other regulatory agents. We tested a lot of tomatoes and a 

lot of peppers, and we found nothing positive on tomatoes, but we 

did find positive peppers. 

Mr. LATHAM. Okay. The CDC—and just indulge me here so I can 

get this—but you said you were observing the CDC and the epidemiologist thought it was tomatoes. 

Dr. ACHESON. Correct. 

Mr. LATHAM. Did they look at peppers? 

Dr. ACHESON. In those early epidemiological associations I think 

peppers were part of the general questions, but peppers did not 

come to the surface as a likely vehicle in the first round. 

Mr. LATHAM. Even though they were found positive? 

Dr. ACHESON. Even though what? 

Mr. LATHAM. Even though later they were found to be positive. 

Dr. ACHESON. Yes. In a subsequent case control study, they did 

come to the top of the list, peppers, all peppers. 

Mr. LATHAM. Okay. Thank you, Madame Chairwoman. 

Ms. DELAURO. I just want to, just for clarity’s sake, because I 

think Mr. Taylor said something early on. It’s not the work that 

was done, it’s not the well meaning of the people who were doing 

the work. All of that is—the people pour their heart and their soul 

and their knowledge, et cetera, into trying to figure it out. It is the 

system that is broken. 

You still do not have mandatory traceability, mandatory performance standards with which to gauge this. 

You’re looking for a needle in a haystack, because the system is 

broken. And nor are we seeing yet today the changes, fundamental 

changes that need to be made in the system in order not to repeat 

this fiasco. 

And that is what is—what I say, and I speak for myself. We can 

go back and go back and re-litigate it. But the point is: How do we 

break what’s been done? If need be, start from scratch and figure 

out the system that doesn’t put this man out of business and 

doesn’t send people to the hospital or kill them, because we can’t 

put a system in place and design it. That is what is at issue. 

Mr. Bishop, I’m sorry to—you’ve got plenty of time. But let’s not 

get caught up in the past, but let’s look to the future, and what 

we need to try to do. 

Mr. Bishop? 

NATIONWIDE FOOD SAFETY PROGRAM

Mr. BISHOP. Thank you very much, Madame Chairman. 

I certainly appreciate the passion with which you are attacking 

this issue. I also appreciate the challenges that are faced by all of 

the people sitting in front of us, particularly Mr. Murray. 


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I want to go back to—recommendation—Mr. Murray’s testimony. 

Basically Mr. Murray recommended that we do pass a mandatory 

food safety program nationwide, based on commodity risk. And Madame Chairman has offered the Food Safety Modernization Act. 

And I think that we are very, very interested in the comments that 

each of you have made and are making in response to that. 

Secondly, Mr. Murray suggested that that system needed to have 

as a part of it a much stronger interaction between the federal and 

the state agencies that are charged with food safety. 

H.R. 6581

And the third aspect which Mr. Murray brought forth is the swift 

passage of H.R. 6581, which—the compensation for the tremendous 

economic loss that was suffered. 

Now of course, we will have to address that, and of course legislation has been offered in the form of this authorization bill, as 

well as a request for consideration in our CR and supplementals 

that we may possibly be able to get before the end of the session. 

Request had been made for that. We don’t know if it will be successful or not. 

But with regard to the future—forward, as Madame Chairman 

suggested—do you think as a part of our system we need to look 

at crop insurance for economic disaster, as well as—we now are accustomed to natural disaster? But his is a manmade, and it’s an 

economic disaster, so it’s no fault of your own. 

Should we not build in as a part of the system some form of crop 

insurance that would allow you to be compensated through some 

form of insurance for the risk for these economic losses? What kind 

of support would a program like that need, Mr. Murray? And if 

there are other members of the panel that would care to comment 

on that, I’d like to hear that. Because it seems as if it so often— 

I was just talking to Mr.—and he remembers spinach. And of 

course that was just a few months ago when we were talking about 

peanut butter, Salmonella in our area. 

And there are all kinds of economic disasters. Can we as a part 

of the system build some kind of risk assurance, as a part of it, 

that would protect you, that would keep us perhaps from having 

to do an appropriations bill every time we suffer a loss, if we had 

a system in place to address that kind of risk—— 

REVENUE-BASED INSURANCE PROGRAM

Mr. Murray, and then I’d care to hear from the other members 

of the panel. 

Mr. MURRAY. Absolutely. We’ve been pushing for a revenue-based 

insurance program for years, and they keep telling us that it’s possible coming down the pipeline there are places in the country that 

do have revenue-based crop insurance on tomatoes. And it covers 

them regardless of the loss, whether it’s low markets or low 

yields—— 

Mr. BISHOP. This is regional, it’s not nationwide? It’s just at certain locations? 

Mr. MURRAY. Well, it’s just in certain places. 

Mr. BISHOP. So we need to make that—— 

Anyone else care to comment on that? 


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[No response.] 

Mr. BISHOP. Anyone else on the panel care to comment on the 

proposal that the Chairlady has offered? The—separate agency 

within HHS that’s responsible for all of the food safety issues that 

are currently being administered by FDA. 

Mr. Acheson, do you have any comment on that? And of course, 

Mr. Murray and Mr.—and Mr. Taylor. 

Dr. ACHESON. My only comment on that is to try to take it to a 

higher level and leave it up to the Chairwoman as to how this is 

done, but to agree that we need to be looking at food safety from 

a systematic perspective. 

But it requires a public health infrastructure look. It cannot be 

done at FDA alone. It needs to go all the way down vertically to 

the local health department. 

Mr. BISHOP. But should we have one agency with that responsibility, or should we continue to have it spread out? 

Dr. ACHESON. As long as the system works, I don’t think it matters how you do it. But certainly there are advantages and there 

are disadvantages to merging. I think we’d have to look at it carefully. 

Mr. BISHOP. Well, we got a history with Homeland Security. We 

also have the history of intelligence agencies too. So we’re interested in your comments. 

Anyone else? 

Mr. TAYLOR. If I could just add a thought or two, Mr. Bishop. I 

think the thing you have to start off understanding is that current 

situation within FDA in terms of management of the food safety 

program. But Dr. Acheson is the Associate Commissioner for foods, 

and has an officer of the commission coordinating function and obviously he’s the point person for purposes of exercises like this. But 

the actual management responsibility, the operational management 

responsibility and the resources are actually controlled by three different operating components of FDA, the Center for Food Safety 

and Applied Nutrition, the Center for Veterinary Medicine, the Office of Regulatory Affairs. 

There is no official in FDA whose full-time job is food safety, and 

who has line management authority over all those three operating 

components of the agency. 

And as hard as Dr. Acheson works—and I think he’s doing a fantastic job—he’s in a virtually impossible positive, quite frankly, to 

really drive the change that needs to be driven in the FDA program. 

And then you add to that how critical the CDC epidemiology 

function is to a preventive food safety system; that the knowledge 

that is generated through the use of epidemiology that happens at 

state and local levels, coordinated by CDC absolutely foundational 

to a preventive system. Because we can’t prevent hazards we don’t 

fully understand. 

But that CDC epidemiology function is again managed completely separately, and is not by design or by any means in actual 

practice contributing what it needs to contribute to the knowledge 

base to support prevention. That’s partly a resource problem, but 

it’s also a—accountability and the role of that in the system. 


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So, you know, I think we need legislative reform, but if you don’t 

fix the structure and create a leadership structure that’s capable 

of driving change on a systems basis, as Dr. Acheson suggests, you 

know, the legislation will fail. 

Mr. BISHOP. So you think it’s a good idea? 

Mr. TAYLOR. Absolutely. 

Mr. LEVI. I would concur with what Mr. Taylor said, but add two 

points. One is I don’t think the DHS example is relevant. It actually is the opposite of the DHS example. If we had today a separate 

food agency and a separate drug agency and tried to bring them 

together, that would be the DHS example. And in fact, what we’re 

trying to do is make sure that we have focused leadership and attention within a single agency to these issues. 

I think what gets more complex, and you know really requires 

some careful thinking, and I think that Dr. Acheson is absolutely 

correct, it’s a vertical issue as well as a horizontal issue within the 

Federal Government. And that is a real challenge. 

And so as this new agency is put together, we really need to 

think about then, what happens simultaneously at the state and 

local level, because we are never going to create a federal infrastructure of the state—nor should we—state and local level to do 

some of that initial data-gathering, and epidemiological work and 

all that sort of thing, because, you know, garbage in, garbage out. 

We can have the best possible system at the federal level, and if 

the states and localities can’t bring in a timely and effective way 

the information you need to do your job, it’s still not going to work. 

Mr. BISHOP. So Mr. Murray’s second recommendation is, you’re 

in agreement with that? 

Mr. LEVI. Yes. 

Ms. DELAURO. Ms. Emerson. 

Ms. EMERSON. This just gets more confusing. Thank you, Madame Chairman. 

EPIDEMIOLOGIES

Let me just ask you a silly question, Dr. Acheson. Just because 

Mr. Latham and I have been sitting here talking about it. How— 

this is not among my questions, but how could the epidemiology 

show traces of, or be tomatoes, for example, versus green peppers, 

or whatever kind of peppers they were? I mean are those 

epidemiologies similar? 

Dr. ACHESON. It gets down to a series of questionnaires in which 

the local health authorities, the state health authorities are asking 

the patients who got sick, ‘‘What did you eat and where did you 

eat it?’’ And a parallel set of control individuals usually neighbors 

living in the same area, close associates who didn’t get sick, ‘‘What 

did you eat and where did you eat it?’’ 

And you will ask many, many people in these situations, sometimes over 100, usually more controls than patients. And look at 

that information and use that as the basis. That’s a case control 

study. To make a determination that this particular food was more 

likely statistically to be associated with illness than that type—— 

FDA AND USDA COORDINATION

Ms. EMERSON. Oh, a statistic but not scientific? 


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Dr. ACHESON. It was both. Statistics is—questionably science. 

Ms. EMERSON. Well, no. You know what I mean. I mean you 

didn’t have actual trace materials or blood work or anything like 

that? 

Dr. ACHESON. What you don’t have is Salmonella St. Paul on a 

piece of produce to say ‘‘This is it.’’ 

Ms. EMERSON. Right. 

Dr. ACHESON. Or ‘‘This could be it.’’ What you’re dealing with is 

information from patients. ‘‘What did they eat? Where did they eat 

it?’’ And using a case control statistically epidemiological approach 

to figure that out. 

But again, emphasize that is not what FDA does. 

Ms. EMERSON. Right. I understand. It’s what CDC does. But that 

begs a question then, back to the consolidation of all functions of 

food safety. 

The U.S. Department of Agriculture, and if you take the APHIS 

piece out and that’s what the Department of Homeland Security on 

some inspections, and then you’ve got USDA—at Tyson’s Chicken, 

for example, I’ve got a chicken plant in my district, and so I know 

you’ve got USDA there. And I mean the whole coordination seems 

rather haphazard, and that’s not criticism towards you; it’s just 

rather confusing—you know, which is why the idea of perhaps a 

single agency doing all these functions is not a bad idea. 

But do you think it would be more efficient—I mean you say horizontal and vertical. All those functions have to be—in keeping on 

my course the whole government notion that oh heaven forbid that 

you would take something away from me. In other words, FDA has 

had this function and USDA has that function, and you know, 

there’s this possessiveness which of course doesn’t suit, I mean it’s 

not something that’s so important for the public. What’s important 

for the public is not their egos but the food safety. 

Do you think it would be more efficient if there was an integrated approach, more efficient and more effective, so that perhaps 

we wouldn’t have in this particular case a pretty well devastated 

Mr. Murray’s bottom line this year? 

Dr. ACHESON. There’s no question that improved integration is 

key to improving food safety. Particularly when you’re dealing with 

a national food safety system in the context of a global food market. It has got to be integrated, between those who are recognizing 

the disease to begin with—as we were just discussing—what’s happening in that local health department? How is that linking out 

through the Centers for Disease Control to the regulatory agencies: 

If it turns out to be chicken and goes to USDA, if it turns out to 

be tomatoes, it comes to us. 

Very different approaches, very different statutes. As you pointed 

out, there’s an inspector in every chicken plant. We don’t take the 

same approach at FDA. 

What we do to address that at FDA is we do integrate within the 

agency and have liaisons at the Centers for Disease Control, and 

they have liaisons with us, so within the confines of the current 

system, we are doing our best to try to integrate approaches to—— 

Ms. EMERSON. But do you think—I mean why should you and 

USDA necessarily have different mechanisms? 


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Dr. ACHESON. I think it’s because Congress set it up that way. 

[Laughter.] 

Ms. EMERSON. Well, so if Congress set it up that way, Congress 

can undo it again. But all right. 

EU FOOD REGULATION

Now let me ask you a different question. Does the European 

Union have a better approach to food safety than the United 

States? 

Dr. ACHESON. I think the EU have a different approach. 

Ms. EMERSON. And how is it—— 

Dr. ACHESON. I mean, what’s better mean? Now to me better 

means who’s getting sick, how many people are getting sick, and 

from what? 

Ms. EMERSON. Yes. 

Dr. ACHESON. And I mean I don’t think twice about what I eat 

in Europe, just like I don’t in the United States. 

Ms. EMERSON. Okay. 

Dr. ACHESON. And I think if you look at numbers of illness, we’re 

very comparable. They have a slightly different way of getting 

there than we do. But the end result is the same, and I think that’s 

an important—— 

Ms. EMERSON. But you know, I realize that there’s mandatory labeling and lots of things in the EU countries that does differ from 

here. But I still am not quite sure, how do you do mandatory 

traceability when we import so many foods? That’s the part that 

to me, I don’t how the mechanism would work. If in fact—we would 

not import tomatoes, for example, from Mexico if there wasn’t a 

means by which to trace those? I mean I don’t know how that 

would work. 

Dr. ACHESON. You know, I think where you’re going is some of 

the key questions around whatever legislative proposal this might 

look like, and what are the limitations?, and what’s the economic 

feasibility? 

Ms. EMERSON. Right. 

Dr. ACHESON. Because you can’t ignore that. Because to do some 

of this stuff it would be expensive. 

But I have spoken to firms that are growing tomatoes in Mexico, 

who have a state-of-the-art traceability system. They can do it, 

from the farm, from the greenhouse, almost to who’s picked it, and 

on what day, right through to the retail store. 

So it’s technically doable, and they tell me it’s not that expensive. 

But I mean that’s just a—of one. 

To be effective, you can’t have a traceability system that ends at 

the port of LA; it’s not going to work. It has to go beyond that. 

Ms. EMERSON. Okay—I think that I’m out of time—Madam 

Chair, thank you. 

Ms. DELAURO. I would just say to the gentlelady that I’ll be 

happy to share with you information about the EU and their 

traceability efforts and also some domestic efforts at this, where 

they have looked very, very carefully at it, and—but it appears as 

if the technology is there. We have to look at to try to make it—— 

Ms. EMERSON. I appreciate that, Madam Chair—— 

Ms. DELAURO. And I’ll get that for you. 


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Ms. EMERSON. Thanks. 

Ms. DELAURO. I’m sorry. Mr. Farr. 

AGENCY REORGANIZATION

Mr. FARR. I really appreciate you having this hearing and I appreciate your thought about reorganization. I think if we keep 

along the lines of the existing structure we’re not going to be able 

to solve the problem. 

When we look at the Federal Government you see this great, big 

label under the Department of Agriculture called the Food Safety 

Inspection Service, and they don’t inspect a damn thing we’re talking about, so it’s one with a real limited jurisdiction. 

It seems to me the players in this room and probably the most 

important one, is CDC, and they’re not under the jurisdiction of 

this committee. 

So we beat up on FDA when they’re part of the problem, but not 

the entire problem and I just want to welcome the rest of my colleagues to food safety and recall issues. 

I mean, when I was trying to get some help for spinach growers on a voluntary recall because we lost $200 million, which insurance 

didn’t cover, there’s no aid at all. 

And one of our problems is that when there is a, kind of a false 

start here, it is as if our airplanes were bombing people and we’re 

just saying sorry, we missed the target; we really didn’t mean to 

wipe out the tomato growers, we thought that that was the target. 

I think—well, I’ve learned a lot this summer. I mean, I had the 

E-coli and then I had the light-brown apple moth, ground zero for 

that; and then last summer in August, the forest in Big Sur caught 

on fire. It was the largest forest fire in history, and I saw how people respond and I do think that there is a need, as Dr. Levi talked 

about, for an incident command system here. 

It certainly is much more effective because you have integrated 

the state, local, and federal folks in being able to know exactly 

what the shared responsibilities are at all levels; and whoever is 

the first—incident command, whoever is first at the incident and 

has the skills to handle it, stays as the commander, whether that 

be a little, local fire chief who can put out a $100 million fire. 

AGENCY COORDINATION

So we have all this jurisdictional gigs and what I’d like to just 

suggest is that I think that we need a new thing. We need to have 

national protocols and standards, such as the California developer, 

the Leafy Green Marking Order. I mean, that is probably the best 

prevention protocols that we have in the nation right now for leafy 

greens, isn’t it? 

Dr. ACHESON. It is certainly very good, yes. 

Mr. FARR. But that only applies to California? 

Dr. ACHESON. Yes. 

Mr. FARR. So the other states don’t have to do that. So we need 

to standardize agreements like that as to best management practices. I think we need to create an incident command system where 

one can respond regardless of whether you are local government, 

state, or Federal Government as they do in fire. It is crazy to have 

these jurisdictional disputes. 


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I think we need to get the CDC in the room. In both cases, in 

all these cases, the CDC has alerted the FDA. The CDC says, here, 

it is tomatoes. 

But FDA busts their tail going all over the country trying to find 

all of these tomatoes and giving these alerts and getting conditions. 

That doesn’t matter. The news is out there. It is tomatoes, ladies 

and gentlemen. Don’t eat tomatoes. 

Out in California we didn’t grow the kind of tomatoes that were 

infected. I have one guy lose his entire business, he and his kids. 

Four million dollars of their tomato business just sucked under and 

there is no insurance for it. There is nothing. It was a disaster, we 

get disaster relief. 

So the CDC then comes along a month and a half later and says, 

oh, it is not tomatoes. We think it is now peppers. 

What I really compliment you on, you know, once you found out 

it was jalapenos and it was probably from Mexico, the trace-back 

was pretty fast. 

You went through a field in a foreign country and found the contaminated water. I thought it was remarkably fast that you could 

find that spot. 

So there may be some problems with trace-back, but our growers 

are telling us you can trace back to a corner of the field. We want 

to know that is was my lettuce in my field, I can tell you that it 

came right over there out of that corner. That is how sophisticated 

because they are doing all of their packaging now with GPS mapping. That ought to be standard in this country. 

There is no level playing field here. The growers that have to do 

the best management practices have to compete in a field where 

nobody else has to do that. And obviously there is not a fairness 

in the system and we’ve upgraded to protect health and safety, but 

we don’t require everybody to abide by those rules. 

I think we need to find out how CDC is making these decisions, 

because once they blow the siren and it is the wrong crop, as Mr. 

Murray pointed out, it is too late. That crop is wiped out. 

So I think the Chair is really doing some good work here to try 

to figure out how do we find a system that does this: one that gets 

all parties on the same page, and I think that is an incident command, whether you take the CDC and FDA and Food Safety Inspection and growers, I think you have got to include the private 

sector in those protocols. I think you need national growing standards. 

You need to have, as I said, an incident command system; and 

then, as Mr. Bishop pointed out, we need to have some recall damage coverage. So what if you make a mistake. If you find disease, 

I understand, or if Food Safety finds this disease in an animal, 

chicken or cow, and they orders those animals destroyed, they can 

compensate them for ordering them destroyed. The farmer doesn’t 

have to, the grower doesn’t have to, the rancher doesn’t have to 

bear those costs. 

But if you are a leafy green, unless you order it destroyed, and 

you don’t because you don’t have the authority, you have to go the 

states to get that, but if you said it would be great if you just recalled your product and they go out and spend all of their own 

money recalling their product for good public relations and there is 


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huge losses there, there is no way to get compensated. Insurance 

companies don’t help and the Federal Government doesn’t help. 

So those are areas that I hope, as you design your legislation, 

that will go all the way from the people who analyze and blow the 

alarm, the CDC, to the people who end up having a trace-back and 

find out where it is actually coming from. I think there is a lot of 

work to be done. 

Ms. DELAURO. Mr. LaHood. 

LOSSES FOR TOMATO INDUSTRY

Mr. LAHOOD. Mr. Murray, thank you for being here. Could you 

tell us what your losses were? 

Mr. MURRAY. We estimate our losses at slightly over $2 million. 

Mr. LAHOOD. Do you know what the losses were for the tomato 

industry as a result of this huge mistake? 

Mr. MURRAY. I know in Georgia it was over $17 million. I have 

heard different figures from other states so I would hate to quote 

those. 

Mr. LAHOOD. How many states grow tomatoes out of the 50? 

Mr. MURRAY. In the month of June you had Florida, Georgia, 

South Carolina, California, Alabama. 

Mr. LAHOOD. So that is five? 

Mr. MURRAY. Hm-mm. 

Mr. LAHOOD. Would you say five times $20 million would be an 

accurate figure then? 

Mr. MURRAY. No, I would say it is well more than that because 

Florida is much bigger. 

Mr. LAHOOD. Okay. Do you have any idea what Florida losses 

were? 

Mr. MURRAY. I have heard $200 million from Florida and $100 

million from California. 

Mr. LAHOOD. Did you receive any compensation for your loss? 

Mr. MURRAY. No. 

Mr. LAHOOD. Did you receive any kind of an apology from the 

Federal Government for the losses? 

Mr. MURRAY. No. 

Mr. LAHOOD. Dr. Acheson, do you think the Federal Government 

owes Mr. Murray an apology? 

Dr. ACHESON. That is difficult to answer. I feel for Mr. Murray 

and I personally would like to apologize to him on my personal behalf because he was wrapped up in a situation that we are trying 

to avoid. I think the Federal Government in looking at the whole 

system as we discussed starts with the epidemiology, at the CDC 

local level. The FDA is then responding to that information. So 

does the FDA owe the farmers an apology? No. 

You know, FDA was doing what FDA is supposed to do, reacting 

to public health information to protect public health, to jump on a 

trace-back as quickly as possible. We even went as far as trying to 

develop a program in this instance to try to help farmers that were 

in Georgia or in California or in these other states by developing 

this exclusion list, which was a challenge. 

It was difficult. It was new. And I think there are a lot of lessons 

learned around this but fundamentally we shouldn’t be going backwards. We need to be looking forward: How do we put in the sysVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00285 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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temic solutions to minimize the likelihood of similar situations 

through better integration, horizontally and vertically. 

Mr. LAHOOD. I appreciate the fact that you apologize to him, but 

I would like to know if you think the director or the head of some 

agency at least could have the courtesy to send Mr. Murray a letter 

and apologize for the fact that they screwed up his business. I am 

just asking you what you think about that. 

Dr. ACHESON. Well, I think you have to question whether FDA, 

and I represent that agency—— 

Mr. LAHOOD. You know, I doubt if Mr. Murray cares if it is FDA, 

the CDC, the USDA, you know, I doubt if he cares. I am asking 

you if you believe that our government at some level, fairly high 

up, at least have the courtesy to send him a letter and say we are 

sorry that you lost your entire crop and we ruined your business. 

Dr. ACHESON. I think there is still a question that is an important question as to whether this, indeed, was tomatoes to begin 

with. There is no evidence that it wasn’t. We are dealing here with 

a situation where we know factually we have got salmonella on two 

different kinds of fresh produce: Serrano peppers, jalapeno peppers. 

We know there are farms in Mexico that are growing all three 

types: Tomatoes and the two types of peppers. We know that all 

three are going through distribution centers. It is plausible that 

that original epidemiology was correct and we just never found a 

positive and we didn’t find a positive on a farm. 

I don’t think we can say that it was wrong to implement tomatoes back at the beginning of this. I am not seeing any evidence 

to say that that was an incorrect assumption by the Center for Disease Control. 

Mr. BISHOP. Will the gentleman yield? 

Mr. LAHOOD. Of course I will yield. 

Mr. BISHOP. You can’t say that you were wrong but you can’t say 

you were right, either. 

Dr. ACHESON. You are right. That is absolutely correct. The only 

way to say we were right is to find a positive. 

Mr. LAHOOD. Let me—are you done, Mr. Bishop? 

Mr. BISHOP. Yes. 

Mr. LAHOOD. Let me just say this, Dr. Acheson: I think that— 

well, I am not going to—let me say this, Madam Chair: I think 

what the committee should do is send a letter to the inspector general and ask for an investigation into how a whole industry could 

be ruined by people who apparently don’t want to take the blame 

for it. I mean, the answer here is that no one really wants to take 

responsibility and it is unclear to Dr. Acheson whether tomatoes 

were or were not. 

I mean, it is unclear to you. That is what you just said. 

Dr. ACHESON. We don’t have conclusive proof either way. 

Mr. LAHOOD. I know. That is what you are saying. It sort of conflicts with what you said about 2:00 when we started this hearing. 

Dr. ACHESON. In what way? Because if I have said—— 

Mr. LAHOOD. Because you said pretty conclusively that tomatoes 

were—— 

Dr. ACHESON. Now let me clarify this. This is important. 

Mr. LAHOOD [continuing]. It sure as heck is important, very important. 


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Dr. ACHESON. Will you give me a moment? The point about this 

is that in mid-July FDA made an announcement that tomatoes 

that were coming onto the market in mid-July were safe to consume and were not implicated with the outbreak, thus clearing tomatoes from there forward. I did not mean to imply that FDA was 

saying that tomatoes were never responsible, and if I did, I apologize because that was not my intent. 

Ms. DELAURO. And they can be responsible in the future then, 

according to you? 

Dr. ACHESON. They could be. 

Ms. DELAURO. The issue on tomatoes, it is open. 

Dr. ACHESON. We have seen 13 significant outbreaks linked to tomatoes. It is not like we don’t see problems with tomatoes. So I 

don’t want to imply that I am saying that FDA thinks it never was 

tomatoes. We are basing this on the epidemiological data that we 

discussed followed by the trace-backs that we did looking for the 

positive tomato, looking for source, looking for a causative point. 

FDA did not find a causative point for Salmonella Saintpaul. 

Mr. LAHOOD. This is the most flawed system that I have ever 

seen in 14 years of being involved in the Congress. This is a terribly flawed system, and for that alone Mr. Murray is owed an 

apology from you and from everybody that is involved; and secondly, I don’t know how you ever compensate, but I am telling you, 

you all have ruined the tomato industry. You know that there are 

people in America today that won’t eat a tomato, won’t even look 

at one, because of some bulletin that was put out either by your 

agency or some other agency that said that they were contaminated. You all have ruined their industry and it will never recover. 

He will never be able to get back to where he once was. 

Now you and others owe him an apology, and I appreciate the 

fact that you just apologized to him, not only for ruining his livelihood, but ruining the tomato industry and now to sit here and say 

one thing two hours ago and something else now is a little bit beyond belief. My time is up. 

Ms. DELAURO. Mr. LaHood, you will recall the spinach outbreak—wasn’t here when I said it. We are only back 60 percent. 

It is the same with bagged spinach, that people won’t pick it up 

because, and again, it is about the system. 

Let me just take this moment here to just to say to Mr. LaHood. 

This is the last hearing. Mr. LaHood has made a decision about his 

own life, about leaving the Congress, and there is probably no one 

finer with more integrity in the process than Ray LaHood. The subcommittee will miss you, but the Congress will miss you and the 

good work that you have done on behalf of the people who sent you 

here, put their trust in you, are going to miss that kind of representation. Mr. LaHood, thank you. 

[Applause.] 

Ms. DELAURO. Mr. Rothman. 

LESSONS LEARNED

Mr. ROTHMAN. Thank you, Madam Chairman, and to thank you 

for holding this very important hearing. 

Dr. Acheson, I do appreciate the necessity for relying on statistical probability unless the American people are ready to pay to 


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have an inspector inspect every single piece of food that enters the 

food chain. If that is the case and the American people want to pay 

for that, what do you think that would cost? 

Dr. ACHESON. I dread to think what that would cost. 

Mr. ROTHMAN. Give me an estimate. 

Dr. ACHESON. Fifty billion. 

Mr. ROTHMAN. Fifty billion. Do they inspect all of the—you 

thought the EU’s food safety record was comparable to ours, about 

equal to ours. Do they inspect every single item that enters the 

food chain? 

Dr. ACHESON. I don’t believe they do. 

Mr. ROTHMAN. I would love to know, and you used the words 

‘‘lessons learned.’’ What are the lessons learned? You have used the 

words ‘‘vertical integration’’ and others have said that the conclusion is only as good as the date that is provided to come to a conclusion. What would you do differently or what you have others do 

differently with the benefit of 100 percent hindsight, or 20/20 hindsight, with regards to the Salmonella Saintpaul situation? 

Dr. ACHESON. FDA is currently going through a pretty deep process to investigate lessons learned around this, both internally what 

could we have done differently internally with the agency to make 

things flow more smoothly for improved communication; and likewise, what could we have done better—— 

Mr. ROTHMAN. I don’t have much time. Do you have an answer 

or are you still looking into it? 

Dr. ACHESON [continuing]. I can tell you a couple of key areas 

that need to be improved, and that is interaction across the federal 

agencies that are involved in food safety. 

Mr. ROTHMAN. So what happens during that incident, if you will, 

that demonstrated to you a failure of interaction between federal 

agencies, that if it had been improved would have stopped some of 

the problem? 

Dr. ACHESON. I think building trust and sharing data. 

Mr. ROTHMAN. Okay, and if data were shared and there was 

greater trust, would that have affected the CDC’s conclusion that 

you relied on? 

Dr. ACHESON. No, I don’t believe so. Well, that is a question you 

would have to address to CDC, frankly. 

Mr. ROTHMAN. Well, I asked your opinion. 

Dr. ACHESON. No, I think CDC’s conclusion was based on the 

science that they were undertaking with the local inspectors. 

Mr. ROTHMAN. So but maybe you don’t have an answer yet. So 

the problem was, perhaps, and we should ask this of the CDC, but 

you seem to imply that their conclusion was not obviously wrong 

to you. 

Dr. ACHESON. It was not obviously wrong to FDA, no. 

Mr. ROTHMAN. Okay. But you don’t know whether—well, maybe 

you do. Do you know whether the CDC’s procedures in analyzing 

the data was correct? 

Dr. ACHESON. I don’t know the answer to that. 

Mr. ROTHMAN. Perhaps, Madam Chairwoman, at some point we 

could find that out, maybe have some representatives from the 

CDC to find out. Perhaps we should be asking them what lessons 


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learned, if any, they have with regards to this incident, the Salmonella Saintpaul. 

And also Mr. Taylor mentioned that there—I think it was Mr. 

Taylor or Dr. Levi, I’m sorry—they said there were three elements 

to the food safety in FDA and there is not one person in FDA who 

is in charge of all those three. 

Dr. Acheson, or anyone else on the panel, quickly, do you believe 

that Congressional legislation is required to address that, or cannot 

simply the administration simply fix it? Appoint someone to oversee and take responsibility for those three areas of food safety responsibility within the FDA. Dr. Acheson. 

Dr. ACHESON. I am not an attorney, but I would assume that 

that does not require Congress to do, although Congress could do 

it. 

Mr. ROTHMAN. Thank you, doctor. I note that you testified that 

the FDA will be establishing, I think it is a great thing, a presence 

in five countries or regions around the world, which I think is terrific. Could you tell us what those five regions or countries will be, 

if you know? 

Dr. ACHESON. China, India, Central/South America, Middle East, 

Europe. China, India, Central/South America, Middle East, and 

Europe. 

Mr. ROTHMAN. And how many at this point, persons/staff people 

will you be sending to those five regions in total? 

Dr. ACHESON. Approximately 40, slightly under. 

Mr. ROTHMAN. That is probably the known world, so about 40 to 

cover China, India, Central/South America, the Middle East and 

Europe. 

Dr. ACHESON. It is better than zero. 

Mr. ROTHMAN. It is a start. Thank you, doctor. Thank you, 

Madam Chairman. 

Ms. DELAURO. Ms. Kaptur. 

Mr. KINGSTON. Let her go. 

SICK AMERICANS

Ms. KAPTUR. Thank you, Madam Chair and thank you, ranking 

member, Mr. Kingston, I truly appreciate that. Gentlemen, welcome; not an easy hearing today. Let me ask you, for the record, 

how many Americans got sick from the outbreak? Anyone want to 

put that on the record? How many Americans got sick; how many 

died? 

Dr. ACHESON. The latest numbers that I am aware of from Center for Disease Control are 1,453. 

Ms. KAPTUR. All right. 

Dr. ACHESON. Known to have got sick. 

Ms. KAPTUR. Do we have any confirmed deaths? 

Dr. ACHESON. I believe there were two deaths that were associated with this but not directly causally related, but that is a question to direct basically to CDC. 

Ms. KAPTUR. Does anybody have a calculation of the cost to our 

health system of those who became ill? 

Dr. ACHESON. I don’t. 

Ms. KAPTUR. Who would? 

Dr. ACHESON. CDC, perhaps. I don’t know. 


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Ms. KAPTUR. All right. And Mr. Murray, thank you so much for 

your presence today. You have given us some measure of the cost 

to the agriculture industry in our country, which is hundreds of 

millions of dollars. This is something major, no doubt about that. 

Let me ask this question: The produce distribution center, 

Agricola Zaragoza, that was mentioned in your testimony Mr. Acheson, is somewhere in Texas; who owns it? How would we find out 

who owns it? 

Dr. ACHESON. Can I refer that to my colleague from the Office 

of Regulatory Affairs? Do we know that? No, we don’t know that 

but we can find out. 

Ms. KAPTUR. Do you maintain those records of the company, the 

CEO, the profile of the company? Is it an American-owned company, the distribution center? 

Mr. SOLOMON. We can get that for you. 

Ms. KAPTUR. All right. I am very interested in knowing the company. I am interested in knowing its assets. I am interested in 

knowing if it is a U.S.-based company; is it a Mexican company. 

What is it? I would like to know something about this company. 

Mr. SOLOMON. We can get you—we don’t have—— 

Ms. DELAURO. Sir, you need to just identify yourself for the 

record. 

Mr. SOLOMON. This is Steve Solomon from the FDA. We can get 

you the ownership information. 

Ms. KAPTUR. All right, thank you very much. As much detail as 

you have on it; do they have a board of directors; are they publicly 

held; are they privately held? These are all questions that I have. 

Dr. ACHESON. We will provide you with whatever we have, but 

we may not have all of the answers. 

[The information follows:] 


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PRODUCE DISTRIBUTION CHAIN

Ms. KAPTUR. All right. So these peppers somehow got up from 

Mexico into that distribution center so they were the recipient 

point for the contaminated material, correct? 

Dr. ACHESON. One of the recipient points, yes. 

Ms. KAPTUR. One of them. There could be others but we don’t 

know. 

Dr. ACHESON. Correct. 

Ms. KAPTUR. Then, according to your testimony, the farm it was 

traced back to was, well, you said an irrigation ditch from a farm 

in Tamaulipas, Mexico. Have we traced this back to a specific 

farm? 

Dr. ACHESON. We have traced the—let me be very specific here. 

The jalapenos that were positive at the McAllen, Texas distribution 

center actually trace back to a different farm through a distribution 

center in Mexico. 

When we went to the distribution center in Mexico we discovered 

they received peppers from two predominant places, several, but 

two main ones. The jalapenos from McAllen traced back to one of 

them. We went there. We sampled. We did not find the outbreak 

strain. We went back to the other farm and found the outbreak 

strain on Serrano peppers and in the irrigation water. 

Ms. KAPTUR. All right. So can you actually go back to the farm 

itself? 

Dr. ACHESON. We did. Yes, we physically went back. 

Ms. KAPTUR. Who owns that farm? Is it a private family or is it 

an agribusiness? 

Dr. ACHESON. I don’t know. 

Ms. KAPTUR. Can we find that out? 

Dr. ACHESON. We will do our best to provide whatever we got on 

that. 

[The information follows:] 

As part of its investigation and product tracing process, FDA identified the distribution channels for peppers that were shipped to the U.S. These distribution 

channels trace back to farms in Mexico. In addition, as part of a sample and analysis effort, we were also able to identify one particular farm in Mexico that had a 

sample that tested positive for the salmonella (St. Paul) that was implicated in the 

outbreak. 

PRODUCE TRACE BACK

Ms. KAPTUR. All right. We want the same information on the 

business on the Mexican side. 

H.R. 2997

I have a bill, H.R. 2997, that basically would get you compensation in the U.S. federal court system, Mr. Murray, because we have 

no international tort system right now that covers this kind of 

abuse. And this bill would make importers responsible through a 

certification process that would work through our country, the federal agency that would receive the commodities that are inspected 

on the U.S. side, we would end up in the federal courts of this 

country, because right now you don’t have the same right that you 

would have to sue or to get damages from a company that you are 

doing business with in this country. 


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And I think the food companies just love it because they absolve 

themselves of all liability. This is a great system to hide behind the 

standards of the 19th century and it is exactly what they are doing 

and they are outside the bounds of our court system. 

So I just want to say to anybody in the audience, pay attention 

to H.R. 2997. It is a great bill. It should pass but it hasn’t made 

it out of this Congress yet because there is a lot of pressure against 

it. 

COOL—COUNTRY OF ORIGIN LABELING SYSTEM

I wanted to ask: the COOL, the Country of Origin Labeling System, if that had been in place would that have made a difference? 

Dr. ACHESON. This is David Acheson. It would have helped but 

it wouldn’t have solved the problem. 

Ms. KAPTUR. Okay, because the foods were blended? 

Dr. ACHESON. The foods were blended and simply knowing the 

country of origin does not take you back to the farm or the distribution centers or anything in between. 

Ms. KAPTUR. Okay, let me ask this question, Mr. Acheson: what 

is your inspection budget? What is the total budget you have to put 

these people all over the world and try to protect the American people’s health? 

Dr. ACHESON. I would have to get back to you with the actual 

number in which it includes the base and the new monies. 

[The information follows:] 

The FY 2009 Congressional Justification requested FDA with $619.612 million for 

Protecting America’s Food Supply. Later that fiscal year, in June 2008 Congress 

provided an additional $72.295 million for FDA’s Food Protection Plan. This Supplement included an additional $12.2 million in the Foods budget to establish FDA offices overseas. 

INSPECTION BUDGET

Ms. KAPTUR. Okay, but who in the end pays for your budget? 

Where do you get your money? 

Dr. ACHESON. Taxpayer. 

Ms. KAPTUR. From the taxpayer. You don’t get it from the company, do you? 

Dr. ACHESON. Not in the least. 

Ms. KAPTUR. Okay, so the very same people that are doing damage to us are then making money on the private side at unbelievable levels, absolving themselves from responsibility to operate 

under a rule of law in this country, as you do, Mr. Murray; and 

then they put all of their damages at the public trough, even in 

terms of the health cost to our country, whether it is the damage 

to this industry, and it is like nobody has responsibility. It is a system that absolutely abrogates responsibility to those responsible. 

And I am trying to figure out, that is why I want to know who 

these companies are. 

I want to make them pay. I will talk about them on the floor of 

Congress. I will say what they did to your industry, but what is 

interesting is that nobody here today, amazingly, even asks those 

questions. 

What is happening to the rule of law on this continent as a result 

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sentially are erasing a century of effort to build a society that has 

some level of civility and responsibility. Thank you very much. 

Ms. DELAURO. Mr. Kingston. 

Mr. KINGSTON. Thank you, Madam Chair. I wanted to submit for 

the record, this is a public health questionnaire from the Minnesota Department of Health, and Dr. Acheson had mentioned that 

one of the things they have to do on the front line is have the individual county and state health departments—I can pass this 

around. I am just assuming this is typical. 

This is a 23-page questionnaire. As you go through this, you can 

see why it is so difficult. There is so much shoe leather that has 

to be expended on it. I just thought members of the Committee 

would want to see one of those if they have not. 

Ms. DELAURO. Without objection. 

[The information follows:] 


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Mr. KINGSTON. The thing that is interesting about it is I could 

see why there would be some push for uniformity on those things. 

Dr. Acheson, you have been great, you have taken it on the chin. 

You have been a gentleman about it. I wanted to ask you this. 

Ms. Kaptur and Mr. Bishop and I are on the Military Committee. 

We frequently see generals and colonels getting basically fired for 

something that happened down rank from them, something that 

they might not have had any control over, but it happened under 

their watch, and in most cases, it was not a malicious kind of thing 

but the results were the wrong thing. 

In the FDA, what happens from here if somebody has made a colossal mistake, $100 million, maybe a $200 million mistake? Who 

takes it on that? Who is the general? 

Dr. ACHESON. I do not think there is any evidence that FDA 

made any errors. As we heard earlier, I think when we got the 

green light, go trace this back through a complex, one up, one back 

system, small producers, lots of paper, we went back in a month 

on the tomato side and then in the next month, we went back on 

the peppers from sick patients to a farm in a foreign country. 

I think FDA did an excellent job. I wish it were quicker. Obviously, the preventative controls are going to make it less likely we 

have to do it in the first place. 

I do not think FDA made any errors. 

Mr. KINGSTON. I appreciate that answer. Let me ask this then. 

Who squeezed the trigger on shutting down the tomato industry for 

the Summer and caused Mr. Murray to lose—what did you say? 

Mr. MURRAY. Enough tomatoes to feed 90,000 people for a year. 

Mr. KINGSTON. That was $2 million worth? 

Mr. MURRAY. No. The $2 million is also what I lost on produced 

bales. 

Mr. KINGSTON. I know you have already told me before this 

meeting in a private conversation, which I think it is okay to allude 

to because it just sort of clarifies, Mr. Murray said, you know, FDA 

was doing their job and I understand that. He was not taking pot 

shots at the FDA. 

Mr. Murray, would you say that it was the FDA’s fault? Who is 

at fault here? In the sense that we see over and over again when 

there is a breakdown in the military order of things, they seem 

to—maybe too quickly—they do seem to find some place where the 

buck stops, somebody who is accountable. Who is accountable? 

Mr. MURRAY. When I wrote this, a lot of this, I did not know. 

It sounds like CDC just took their best guess that it was probably 

tomatoes. There has been a report out within the last month that 

there have been many shipments of peppers turned back at the 

Border because they had Salmonella on them. 

I just wonder why anybody did not look at that. Why did they 

just say tomatoes. Tomatoes are the second most likely consumed 

vegetable that there is. I guess they just assumed that it is probably tomatoes. 

That is like going to the doctor with a pain in your chest and he 

just takes your heart out. [Laughter.] 

Mr. BISHOP. Will the gentleman yield? 

Mr. KINGSTON. Yes. 


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MEXICAN IMPORT SAFETY

Ms. DELAURO. Will the gentleman yield for one second? 

I think it is important because you raise the issue of the Mexican 

peppers. This is very, very interesting because this is in public documents. 

FDA seemed to be ignorant of information it had in its hands 

about risk with Mexican peppers and did not act on the information earlier. The AP reported that FDA inspectors had repeatedly 

turned back filthy, disease-ridden shipments of peppers from Mexico in the months before a Salmonella outbreak had sickened 1,400 

people, was finally traced to Mexican chiles. 

No action was taken. Since January alone, 88 shipments of fresh 

and dried chiles were turned away. Ten percent were contaminated 

with Salmonella. In the last year, eight percent of the 158 intercepted shipments of fresh and dried chiles had Salmonella. 

Dr. Acheson, you told reporters at the time, and it is AP, that 

‘‘Peppers were not a cause for concern before they were implicated 

in this Salmonella outbreak. We have not typically seen problems 

with peppers.’’ 

I did not make this up. I did not make this up. Ten percent of 

those rejected had Salmonella. It was likely they could have caused 

this disease. 

This is the left hand not knowing what the right hand is doing. 

Why did we not view this as a problem and something that ought 

to be looked at? 

I do not mean to impinge on your time, Jack. I think this is very 

relevant to this issue. 

Dr. ACHESON. Will you allow me to respond to that? 

Ms. DELAURO. Sure. Did you take any action with regard to 

these Mexican peppers prior to this outbreak? 

Dr. ACHESON. Let me explain to you the context of this conversation that we had with the media on this. The question was framed 

in the context of has FDA seen problems in the past with fresh 

peppers from Mexico. The answer to that was typically no. 

As you pointed out, we have found ten positive Salmonella samples from imported peppers from Mexico. Eight—seven of those are 

on fresh peppers that were part of the investigation that was initiated following the identification of peppers that were linked to this 

outbreak. 

Of those ten Salmonellas, seven of them were ones we found once 

we started to seriously look at imported peppers. 

Ms. DELAURO. But this goes back—my point was that in January, 88 shipments of fresh and dried chiles were turned away. Ten 

percent were contaminated with Salmonella. 

Dr. ACHESON. No. 

Ms. DELAURO. This is a lie? 

Dr. ACHESON. No. Ten percent of the total shipments were contaminated with Salmonella, but seven out of those ten were sampled subsequent to the initiation of an assignment linked to this 

outbreak. 

They were fresh and they were ones that we found as we were 

beginning to ramp up. We needed to be looking at fresh peppers 

from Mexico, because we had concerns. 


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Ms. DELAURO. But you had information in January. 

Dr. ACHESON. We had information that dried peppers were rejected at the Border because of labeling issues, because of lack of 

processing issues, some of them were designated—I have a breakdown of them here. 

Twenty-nine were detained as a result of sanitation issues. 

Twenty-nine were refused because of the registration process 

around the canning issue. Twenty-six were refused because of pesticide residues. Three were refused because of labeling violations. 

As I said, ten were refused because of Salmonella, and of those ten, 

seven were ones that came in after we started to intensify our investigation looking for peppers. 

The context of that conversation with the media was around 

have we seen problems with fresh peppers from Mexico before, and 

the answer was we had not. 

You are right. We have had 88 shipments of peppers refused. 

The vast majority through nothing to do with Salmonella. That is 

out of a total, in that time frame, of about 150,000 shipments. 

Ms. DELAURO. I do not know where they got this number. This 

is August 18, 2008, Associated Press, that ten percent were contaminated. That is of the 88 shipments. Ten percent were contaminated with Salmonella. In the last year, eight percent of the 158 

intercepted shipments of fresh and dried chiles had Salmonella. 

That is what is reported. It would seem to me if you have peppers coming in that have Salmonella, dried or fresh, I would say 

peppers. Light bulb goes off, potential problem. Eighty-eight shipments stopped. Some percentage, Salmonella. Maybe, whoa, this is 

the cause here, so that you put the pieces together and you come 

up with something or it may not be, but at least it gives you a road 

to go down. And we had the information months in advance, back 

to January. 

That seems to me to be quite frankly a dereliction of duty. Jack, 

I would just say to you, oftentimes it is not the generals that go. 

My experience recently is it is the guys at the bottom and the gals 

at the bottom go before the generals go. They are blamed for the 

problems and not the folks at the top. 

In any case, Dr. Acheson, I think we have some information here 

that says CDC—we can talk to CDC—someone was asleep at the 

switch here. That is the system. The system is wrong, is broke. 

Mr. KINGSTON. Reclaiming my time. I do not know if we want 

him to have a shot at that. What do you think? Go ahead. 

Dr. ACHESON. I was simply going to say that three Salmonella 

positives prior to this outbreak, out of 150,000 shipments, is what 

we are talking about. That is not something that FDA would jump 

all over because we do not have the resources. 

Three Salmonella positives all in dried peppers, not fresh, prior 

to this outbreak. Subsequent to the outbreak, we found seven more 

because we intensified looking and we continued to maintain that 

high intensity. We are still looking and we are finding positives, 

and we are dealing with them as we find them. 

Mr. KINGSTON. How many out of those ten—what was the total 

volume? You found three before, seven after. What was the total 

volume during that period of time? 


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Dr. ACHESON. About 120,000/150,000 shipments of peppers, one 

sort or another. This is not just fresh peppers. This is canned peppers, all kinds of things. 

Mr. KINGSTON. Actually, that is a good record. I hate to say it 

at this meeting, I might get thrown out by members of both parties. That is not bad. 

However, I would say that underscores my opening statement 

that the private sector has been doing a very good job and that I 

am very hesitant to give the Federal Government more money and 

more power based on some of the dissatisfaction that we have been 

hearing today. 

For example, following a business model, somebody would have 

been accountable for this. There does not seem to be one. Maybe 

Rosa’s legislation could move us in that direction. I do not know. 

I go back to what Mr. Levi said, have a ‘‘no year’’ funding before 

we know exactly what the money is we are investing in, and I feel 

like we should not have already appropriated that $150 million. 

Let me yield back. 

Ms. DELAURO. Thanks for your indulgence. 

I wanted to just—first of all, I will put into the record, if I can— 

we did have a GAO report that did look at the European Union and 

looked at several other countries. The data here, the European 

Union, and I think it is Japan, Canada, thinking about what they 

have done in terms of food safety. 

GAO REPORT—INTERNATIONAL FOOD SAFETY

They look at farm to table. They look at focuses on prevention 

rather than crisis management. They have created safeguards, separated government bodies to carry out risk assessment activities 

from those of risk management decisions. They have cooperative 

arrangements between government veterinarians and public health 

officials. They have mandatory recall. They have mandatory 

traceability. 

We cannot seem to get there for some reason. At the core of all 

of these systems is mandatory traceability. It is mandatory recall, 

and it is the cooperative relationship between the states. 

Rather than moving down that line, and I would ask my colleagues here, the FDA has come forward with ten pieces of new authority related to food safety. 

What I wanted to try to do, and this is a little bit different, is 

to ask our panel, Mr. Levi, Mr. Taylor, Mr. Murray, to comment. 

This is new legislative authority that you have asked for subsequent to this outbreak or prior to the outbreak. 

I would also add that in terms of that authority, there is nothing 

from farm to fork. There is no mandatory traceability. There are 

no performance, preventive performance standards. I do not know 

that it addresses these cooperative arrangements, et cetera. 

I would like to just read what it is, and I can do it for a few minutes and then come back around if people have burning questions, 

but I thought it would be interesting to get some commentary, Dr. 

Acheson, from you on this, and then from our panelists, on whether 

or not we are moving in the right direction for new authorities or 

we should be going someplace else and rethinking what new authorities the Agency ought to be given. 


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I am committed to looking forward and how we can construct an 

Agency here. 

Just so you know, it is pages 21 and 22 of Dr. Acheson’s testimony. First out of the box is ‘‘Allow the FDA to require preventive 

controls against intentional adulteration by terrorists or criminals 

at points of high vulnerability in the food chain.’’ 

Is there anything further you want to say about that, Dr. Acheson, before I ask others to comment on it? 

Dr. ACHESON. Only so there is clarity about what we are focusing 

on there. It is focused on food defense. 

Ms. DELAURO. Mr. Levi. 

Mr. LEVI. I guess the observation I would make is that each of 

these authorities makes sense. The question is what is the larger 

context in which they are going to be framed, and that would be 

part one and part two, if we are thinking about integrating food 

safety functions, this is only addressing the FDA portion of what 

happens. 

Going back in the time line, if FDA entered the scene at the end 

of May, the problem started in the middle of April, so we need to 

make sure that not only the FDA has the authority or this new entity has the authority, going from the very start of an outbreak, 

whether individually or together. I personally do not have any 

issues. 

Mr. TAYLOR. I have a few. It is not on that first one, Madam 

Chairwoman. Two broad points. One is on the second item, which 

is to authorize FDA to issue additional preventive controls for certain high risk foods. 

FDA has authority now on a case by case basis to require preventive controls. It has done it for seafood. 

This provision as it was formulated in the food protection plan 

would actually limit FDA’s authority, current authority, to issue 

preventive control regulations because it would require the finding 

of significant recurring adverse health consequences or death before preventive controls could be put in place. 

To me, that is not a preventive strategy. That is a reactive strategy. Most of the legislation that is pending would require preventive controls across the board in food facilities, case by case on the 

farm for commodities on a risk basis, but in terms of food facilities, 

processing facilities, it would be a comprehensive requirement. 

I think that is frankly better policy. If I could add one more point 

on that, it picks up on Mr. Kingston’s observation about industry 

responsibility for food safety and the fact that the Government cannot make it safe, industry is responsible, and it is the industry that 

does produce a by and large safe food supply. 

I think there is really a lot of common ground on that principle. 

In fact, the preventive control legislation that is pending is really 

all about recognizing and codifying that industry responsibility for 

food safety. 

As Mr. Murray indicated, there are many companies who are 

using preventive controls today and are applying practices and 

standards that actually exceed current Government requirements. 

The problem is that not everybody does, and in order to have a 

system that is really fair and a level playing field, and that the 


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public can have confidence in, I think there is a lot of agreement 

that we ought to have comprehensive preventive controls. 

Really again embracing the industry responsibility for food safety. 

Mr. BISHOP. Mandatory controls? 

Mr. TAYLOR. Mandatory controls; yes, sir. 

Another point at a broad level has to do with imports, which I 

think are not addressed here strongly enough, and I think we have 

rightly had some points about that. 

FDA’s authority today to oversee imports was given to it 70 years 

ago, in 1938. Its only real legal hook on imports is the ability to 

inspect product at the port of entry. If it finds a problem, to detain 

it and keep it from entering the country. 

Dr. Acheson’s ideas and in the import plan that the administration has are good concepts and good ideas, but they are not backed 

up with adequate legal authority. 

Just as we should require preventive controls for all facilities 

here in the United States, we need a legal basis for ensuring that 

foreign producers meet the same standards and have the same preventive controls in place. 

I think some of the legislation that is pending would make the 

importer responsible, the U.S. based legal entity that is bringing 

the food in, responsible for providing some reasonable assurance 

that the produce produced overseas has in fact been produced in 

accordance with U.S. standards and preventive controls and so 

forth. 

Again, this is just codifying and finding a way to capitalize on 

the industry’s responsibility for food safety. 

We will never have enough FDA inspectors to inspect all the foreign food facilities. There are three times as many foreign facilities 

registered to send product here than there are domestic facilities. 

We need more overseas inspections. 

We need to have a mechanism for codifying and enforcing that 

industry responsibility. 

Ms. DELAURO. You said this has to be part of an overarching— 

can you just explain what you mean by that? 

Mr. LEVI. I think as you were thinking about an uniformed safety agency, we have to go to the period before what is now the FDA 

steps in and look at what authorities CDC may need or what is 

now a CDC function. It is going to get very confusing about what 

we are talking about. 

What is now a CDC function and also what state and local governments have and what authority they have to conduct these inspections. I think Mr. Kingston’s example was these investigations 

need to be systematized, and it is unfortunately true for lots of surveillance activities, not just for food safety, where we have 50 

states and the District of Columbia, and each may have slightly 

different approaches. 

This is an instance where we need to be feeding into the system 

relatively systematic and consistent information. 

That is the sort of going further back in sort of the starting with 

the initial identification and the capacity. Capacity is like identifying the problem, the capacity is identifying the problem and then 

do the further inspection. 


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Ms. DELAURO. Thank you. Mr. Murray. 

Mr. MURRAY. I do not have any problems with these at the time. 

I do not really see why FDA registrations would have to be over 

two years. 

Ms. DELAURO. I have a question about mandatory recall. What 

is the trigger? Is there a trigger? Is that immediate? Do they have 

to do a voluntary recall first, Dr. Acheson, or can you move to a 

mandatory? 

Dr. ACHESON. In the current view of the FDA, it would be a situation where a company has refused to do a recall, which is rare but 

has occurred, or is essentially being unduly slow in initiating a recall. 

Ms. DELAURO. It is reliant as it currently is on whether or not— 

it is not an immediate recall that you can do regardless of what 

the company has done? 

Dr. ACHESON. The concept is we need the authority to require a 

recall. How that is translated finally into legislative language and 

what caveats are put around it, I think, would need to be determined as part of the rulemaking process. 

The concept is that right now we cannot require anybody to do 

a recall except in infant formula. We need that tool in our toolbox 

to be able to require that. Exactly how it would look, to answer 

your questions, I think it would be part of the deliberative processes, in the rulemaking. 

Mr. BISHOP. Would the gentlelady yield on that point? 

Ms. DELAURO. Sure. 

Mr. BISHOP. If you finger a business or an industry as a potential 

source of contamination, that is tantamount to recall right there, 

is it not? 

Dr. ACHESON. It depends on what you mean by ‘‘tantamount to 

a recall.’’ The company has to do the recall. We cannot make them 

do a recall. We can seize product. We cannot require them to recall 

it. 

Mr. FARR. Can states? State health authorities? 

Dr. ACHESON. I doubt that a state has the authority to do it. 

Mr. BISHOP. All the retailers are going to do it and the wholesalers, too, because nobody wants to assume that liability, once you 

make the identification. That is what happened to our tomato people. 

Dr. ACHESON. The point is the FDA does not currently have authority to require a recall. 

Mr. BISHOP. You need it. 

Dr. ACHESON. We know. That is what I am saying. 

Ms. DELAURO. That is what he is saying. 

Mr. FARR. I just had a question. I think these recommendations 

are moving in the right direction, but I do not see them being isolated at the Federal level. A lot of these facilities that you want to 

inspect require inspections at the local and state level, some of 

those inspections are higher than the Federal standards. 

It seems to me, and I think what Dr. Levi is talking about, is 

there needs to be an integration of sort of the best responses that 

are out there. For example, highly qualified third parties for voluntary food inspections. 


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FDA-STATE PARTNERSHIPS

I would think you would use the states, if they are doing that 

now, and authorize it. Set up a plan here that is really integrated 

back to that kind of incident command system. 

Dr. ACHESON. We already use states a lot for inspections. To answer your question, part of the plan here is to build on those state 

partnerships. The states and the local health authorities are critical in ensuring the safety of the food supply, both on the preventative side as well as the response side. The system does not work 

without them. 

Mr. FARR. Your recommendations here would design an integrated system, not just a federalization of a lot of these—— 

Dr. ACHESON. The FDA only has authority obviously over the 

Federal part, the FDA part. Working through partnerships with 

the states, we had a 50 state meeting in August to begin to explore 

how can we build those partnerships around outbreak response and 

recalls, and how do we define roles and responsibilities. 

States are key. As part of the new appropriations, we are going 

to be establishing a series of rapid response teams which again are 

localized, integrated Federal/state response teams. 

I agree with you. Incident command systems are the way to go. 

One of the lessons learned for us at FDA is to find ways to do that 

more effectively through ICS. 

Mr. BISHOP. Would the gentlelady yield? 

Ms. DELAURO. I just would like to make this point, Dr. Acheson. 

I am hopeful because I am future oriented, but we had a very similar type meeting in 1998, same groups, same cast of characters. 

1998. Same question, et cetera. 

We are now ten years later. My hope is that I am going to be 

an optimist that we can move, but ten years is an awful long time 

to recreate the same event again. 

Mr. Taylor. 

Mr. TAYLOR. Madam Chair, I think the reason for that, the dominant force among Government agencies is centrifugal force. There 

are a lot of pressures, there are some pressures that push them to 

cooperate, but most of the pressures on them are to stick within 

their own walls and do their own thing and to not operate as part 

of an integrated system. 

If you want an integrated system, if you want a Federal entity 

to be leading the development of an integrated national food safety 

system that includes the state and local bowls, you need to legislate that. You need to tell them to do that and create legal accountability for that. It will not happen otherwise. 

Ms. DELAURO. It looks like what the European Union has done 

in some instances in terms of these. 

Mr. Kingston wanted to be recognized and then let me go to Mr. 

BISHOP. 

Mr. KINGSTON. Go ahead. 

THIRD PARTY CERTIFICATION

Mr. BISHOP. I just wanted to ask with regard to the third party, 

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tioned state and local agencies. Are you also contemplating private 

contractors? 

Dr. ACHESON. Absolutely. To a standard that we have confidence 

in, that you have confidence in and the American consumer has 

confidence in, utilizing third party inspections to essentially help 

inform the risk based inspection process that we do, it is essentially we have 200,000 foreign manufacturers that FDA does not 

get to inspect on a very frequent basis, to say the least. We believe 

third party inspections could help inform that process. It does not 

give them a free ride of entry, but we believe there is information 

there that if it is done right, it could be helpful. 

Mr. BISHOP. We would have an industry of third party inspectors 

that are paid by the Government to do that? 

Dr. ACHESON. No. We would not pay those inspectors. This is already going on. There is already a whole certification auditing industry out there. 

What I am saying is they are already doing that. Let’s make sure 

that if they are doing it, they—— 

Mr. BISHOP. They are certified. 

Dr. ACHESON. They are doing it to a standard and we can then 

use that information to help inform our risk based inspection process. We have a pilot underway right now with regard to shrimp, 

just to explore the feasibility of this, is it viable. 

Ms. DELAURO. There will be lots of questions that surround that 

and that has to be whether we are doing domestic, whether we are 

doing foreign, what kind of accreditation, who oversees these folks. 

Is this one more example of outsourcing of Federal responsibility. 

There are a myriad of questions around this. We have watched 

what has happened with contracting out from the military to you 

pick an area of the Federal Government, the food stamps, it is all 

contracted out. We have massive corruption and abuse and failure 

of the system. 

Mr. Kingston. 

Mr. KINGSTON. Here is the Immigration Service who cannot find 

illegal aliens and here is UPS that can find any package and move 

them from California to Washington. 

Ms. DELAURO. Not mine. Mine did not arrive on Saturday with 

all my material for this hearing. 

Mr. KINGSTON. Yes, but you know who to blame. 

Ms. DELAURO. That was Federal Express. 

Mr. KINGSTON. Think about the corner video store can track 

down any video that my 17 year old has not returned. I would like 

to see the Government match some of that. 

I want to say this is an important point to me. Dr. Acheson. In 

terms of this recall, you have said FDA has done nothing wrong, 

but we do agree there has been a $100 million loss, maybe $200 

million; correct? 

We are saying that may have been the CDC. No heads are rolling. Nobody is in trouble. You have been a good soldier saying it 

was not your agency. [Laughter.] 

Dr. ACHESON. The answer to that is can we all say that it was 

never tomatoes. Is the data to say it was never tomatoes. We have 

not found the data at our side of it to say it was, as I think Mr. 

Bishop pointed out. 


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That is the problem. Could we go back and say it never was tomatoes, it was a mistake. 

Mr. KINGSTON. You also said earlier that you want to move on 

and look forward, but I could never see you guys saying that to Mr. 

Murray, ‘‘you guys’’ being the collective Government. 

Can you imagine him saying got a little environmental problem, 

I have cleaned it up, and the EPA says that is okay, Mr. Murray, 

you have been a great taxpayer, the farm has been in your family 

110 years, let’s just move on. 

The Federal Government never says to anybody move on. They 

always want—you have to defend yourself, and many times, spend 

millions of dollars to prove you are innocent. 

The Federal Government is going to be very benevolent on itself 

now, let’s just move on, and by the way, we want recall. Frankly, 

I think this committee would not be making a good judgment to 

give you guys recall based on this. 

RECALL

What would you have recalled and when would you have done 

it and who would have made that decision? 

Dr. ACHESON. Around this outbreak? 

Mr. KINGSTON. Yes. 

Dr. ACHESON. There was never a recall. 

Mr. KINGSTON. No, I am saying if you had the recall authority 

and you got all of Congress screaming at you, why in the heck are 

you not exercising it. When would you have pulled the trigger and 

who would have made the decision? What would you have recalled? 

Dr. ACHESON. In the current situation, there never was a recall 

situation around tomatoes. There was a recall situation around 

peppers. 

Mr. KINGSTON. That is not what I am asking. I am saying hypothetical, if you had the recall authority that you want. 

Dr. ACHESON. Okay, I see where you are going. 

If we had evidence that a firm has got a product that is in commerce that is making people sick and they are not recalling it, this 

authority would give us the authority to require them to recall with 

some penalty if they do not. 

That decision and the way it is currently being envisioned by the 

administration would be taken at a very high level, secretary, deputy secretary, commissioner level. That is the current vision. 

Like all of these authorities, these are proposals. They are suggestions. It is up to Congress to essentially go one way or the other. 

If you have concerns about one part, you want to do something different—— 

Mr. KINGSTON. Do you think that audits are ever done on a political basis? That the IRS ever audits a firm politically? Do you think 

all audits are random? 

Dr. ACHESON. I do not work for the IRS. 

Mr. KINGSTON. I know that. I am just asking you. 

Dr. ACHESON. As a personal opinion, consumer, do I think—what 

are you asking me? 

Mr. KINGSTON. Can you get me with a little Government conspiracy here? [Laughter.] 


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Do you think that when some companies are audited, it could be 

a little politically motivated? 

Dr. ACHESON. It sounds like you have an inside track that I do 

not. I have no idea. 

Mr. KINGSTON. I am curious. Frankly, it is something that I 

think from time to time all of our constituents accuse of us. 

What about immigration raids on farmers or on plants? 

Mr. Murray, do you ever think that is done on a targeted basis? 

You are a really big plant, you do not get raided, but if you are 

medium sized, you might get raided? What do you think? Anybody 

hear anything about that? 

Mr. MURRAY. I would not. 

Mr. KINGSTON. Good answer. 

Mr. BISHOP. Great answer. 

Mr. KINGSTON. Do you think that any president, Republican or 

Democrat, might at some point use a recall power? 

Dr. ACHESON. I hope not. 

Mr. KINGSTON. I would hope not, too. I do know that some inspections of the USDA and many on a state level, I have heard, 

have been done politically. I am not necessarily saying there is 

hard evidence. Frankly, if there was hard evidence, this Congress, 

Democrats and Republicans, would be united on it. 

There does seem to be some scary factor, for those of us that feel 

like a healthy distrust of Government is good for all of us. The 

more power you have, the more recall. I just cannot see it. 

You have a situation right now where you are saying nobody was 

really at fault, that the FDA did nothing wrong. There is no place 

where the buck stops, but we have a $100 million disaster result 

because of this. Nobody is stepping forward and saying you know 

what, I really was the one to mess up. 

Mr. LaHood said you are the only guys that apologized to Mr. 

Murray, and you are doing that because you are a good sport and 

I understand. You are doing a good job today. 

The reality is if we had an infrastructure where you could say 

look, here is what went wrong and this is the department that 

made the mistake and they made the mistake on sound science, not 

on subjective judgment, then that would make somebody like me 

feel a lot more comfortable, and I think also the Chairwoman, but 

my concern falls off, I do not know why just given the present situation, that the FDA reserves any kind of recall power. 

Mr. BISHOP. Mr. Kingston, would you yield for a second? In addition to what Mr. Kingston said, would you be willing to couple your 

recall authority with an indemnification requirement if your recall 

is inappropriate, so that somebody like Mr. Murray, who was 

wrongfully injured, could be required by your agency to pay for the 

mistake—receive compensation for your mistake? 

Mr. KINGSTON. Out of your own budget. 

Mr. BISHOP. Out of your budget. [Laughter.] 

Dr. ACHESON. Congress can enact anything they wish around 

that. It is not part of our proposal. 

Mr. BISHOP. I said would you feel comfortable with that. In other 

words, you have to shoulder the responsibility for the decisions that 

you make that go along with that authority that you are requesting. 


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Dr. ACHESON. I think Mr. Kingston’s point and yours is there 

needs to be accountability, and I am not going to question that. 

Ms. DELAURO. Let me just add, the European Union, if you read 

the GAO report about the European Union countries and you read 

about the Canadians and Japanese, et cetera, you will find that 

they do have recall, a mandatory recall authority, and it has been 

used very, very sparingly. It has hardly been used. It is an arrow 

in the quiver. 

It is as much for prevention as it is—having the authority to 

move in that direction does not mean that is the first thing that 

you drop on the table. It is not a preemptive war, if you will. 

You always have it there. The data from the GAO and their examination of these countries has said it has not in fact been used 

very much. 

I just have one more question with regard to the authorizations. 

I do not know how much further my two colleagues will want to 

go. I wanted to ask some of the funding questions. 

INTENTIONAL ADULTERATION

FDA to require preventive controls against intentional adulteration by terrorists or criminals, and additional preventive controls 

for certain high risk foods. 

Why is it limited to ‘‘intentional adulteration?’’ Why not require 

preventive controls from farm to fork? 

That is what my concern is with regard to the authorizations and 

how far they go and with high risk, what are we talking about 

there, which high risk foods are eligible, why only certain high risk 

foods, when you are looking at further authorities that you are 

looking for. 

Dr. ACHESON. The goal here was to try to divide food defense in 

terms of deliberate versus food safety unintentional. That is what 

the split is on those two. 

We know there are certain areas with regard to somebody doing 

something deliberate to the food supply, where if they were to do 

it, they could cause mass casualties. That is the focus of that particular language. That is what we are trying to do there, when we 

know if somebody were to put a small amount of an agent at one 

point in the food supply, they could contaminate large numbers of 

servings with a lethal dose. That is what that is about. 

Ms. DELAURO. We do have laws with regard to that at the moment, do we not? 

Dr. ACHESON. No. It is against the law, sure. Of course, it is 

against the law. Let’s take a specific example. FDA cannot require 

that there be a lock on a milk tanker. We know a milk tanker is 

potentially vulnerable. Many industries do that as a routine because it is smart. 

We want to be able when we know there are areas of specific risk 

to be able to require that. That is where we are trying to go with 

that. 

Ms. DELAURO. Okay. That is understandable. Would you concur, 

and this goes back to a long time here in terms of the preventive 

controls from farm to fork that we were trying to talk about earlier, 

that is an authority, if you will, that ought to be part of this lexicon, you know, added to it as we move forward. 


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We asked you about mandatory traceability. As far as I can tell 

from looking at these—which would have been an enormous help 

in terms of the cutting down the time frame and risk here, but that 

does not show up in these ten new kinds of authorities. 

That is what is of concern to me. I think we need to go further 

in these areas if we are trying to get to fundamentally changing 

the system because I go back to my premise that the system is broken and in order to fix the system, you need various kinds of standards and authorities in order to be able to do the job properly. 

Why are they not there? 

Dr. ACHESON. That list was essentially a significant step forward, to put that out there as a marker of some needs, and we regard that as a start. 

You are right, trace back is not in there. That does not mean 

that we are not saying well, we need to think about that. There is 

a limit to what you can deal with. 

Ms. DELAURO. I will make this point. Trace back. If you take this 

as a case study, this Salmonella crisis, if we had the trace back capability, it would have saved weeks and weeks and weeks of time. 

Is that not right? 

Mr. BISHOP. And money. 

Ms. DELAURO. And money. 

Dr. ACHESON. I think it probably would. 

Ms. DELAURO. When you are looking at where you want to go in 

the future, it was the two things that you mentioned. 

Dr. ACHESON. Absolutely. 

Ms. DELAURO. When I asked you about the authorities and the 

tools, preventive and the performance standards, prevention and 

performance standards to deal with it, and traceability. Then we 

look at the blueprint for the future. 

I have not talked about the funding for the future. You have allocated pieces of money for where you want to go. That is real dollars. Are we spending the money properly, which goes back to Mr. 

Levi’s question, if we are not designing the kind of system that will 

prevent what happened this time from happening again. 

Let’s not leave it on the table. Let’s not leave it for the next time. 

Dr. ACHESON. You certainly know my views on the value of a 

mandatory traceability because we have already discussed that. 

I think we have to recognize that what was put out in November 

as part of the food protection plan was where we were in November 

2007. Things change. 

We would never have predicted Melamine in pet food, it just was 

not on anybody’s radar screen. That then gets you thinking. We 

have to stay nimble and we have to have the ability when something crops up that maybe we have not given it sufficient priority, 

maybe we have not moved in the right direction. 

It then triggers okay, let’s deal with this. We are not going to get 

it all figured out ahead of time. 

Ms. DELAURO. I would only say this and then I will end this conversation. I understand. Maybe that is all the market internally 

would bear, to be very honest with you. I cannot answer that question. Only you can answer that question. 

I will go back to the traceability initiative that is out there. The 

industry looked at this. We had the Western Growers here last 


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year. They said mandatory, enforceable food safety standards. We 

have to move in that direction. You are killing us. They picked it 

up. 

I am going to leave it at that, this is what the market will bear. 

I think you understand my point and I think I understand where 

you are coming from. 

Mr. BISHOP. I would like to go back, if Madam Chair will allow 

me, you gave an example, you said you could not require locks on 

milk tanks, that you did not have that authority. Why do you not 

have that authority if you have authority to require the milk tanks 

to be maintained at a certain temperature? 

Dr. ACHESON. We just do not have the authority. Congress has 

not given it to us. 

Mr. BISHOP. You are charged with safety. If security is a part of 

safety, to make sure that it is not contaminated intentionally, a 

lock would certainly assure that, inasmuch as keeping it at a certain temperature would ensure the safety of it. What is the difference? 

Dr. ACHESON. One is a food defense issue and it is around—— 

Mr. BISHOP. Both of them are food defense issues. 

Dr. ACHESON. No, they are not. Food defense is defined as somebody doing something deliberate. The point is to prevent somebody 

from doing something deliberate. 

I am not an attorney, but I am assured by our attorneys at FDA 

that we do not have the authority, and that is why we are asking 

for it. We recognize it as a gap. 

Mr. BISHOP. If somebody turns the temperature gauge down on 

the milk, they contaminate it on purpose. Causes the culture of 

some toxin to be developed. It is the same principle. I do not understand why your folks would say that, other than they probably just 

do not like regulations. 

Ms. DELAURO. I just have a couple more things. I want to try to 

wrap this up here by 5:00, in the next ten minutes. Thank you for 

bearing with us. 

I would just like to put on the record something that Mr. Levi 

said in terms of trying to hold up money to get information. While 

we tried to do that with the $28 million in food safety from last 

year, we still do not have a report back as to what the $28 million 

could be used for and so forth. It is tough to get responses in terms 

of—I want to spend the money but I want to spend it wisely. 

That leads me to just getting really a quick response, because the 

funding issues—I thank you for that, Dr. Acheson, were laid out on 

pages two through four in Dr. Acheson’s testimony. 

FDA PRESENCE IN FIVE COUNTRIES

That is the $14 million FDA presence in five countries, $10 million, et cetera. I do not know if you have any comments about the 

money, use of it in terms of the direction, future direction, as to 

where we ought to be going at the FDA. 

Twelve million for targeting risk based inspection; better targeting of risk based inspection of imports; the $32 million for inspectors to expand domestic and foreign inspectors; $27 million for 

improving response capability and reducing the time between detection and containing illnesses. 


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Any comments? Mr. Taylor. 

Mr. TAYLOR. I think each of these pieces is a piece of a risk based 

approach building up the base, the tools, to do it. I think the point 

that Dr. Levi was making and I think Dr. Acheson would acknowledge is these pieces are meaningful in the context of a larger going 

forward strategy. 

I guess that is what in this particular statement does not give 

us. There is some of that in the food protection plan, but for example, the investments in the ability to identify and assess risk, that 

is important capacity. It has value for food safety when you actually go ahead and identify the risk, when you publicly identify 

what are the significant hazards in the food supply, so that Government and industry can be accountable for addressing them. 

These are building the tool kit and then the question is how the 

tools actually are used. 

I would say the same thing about the inspection increases. I believe there needs to be more inspection resources and more inspections, both domestically and overseas. That resource is well used 

when it is used to hold the industry accountable for doing its prevention responsibility and meeting certain standards, and we do 

not have the preventive control standards in place. 

Again, I am all for investing in building up this tool kit but then 

the question is how you use it operationally in a strategy that is 

based on enforcing the duty to be preventive. 

Ms. DELAURO. This is risk based foods versus the facility, et 

cetera? Should we be looking at risk as it is attached to food 

groups? What is the work that is being done in that area versus 

going to a facility—— 

Mr. TAYLOR. We can take you well beyond 5:00 with this one. A 

starting point should be what epidemiology, and I come back to 

epidemiology’s role in this again, what epidemiology says are the 

most significant hazards in the food system, and then we ought to 

focus on particular foods, particular pathogens in foods. 

We know broadly that some foods are more subject to microbial 

contamination than others, like meat, seafood, dairy products. We 

also know epidemiologically what are the pathogens that are causing illness, and we ought to be doing the epidemiology to attribute 

those illnesses to specific foods and then identifying those hazards. 

That is how epidemiology can inform the preventive effort. The 

tools are good. The inputs are necessary. I think these investments 

are sound, but they have to be aimed at being used in a way that 

actually contributes to prevention. 

Mr. LEVI. The only thing I would add is sort of a question which 

is how far down the road is this taking us, what does $10 million, 

just to pick one of these, how much technical assistance is that 

buying us. What is the level we ideally would need, is this the full 

payment, is it a down payment, what is the goal. 

I think for each of these, that would be a reasonable question to 

ask, so as you are thinking about 2009, 2010, 2011, there is a least 

a trajectory down which we could go. 

Ms. DELAURO. I have a final question, Dr. Acheson, which has 

to do with the overseas offices. In June, we were going to start with 

China, have three offices open by the end of 2008. If you can update us, where are we in terms of getting the offices opening? 


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The reports were Beijing, Shanghai, Guangzhou; is that correct? 

Dr. ACHESON. That is correct. 

Ms. DELAURO. The cities have been chosen? 

Dr. ACHESON. That is still the plan. 

Ms. DELAURO. What is the status? How many staff people? How 

many Chinese nationals? Is the paperwork done? Where are we in 

terms of opening these offices? 

Dr. ACHESON. The director is hired. He is going over there, I believe, in October, to set up. 

Ms. DELAURO. In these three cities? 

Dr. ACHESON. He will be based in Beijing. The applications for 

staffing this up from within FDA because we want experienced 

FDA personnel there has just recently closed. I believe there were 

over 80 applicants to staff this. 

Ms. DELAURO. Still talking just about Beijing? 

Dr. ACHESON. No, about China. 

Ms. DELAURO. About China in general; okay. 

Dr. ACHESON. The goal as I currently understand it is there 

would be probably eight to nine U.S. FDA type personnel and five 

or so Chinese nationals. 

Ms. DELAURO. In every office? 

Dr. ACHESON. No, total China would be 13, spread around between the three cities. I do not actually know how many in each. 

Ms. DELAURO. Has China approved the necessary paperwork 

such as visas and all that? 

Dr. ACHESON. Yes. We are good to go. That was one of the hold 

up’s. 

Ms. DELAURO. I understand that. My understanding, and correct 

me if I am wrong, they were looking for reciprocity with having—— 

Dr. ACHESON. There were some concerns around that, but we are 

through that. 

Ms. DELAURO. We are through that? 

Dr. ACHESON. We are through that. It was not approving individual visas. It was approving the concept of setting this up. 

Ms. DELAURO. Restrictions? Will there be restrictions on travel 

by staff of these offices within China and access to facilities? 

Dr. ACHESON. I do not know, but I will get back to you with an 

answer for that. I do not know. 

We do not anticipate problems gaining access to facilities that we 

want to inspect. The Memoranda of Agreement with the State Food 

and Drug Administration (SFDA) and the General Administration 

of Quality Supervision, Inspection and Quarantine (AQSIQ) both 

require that each country facilitate the inspections of establishments by the other country. The Agreements also acknowledge that 

inspections may be conducted with or without providing advance 

notice to the establishment to be inspected. 

ACCESS TO FACILITIES IN CHINA

Ms. DELAURO. Secretary Leavitt has said that he did not view 

the offices as being just an inspection group. What does that mean? 

Will these folks do inspections? 

Dr. ACHESON. Yes. Part of what they will do is inspections. It is 

clearly not realistic to expect 13 people to inspect thousands of 

firms in China. That is not what this is all about. 


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Ms. DELAURO. Can you get to us when you are getting us some 

information on kind of the scope, the job description, what is it that 

we are asking these people to do there? 

Dr. ACHESON. At a high level, part of it is inspection, part of it 

is being there when things go wrong, as we are just right now experiencing in another situation with infant formula. 

There is no way that we could staff up China to the point where 

we would be out inspecting every firm, to Mr. Bishop’s point. 

Ms. DELAURO. I understand that. I want to know what is their 

job description, what are we asking them to do? 

Dr. ACHESON. We have a job description. We will get you a copy 

of the job description. A high level. It is about building the relationships, understanding what is going on there and essentially establishing a presence so that when things go wrong, we are in a better 

place to respond. 

[The information follows:] 


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CHINA OFFICE JOB DESCRIPTIONS

Ms. DELAURO. What gives me pause on this is the fact that this 

infant formula issue in China has essentially to do with their regulatory process. 

Dr. ACHESON. Right. 

Ms. DELAURO. We continue to move stuff back and forth. We 

have had it for a very long time, evidence, that their regulatory 

process is seriously at fault. 

Babies are dying in China as a result of their lax regulatory 

process. 

We continue to have this back and forth, products coming in 

overwhelmingly relying on a very faulty regulatory process. I do 

not know where that gets addressed or how it gets addressed, but 

it has to be addressed if we are going to have to deal with the safety here of product coming from China. 

What other countries are you planning to open offices in and 

when? 

Dr. ACHESON. India. The director has been appointed for India. 

I think he is going to take up station later this year. I believe there 

are nine people that are going to be in India. 

South and Central America. I do not know that the actual sites 

have been chosen for those yet specifically. The Middle East, which 

the current thinking was Jordan, and then within Europe, which 

is obviously a slightly different circumstance, within EFSA, within 

essentially the regulatory—I think it is potentially one person in 

Brussels. There are going to be three in Europe. The EMA was the 

other one in Europe. 

Mr. DELAURO. Mr. Kingston? No? Okay. 

Thank you all very, very much. We have been here since 2:00. 

It is 5:00. I appreciate your patience. I appreciate your commitment 

and your willingness to answer the questions and to be candid 

about it. 

My hope is that we can really and truly not move backward but 

move forward in trying to design an infrastructure and an agency 

that one, protects the public health, and also I use the word ‘‘protection’’ because I am not afraid of the word ‘‘protection,’’ but protects the industry and protects the public health. 

I think that is where we need to go. I think it is going to require 

some time to do, but I think we have to have everybody at the 

table with all the cards on the table and not be afraid to mix it 

up with one another, so we can come out with a product here that 

puts the public—gives the public—renews the public’s confidence in 

our food safety system. 

I do not think anyone would disagree that the public has real 

confidence problems today, no matter what we want to say, and 

certainly a response to making sure that industry has the ability 

to grow and to thrive, have economic security. Thank you all very, 

very much. This hearing is concluded. 


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(363) 

THURSDAY, MARCH 6, 2008. 

FOOD SAFETY AND INSPECTION SERVICE 

WITNESSES 

DR. RICHARD A. RAYMOND, UNDER SECRETARY FOR FOOD SAFETY 

ALFRED V. ALMANZA, ADMINISTRATOR, FOOD SAFETY AND INSPECTION SERVICE 

SCOTT STEELE, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE 

Ms. DELAURO. Dr. Raymond, I would like to welcome you this 

morning and thank you very, very much for being here; also to welcome Mr. Almanza. Good to see you, and of course our steady guest 

here is Scott Steele. So I want to apologize, Dr. Raymond, for not 

being able to meet prior to today’s hearing, but I serve on the budget committee and with them all day until about 12:30, 12:45 a.m. 

just remarking of the 2009 budget. 

I do not have to remind anyone of this agency’s mission or how 

important it is. On this subcommittee we have an obligation to 

make sure the Food Safety and Inspection Service is well-prepared 

and well-supported to carry out its regulatory responsibility and 

protect our nation’s food supply. 

We all share a common goal, that is to create an effective food 

safety system that focuses on prevention, not just reaction, ensures 

the public health, and makes the most effective use of limited resources. These are rather basic and guiding principles of reform, 

but for too long they have been undermined by inadequate authority, outdated oversight laws, and by regard for private interest that 

compromises the public— 

This past year has been an eventful one for FSIS. The meat recall involving Topps Meat Company in September included a thenrecord 22 million pounds of beef. When Topps closed its doors the 

following month, it was a stark reminder that every recall carries 

not only—health consequences, but significant economic implications for businesses and workers as well. Last year we also learned 

that the Food Safety and Inspection Service was underestimating 

the prevalence of E. coli O157:H7 in our nation’s meat supply. The 

Food Safety and Inspection Service was not analyzing all of the 

regulatory samples taken for raw ground beef to test for the presence of the E. coli bacteria. 

The agency had allowed companies with their own testing programs to divert ground beef that tested positive for E. coli O157H7. 

And the Food Safety and Inspection Service inspection personnel 

were allowed to discard samples that tested positive from the same 

lot of meat, preventing it from being sent to a food safety and inspection service laboratory for further analysis. 

Fortunately, the agency modified the policy, but we still have serious questions as to why it ever happened in the first place. The 

end of 2007 also saw the Office of Inspector General release an 


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audit report, confirming the subcommittee’s concern that the Food 

Safety and Inspection Service lacks coherent data to support the 

move forward a risk-based inspection system for poultry processing 

plant. 

I’m glad that the Food Safety and Inspection Service has agreed 

with the Office of Inspector General’s recommendations on key 

steps that it must take before proceeding with its risk-based system. 

But simply acknowledging those recommendations is not enough 

to earn the green light. The Food Safety and Inspection Service 

must actually address the problems identified in the report before 

moving forward. The Office of Inspector General emphasized this 

important distinction as well, criticizing Food Safety and Inspection 

Service for failing to achieve its proper commitments to the Office 

of Inspector General. 

The Food Safety and Inspection Service is clearly not ready to 

implement risk-based inspection; yet it appears to be moving forward with a so-called public health-based inspection system. Essentially a risk-based inspection system for poultry slaughtering plant, 

it has a new title, but the concerns remain the same. 

If the Food Safety and Inspection Service is not ready to implement risk-based inspections for processing plants, it certainly is not 

prepared to go forward with risk-based inspections for slaughtering 

facilities. The labor implications of these facilities faster lines—are 

problematic, but the food safety implications are even more— 

Of additional concerns about relying on company inspectors in 

place of USDA inspectors, and I hope to address all of those questions with you today and to discuss your plans for the months and 

the years ahead. 

To be sure this agency has not been starved for resources, in 2007 it was funded at $29 million above the budget request. For 

fiscal year 2008 it was spared across-the-board cuts and funded at 

the full request. And I’m happy to say, working with you, that we 

did that specifically because we did not want you to have the full 

request that we believe and you believe was important for you to 

carry out your— 

Unfortunately news on food safety hasn’t improved since—the 

Humane Society uncovered horrific practices—Hallmark 

Westland—plants—California were downed cattle were forced to 

answer that they could pass federal inspection. As we all know, the 

slaughtering of downer cows—present a higher risk of E. coli contamination, and it violates the law with regard to downer cows. 

This investigation led to the recall of more than 140 million 

pounds of meat, setting a new record for the largest recall in U.S. 

history. Perhaps the most disturbing is the fact that this Hallmark 

Westland plant was the second-largest meat supplier to the national school lunch program. Thirty-seven million pounds of the recalled meat were originally estimated to have gone to the program. 

Next week the subcommittee will be hearing from the Department of Agriculture’s Food and Nutrition Service, and I intend to 

focus specifically on the school lunch aspects of the recall. 

I might—here that I think what the Humane Society investigation pointed up what might be regarded as a perfect storm. We 

were there looking at some real fault lines, in my view, within the 


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agency, and that is the inhumane slaughtering—the violation of 

the downer cow rule, the potential contamination of beef that goes 

to a school lunch program. It has uncovered a myriad of problems 

that I think point to the very real problems in our food safety system and in the food system safety as they exist at the Food Safety 

and Inspection Service. 

I should note that I’m troubled that your testimony this morning 

while addressing some topic like BSE in great depth fails to seriously address some of our most urgent concerns like the dramatic 

Hallmark Westland failures or the larger questions of E. coli 

threats. There’s something seriously wrong with our system when 

it is the disease outbreaks that are catching the failures at these 

plants, and not the Food Safety and Inspection Service. That is 

your responsibility. It’s our responsibility in terms of oversight, but 

it’s your responsibility, and it is not the Humane Society’s responsibility or the disease outbreak that is what is catching failure at 

these plants. 

Dr. Raymond, I thank you again for being here. I look forward 

to our discussion, so that we confront these very tough issues, 

strengthen Food Safety and Inspection Service’s ability to meet its 

regulatory responsibilities and together to meet our commitment to 

the American people. And I thank you. 

And with that let me yield to Mrs. Emerson. Mr. Kingston? Is 

Mr. Kingston coming at all today? I don’t believe Mr. Kingston will 

be here today. 

SPEAKER. He is coming. 

Ms. DELAURO. Okay, but is he here for opening remarks? Ms. 

Emerson will proceed with opening—— 

Ms. EMERSON. I just would like to thank you, Dr. Raymond, Mr. 

Almanza, and Mr. Steele, for being here. I know that we will have 

a very interesting and hopefully very productive meeting today. 

With that, Madam Chair, I think I’ll just save any remarks and/ 

or questions until Dr. Raymond has finished his testimony. 

Ms. DELAURO. Thank you, Dr. Raymond, and you know, please 

proceed with your testimony, and you know the entire testimony 

will be made a part of the record, so you summarize in the fashion 

you care to. 

OPENING STATEMENT

Dr. RAYMOND. Right. Thank you, Madam Chairwoman, and 

Ranking Member Kingston and members of the Subcommittee, I 

am pleased to appear before you today. I would like to thank you 

and other members of the Subcommittee for your ongoing efforts to 

provide FSIS with the resources to improve the safety of meat, 

poultry, and processing products. 

I would first like to address the ongoing investigation of the Hallmark Westland Meat Packing Company in Chino, California. I 

want to assure you that I am deeply concerned about the inhumane 

handling of non-ambulatory disabled cattle in that facility. As soon 

as we learned of the problems at Hallmark Westland, we did take 

immediate steps to determine if the allegations made public by the 

Humane Society of the United States were accurate. The FDA’s Office of Inspector General is leading the investigation at this time 

with support from FSIS and AMS. 


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At the conclusion of the investigation, the Secretary announced 

last week that we will be implementing a series of interim actions 

to verify and thoroughly analyze humane handling activities at all 

Federally inspected slaughter establishments. 

The Federal Government has an interlocking system of controls 

to protect against BSE. The FDA’s ruminant-to-ruminant feed ban, 

which began in 1997, is the most significant step that the Federal 

Government has taken to protect animal health. 

The single most important thing we can do to protect human 

health regarding BSE exposure is the removal from the food supply 

of specified risk materials, or SRMs, those tissues that, according 

to the available scientific evidence, could be infective in a cow with 

BSE. According to the Harvard Risk Assessment, the SRM removal 

alone reduces the risk to consumers of BSE by 99 percent. 

The USDA has conducted targeted BSE surveillance testing since 

1990, which has detected only two animals with the disease out of 

over 759,000 high-risk animals tested to date, and both of those 

animals were born prior to initiation of the feed ban and neither 

entered the food supply. 

The rule that prohibits non-ambulatory cattle from entering in 

the food supply is another one of the multiple measures that are 

in place to protect us. Because of these measures, we can be confident of the safety of our beef supply in regards to BSE. 

I’d now like to highlight some efforts that we have made to protect human health from other foodborne pathogens. Based on the 

Centers for Disease Control and Prevention’s annual Food Net data 

report, we know that we are making some progress towards the 

Healthy People 2010 goals regarding the incidence of foodborne illness. However, we also know that we still have work to do to further reduce the foodborne illnesses. 

Following an increase in positive product test results and recalls 

for E. coli O157:H7, which I’ll just refer to as E. coli from now on, 

last fall the FSIS announced several new ongoing actions to further 

protect the public against the risk of E. coli, which includes expanded testing. 

It is important to keep things in perspective, however. Although 

we ended 2007 with 21 recalls due to E. coli, which is an increase, 

and the percentage of E. coli-positive samples from 2007, which 

was 0.24 percent, while being slightly higher than the 0.17 levels 

that we saw in 2004–2006, is still well below the percentage of 

positives that we saw in 2001, when we announced our new guidelines, which at that time was 0.87. And I think the graph does illustrate there is a definite increase, we acknowledge it, but is still 

better than it had been at the start of this decade. 

FSIS also collects and analyzes samples of raw meat and poultry 

product for Salmonella. Because of the increase in Salmonella-positive product tests that we were seeing early in this decade, FSIS 

did announce an 11-point risk-based strategy for Salmonella reduction in raw products in February 2006. 

We can easily see the positive results in this risk-based strategy 

already. The percentage of plants that fall into the best-performing 

category has increased dramatically from 35 percent to 74 percent 

over that two-year period of time. On March 28, 2008, this agency 

will begin posting on its Web site the completed verification test reVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00366 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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sults from establishments with Salmonella rates in the other two 

categories, beginning with young chicken slaughter establishments. 

In addition to strengthening our policies to reduce foodborne 

pathogens, FSIS has been proactively building its data infrastructure for the last few years, based on internal FSIS assessments and 

also audits by the Office of Inspector General. We were pleased 

that the OIG agreed that our responses to all 35 of its recommendations from the December 2007 OIG audit addressed their 

concerns. We acknowledge the need identified by OIG in this audit 

for FSIS to have an integrated system and an infrastructure in 

place to support a robust risk-based inspection system that we do 

need to further improve the safety of the food products that we regulate. 

FSIS has already initiated or completed a number of actions, and 

we have milestones to measure our successes in this area. 

Because our employees are on the front lines, enforcing our food 

safety and food defense policies and monitoring establishment controls of foodborne pathogens, they do remain our greatest asset. 

When FSIS received its final appropriation from Congress last 

year, including the budget increase of $27.4 million that we requested to help reduce vacancy rates and meet increased demand 

for front-line personnel, an aggressive effort was already underway 

to hire a significant number of new inspectors. 

I’m pleased to let you know that on October 27 of 2007, FSIS did 

achieve the goal of an additional 184 in-plant front-line personnel, 

including food inspectors and consumer safety inspectors, which the 

President had requested the budget increase. 

As of February 16, 2008, our vacancy rate in slaughter establishments is now at 4.25 percent, our vacancy rate in processing plants 

is 2.23 percent, and our total overall vacancy rate in front-line inspection is 7.4 percent today. 

Because our workforce is so important, FSIS is requesting $952 

million for fiscal year 2009, an increase of $22 million above the 

fiscal year 2008 level. This appropriation request includes funding 

for an increase in pay and benefit costs, an increase for costs of the 

State meat and poultry inspection programs, and an increase to 

support Federal responsibilities added due to the takeover of the 

New Mexico State Inspection Program. 

The appropriation of the full amount requested is paramount because of the importance of FSIS’s mission, that is, protecting the 

public’s health. If we are not appropriated the full amount of our 

request, the salary and benefit cost for FSIS’s statutorily mandated 

workforce will have to be fulfilled using the budget of other FSIS 

initiatives and programs. 

The Administration also proposes legislation to provide the 

USDA with the authority to collect new user fees, including a licensing fee and a performance fee. 

Madam Chairwoman, Ranking Member Kingston, Mrs. Emerson, 

and members of the Subcommittee, thank you for the opportunity 

to testify today, and Mr. Almanza and I will be very happy to try 

and answer all of your questions as best we can. 

[The information follows:] 


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FOODBORNE ILLNESS DATA

Ms. DELAURO. Thank you very much. 

Do you want move first because you have to—— 

Ms. EMERSON. Madam Chair, I’ll let you go on and go first, and 

then I’ll just pick up right afterwards. 

Ms. DELAURO. Thank you. 

Dr. Raymond, in your testimony before this committee last year, 

the numerous speeches including your presentation at the USDA 

Agricultural Outlook Conference recently and again in your testimony today you claimed that USDA FSIS, the Food Safety and Inspection Service, is making great progress in reducing foodborne illness, and we have the charts, and the charts that are up there. 

There is little data to back up that assertion, and I wonder why 

you keep making it. 

First you continue to cite the regulation verification data for Salmonella and E. coli collected by the agency as though the numbers 

reflect a reduction in the national prevalence of these two pathogens in FSIS-regulated foods. I have a chart here as well, in which 

we’re looking at the increases. I didn’t get it blown up here, but 

we’re looking at increases in whether it’s Campylobacter, E. coli, 

Salmonella, or Listeria monocytogen. 

You’ve been told by the Office of Inspector General and the National Advisory Committee for Microbiological Criteria for Food 

that the regulatory verification data do not represent a national 

sample. They reflect only what is happening in a particular plant 

on the day that it was tested. The reductions in positive tests for 

E. coli, O157:H7, may show only that the companies tested had no 

E. coli on that day of testing. It’s less appropriate to use Salmonella verification data as reflecting improvements in public 

health protection. 

First, these are only reflective of what is happening in one plant 

on the day that it was tested. The data have no national significance. Second, the Salmonella performance standard is not a public 

health standard. It was established based on an industry standard 

a decade ago; it represents only what the top half of companies 

were able to achieve then. It is entirely possible that every company in the country could pass the Salmonella test and Salmonellosis cases from USDA-regulated products would not decline. 

Let me just ask you this. Do you understand that the verification 

data do not reflect the prevalence of the pathogens in the meat 

supply? 

Dr. RAYMOND. We’ve made changes in the way we collect that 

data to try to make it more representative. For instance, we used 

to sample for Salmonella at the very start of the first shift in 

plants, and we recognize with input at the Safe Food Coalition that 

that probably is not a representative sample. And so we do 

samplings throughout the day to make it more representative. 

Ms. DELAURO. But I’m saying is we posit information and data 

here is if it gives the public the sense that we’re moving in a direction, and a very positive direction, when in fact that’s not the case. 

I think honesty, quite frankly, requires that you stop suggesting 

that the numbers reflect a national prevalence or reductions in the 

national prevalence of Salmonella and E. coli. Quite frankly, I 


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would like your commitment here this morning that you’re not 

going to misuse these data to support the national changes in the 

inspection system. 

Can you just answer us ‘‘yes’’ or ‘‘no’’ about whether we have representative samples here that lead us to what appear to be erroneous conclusions about reducing foodborne illness? 

Dr. RAYMOND. Well, Madam Chair, two years ago when we started the initiative, we had approximately 17 percent of chicken carcasses positive for Salmonella, and last year it was 7.4 percent. 

Ms. DELAURO. Can you answer ‘‘yes’’ or ‘‘no,’’ Dr. Raymond?— 

dealing with information—what’s the answer to his question? This 

is data that is being—you’ve been told by the OIG. You’ve been told 

by the National Advisory Committee for Microbiological Criteria for 

Food that the regulatory verification data do not represent a national standard. I didn’t make this up. I am neither this National 

Advisory Committee, nor am I the Inspector General. Now they say 

it is not representative, isn’t a national sample. 

Dr. RAYMOND. We do believe that trends over time do show, the 

data over time do show trends in prevalence in the products that 

we test. 

Ms. DELAURO. I probably should have blown this chart up or 

enter this chart into the record, which demonstrates that in fact 

while early on between 2001 and 2005 we were looking at minor 

reductions, but in every measure here we are looking and going 

further forward in terms of the cases of foodborne illness. 

So, again, honesty requires. We’re not going to address this problem and deal with what you talked about in terms of prevention 

versus reaction unless we know what our set of circumstances is. 

And—appear to me that not we, but that you, that the agency is 

burying its head in the sand and not really focused in on the dimension of the problem and then how we work together in order 

to be able to address it—sure that we reducing foodborne illness in 

this nation, and not increasing it. 

HALLMARK/WESTLAND RECALL

Ms. EMERSON. Thank you, Madam Chair. 

Dr. Raymond, first let me ask you with regard to the Hallmark 

incident, is there a quantifiable level of BSE risk that USDA has 

been able to measure for the Hallmark meat which improperly entered the food supply? 

Dr. RAYMOND. An analysis that we just recently completed and 

had peer reviewed, showed that if this plant had allowed every 

downer cow that presented—let me take the most conservative 

viewpoint here—if every downer cow that was at that plant—and 

by the way, 5 percent of animals at that plant were condemned— 

and if all of those had been allowed to enter the food supply, because of all the other measures in place that we have, the risk 

would have increased by 0.13 percent. And I must point out that 

we don’t have a quantifiable baseline risk, but it is extremely small 

because of the interlocking steps that we have to prevent BSE from 

entering the food supply. 

Ms. EMERSON. Okay. 

The information regarding the downer animals entering the food 

supply obviously as you mentioned came to light after undercover 


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work by the Humane Society. Does USDA utilize similar investigative techniques? And if you don’t, do you think you should consider 

it? 

Dr. RAYMOND. We do use some—undercover perhaps is the right 

way to describe it—some observation of pens when the plant is not 

aware that we are observing them. For instance, it could be from 

off-premise instead of just on-premise. Whether we should do more 

of that is a question that we will consider, once this investigation 

is complete as to how we can better do our job. 

Ms. EMERSON. Can you outline for us the time lines for when the 

video was taken when USDA learned of it and steps leading up to 

the recall and effectiveness checks? Do you believe that the video 

was released in timely fashion, and also—I’ve got another followup to that. So go ahead. 

Dr. RAYMOND. I believe the video was obtained over about a sixweek period of time, probably all of October and maybe half of November, and I believe we became aware of it on—Al, correct me if 

I’m wrong—I think it’s January 31? January 31 is when we became 

aware of the video. Thirtieth. I’ve been corrected, January 30. 

Ms. EMERSON. Can you estimate how many pounds of food were 

produced between the film’s production in October and its release 

to the agency? Do you know? 

Dr. RAYMOND. Well, that would be over a four-month period of 

time, which would be one-third of a year, and we know over the 

two years it was 143 million pounds produced over two years. I 

guess we divided by six, it would be approximately 270,000 pounds. 

Yeah, that would be about right. No, it would be about 220,000 

pounds. I’m sorry. 

Ms. EMERSON. Okay. You know, I think it was at least clear to 

Hallmark or their employees when the improper handling of animals was possible without being detected by USDA. Tell all of us, 

if you would, how you all plan to address this glaring concern. 

Dr. RAYMOND. Well, as you know, and as I said, the OIG is conducting and leading an investigation right now with our support, 

and once that investigation is done, we will sit down and have serious conversations about what the investigation shows and what we 

need to do differently. 

Ms. EMERSON. Do you anticipate that study taking several 

months, several weeks, or is it just impossible to know? 

Dr. RAYMOND. You know, I cannot predict how long the OIG will 

take in its investigation, and we will move as quickly as we can 

once that is done. 

Ms. EMERSON. In the meantime, though, are you taking more 

precaution? 

Dr. RAYMOND. Yes. We have taken, instituted several steps, beginning with the 19 slaughter plants that do supply products to the 

school food supply system. Following that, we’ll focus on old cow 

plants and veal plants, and then from there to the rest of the 

slaughter plants, over a 60-day period of time. This includes increased time doing humane handling, and surveillance activities. It 

would include some increased undercover surveillance activities. 

Al, help me out. What else? There are several points I’m forgetting. 


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Mr. ALMANZA. Utilizing other departmental—parts of the agency, 

APHIS, and packers and stockyards and some of those other—— 

Ms. EMERSON. Their personnel to assist so that you—— 

Mr. ALMANZA. Yes. 

INTERSTATE SHIPMENT

Ms. EMERSON. Okay. 

Let me just switch subjects really quick. Last year, Dr. Raymond, 

our colleague, Sam Farr, raised the issue of interoperability, increased coordination between state inspectors and FSIS, and this 

question unfortunately was dismissed on the basis of, one, Federal 

law prohibits interstate shipment of meat produced, state inspected 

at facilities. And two, I think you all said it was FSIS’s intention 

to bring common sense to bring common sense to federal inspections through risk-based inspection. 

On the other hand, FDA has kind of taken this whole idea and 

run with it, and have proposed standards for manufactured food 

regulatory program, which would allow them to coordinate and utilize state inspectors, so FDA can focus its limited resources elsewhere. 

Both the Senate and House versions of the Farm bill contained 

provisions that allow expanded interstate shipments of state-inspected meat. So my question would be: Has FSIS revisited the 

agency’s relationship with potential state partners, and what is 

your all’s current position? 

Dr. RAYMOND. We don’t have a position on interstate shipment 

at this time on the Farm Bill. We have provided technical assistance to both the Senate and the House—both from a fiscal standpoint and also from an FTE standpoint. And either one of those 

versions or a compromise of the two would require more increased 

cooperation between FSIS and State inspection programs and perhaps increase supervision, depending on which model was used. 

Ms. EMERSON. And would that be helpful? 

Dr. RAYMOND. Again, we don’t have a position on those subjects. 

We will certainly follow whatever is passed. 

Ms. EMERSON. Well, let me just say, though, Dr. Raymond, that 

you know I know you’re on the science side, but USDA doesn’t generally hesitate to make drastic proposals for the Farm bill, I have 

to say, and certainly USDA has been to think outside the box on 

occasion when it has wanted to. 

Anyway, let me thank you very much, and Madame Chair, thank 

you. 

Ms. DELAURO. Mr. Hinchey. 

INSPECTION PERSONNEL VACANCIES

Mr. HINCHEY. Thank you very much, Madame Chairman. Under 

Secretary, thank you. Nice to be here with you again, and you 

know talk about a subject that is really important to the health 

and safety of people of our country. And I think that based on the 

information that I have and the interaction that we’ve had over the 

last few years, it seems to me that you try to do a good job. But 

it’s not always easy to do. 

One of the issues that you have to deal with is the number of 

inspectors that you have around the country to look at these food 


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production facilities, and to make sure that the food that is being 

sold is safe, it’s not going to have adverse consequence. 

I understand the number of inspectors now is down by about 10 

percent, is that right? 

Dr. RAYMOND. The number of inspectors today compared to a 

year ago is actually up, Mr. Hinchey, by 100. 

Mr. HINCHEY. I’m not talking about compared to a year ago. 

Dr. RAYMOND. Okay. 

Mr. HINCHEY. The number of inspectors that are supposed to be 

in your agency I understand is about 8,000. And you have now 

something in the neighborhood of 7,300, or something like that. So, 

based on those numbers, the number of inspectors is down from 

where it ought to be by about 10 percent. Is that correct? 

Dr. RAYMOND. The numbers right now today are 7.4 percent. 

They were 10 percent, and we’ve been able to bring those numbers 

down somewhat. 

Mr. HINCHEY. Oh, so it’s a little over 9 percent, then? Not by 10 

percent? 

Dr. RAYMOND. 7.4 percent is the overall vacancy right now of our 

front-line inspection workforce. 

Mr. HINCHEY. 7.4 percent? 

Dr. RAYMOND. Yes. 3 

Mr. HINCHEY. But you have less than 7,400 inspectors. Or do 

you? Well, how many inspectors do you have? You’re supposed to 

have 8,000. How many do you have? 

Dr. RAYMOND. As of the first pay period, the first week in January we had 7,310 inspectors in the establishment. 

Mr. HINCHEY. 7,300? Okay. 

Dr. RAYMOND. Yes, sir. 

Mr. HINCHEY. That’s what thought originally. So you’re down 

about 10 percent, close to 10 percent. And the question arises, you 

know, what is the quality of inspection that is being administered 

since we don’t have enough inspectors? Why is it that we don’t 

have the full number? 

Dr. RAYMOND. There are several reasons, and probably the biggest one is that we just have trouble recruiting for some geographical areas in the country. We have been very aggressive in offering signing bonuses and moving expenses, et cetera, trying to fill 

those vacancies. But it is difficult in some parts of the country to 

find—— 

Mr. HINCHEY. Well, I would encourage you to be more aggressive 

in that regard, because I think that this is very, very important. 

And if we don’t have enough inspectors out there, then this job is 

not going to get done. 

Ms. DELAURO. Will the gentleman yield for a second? It’s my understanding, and just for verification, that in the Alameda District, 

which is where Hallmark Westland is, that the vacancy rate in 

that area was at about 11 percent. 

Mr. HINCHEY. Okay. The vacancy varies. It varies sometimes up 

as high as 11 or 12 percent, down in some areas by less. But across 

the country, the vacancy rate is somewhere in the neighborhood of 

9, close to 10 percent. 

There’s a request in the budget from the president to increase the amount of funding by $22 billion. [CLERK’S NOTE—The DepartVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00437 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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ment subsequently clarified the number is $22 million] I would just 

say that we’ve got to focus more on this issue of the number of inspectors, because the inspections aren’t being done. They’re not 

being carried out properly. 

Last month, for example, we saw that the largest beef recall in 

U.S. history took place at the end of February, and you know I 

think it’s pretty shocking for the American people to see that kind 

of thing happening. They expect that their government is going to 

be doing everything it can to protect their health and safety. 

RETAIL DISTRIBUTION LISTS

Now to your credit, as I understand, going back a couple of years, 

to 2006, you recommended that whenever there is a beef recall, 

people should know where that food that was being recalled was 

sold from. Am I right about that? 

Dr. RAYMOND. Yes, sir. 

Mr. HINCHEY. But that hasn’t happened. In spite of the fact that 

you made that recommendation, which is to your credit that you 

did so, that hasn’t happened. So in the case of this beef recall, the 

largest recall of food in the history of the United States of America, 

people across the country who are subject to exposure to that adverse food weren’t able to learn from where they bought it. I would 

like you to tell us the names of the retail establishments that that 

food was sold from. And to the best of your ability, give us an indication as to how many people actually purchased that food from 

those specific retail stores. Now can you do some of that right now? 

Dr. RAYMOND. Congressman, I can tell you there is nearly 10,000 

retail establishments, and I cannot give you each individual—— 

Ms. DELAURO. What was the number? I’m sorry? 

Dr. RAYMOND. Just short of 10,000 retail establishments. 

Mr. HINCHEY. There are 10,000 retail establishments? 

Dr. RAYMOND. Nearly 10,000. 

Mr. HINCHEY. Some fraction of that 10,000 was engaged in the 

sale of this beef product, which was recalled, and I assume recalled 

because of the work that you do in your operation, because you 

were responsible for that recall, and I congratulate you on that. 

But I think that you are confronting some adverse circumstances 

in the context of the overall situation in which you work, in spite 

of the fact that I’ve cited two examples of how you as the Under 

Secretary for Food Safety Inspection, have done those two very important things in recent years, nevertheless the effect of what you 

are trying to do is not where it ought to be. 

So there are 10,000 retail stores, a fraction of those 10,000 was 

responsible for selling this adverse food that was recalled. I would 

like you to tell us where those retail stores were, what the names 

of those retail stores were, and where those retail stores obtain the 

product that they sold which was recalled; and to whatever extent 

you can, also tell us to what extent they knew that the product 

that they were buying was under the quality that it should be, and 

that it might in fact be recalled. Can you do that? 

Dr. RAYMOND. First of all, if I might, I’d like to clarify. It’s 10,000 

consignees, not 10,000 retail stores. I assume that means consignees could have several retail stores. 

Mr. HINCHEY. Okay. 


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Dr. RAYMOND. So it’s more than 10,000. I’m sorry for that 

misstatement. 

Mr. HINCHEY. So, 10,000 retail companies—— 

Dr. RAYMOND. Consignees, yes. 

Mr. HINCHEY. Yeah. So they’re companies, and they may have a 

number of outlets, which many of them do. 

Dr. RAYMOND. That would be correct. 

And to answer your last question, no, of course they had no idea 

they were buying meat that had not been produced under full compliance with our regulations at the time. 

Mr. HINCHEY. How quickly can you provide us with the information that I just asked for? 

Dr. RAYMOND. I’m not sure that I can at this point in time, because it’s considered proprietary. 

Mr. HINCHEY. Now, wait a minute. I’m going to strongly object 

to that. 

Dr. RAYMOND. Okay. 

Mr. HINCHEY. And I don’t want you to say that. This is not proprietary information. This is information that is directly engaged 

in the health and safety of the American people, for which we have 

a responsibility, along with you, to protect. 

Dr. RAYMOND. Yes. 

Mr. HINCHEY. And if we have stores that are selling bad products, we need to know about it. So if we can’t get this information 

from you by the first of next week, then we’re going to start pressing you very hard in whatever way we can in order to obtain that 

information. 

So I hope that you will provide it to us by Monday or Tuesday 

of next week. 

Dr. RAYMOND. I will check with legal counsel and do what I can, 

sir. I do agree with you. That’s why we’re pushing to get this rule, 

retail rule. 

[The information follows:] 

On April 4, 2008, FSIS sent separate letters to House Agriculture Appropriations 

Subcommittee Chairwoman Rosa DeLauro (D–CT) and Ranking Member Jack Kingston (R–GA) providing them with a list of consignees who received meat from the 

Hallmark/Westland Meat Packing Company. 

Mr. HINCHEY. I thank you very much. 

RETAIL RULE

Ms. DELAURO. I will make a comment on that. I tell you, I wrote 

to Secretary Schafer. What’s the date? Two weeks ago. Two weeks 

ago. Asked for a list of the retail outlets. I also asked for the list 

of schools that was—to date, no reply, no reply. And to your credit, 

Dr. Raymond, as my colleague Mr. Hinchey has pointed out, you 

are for making public these retail outlets. This is a rule, as I understand it, that was proposed on March 7, 2006. Tomorrow will be 

two years. Two years. The public comment closed down? We don’t 

have a list. We can’t get this rule out. Who is holding up the rule? 

Tell us. 

Dr. RAYMOND. The rule—— 

Ms. DELAURO. If it’s not you, we don’t want to continue badgering you. We will go and move to deal with OMB, or whomever 

else is involved in this effort. 


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Dr. RAYMOND. And I know you’re not going to like this answer, 

but it is in the very final stages of clearance. 

Ms. DELAURO. This agency is in its final stages, Dr. Raymond, 

and on this issue you have been forthright. But we can’t for two 

years produce a rule that says let’s get a list of where the contaminated product was sent? The list of schools? That’s unacceptable, 

Dr. Raymond. 

And if you find it unacceptable, you should then work with us. 

And I don’t know what our—you’re going to check with your legal 

counsel. I don’t know what our legal possibilities are. 

And then, you know, that may be the direction that we have to 

go, to tell an agency, or an OMB, or a USDA that this is unacceptable. Is it OMB? Who’s sitting on it? Tell us. Where is it? On whose 

desk does this lie? In what office or cubby does this rule lie? And 

where is it being discussed? 

Dr. RAYMOND. We’re in discussions with OMB at this time. 

Ms. DELAURO. So, it’s at OMB? 

Dr. RAYMOND. It has not been formally sent to OMB yet. We’re 

having informal discussions with OMB at this time. 

Ms. DELAURO. Is it in your office? Is it USDA? Somebody has to 

know where this stuff is. 

Dr. RAYMOND. It is at the USDA. 

Ms. DELAURO. The USDA? 

Mr. STEELE. Yes. 

Ms. DELAURO. Yes, Mr. Steele. 

Mr. STEELE. Are trying to work out—OMB before we actually 

send it over there. So when we get it over there—but we had some 

informal comments coming back from them, which we’re going to 

try to build into the final rule before we submit it back to them, 

so we don’t have this back and forth. We’d rather get it all done, 

wrapped up before we send it over there, so we don’t have a long 

delay after it’s submitted. 

Ms. DELAURO. Thank you for the clarification, but I make my 

point. Two years. Two years tomorrow. And that really is not acceptable. It’s not acceptable—— 

Mr. HINCHEY. Everybody out the door. 

FOODBORNE ILLNESS DATA

Ms. DELAURO. Yeah. Let’s go. 

Well, let me just pick up on a couple questions for my last round, 

and then I’ll move to Mr.—and I don’t know what time—but I 

wanted to go back if I might—but I’m going to get the charts, our 

charts—bone up. This is infection rates for E. coli, which in fact— 

2001 were pretty high, came down. But again—— 

Dr. RAYMOND. Yes. 

Ms. DELAURO. Moving back up again, and with Listeria, you 

know, up and down, and now really again on the rise. So my question to you, Dr. Raymond, is with regard to—and I really do want 

a yes or no answer—do you understand that the verification data 

do not reflect the prevalence of the pathogen? 

Dr. RAYMOND. Yes, I do, Madam Chairwoman. 

Ms. DELAURO. Thank you very much. 

Mr. Hinchey. 


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RETAIL DISTRIBUTION LISTS

Mr. HINCHEY. Well, I think that a very important subject has 

been raised here, and as we pointed out, we very much respect the 

work that you specifically have done, your operation, Dr. Raymond. 

And none of this is personal toward you because it seems to me, 

based on all the information that I have, that you’ve approached 

this in the right way. In fact, there’s an article recently that says 

that there’s a February 14 letter in which you urged Secretary 

Schafer to quickly approve a 2006 proposal, your 2006 proposal, 

that would make public the list of the supermarkets involved in the 

recall. 

So obviously this is something that the most important office in 

the government of the United States which oversees the issue of 

food safety and carries out inspections in order to provide that food 

safety to the highest level, understands the need to provide the 

safety of the purchasers by letting them know the stores from 

which they purchased agricultural products, food products, and in 

the particular case that we mentioned here, beef products that 

were recalled. The largest recall in the history of the country. 

So I’m just basing my assumption, which I’m about to state, on 

the interaction that we’ve had here, and that assumption is that 

you’re being impeded, you’re being impeded by the Secretary of Agriculture. And the Secretary of Agriculture is probably to some extent being impeded by the Office of Management and Budget. And 

the Office of Management and Budget is probably to a major extent 

being given direction by the White House. 

So we have a situation here where the highest level of government is acting in a way that is making it less safe for people to 

walk into a store where they have every reason to believe that 

what they’re going to buy is going to be safe. They get home, feed 

it their children, the rest of their families, and suffer the consequences of that, which could be illness and substantial illness, 

and even worse than that, deaths of people. 

So this is a very, very critically important issue, which you have 

attempted to address. And we are now urging to provide us as 

quickly as possible with this information, have it to us by next 

week. Because we would like to become even more directly engaged 

in this activity. People of the United States have got to know this, 

got to know what’s going on. And when they know what’s going on, 

then the impediments that you’re confronting from OMB and elsewhere will be alleviated. Because when that information is put out, 

the response is going to have to be proper and appropriate, very 

positive. 

So this is a critically important issue, and I trust that you will 

be able to join in and continue what you’ve been trying to do. But 

now do it with us. Give us that information. You have the information. I know that. You have that information. So I’m asking you to 

just give that information to the Congress, so that the Congress 

can deal with this issue in the appropriate way. 

I’ve just been given this question. I’m going to ask it, even not 

having read it. [Laughter.] 


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PLANT SURVEILLANCE

Mr. HINCHEY. What are your thoughts on putting permanent 

video cameras inside and outside of plants? 

Dr. RAYMOND. That’s a proposal that many people have asked us 

to consider, and we will consider it when the investigation is done 

as we come up with potentially new policies and directives on how 

we can do a better job of observing animals to make sure—— 

Mr. HINCHEY. When is that direction going to be done? See, 

what’s going to happen here is that all of the harm that’s been 

done in the context of this administration is just going to drag out 

over the course of the remaining months of this year. So my fear 

is that this issue is not going to be addressed until sometime in 

February or March or April of next year in the context of a new 

Administration. It will be much wiser and much more responsible 

to deal with it now, though I hope that you will do everything you 

can to get these issues moving as—and positively as possible, 

knowing that you really want to do it—you’ve done this kind of 

thing in the past. 

Thank you. 

RETAIL DISTRIBUTION LISTS

Ms. DELAURO. Thank you. I just would harken back to tie up this 

conversation. In my opening remarks I said that we all share a 

common goal, to create an effective food safety system that focuses 

on prevention, not just reaction. 

Dr. RAYMOND. Right. 

Ms. DELAURO. Ensures the public health and makes the most effective use of limited resources. These are basic and guiding principles reform. But I think that what we’re seeing here, Dr. Raymond, and in some regards I think you concur, but they’ve long 

been undermined by inadequate authority, outdated oversight laws, 

and by a regard for private interest that compromises the public. 

And that I say directly related—proprietary information. Don’t 

have to belabor that—know what your view is. And we are going 

to continue to press on this issue with the tools that are available 

for us, so that we can give people the information that they need. 

It is their right to know, it is their right to know. 

I am going to—we have—coming up. I believe Mr. Farr is back— 

HALLMARK/WESTLAND RECALL

Dr. Raymond, with regard to Hallmark, and we’ll just get started 

on Hallmark—you say in your testimony on page 6 that our evidence demonstrates that over the past two years this plant did not 

always notify the FSIS Public Health Veterinarian when cattle became non-ambulatory antemortem, prior to slaughter inspection, as 

is required by FSIS regulation. When was this evidence discovered 

by USDA? After the Humane Society video, or before? 

Dr. RAYMOND. After. 

Ms. DELAURO. After the video? 

Dr. RAYMOND. Yes, ma’am. 

Ms. DELAURO. After the video. How was this evidence developed, 

through what methods was it developed? 


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Dr. RAYMOND. Through our investigations, interviews of our employees, plant employees, cattle buyers, et cetera. 

Ms. DELAURO. How many times over the past two years did the 

plant notify FSIS—the public health veterinarian in such circumstances? What about before the last two—— 

Dr. RAYMOND. Our investigations at this time show that this was 

a practice that occurred very rarely, for that two year period. 

Ms. DELAURO. I’m sorry. I—go ahead, please. 

Dr. RAYMOND. I said our investigations showed that this was a 

practice that occurred on rare occasions—going back two years. We 

have no evidence that it went back further than the two years at 

this time, and it was very rare—— 

Ms. DELAURO. What occurred? What occurred at that time? 

Dr. RAYMOND. What occurred was an animal would be passed 

ante-mortem or before slaughter by our Public Health Veterinarian 

or other specially trained inspectors, that had saw this animal both 

at rest and in motion, saw no evidence of any chronic diseases or 

illnesses, and passed it fit for human consumption. And then at 

some point in time between that inspection and it entering into the 

slaughter facility the animal went down and refused to get back 

up. And no one was notified, and it was allowed to go into slaughter. 

Ms. DELAURO. Do you have the number of times? Is there a 

record of notification of when this did happen? 

Dr. RAYMOND. Al, can you answer that? 

Mr. ALMANZA. Yes, ma’am. There were a number of times that 

were documented where the Public Health Veterinarian was notified that an animal went down between the pens and the knocking 

box. 

Ms. DELAURO. And the knocking box—— 

Mr. ALMANZA. It’s an alley. 

Ms. DELAURO. Yes, sure. No, I, yeah, I’ve been there. 

Mr. ALMANZA. Okay. So have I plenty of times. 

Ms. DELAURO. I know. 

Mr. ALMANZA. And so we do have documents that demonstrate 

that that did occur periodically, a couple. I think the last number 

we got was a couple of times a month where they would actually 

call. 

Ms. DELAURO. Do you have a record of all of the notifications 

within the last two years? 

Mr. ALMANZA. Actually every time it occurs. 

Ms. DELAURO. Before—— 

Mr. ALMANZA. Yes, ma’am. We have a record of it every time he’s 

called back up. 

Ms. DELAURO. Okay. Well, I’m going to ask the question, but we 

have to go to vote and come back, and so we will do that. 

Why do we only have this information now, after the Humane 

Society—did their undercover video? I’m going to leave you with 

that, and—— 

Mr. ALMANZA. I’ve got an answer for you. 

[Recess.] 

Ms. DELAURO. Hearing will come to order. I’m going to try to finish up on some of the questions we were looking at. Dr. Raymond, 

and then I’ll yield to my colleagues. We’re talking about why we 


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don’t have this information until now, after we had an undercover 

investigation by an outside group, not by the Agency. And then we 

found out that we have a lot of data here that demonstrates that 

there have been problems. And people have been notifying the 

Agency of the problems. And maybe one of the issues that comes 

up here is about closing this loophole. This is a loophole in the law 

that says that you have to go this extra step here. And that was 

dealt with after the fact, after—I think it was Secretary Veneman 

who came forward and laid it out: cows, and we had the interim 

and then we came back with this. So maybe this is a mistake. And 

we can address that issue as well, and we will address that issue 

as to whether or not it was a mistake. Because I think we do have 

to go down that road. But tell us why we don’t have the information until now, why you’re telling us it now, and why didn’t we 

know about this before the fact. 

Mr. ALMANZA. Okay. The records—case. I may have—or maybe 

I misspoke. What I intended to say was that we do have records 

of when the Public Health that day was called back out. In other 

words, when ante-mortem was performed and then an animal went 

down in that alley area. Those are—we have records of that. Obviously we don’t have records of when they didn’t call us back, otherwise—— 

Ms. DELAURO. Nobody informed you of that, which then leads us 

to this loophole issue of what we should do about that. Let me just 

ask you. Do you think we should shut down that loophole? Yes or 

no? 

Dr. RAYMOND. No. 

Ms. DELAURO. We should leave the loophole there. Can you explain why? 

Dr. RAYMOND. Yes. I think there are a couple reasons. I can explain why. We have a rule. The rule wasn’t followed. And when the 

rule is not followed, I don’t think that’s a good reason to change 

the rule. We enforce the rule, and we take immediate action like 

we did, and that plant is probably out of business. One offender of 

the rule should not make 800 other plants change the way they do 

business. This is an avenue for getting these cattle into slaughter 

that had passed ante-mortem inspection that were deemed to be 

healthy; they were fully ambulatory, showed no signs of chronic 

disease. And if they do break a leg, there’s no reason that that 

meat is now unfit for human consumption. 

ENHANCED SURVEILLANCE

Ms. DELAURO. And do we know that this was just in one plant? 

Dr. RAYMOND. We do not know that for certain, and that’s why 

we’re doing this enhanced surveillance over the next 60 days. 

Ms. DELAURO. Is that part of this investigation? You’re looking 

at this as part of the investigation? That you’re looking at—— 

Dr. RAYMOND. Absolutely. 

Ms. DELAURO. You’re not waiting for the completion of the investigation to act. The FDA is taking a number of steps to strengthen 

our inspection. You were asked about the investigation. But this 

piece is included as well as whether or not other plants may have 

been involved in the same kind of activity. Is that part of the investigation? 


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Dr. RAYMOND. It’s probably not part of the OIG’s investigation at 

this plant. It’s part of our increased auditing and surveillance in 

the next 60 days in all of the slaughter plants. 

Ms. DELAURO. So you are doing an investigation in all of the 

slaughter plants on this particular issue of whether or not this 

loophole in the law, which allows the potential for a downer cow 

to go into the food supply, as to whether or not that’s happening. 

What’s the nature of that investigation? I mean what are you looking for there? 

Dr. RAYMOND. I think I would refer to it as probably enhanced 

surveillance. We’re going to spend up to twice as much time out in 

the pen area where humane handling is an issue, and humane 

handling would include a downer cow being dragged into a slaughter facility. 

Ms. DELAURO. Do you have any—before Hallmark came to light 

did federal personnel do any observations on the handling of animals after the veterinarian completed the ante-mortem inspection? 

Dr. RAYMOND. Yes. That’s done as a routine in all slaughter facilities. 

Ms. DELAURO. But did they talk about their observations? Because those reports have suggested that it’s relatively easy for a 

plant employee to ‘‘gain the system.’’ Because they know the schedules of the veterinarians and the inspectors. Is that what you’re 

trying to—it sounds like this is part of what you’re trying to address with your surveillance activities. 

HUMANE HANDLING NONCOMPLIANCE

Dr. RAYMOND. It is part of what we’re trying to address. Yes. To 

see how we can do our job better, but I do feel a need, Madam 

Chairwoman, to point out to you that last year there were between 

600 and 700 noncompliance reports written by our inspectors for 

inhumane issues that were not egregious enough to pull suspension. And of the 66 plants last year that we did pull inspection, 12 

of those were for egregious humane handling errors. Now that’s 

way too many, but we are there. We took action, and we closed 12 

plants because of humane handling issues, and wrote over 600 noncompliance reports. 

Ms. DELAURO. Can we get access to that information? 

Dr. RAYMOND. Absolutely. Absolutely. 

Ms. DELAURO. Okay. That would be good to do. Because I—yeah. 

I mean I applaud that effort. I didn’t see anywhere that any place 

was closed down because of noncompliance in this area, and honestly this is the first time that I have heard that information if 

that was the case. 

Dr. RAYMOND. I could tell you that in 2003 it happened nine 

times, there was suspended inspection. In 2004, eight times; 2005, 

13 times; 2006, 14 times; and then last year, 12 times. 

Ms. DELAURO. I suggest to you that we have a problem here with 

this issue. It continues. It gets worse. Maybe we do need to look 

at this process and see what it needs to have to strengthen it. 

Dr. RAYMOND. As I said, that’s way too many times to suspend 

a plant. 

Ms. DELAURO. Yeah. And I think that that’s where we have to 

go in terms of strengthening that. And it may include, though you 


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disagree at this juncture, closing down that rule, because it’s not 

one plant, obviously. That there are a number of them, by virtue 

of the information that you have. So that it may be that the rule 

is a problem, but there may be some other areas where there are 

problems as well. But we clearly have a flawed system at the moment, which is creating a public health problem. I think we can 

agree on that. 

Dr. RAYMOND. A potential public health problem. Yes. Yes. If I 

might, for clarification, the plants that we pulled suspension 

from—that was for egregious inhumane handling issues that were 

not necessarily reflective of the downer cow thing. 

Ms. DELAURO. No. Did not necessarily deal with the downer cow 

moving into the supply. 

Mr. KINGSTON. Thank you, Rosa. I’m going to yield, Mr. Latham, 

because I’ve been—— 

BSE AND NON-AMBULATORY DISABLED CATTLE

Mr. LATHAM. Just kind of on the same subject. What would be 

the ramifications, as far as food safety, if in fact these downer cows 

were not brought into the system? And I know we’ve had a lot of 

debates over the past several years about not having sick animals 

or whatever brought into the system. And I’m worried about mad 

cow disease and things like that. What would happen to those animals if in fact there were no potential market for them? 

Dr. RAYMOND. They would probably all go to rendering. 

Mr. LATHAM. Rendering? Or would they be buried out on somebody’s deal someplace or in the back 40, which then in fact would— 

we would never know if we had mad cow disease in the system 

somewhere? 

Dr. RAYMOND. I would assume that probably does happen on occasion. And as long as that animal, even if it’s dead, has some potential value to the farmer or rancher I think they’re going to try 

to get it to rendering, as long as there’s some cash value. 

Mr. LATHAM. I mean that’s my concern. If you’re really concerned 

about potential diseases that could destroy, obviously confidence in 

food safety, but also our markets overseas, things like that, if we’re 

not staying on top of the situation the one way that we have to do 

that is to have those animals brought in to be inspected at the 

packing mills. Isn’t that correct? 

Dr. RAYMOND. That’s correct. 

Mr. LATHAM. Is there any information of what would —any way 

to quantify how many animals that would not be brought in, or 

what the potential food safety issues there would be if we did not 

have inspections at packing houses? 

Dr. RAYMOND. I can give you some numbers, Congressman that 

I think might help. At this particular plant that we’re talking 

about, in the last three years it slaughtered 371,000 head of cattle. 

In those three years we did condemn 17,000 head; a little over 4 

percent were condemned because of inspection. And if we did not 

have inspection at that plant, that 17,000 cattle go right into the 

food supply. 

Mr. LATHAM. Right. And those 17,000 I would assume are tested 

for things like Mad Cow. Is that correct? 


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Dr. RAYMOND. Yes. Yes. Not 100 percent tested for Mad Cow, but 

those that show certain symptoms of some of the dead—a lot of the 

condemnations refer to other illnesses. 

VETERINARY LOAN REPAYMENT PROGRAM

Mr. LATHAM. One issue, I know, Mr. Kingston and I, we appropriated a couple million dollars over the last few years for veterinary grads to serve in underserved areas, and some of the money 

basically was not—shifted over to you folks I think to hire more 

vets and inspections, and not used for the purpose as intended by 

Congress. I just wonder if you have any knowledge about the loan 

repayment program or what—is this an ongoing practice, or is 

there any kind of program actually being done? 

Dr. RAYMOND. Yes. There is. And it’s—I can apologize, but it took 

too long to get it going. But the $750,000 that has been given to 

FSIS to use for loan repayments to encourage veterinarians to 

come and work for us, $150,000 of that has been obligated to new 

Public Health Veterinarians that are working for us at this time. 

We just recently—— 

Mr. LATHAM. Not necessarily to vet students who are going into 

private practice in underserved areas. Is that correct? 

Dr. RAYMOND. That is correct. 

Mr. LATHAM. Which was the intent of the legislation. 

Dr. RAYMOND. I don’t have the legislation in front of me, so I 

can’t—— 

Mr. LATHAM. Well, that was what the program was all about. It’s 

to have vets go into areas where they cannot—a lot of vets want 

to go into small animal practice, things like that today, and their 

critical need is out in the country, so it’s somewhat frustrating I 

think to several of us that those dollars that we appropriated for 

a specific purpose are not being used for that purpose. 

STATE INSPECTION

You assist states or brought in training, technical assistance, 

provide states with about 50 percent reimbursement accounts for 

their functions. Is that—that’s what it’s been in the past. Is that 

about the same as what it has been, and can you—is there any 

change or modernization going on as far your training of the inspection services at the state level? 

Dr. RAYMOND. The first part of your question. We are funding up 

to 50 percent at this time. Two years ago, we were unable to fund 

up to that level, because of some fiscal issues we had across the 

whole budget, which Congress fortunately has rectified for us. So 

we’re back up to the 50 percent level. As far as training, we’re always looking at new ways to train. And actually, tomorrow we’ll be 

announcing a new reorganization within FSIS that will address 

training specifically, or elevate the importance of it, and, I think, 

the visibility of our training and outreach programs. 

RECALLS

Mr. LATHAM. Okay. Kind of getting back to where we were before, but you have been working supposedly, or have been, I assume, on plants as far as the recall to make them faster, more effiVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00447 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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cient in the last year. What changes have you made, or are we 

doing better as far as faster recalls? Just tell us what the status 

is. 

Dr. RAYMOND. Sure. I’d be glad to. And thank you for that question. It’s an area where I have a particular high-degree of interest 

in, coming from State health. 

Mr. LATHAM. Right. 

Dr. RAYMOND. I think sometimes recalls, they just take too long 

to get out in the public’s eye and to get that product off the shelves. 

One of the things that we have initiated this year is to use epidemiological evidence more aggressively. Instead of—I don’t know 

how to phrase this exactly—but instead of everything having to 

line up perfectly in a row so you know—you know—that that had 

to be recalled, I would rather err to the side of protecting the 

public’s health, and say, ‘‘It sure as heck looks like it came from 

this plant. We’re going to do a recall.’’ 

And a couple specific examples would be where if one person is 

ill, and the PFG for that particular—we’ll use E. coli—the PFG, the 

pattern for that matches the pattern of frozen products in the person’s freezer, historically, we would not do a recall, because of the 

possibility that person took the frozen patty out and contaminated 

another frozen patty, and they all had E. coli, and I think that— 

from a public health standpoint and from my position standpoint— 

I’m saying odds are that was contaminated in the plant, and we’re 

going to do a recall. We did that twice last fall. That’s part of the 

reason for the increased recalls, a very small part. But that’s one 

example. We’re not going to wait until we have other people get 

sick, so we can check 16 different refrigerators. 

Mr. LATHAM. Is the system of notifying you of people getting 

sick—is that any better than what it has been? 

Dr. RAYMOND. It’s better, but there’s a tremendous amount of 

room for improvement. And because of that, I’ve actually formed a 

committee within FSIS, and FDA, and CDC, and our state and 

local health officers, and our state public health labs and state epidemiologists. We’ve got representatives from all those organizations 

putting together a two-day summit that will be held—I don’t know 

if we have an exact date yet—probably May, mid-May. We’ll gather 

state health officials and city and county health officials and state 

epidemiologists, and representatives of us, and CDC and FDA. And 

I expect this conference to expose some warts. I want to know what 

we can do better as a Federal Government, but at the same time 

I’m going to tell state and locals where you can do better as far as 

notifying us. That has been an issue. 

REPORTING FOODBORNE ILLNESSES

Mr. LATHAM. Something I probably should know, but are the doctors required to report—— 

Dr. RAYMOND. There are certain communicable diseases that reporting is required, but they do vary state by state. For instance, 

in your state of Iowa, influenza is a reportable disease. In my state 

of Nebraska, it’s just if it’s in a pediatric population is it reportable. 

Mr. LATHAM. Okay. I’ve gone well over five minutes. Thank you, 

Madame Chairwoman. 

Ms. DELAURO. Thank you, gentleman. Congresswoman Kaptur. 


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SMALL AND VERY SMALL ESTABLISHMENTS

Ms. KAPTUR. Thank you very much, Madam Chair. Welcome, 

gentlemen. Glad to have you here today. Dr. Raymond, I wanted 

to link the recent situation with the recall of beef, the largest in 

U.S. history, to a trend I see in your Agency and invite you out to 

Ohio to help me deal with a problem I’m going to describe to you 

here. Let me talk about protecting small producers. 

Between 1998 and 2003 there were over 2,200 federally inspected 

establishments that produced ground beef. 2,200. Then in 2005 

your Web site reported there were 1,700 such facilities, so we’re 

moving downward. And then the current version of the Web site, 

updated in February of 2007, reported there were 1,400. So we’re 

almost halving the number of federally inspected establishments. 

Meanwhile, here’s a letter I’m going to read—it’s very brief— 

from a constituent of mine in northern Ohio. ‘‘Dear Congresswoman Kaptur, I’m a small farmer. We’ve been producing locally 

grown food for my family and for the local community. In the last 

seven years of our operations we’ve not been allowed by USDA to 

sell our products, such as fresh milk or dressed poultry or small 

areas at our farms or in many local stores. In order to be compliant 

with USDA regulations, we would need over a million dollars of 

stainless steel facility to butcher just a small number of our poultry 

and livestock. It is strange that many small operations with all the 

goodness of fresh, locally produced products, and I might say identifiable origins to the buyer, free of commercial influence of chemicals and hormones have not been able to serve in local communities. I hope you can help change this to accommodate the little 

farmers to grow local foods that in turn help us decrease the carbon footprints and also prevents such large national crisis of contaminated food product.’’ 

In working with our extension service in Ohio over a number of 

years, we’ve been trying to help our producers—we are a major 

corn producing region and soybean producing region—to bring beef 

to market. And here’s what they tell me. And I’ve asked the secretary, by the way, to come to Ohio as well to work this problem 

out and meet with our small producers. A constituent writes me, 

‘‘We as a small family packer must cover the cost of travel per diem 

and a $68.50/hour labor charge for grading product. This works out 

to cost exceeding $20 per head at some of our participating locations.’’ You know, there are some who would argue that the destruction of small and family agriculture and smaller producers 

and the rise of these very large concentrated organizations that 

don’t procure locally and then provide us with contaminated products that get into our school programs, that there’s a relationship 

here. So my question to you is: What can USDA do to make these 

small producers that we know—we drive by them in our cars when 

we go to work and go back home, who are accountable locally, they 

label their product, they want to sell—what can USDA do to help 

us let them move their product to market without such difficulty. 

What is going on with the regulatory process that allows these 

large conglomerates to contaminate the food chain, and these local 

people not to be able to get to shelf? 


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Dr. RAYMOND. Congresswoman Kaptur, I would be more than 

happy to accept your invitation to come to Ohio and meet with 

those. You duly noted that, right? 

Ms. KAPTUR. Thank you. 

Dr. RAYMOND. We will be there. We have traveled around the 

country on the issue of small and very small plant viability. I come 

from a very small town myself. I believe strongly that rural economic development sometimes can start with a business of four 

people. We have instituted at FSIS a very aggressive outreach program for small, very small plants to help them comply with approvals, etc. When I came here, we found that they were less vigorous 

asset plants, because they did have a full-time person for quality 

assurance and asset. They wrote their asset plans on their kitchen 

tables at night, as they worked during the day at the plant. And 

that’s one of the stars, I think, or one of the jewels in our crown, 

of something that we have done very aggressively and very well. 

And then small or very small plant establishments and their respective organizations have lauded us many times. And tomorrow 

the announcement we will be making will be talking about creating 

this new program area within FSIS totally dedicated to outreach 

and to education and training. Instead of just being something that 

someone’s doing over here, it’s going to rise in elevation. Now, that 

doesn’t address all of your issues. But what it does address is those 

that are under federal inspection, and we help keep them viable, 

instead of writing so many noncompliance reports that they eventually close their door. 

Ms. KAPTUR. But what about all this investment they say have 

to make? Millions of dollars. I mean these are not large enterprises. 

Dr. RAYMOND. I said this addresses those that have already— 

have made that investment. We want to keep them operating and 

viable. Your issue is slightly different: Those that haven’t made 

that investment that want to be able to sell locally. I will look into 

that. I will have to learn a little bit more about that. And I will 

come up. And we will contact you, and we’ll work on that. 

Ms. KAPTUR. We can start with the lead extension agent who 

handles beef marketing for our extension service. Maybe you can 

call him before you come out, and we’ll work on a really good session. 

Dr. RAYMOND. We would love to do that. 

Ms. KAPTUR. Thank you. 

Ms. DELAURO. Mr. Kingston. 

HALLMARK/WESTLAND RECALL

Mr. KINGSTON. You had said that on that particular plant, Hallmark, that there were 571,000 slaughters, and there were 17,000 

that you had condemned this year? 

Dr. RAYMOND. No. 371,000 slaughters over three years, and 

17,000 condemned over three years time. 

Mr. KINGSTON. Is that a high number or a low number? Average? 

Dr. RAYMOND. Compared to the national average—it is higher 

than the national average. For this particular type of cattle—you’ve 

got to remember we’re talking dairy cows here too, not fat cattle. 


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RISK-BASED INSPECTION

Mr. KINGSTON. Would risk-based inspections have been helpful, 

if that was a plant that had a higher number? 

Dr. RAYMOND. The risk-based inspections conversations that 

we’ve had in the past have been primarily on processing, and this 

is a slaughter plant. So if we had done risk-based inspection, it 

would not have been active in this particular plant, other than 

maybe in the further processing where they ground the beef. 

Mr. KINGSTON. Well, let me just get theoretical then. Had it been 

process and not slaughter, would RBI have been helpful? 

Dr. RAYMOND. In this particular plant, it would not have been. 

The issues with humane handling and allowing a downer cow to go 

into the food supply that did get re-inspected—it would not have 

helped that. 

Mr. KINGSTON. Okay. Next question. On—I just—it might get 

you to go on record of saying anything positive about RBI. Despite 

my best efforts Dr. Raymond—— 

Dr. RAYMOND. I’m trying to be honest. RBI I believe strongly in. 

I still believe—— 

HUMANE HANDLING AND FOOD SAFETY

Mr. KINGSTON. You can still accomplish both. But, I know you 

are a very scientific guy. Straight shooter, so I don’t want to put 

words in your mouth, even through I’m trying to help you load your 

own gun. 

In terms of humane violations versus food safety—I want you to 

talk about that a minute. Sam Johnson, our distinguished colleague, who is a Vietnam POW, he tells a story about having a pet 

dog in the prison camp, which the Vietnamese decided it was time 

to eat the pet dog. And they threw it in a hole. And they threw 

sticks at it, and they tormented the dog for five or six days with 

the idea that this enhanced the dog meat. Now as inhumane as 

that is, it probably did not affect the quality of the meat. So there 

are two different issues I believe in terms of the quality of the meat 

for food safety and the humane treatment of the animal. And what 

I want to ask you is—talk to me a little bit about that. In this case 

I understand that the cow was not really mobile, but there was 

nothing wrong with the meat. Is that right or wrong? And you can 

use this as an example, or go broader than that. But I’m trying to 

figure out where there’s a violation for one issue, but doesn’t necessarily get into the other. 

Dr. RAYMOND. They are for the most part very separate issues. 

The humane handling was the egregious handling that we saw on 

film: night after night after night of cattle being prodded with forklifts, et cetera. Most of those—maybe none of those animals ever 

passed ambulatory examination. They did not go to the food supply 

for the most part if not 100 percent. They were not ambulatory cattle. The other issue is the cow that was ambulatory and passed inspection and then went down. And I would like to tell you that 

there was absolutely no health risk to that animal going into the 

slaughterhouse. But I cannot. I can’t load this gun, because we 

have a regulation that says that animal must be re-inspected by 

the Public Health Veterinarian, and he or she must determine that 


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it went down because of an acute injury. And if that had been 

done, then I would sit here and say, ‘‘No. There’s absolutely no 

health risk of that animal entering the food supply.’’ But that step 

wasn’t done. 

Mr. KINGSTON. So that’s an important thing though. Because 

what you’re saying is if there’s a treatment issue, then it’s possible 

that that could lead to a food safety issue. But you really don’t 

know the answer to the second one until you’ve inspected it because of the first one. 

Dr. RAYMOND. That’s correct. 

Mr. KINGSTON. Okay. And then often when you look into humanitarian issues, cruelty, how often does that lead to an overlap in 

food safety? 

Dr. RAYMOND. I can’t give you a number. It obviously can, because inhumane handling causes stressed animals. Stressed animals causes animals to defecate and other things that change in 

terms of the risk factors. So, besides cruelty to animals, there is a 

health issue here. 

FOREIGN-OWNED ESTABLISHMENT

Mr. KINGSTON. Okay. All right. Another question. Smithfield has 

been bought out by a Brazilian company. Is that correct? Smithfield Ham? They’re a part of the division? 

Dr. RAYMOND. Terri says the news report said that. I hadn’t seen 

that news report. I know National is being bought out, but I was 

unaware of Smithfield. 

Mr. KINGSTON. I think it’s Smithfield. How big is Smithfield. I 

don’t think it was very, but I’m not sure. Mr. Latham says Smith. 

Okay. All right. How many of you think it was Smith? Raise your 

hand. [Laughter.] 

But my question is when you have—and this is something that 

Ms. Kaptur and I are kind of more and more interested in, in terms 

of the international issue, when you have a large domestic producer 

like that, and they’re bought out internationally, how does that 

change the food inspection? Because I know that the quick answer 

is going to be ‘‘no,’’ but is that really the same? Because management is different. 

Dr. RAYMOND. It does change the inspection a bit. If it is an 

international buyer or if it is a domestic buyer, whenever there is 

a change in ownership, we will be doing increased inspections of 

that plant for a certain time period to make sure that the policies 

and the regs are being followed and have not changed. 

Mr. KINGSTON. Does that include management practices back in 

Brazil on maybe machine processing or anything like that? What 

would be some of the differences that you could find? 

Dr. RAYMOND. There are lots of differences. The robustness of 

their own testing, for instance. We will take beef slaughter in this 

case and how much testing are they doing for E. coli. Did they cut 

it in half to save money when the new owner took over or did they 

double it because the new owner believes even more strongly in 

food safety. It can go either way. 

In part of our E. coli initiative that we announced this Fall, we 

are looking at corporate practices, so this would involve an international buyer also. Instead of just looking at individual plants, we 


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are going to look at corporate practices because if the corporate 

practice allows plants to be sloppy, we want to know that. 

We will be looking at the buyers of these companies. 

Mr. KINGSTON. Is that a growing challenge to you with domestic 

companies selling? 

Dr. RAYMOND. I do not know. Al, do you know if that has increased? 

Mr. ALMANZA. No. We do not have any information that is the 

case. 

Mr. KINGSTON. Let me yield back. I wanted to raise that issue. 

Ms. DELAURO. Thank you very much. Mr. Bishop. 

USER FEES

Mr. BISHOP. Thank you very much, Madam Chairman. 

I have a question regarding the President’s 2009 budget. The 

2009 budget again proposes a series of user fees, including country 

of origin labeling to help the Agricultural Marketing Service implement country of origin labeling, the Grain Inspection, Packers and 

Stockyards Administration, $27 million in new fees in 2009 for 

GIPSA to fund the development, as well as packers, stockyards and 

other meat and poultry disciplines. 

For APHIS, a new fee to help cover the costs associated with the 

Animal Welfare Act, the Virus Serum Toxin Act and the Plant Protection Act. 

I would like to ask you what the impact of these user fees are 

going to be on the basic consumer as well as on the industry as a 

whole. It seems to me that it would definitely increase the price of 

food and the production of food. 

It seems to me that the food inspection issue and food safety is 

such a benefit to all consumers, everybody who eats food, that it 

ought to be a cost that would be paid for from the general fund 

rather than an user fee that places the burden of food safety on a 

small number or small segment of the industry. 

It seems to me that food inspection ought to be an important 

enough function to warrant a direct appropriation rather than nickel and diming off a fee. 

Would you comment on that, please? 

Dr. RAYMOND. I would be glad to, Congressman. 

Part of what we are asking for is a performance fee or a cost recovery fee, depending on how you want to phrase it. 

When a plant has a problem and we have to go in and do a food 

safety assessment or we have to do another Salmonella test or we 

have to do 16 more E. coli tests because they had a positive E. coli, 

whatever, if they have done something that put the food supply at 

greater risk for meat or poultry, and we have to expend extra resources to go in there and make sure this is not rampant throughout the plant or make sure they have corrected whatever it is, we 

do feel they should pay that fee. 

Make that analogous perhaps to our State patrolmen. They are 

out there to protect us. They are paid with tax dollars. When you 

get caught speeding, you are going to pay a fine to pay for that 

extra inspection, that extra time that patrolman took. 

We do feel it is fair to ask for recovery for extra costs that we 

incur so the taxpayer does not have to incur that cost. 


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Mr. BISHOP. I will grant you that. What about country of origin 

labeling? It does not seem like that would fall under that category. 

Dr. RAYMOND. That would be an AMS issue rather than an FSIS 

issue, I believe. 

Mr. BISHOP. The Grain Inspection, Packers and Stockyards Administration fee? 

Dr. RAYMOND. Unless Mr. Steele wants to answer, that was on 

behalf of USDA, I am going to defer. 

Mr. STEELE. Mr. Congressman, there are fees in the budget, user 

fees, and we have traditionally put fees in over time in the budget. 

Some of these are new fees, some of them are repeats from last 

year again. 

Mr. BISHOP. Did we fund them last year? 

Mr. STEELE. You did not fund them; no. 

Mr. BISHOP. You did not get the message though? 

Mr. STEELE. Yes, we have a learning curve on that that we have 

to get over, I guess. 

In any case, those fees, we would not collect money until the fiscal year 2010 budget. We would propose them in terms of 2009 as 

a proposal. It is for you to consider. 

Mr. BISHOP. Would it not be more effective and would we not get 

a much higher product, I should say, a result, if we went on and 

funded the measures necessary to make America’s food safe and 

save the consuming public from problems with infrastructure and 

proper investment could be addressed rather than waiting for 2010 

to start collecting fees, which will come in on a piecemeal basis? 

Would it not be the responsible thing for the Department to go 

ahead and request that the Congress invest in the food safety infrastructure so that the American public would be safe and have 

the most innovative processes possible to make sure that our citizens have safe food to eat, rather than doing it on a piecemeal 

basis, one item at a time, starting in 2010? 

Mr. STEELE. I will let Dr. Raymond comment on the food safety 

part of that. I think those fees would provide some extra services. 

I do not think they would endanger the safety of the food supply, 

whether or not we had the fees. They are for re-inspection and 

other activities that we would like to enhance our ability to inspect 

in these terms where we have problems at the plants. 

The question is we already have user fees in FSIS right now. We 

already do fund some of the programs through existing user fees. 

User fees for FSIS is not necessarily a new concept. Congress has 

approved those fees in the past. 

Mr. BISHOP. You are supplementing your budget request. Are 

you supplementing your income while not requesting adequate 

funds to really do the job, and we raised the same questions last 

year, and you come back with these fees. 

Why not just ask for enough money to do what needs to be done 

to make sure food is safe? It is clear that you do not have the infrastructure you need. You do not have all of the things that are necessary to adequately on a periodic basis inspect all of the facilities 

that need to be inspected. 

Why not just tell us what you need? That is what we are here 

for. 


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Dr. RAYMOND. Our budget request is telling you what we feel we 

need, and part of the request would be to replace some of the tax 

dollars in fiscal year 2010 with the user fees. The amount of money 

we would be requesting would not change as a total. 

Mr. BISHOP. Basically, when you come before us, what you tell 

us is what OMB has told you to say and not necessarily what you 

independently or personally might think is needed for the process; 

is that correct? 

Dr. RAYMOND. We submit our budget request. It goes through the 

Department and gets modified somewhat, up or down, depending 

on what discussions we have, and then it does go to OMB for their 

approval; absolutely. 

Mr. BISHOP. Your submissions inside the Department are not 

necessarily passed onto us. We do not have any idea of whether or 

not what you submitted was in this case, lowered, when it got up 

to OMB. 

Dr. RAYMOND. What we do is submit the President’s budget to 

you, of course. 

Mr. BISHOP. I know that. You also inside your department submit something to OMB before the President prepares his budget. 

Dr. RAYMOND. Absolutely. 

Mr. BISHOP. What I am talking about is that intra-agency preparation, from agency to the executive, OMB. 

Ms. DELAURO. Mr. Bishop, just to let you know what this committee did in 2007, we provided all the funds that the budget 

raised from user fees, $105 million we took from our 302(b) allocation, as well as an additional $29 million on top. This was done on 

a bipartisan basis. 

When you have budgets that come up here, and my colleague, 

Mr. Bishop, is correct, we know that the user fees have not been 

authorized, and they continue to come up. 

In fact, it casts some doubt on the budget and its accuracy. We 

have spent our own funds in this committee to address shortfalls. 

Mr. Latham. 

COUNTRY-OF-ORIGIN LABELING

Mr. LATHAM. Thank you. Maybe just for a point of clarification, 

the country-of-origin labeling has never even by the advocates been 

a food safety issue. It’s a marketing issue. Is that your understanding? 

Dr. RAYMOND. I think there are some people that believe it is a 

food safety issue. 

Mr. LATHAM. It is not under your jurisdiction because it is a marketing issue. 

Dr. RAYMOND. Right. 

FOOD SAFETY ASSESSMENTS

Mr. LATHAM. The inspections are done no matter what. If you are 

talking about food safety, that is a different issue. 

In the past, you have been criticized for lack of transparency on 

carrying out the food safety risk assessments. First, maybe explain 

why do you think that criticism has arisen and what steps have 

you taken to address the transparency problem. 


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Dr. RAYMOND. I am sorry. I am not quite sure I understand the 

question about the food safety assessment. 

Mr. LATHAM. There has been a lot of concern by a lot of folks, 

GAO or whatever, as far as how you actually go through the process as far as transparency, what actually you are doing out there. 

We have talked about it in past hearings also. 

I just wondered if there are any changes as far as an open process. 

Dr. RAYMOND. We strive to be as open and transparent as we 

can, Congressman. Besides the two advisory committees whose 

meetings are open to the public, we have monthly meetings with 

industry and we have monthly meetings with the Safe Food Coalition, and oftentimes in the last year and a half, we have had joint 

meetings with our employees, the Safe Food Coalition and the industry and scientists to discuss proposed changes within our inspection system. 

Of course, with the Federal Register and directives and notices 

and postings, I really do not know how we could be more open and 

transparent. 

FOODBORNE ILLNESS

Mr. LATHAM. Is there any effort—I think the public in some ways 

is kind of out of the loop—as to how safe our food is maybe compared to other parts of the world or any way to quantify that so 

the American people know the kind of job you are doing? 

Dr. RAYMOND. We have, of course, CDC’s report each spring 

which gives us the overall known rate of foodborne illnesses for the 

common pathogens. We have to keep in mind that does reflect illnesses from all foods, not just meat, poultry and egg products that 

we inspect, also from the environment, water and other things that 

are not regulated. 

We have those trends we look at. We have seen positive changes 

over the first part of this decade. I have said openly at the start 

of this hearing and other hearings that we seem to have plateaued 

and in a couple of instances, as the Chairwoman brings up, we actually unfortunately last year saw a slight rise. 

To put it in perspective, I tried to look at the rates were for 2007 

compared to the rates of 2000, 2001 and 2002, both for product 

samples and also for foodborne illnesses, and we have shown tremendous improvement that way. 

BSE has never been diagnosed in this country by someone eating 

American beef. I think that is an indication of the interlocking 

steps we have put in place to protect the American public, and perhaps the headlines are the bad news and the good news does not 

make the headlines as frequently. 

Mr. LATHAM. I just think our story in agriculture is not told 

enough. We have the most abundant, safest food supply anywhere 

in the world. 

Because when we have the recalls like this, things like that get 

a great deal of publicity, people get concerned, but the fact of the 

matter is there are many parts of the world where that would not 

even have been an issue, unfortunately, I believe. 

We do have the safest and most abundant food supply in the 

world. Would you agree? 


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Dr. RAYMOND. Yes, I would, sir. 

Mr. LATHAM. Thank you. Thank you, Madam Chairwoman. 

Ms. DELAURO. I thank the gentleman. People do not get BSE, 

cows do. The infection rate for E. coli is going up. I talked about 

Listeria a while ago. There seems to be some real difference between what Dr. Raymond, you talk about with regard to foodborne 

illnesses, and even what CDC talks about, if you take a look at 

that. I am not going down that road again. 

We have all kinds of documents from CDC, and they really outline the differences between your characterization of the data and 

CDC’s characterization of the data. 

SURVEILLANCE/INCREASED INSPECTION ACTIVITIES

One question and then I want to move to the Topps’ recall issue. 

You were talking about the surveillance activities to observe the 

handling of animals outside the approved hours of operation from 

vantage points within and adjacent to the official premises. 

If you increase the time per shift for these activities, what does 

this mean for the other responsibilities? Are you proposing to add 

inspectors to cover the other responsibilities or will those tasks just 

be done less thoroughly? 

You are proposing to add inspectors. How will the 2008 budget 

or the 2009 request accommodate this? 

Dr. RAYMOND. The increased activities that you have described 

will be going on for the next 60 days. It will not be necessarily 

going on in all plants at the same time. We will be prioritizing 

these extra resources. 

Some of the resources will be coming from the district office 

itself, supervisors, deputy district managers, the DVMSs, the humane handling specialists. 

Ms. DELAURO. What are ‘‘DVMSs?’’ 

Dr. RAYMOND. District Veterinary Medical Specialists. These are 

the humane handling experts. There is one in each district. 

Some of the eyes and ears will be out there watching, as Mr. 

Almanza already mentioned, will be coming from sister agencies 

that are in there doing grading, for instance. AMS grades meat. 

They are also there in these establishments that are producing food 

for the schools. We will be using those resources also. 

TRAINING AND INSPECTION COVERAGE

Ms. DELAURO. All the people that you have talked about, and 

you know the various categories, we had a question about training, 

are these folks trained to do the task that they are being asked to 

perform? 

Dr. RAYMOND. Yes. 

Ms. DELAURO. AMS graders? 

Dr. RAYMOND. The AMS graders will receive that training before 

they do this task. We will be bringing them on more towards the 

end of the 60 day period. The ones that are being done today are 

being done by our own investigators and inspectors. 

To answer your concern, and we do have that concern, yes, they 

will be doing less of other services while they are doing more humane handling observations, and to decrease that impact, we are 


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working with Under Secretary Knight and his staff to provide a different set of eyes and ears, or an additional set. 

Ms. DELAURO. In essence, we are going to look at some other responsibilities that are not going to be covered as well as they might 

be in order to move to this function? 

Dr. RAYMOND. To a degree, that is true; yes. 

Ms. DELAURO. You said 60 days. My concern, quite frankly, is 

how do you sustain this with the other responsibilities that you 

have? That seems to me to once again be walking down the road 

where we are going to see what I call the fault lines in the agency, 

in areas that are not going to be covered thoroughly. I do not know 

what those are. 

You are going to make internal decisions about what you are 

going to do. Maybe you would share those with us. How you deploy 

your personnel and what the priorities are, I think, is a big issue, 

and where do we go with the future of that, do we have enough 

personnel or do we not have enough personnel to do the kinds of 

jobs that need to get done to protect public health. 

Dr. RAYMOND. I agree—— 

Ms. DELAURO. You tell me now you have what you need. You do 

not need anything else and it is not going to impact the 2008 budget or the request for 2009. 

Dr. RAYMOND. Based on what our enhanced surveillance reveals 

to us and based on the investigation, we may come up here and 

have a conversation with you, Madam Chairwoman, if we do need 

to make additional requests. 

The request at this time is for the current staffing levels, but we 

may need to have further discussions based on what we find. 

HALLMARK/WESTLAND RECALL

Ms. DELAURO. I have another question with Hallmark and the 

school lunch program. It is a very quick question, if I can. They 

placed an administrative hold on the Hallmark/Westland Meat 

Packing Company, on their products that were destined for the 

food and nutrition programs. 

The administrative hold prevents program operators from using 

the product until further notification from USDA. 

I will tell you where I am puzzled. FNS put a hold on the product, but I have a copy of a notice on the State of California website 

that quotes USDA guidance on this as follows. 

It says ‘‘Any Hallmark/Westland Meat Packing Company products in Federal food and nutrition programs or its derivatives must 

be destroyed and cannot be used or reconditioned for human consumption.’’ 

Did we have an administrative hold or were we destroying the 

product? Are we holding it or destroying it? What are we doing 

with it? 

Dr. RAYMOND. I’m getting into Under Secretary Johner’s turf just 

a little bit here, but I think I can answer that question because we 

worked so closely on this. 

We had a hold as of January 30. They were instructed to hold 

the product at that time pending further investigation, and then as 

a result of further investigation, when we found out that on rare 

occasions these down cattle were allowed to go into the slaughter 


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house after they passed inspection but then went down, that is in 

violation of their contracts with the school lunch program, and they 

were instructed then to destroy the product or return it to us. I am 

not sure exactly what the instruction was. 

Ms. DELAURO. I read it carefully. I think your testimony does 

talk about ‘‘hold.’’ That is when you made your decision actually to 

deal with the recall. You talked to the company. 

We continue to go back to the issue of recall and mandatory recall. We are going to get there. I promise you we are going to get 

there. 

That is when you made your decision that in fact this had to be 

the recalling of the 143 million pounds; is that correct? 

Dr. RAYMOND. We were in charge of the decision for recall, yes. 

Under Secretary Johner or FNS would have been in charge of the 

destruction of the school lunch program product. 

Ms. DELAURO. I actually saw this in the Wall Street Journal on 

February 26. ‘‘As food companies become frustrated with meat recall,’’ it actually has some of them quoted saying they were going 

to hold the product and so forth. 

I do not know what our system is in order to be able to make 

sure they are doing what we want them to do. They just said—one 

company said Costco has not yet destroyed the beef it has removed 

from the shelves, with the hope that the regulators may allow it 

to be used. 

This is taking your decisions into their own hands and kind of 

doing what they want with it. 

Again, I do not know what your system is here, if you can let us 

know. If you can let us know who has destroyed product, who has 

not destroyed product. What is our system for finding out whether 

or not when we say something that it has happened? 

Dr. RAYMOND. I am going to have Mr. Almanza help me on this 

one. To start out, your quote from that Wall Street Journal is correct, where some companies held the product. They pulled and held 

the product in hopes, as the quote says there, that the regulators 

would change the recall rules. We have not. 

They have been instructed that all product is to be destroyed. 

Ms. DELAURO. Do we know if it has been destroyed? 

Dr. RAYMOND. That is where I am going to have to ask Al, Mr. 

Almanza. 

Ms. DELAURO. Mr. Almanza, has the product been destroyed in 

all these places? 

Mr. ALMANZA. Some has. The process is that—— 

Ms. DELAURO. Are they holding it or are they going to destroy 

it? 

Mr. ALMANZA. They are going to destroy it. That is what I was 

going to explain, the process. What our process is, we go to the consignees, which is the number Dr. Raymond gave you earlier, and 

we do a percentage of plants, where we go out and do some 

verification activities to be sure that is what is occurring. It will 

be somewhere in the number of 200 to 300 locations where we will 

go and look and be sure that those products have in fact been destroyed. 

Ms. DELAURO. What do you think gives this company or other 

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paper, in the press, that they are going to hold the product and not 

destroy it, hoping that the regulators will let it move? That is pretty audacious. 

Dr. RAYMOND. Or wishful thinking, but it did not happen. The 

regulators said you will pull and destroy all that product. We did 

not budge. 

Ms. DELAURO. Do you have a list of the places where it was destroyed? 

Mr. ALMANZA. We are in the process of getting that information; 

yes, ma’am. 

Dr. RAYMOND. If I might, Madam Chair, you realize with nearly 

10,000 consignees, it will take us time to confirm that it has all 

been destroyed. We cannot just do it overnight. 

Mr. KINGSTON. If the gentlewoman will yield, in the event that 

they did not destroy it, do you have a mechanism to determine 

that, and then if they did not destroy it, is there a penalty? 

Dr. RAYMOND. We do not have the authority to assess fines, but 

we do have the authority to cease and detain that product and destroy it ourselves. 

Mr. KINGSTON. If the gentlewoman would yield. 

Ms. DELAURO. Please. 

Mr. KINGSTON. Then there is no down side in them keeping the 

product. 

Dr. RAYMOND. If I might, I would like to ask the guys behind me 

that are in charge of the recalls, because there may be penalties. 

It is a prohibited activity, which leads to criminal—— 

Mr. KINGSTON. That answers the question. 

Ms. DELAURO. We could move on these things a lot quicker and 

a lot faster with a lot more protection of public health if we had 

real enforcement authority. That is an issue of putting those authorities in place. I do, but the agency does not have the stomach 

to put those enforcement rules in place or the penalties in place. 

It goes back to what I said at the outset, and that is dealing with 

an agency that is dealing with an industry, quite frankly, that is 

compromising our public health. 

I am way out of time. 

FOODBORNE ILLNESS DATA

Mr. KINGSTON. Dr. Raymond, how many foodborne illnesses are 

there a year? 

Dr. RAYMOND. The CDC estimates 75 million. 

Mr. KINGSTON. How many people go to the hospital? 

Dr. RAYMOND. The CDC estimates about 500,000. 

Mr. KINGSTON. How many die? 

Dr. RAYMOND. I believe the number is about 35,000, but I am not 

certain. 

Mr. KINGSTON. That is wrong. 

Dr. RAYMOND. Okay. 

Mr. KINGSTON. It is about 5,000. I want to make sure Dr. Raymond knows, 260,000 actually go to the hospital. I do not think it 

is 500,000. 

Dr. RAYMOND. The one thing I do know is those numbers have 

not changed for a long, long, long time. The estimate is an old estimate. It may be a lot less than that. 


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Ms. DELAURO. We have not re-estimated it. 

Dr. RAYMOND. That is right. That is correct. 

Mr. KINGSTON. How many people are there in America? 

Dr. RAYMOND. 300 million. 

Mr. KINGSTON. How many meals a day do they eat? 

Dr. RAYMOND. I hope three. 

Mr. KINGSTON. Do they eat more? We are a pretty health conscious nation. 

Dr. RAYMOND. Some more, some less. 

Mr. KINGSTON. How many visitors are there? 

Dr. RAYMOND. I do not know that answer. 

Mr. KINGSTON. That number could be as high as 50 million a 

year. I am not sure. If you multiply that, that would be 900 million 

meals a day. 

Mr. STEELE. That is correct; yes. 

Mr. KINGSTON. Scott, I am going to have to turn to you because 

you are the numbers guy. What is that number times 365 days a 

year? 

Mr. STEELE. I do not know. Probably in the billions. 

Dr. RAYMOND. If you took the 900 million and rounded it up to 

a billion, then you would have 365 billion. That would be an easy 

way to do the math. 

Mr. KINGSTON. We are talking 75 million divided by that number; right? This is only a math question. 

What is the USDA budget? He has an $8 calculator. [Laughter.] 

There are not enough zeroes on there. Here is my question. That 

number, 75 million divided by the other number, 32 billion or 

whatever it is, that is going to give you the foodborne illness rate; 

correct? 

Mr. STEELE. I guess it would; yes. 

Mr. KINGSTON. You guess? Can we all agree that is right? I do 

not know any other way to describe it. 

Do you agree with that, Dr. Raymond? 

Dr. RAYMOND. Yes, I do. Trying to do the math while we talk. 

Mr. KINGSTON. I would love to see you do the math. I think I 

know what it is, but I would love to see how good you are just as 

an intellectual exercise. 

Dr. RAYMOND. 0.0002. 

Mr. KINGSTON. Okay. What is the foodborne illness rate for the 

American public? That is what we are trying to determine; right? 

You do not know where to put the zero, do you? I have finally 

stumped the expert. 

Dr. RAYMOND. What you are saying is for every meal we eat in 

this country, there is a chance of 0.0002 of coming down with a 

foodborne illness. I think that is where you are going. 

Mr. KINGSTON. That is a pretty safe food supply, it would appear 

to me, numerically speaking, without any question; right? 

Dr. RAYMOND. Absolutely. 

Mr. KINGSTON. In your testimony, do you give any kind of state 

of the food supply or the safety of the food supply statement? Is the 

food supply safe? 

Dr. RAYMOND. I believe the food supply is safe; yes. I believe that 

0.0002 can be made even safer with proper handling and cooking. 


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Mr. KINGSTON. That number, you would say, has integrity; correct? 

Dr. RAYMOND. We did the math pretty fast, but yes, I think it 

does. 

[The information follows:] 


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Mr. KINGSTON. For the record, I would love for you to follow back 

up with that math to make sure. I would love to have you send me 

a letter, just in my own thinking, but the reason is in a country 

of 300 million people, you are going to have some illnesses, but if 

you look at that percentage, it is a pretty remarkable percentage. 

That being the case, what do you attribute that to? 

Dr. RAYMOND. I think there are multiple things to attribute it to. 

One is the passage of the Federal Meat Inspection Act way back 

in 1906. Another one is passage of the Poultry Products Inspection 

Act. One is the Egg Products Inspection Act. They have all directed 

how we do our business on a day to day basis at FSIS and USDA. 

That plus we have moved from an inspection workforce that was 

organoleptic, they were looking for tainted meat that they could either see or smell, and we changed that focus to looking for things 

that we cannot see and smell and touch, the pathogens that cause 

foodborne illnesses, E. coli, Salmonella, Listeria, and we have revamped how we do our inspections on a daily basis, still following 

the Federal laws and statutes, but bringing more public health into 

it. 

Mr. KINGSTON. Would you also give credit to the private sector 

for not wanting to poison their own customers? 

Dr. RAYMOND. Absolutely. A classic example is with E. coli 

O157:H7, after the outbreak in Northwest and further studies that 

were done, and E. coli declared an adulterant, and in 2002, we put 

out guidelines to help companies understand how they could markedly reduce E. coli, and the numbers we saw dropped that year to 

the next year to the next year. It was just short of fantastic. 

They declared public health not to be competitive, and they have 

done a terrific job. 

Mr. KINGSTON. You did not comment on this. 

Dr. RAYMOND. I did not but I have seen it and I know it, and 

that is one of the reasons we have our E. coli 157 Initiative that 

we announced this Fall, because we need to address that. 

Mr. KINGSTON. Do you have any idea as to why the number went 

up? Do we have any ideas, Madam Chair? 

Dr. RAYMOND. I do. I believe there are multiple factors to that 

also. One is there was a large spinach outbreak that involved E. 

coli O157:H7. That number is not all of our product. I cannot tell 

you what part of that graph is ours for sure and what part is something else. It is shared. 

The spinach outbreak did affect those numbers, and the CDC has 

said that in their report. 

I think what has also happened because we saw an increase in 

our product that we sampled and we saw an increase in recall’s 

from foodborne illnesses attributed to ground beef and tenderized 

steaks, we know there was an increase to our product, and I believe there are multiple factors even there. 

It is what we feed our animals that has changed. Studies have 

been done that show that does affect the amount of E. coli shedding 

in these animals. The weather patterns changed in our large beef 

producing states last year from very dry, almost drought conditions 

for five years, to very wet conditions last year, and that stresses 

cattle, and that causes more shedding. 


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I do not know this but I believe there is research going on to see 

if this pathogen itself has changed. Maybe the nature of the bug 

has changed so that the intervention procedures we have in place 

in our plants are no longer as effective as they used to be. 

It is just like Penicillin is no longer as effective against Staphylococcus as it used to be. It may be that we need to change our 

interventions in the plants. 

Mr. KINGSTON. You have some lab types studying that very question? 

Dr. RAYMOND. The ARS’ Animal Meat Research Center in Nebraska is all over this trying to look at the bug itself to see if the 

pathogen has changed. They are also doing feeding studies with the 

animals. 

Yes, we have top scientists looking at this along with several of 

our state institutions. 

Mr. KINGSTON. I appreciate that. 

Ms. DELAURO. I just might add, this is where we get into all well 

and good, Dr. Raymond, but not too long ago, and Mr. Kingston, 

before you were here, where I talked about what the Inspector 

General and the National Advisory Committee on Microbiological 

Criteria stated, that what Dr. Raymond speaks about is it does not 

represent national samples. 

As we have to sign affidavits saying that we have no financial 

interest in a particular earmark or whatever it is, I have no dog 

in this hunt with the Office of Inspector General or the National 

Advisory Committee on Microbiological Criteria. 

It says that they reflect only what is happening in a particular 

plant on the day it was tested, and Dr. Raymond, in response to 

my question, says that the data is not representative. 

In the same hearing, we are talking—we say one thing earlier on 

and another thing later on. The data is a misrepresentation of 

what is in fact actually occurring in this country in terms of an increase in infection rates for E. coli. 

I have to address, Mr. Kingston, your point about 5,000 people 

dying every single year. Let me see if I can give you a parallel. 

September 11, 2001, 3,000 people were killed at the World Trade 

Center. Got up that morning, went to work, and lo and behold, the 

Trade Center was attacked and they died. 

This nation went to war because of those deaths. I will distinguish between going to war with Afghanistan versus going to war 

in Iraq. I voted to go to war in Afghanistan. I suspect you did the 

same thing. I did not vote to go to war in Iraq. I do not remember 

what you did. 

We have 5,000 people every single year dying in this nation from 

foodborne illness. Do we not believe that in fact, we should go to 

war against the system that is allowing that to happen. 

Those folks who went to the World Trade Center that morning, 

we could not stop that. We have it within our jurisdiction and the 

jurisdiction of this committee to stop 5,000 people dying every single year. 

Mr. Kingston, if you do not think that ought to be our priority, 

I can hardly fathom that because I believe you do care about that, 

but I do believe that this agency has not taken on that responsibility to put in place the mechanisms and the infrastructure to go 


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to war against 5,000 deaths every single year for foodborne illnesses. 

Mr. KINGSTON. Let me reclaim my time for a minute. Number 

one, as passionate as my friend is, and I certainly agree with her, 

I do not know how that is relevant because nobody is saying dismiss the 5,000 deaths a year. 

My point—— 

Ms. DELAURO. The point is it was infinitesimal, why should we 

concern ourselves with it. 

Mr. KINGSTON. My point was to underscore the math. Secondly, 

very relevant, CDC or any health care provider will say that the 

5,000, unfortunately, had other illnesses going on, an immune system problem. Very rarely did somebody eat a piece of meat and 

they were totally healthy and they died from it. That is relevant. 

Thirdly, Dr. Raymond has said repeatedly in his testimony that 

it is still too high and he wants to achieve it. 

I do not think anybody is debating that. I am trying to put some 

perspective in in terms of the numbers. 

Ms. DELAURO. One out of four people in this nation get sick with 

foodborne illness. If that is not a cause for concern, I do not know 

what is. 

Mr. KINGSTON. Where did that number come from? 

Ms. DELAURO. 75 million. 

Mr. KINGSTON. That does not mean the same people over and 

over again. I have not seen that number. 

Ms. DELAURO. To be quite frank with you, I dismiss your 

premise because I think 5,000 deaths every year on that basis, we 

ought to be dealing with this issue, and it is my intention to deal 

with this issue. 

Mr. KINGSTON. Let me say this to my friend. Certainly, we all 

agree the number is there. My point is to put it in mathematical 

context and it is interesting, I did not even editorialize on it, but 

I did detect a little passion on your part. 

Ms. DELAURO. Children dying from E. coli, if you had a chance 

to talk to their parents, you would be passionate about it as well. 

Mr. KINGSTON. Are you saying I am not? 

Ms. DELAURO. I do not know. 

Mr. KINGSTON. I think my friend knows. I have to say unfortunately I have to go to an appointment, so I am going to leave. 

I would have to tell you I am disappointed. I would say that. I 

have been a member of this committee for a while. I do not dismiss 

that. 

I think part of our job is to look at the broad perspective, but at 

the same time, I would have to say that nobody is saying that is 

not a real issue, if 5,000 people are dying, but I think we always 

have to say in reaching the political conclusion and the grand 

standing what did the 5,000 die of. 

There is an immune system issue, and there are still remarkable 

success stories in the American food supply that I think we should 

all be pleased about, and underscoring. 

Dr. Raymond, as frustrated as he is, is a witness to me and to 

you, he is a man who always gets back to let us focus on the food 

safety, let’s try to get something done about it. 

I cannot build a case for him because he will not let me. 


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Ms. DELAURO. You did not hear what I said at the outset. I think 

we have a system where the disease outbreaks are catching the 

failures at the plants, and it is not the Food Safety and Inspection 

Service. I want to reverse that. 

I want to do everything I can with you and the other members 

of this subcommittee, with Dr. Raymond, with the agency, to reverse that. 

I want FSIS to be able to have the systems in place where we 

are preventing these incidences and these recalls. That is the goal 

of the Committee. It is not political. That is where we are. 

We have a recall. We have an outbreak. Then we uncover evidence that points out, as I said earlier, the fault lines within the 

system. Let’s correct the fault lines. I believe that we have the capability. I believe we do not have all of the resources but we have 

some of the resources to address that issue, and we should figure 

out together how in fact we put this agency on a path to prevention 

and not reaction. 

Ms. Kaptur. 

HALLMARK/WESTLAND RECALL

Ms. KAPTUR. Thank you, Madam Chair, very much, and thank 

you for your passion. America needs that. We need people that care 

and do not offer excuses and try to make things better. 

I wanted to ask Dr. Raymond, with this latest recall, the largest 

in history, could you just state for the record again how many 

pounds that was? Am I recalling correctly, 143 million? 

Dr. RAYMOND. Yes, you are. 

Ms. KAPTUR. Of that, what percent will actually be recovered in 

hand and destroyed? 

Dr. RAYMOND. If historical patterns follow, it will be a very small 

percentage because it was a recall over a two year period of time, 

and we do have reason to believe that most of that product has already been consumed. 

Ms. KAPTUR. Let me tell you an experience I had in our Toledo 

Public School System, the largest system I represent, with USDA 

senior officials a couple of weeks ago. 

The meat recall came up during the discussion with food bank 

directors and school lunch people, and the school officials informed 

us that they indeed had some of that meat on hold, but did not 

know what was going to happen to it. 

USDA said at that time they would be asked to destroy the food, 

and the school officials looked at us puzzled, wondering why they 

did not already know that important point. That is the Toledo 

School System. 

MANDATORY RECALL AUTHORITY

Since USDA lacks mandatory recall authority, could you please 

explain to the Committee why the agency does not seek that authority? 

Evidently, this meat is still out there, but if you are telling us 

the majority of the meat will not be recovered, it was recalled, so 

we just say it is out there. USDA cannot provide us with the list 

of places, 10,000 retail consignments. You do not have a list of that. 


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I happen to know one of those is the City of Toledo School System. 

Here you had a situation where this meat was sitting there, 

probably in their freezers or something, and they did not know 

what was going to happen. 

Why does not the agency want the mandatory recall authority? 

Dr. RAYMOND. Again, I am not sure of the time frame when you 

were at the schools. There was a hold until an investigation was 

done. At the time, we had allegations of inhumane handling, and 

that was it. 

The school lunch program felt that was in violation of their contract, so they put it on hold until they had confirmation. Once they 

had confirmation there were other issues, then they instructed the 

schools to destroy it. 

It should not be misconstrued when I said we probably would get 

a very small amount of this product back. It is not because it has 

not been recalled. It is because there was not that much—of the 

143 million pounds, there was not that much out there recalled because it was over a two year period of time. 

A lot of this is fresh raw ground beef. People buy fresh raw 

ground beef and they eat it. I did not mean to imply in any way, 

and I am sorry if I did, that the recall would not be effective. I 

think the recall would be effective in that product that is out there. 

The reason we do not support mandatory recall is because we 

have never had a company turn us down or refuse to do a recall 

when we have asked them to do one. The system works well for 

us. 

We do have the statutory authority to cease and detain that 

product should a company not cooperate with us. We have never 

had to invoke that policy. 

We would really prefer not to see a system that we feel works 

very well for us changed. 

HALLMARK/WESTLAND RECALL

Ms. KAPTUR. Of the 143 million pounds that you said were technically recalled, are you saying 143 million pounds could have been 

consumed because the recall was over a two year period, so the 

vast majority was eaten? Am I hearing this right? 

Dr. RAYMOND. I did not say 143 million. I will say I believe the 

vast majority has been eaten; yes. I don’t know what the amount 

would be. 

Ms. KAPTUR. Then what good does the recall do? 

Dr. RAYMOND. Again, some of this product was put into canned 

products or frozen products that may have been produced two years 

ago and is still sitting in a grocery store on the shelves or in the 

freezer, whatever. 

We always do a recall back to the point of where we feel the 

product was either unfit or adulterated. 

Ms. KAPTUR. Can you provide a list for the record of companies 

that have recalled the meat? 

Dr. RAYMOND. As I said earlier, we will check with legal counsel 

whether we can do that or not. I do not want to make a commitment that I cannot keep. 

[The information follows:] 


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On April 4, 2008, FSIS sent separate letters to House Agriculture Appropriations 

Subcommittee Chairwoman Rosa DeLauro (D-CT) and Ranking Member Jack Kingston (R-GA) providing them with a list of consignees who received meat from the 

Hallmark/Westland Meat Packing Company. 

Ms. KAPTUR. It should be upsetting to every American who hears 

that, that the vast majority of what could have been bad out there 

or was declared bad was consumed; right? 

Dr. RAYMOND. We did not declare the meat bad. We did the recall because of regulatory non-compliance with our regs and rules. 

It was more of a technical recall because the meat was produced 

without going through the final step of inspection. Therefore, it is 

declared unfit for consumption, but it was more of a regulatory 

matter than an adulterated meat matter. 

Ms. KAPTUR. You really do not know because you do not know 

which downed animals were in the food chain; right? 

Dr. RAYMOND. We do not know with 100 percent certainty; you 

are correct. 

RETAIL DISTRIBUTION LIST RULE

Ms. KAPTUR. Let me just ask one final question, Madam Chair. 

On March 6, 2006, FSIS proposed a rule in the Federal Register 

to permit the agency to list in its recall press releases the names 

of retail consignees so that consumers could be better informed 

about the scope of the recall and expedite the recovery of these 

products that are out there. 

We understand that you and perhaps others have endorsed the 

promulgation of such a rule. What is the status of it and is anything holding it up? 

Dr. RAYMOND. The rule, as you know, has gone through the normal process of rule making, which is lengthy, allowing for public 

input and others, and then we have to respond to all this input and 

make sure they have all been addressed. 

At the current time it is in the final stages of clearance. It is still 

in the Department, but we are having conversations with the Office 

of Management and Budget—they have had an informal opportunity to look at it. It has not formally gone to OMB. 

What we are trying to do, as we do many times, is work out any 

differences so that when the final product goes to OMB, it can be 

signed off on very quickly and become a functioning rule. 

Ms. KAPTUR. On record, which industry groups have been opposed to this rule? 

Dr. RAYMOND. I do not know the answer to that, Congresswoman. I know during the comment period, I believe we had 19 

comments that were opposed to it, but I have not looked at those 

comments individually myself, but there are people here who have. 

Ms. KAPTUR. Would those be able to be provided for the record, 

Madam Chair? 

Dr. RAYMOND. They are on our Web site. They are available to 

your staff to look them up and get you that answer, if you would 

like. 

Ms. KAPTUR. I would ask the agency to provide those for the 

record, please. 


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Dr. RAYMOND. Again, I assume we can do that unless counsel 

tells me for some reason I cannot. It is on the Web site. I assume 

we can provide it as part of the record. 

[The information follows:] 


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Ms. KAPTUR. All right. I thank you very much. Thank you, 

Madam Chair. 

E. COLI TESTING

Ms. DELAURO. I will get this information to my colleague, Mr. 

Kingston. The economic cost of E. coli illnesses, and this comes 

from CDC, the annual cost, $405 million, which includes $370 million for premature deaths, $30 million for health care, $5 million 

for lost productivity, just for E. coli. 

If you sometimes do not want to deal with the humanity of the 

issue, you deal with the economics of the issue. 

Let me just ask a couple of questions with regard to the Topps 

recall. This was in the New York Times, Dr. Raymond, last October. 

You said ‘‘We haven’t shut the door on mandatory standards for 

E. coli testing and prevention.’’ 

Could you just speak to that issue for a moment? 

Dr. RAYMOND. Yes, ma’am. As you know, right now, it is not 

mandatory that every company that makes ground beef must test 

their product at any frequency. 

It is one of the issues with the survey that we are doing of the 

companies that do deal with beef, and in this case, particularly 

those that deal with ground beef. 

We are going to take a look and see how many do test and at 

what frequency they test, and the agency, along with many other 

things found on the survey, will have some very serious discussions 

about whether we need to change policies, directives, even perhaps 

go through rule making to do things that will help protect the food 

supply. 

Ms. DELAURO. I like to give people the benefit of the doubt, but 

what makes you believe in the accuracy of the information that you 

will get back about the testing or how much, when, et cetera? 

You have concerns about the flaws in the system where it is not 

reported. How then does that become the basis for future decisions 

when our ability to verify—this is about trusting and verifying— 

how do you address that? 

Dr. RAYMOND. For this particular issue, I believe we have a great 

deal of confidence because the survey was completed and the information was gathered by our own inspection workforce out there, 

and then was confirmed by the plant after the inspector gathered— 

the inspectors also have access to these testing results on a regular 

basis in these plants. They know which plants are testing and at 

what frequency they are testing. 

Ms. DELAURO. I would be anxious to follow up on that with you 

to find out how that really is working. I was really pleased because 

you said we have not shut the door on mandatory standards for E. 

coli testing and prevention. 

Dr. RAYMOND. Right. 

TOPPS RECALL

Ms. DELAURO. You know what my views are on that. 

Further with regard to Topps, Topps cut its microbial testing on 

fresh ground beef from once a month to three times a year. The Department considers that inadequate, and we discovered that after 


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an eight year old girl in Albany, New York was sickened by the 

ground beef. 

The Agriculture Department scrutinized the Elizabeth plant and 

said the plant had few problems, then we find out that they were 

testing once a month and now it is three times a year, and that 

level, you find inadequate. 

Federal investigators said they had recently learned that the 

company failed to require adequate testing on the raw beef they 

bought from domestic suppliers. 

The Agriculture Department acknowledged that its safety inspectors who were in the Topps’ plant for an hour or two each day 

never cited the company for these problems. 

The Agriculture Department investigators found that something 

had changed. Dr. Raymond said a lot of policies they had in place 

were not followed. 

They were not cited for any of these problems. This is a plant 

that had been subject to review. Presumably, it was or should have 

been on some sort of a watch list. 

I was not here earlier but I understand, Dr. Raymond, that you 

said when there is a change of ownership of a plant, that you have 

a change as well in infection of the meat. 

Did that happen at Topps? 

Dr. RAYMOND. That policy was not in place at that time. It is 

partly as a result of Topps that we took a look at that. 

Ms. DELAURO. That was last fall? 

Dr. RAYMOND. Topps was in September; yes. 

Ms. DELAURO. This is a new policy? 

Dr. RAYMOND. Yes. 

Ms. DELAURO. I also believe, Dr. Raymond, and correct me if I 

am wrong, you blamed Topps for changing their policies. It sounds 

like at least you have talked about a policy that I would have 

guessed was in place for a long time, a long standing time, so when 

you change ownership, you then go through the protocol again. You 

know, what is the testing regime. You did this just recently. 

What does that say about the management of FSIS that things 

went so far off course in this plant, and in fact, it was not discovered until a child got sick. 

Dr. RAYMOND. Topps, to me, I do not want to call it a watershed 

moment or anything else, but there were things with Topps that 

convinced me that we can and we must do a better job and we 

must start immediately, and that is when we looked at our whole 

E. coli initiative programs that we have announced, partly because 

of Topps. 

We looked at if the plant changes ownership or management, 

should that invoke increased inspections. It was not being done as 

routine before, but we have worked on policy for that so it will be. 

We can learn. 

It also showed me, and I will just say it very publicly, it showed 

me that some of the critics of what we were trying to do with risk 

based inspections were more right than I gave them credit for. 

Ms. DELAURO. I appreciated that comment, Dr. Raymond. I believe the genuineness of your comments on that issue. 

Dr. RAYMOND. On that issue, again, I know we can and we must 

and we will do better. Topps should not have happened but it did. 


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Because of Topps, I hope we have measures in place now that there 

will never be another Topps. 

Topps and Hallmark are totally different situations and scenarios about how they happened. We have to address them both so 

that neither one of them ever happens again. We can learn. 

INSPECTION ACTIVITIES

Ms. DELAURO. I would just say to you, and please do not misunderstand, I believe that this points out—I value the sincerity of 

your comments. That is very, very important. 

What I also believe is true, and I have not come to this conclusion lightly, the same way I did not come to the conclusion on the 

risk based, that FSIS, and I am not individually pointing at individuals, I really believe that FSIS does not have a handle on what 

is actually happening. 

That is what is of serious concern to me, and I believe it is a serious concern to you, in terms of putting in place a structure that 

allows it to have a handle on what is happening. 

Again, like risk-based, unless we know what is happening, we 

cannot move forward. Everything that we do cannot be the fundamental change that is necessary for us to be able to move forward. 

I do not know if you concur. 

Dr. RAYMOND. I do concur. When we get to where we are ready 

to talk to you about rolling out risk-based inspections, I think you 

will be very pleased with what you are going to see with what we 

have done because of your direction and the amendments and the 

OIG’s audit. 

I think we will have something that instead of driving a beat up 

old Ford, perhaps we will have a Cadillac. I think you will be very 

proud of it. I think it will make the food supply safer. 

As far as your comments about not having a handle on what is 

happening in these plants, I do not know that I would go quite that 

far, but I do know that we have difficulties in each and every one 

of these 6,200 plants that we do inspect. 

We do not have consistency across the board. That is very problematic and troublesome to me, and the new public health information system will help us tremendously with that. Topps showed me 

that lack of consistency. It should not have happened. We need consistency. 

The last thing I will say is because of my concern with what is 

happening out in the field, it is one of the reasons I asked Mr. 

Almanza to come and join us on our management team, with the 

rest of our very fine management team that we have in place, that 

have been working in the field office for a long time. 

Al grew up in the plants, spent his life. I needed that ability for 

someone who grew up in a plant and was on the line, and over the 

30 years of his working with the agency, showing he could do more 

than just work on the line. 

Al brings that leadership to us to help us get a better handle on 

what is going on in the plants along with Dr. Peterson, and Mr. 

Smith, and Judy Riggins and all the other ones working in these 

areas. 

Ms. DELAURO. Again, I thank you. I must tell you honestly I still 

am not deterred from my view that I think in order to focus our 


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attention truly day in and day out on food safety, that ultimately 

we need to make sure the singular focus is on food safety, and 

whether those activities lie within the USDA, FDA, or one of the 

other 13 or so agencies that are out there. 

I believe part of this difficulty is the missions and the blurring 

of the missions. Sometimes it may not be avoided. I was borne out 

again with the Wall Street Journal on February 26. 

This is trade and public health. I believe in trade. Public health 

in my view ought to trump the trade issue. I think some things 

have gotten out of hand because of the industry and their product. 

RISK-BASED INSPECTION

Let me just ask a question on the risk-based. Can you tell us as 

of today, when you expect the public health information system to 

be fully operating? 

Dr. RAYMOND. The third quarter of calendar year 2009. 

Ms. DELAURO. Does the budget request accommodate the costs? 

Dr. RAYMOND. Yes, it does. 

Ms. DELAURO. I have a concern, which I expressed when FDA 

was here the other day, and this was on drug safety, so we were 

not talking about food responsibilities. 

It is about agreeing to the recommendation and the implementation. To be very honest with you, what I discovered with the FDA, 

and this was drug safety, that they have agreed to a lot of recommendations. Ten years or 15 years since anything was done. 

That is unacceptable. 

My concern is that when are we implementing these recommendations in fact, so that we can move forward to a risk-based 

system. I do not believe we can move forward before we put these 

recommendations in place and implement them. 

Dr. RAYMOND. I agree with you. Of the 35 recommendations, 

there are two things that are probably key to our time line, and 

one is we have to have the public health information system running. 

That answers many of the recommendations that the OIG made, 

many of the recommendations are answered by saying we will do 

the public health information system, and they are in agreement 

with those answers. 

The other one that is time limited, we cannot do this, because 

we must meet the OIG’s recommendation, is to do food safety assessments in those plants that produce 85 percent of the meat and 

poultry products in this country. We must have completed a food 

safety assessment using the new objective criteria as opposed to 

the old criteria. 

We always wanted to use food safety assessments and our riskbased algorithms, but it was not objective, it was subjective, and 

I did not know how to incorporate that in. 

We have changed the way we do the food safety assessments, 

and that is time-consuming also. 

I do not know. Do we have any kind of projection? May of 2009 

is when we anticipate we will have those food safety assessments 

done. 

Those are two key factors that are very measurable and we cannot do risk-based inspections until we have those done. 


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Ms. DELAURO. We are not moving towards risk-based inspections 

until we have these recommendations implemented? 

Dr. RAYMOND. You are correct. 

Ms. DELAURO. We are talking about 35 recommendations, in 

place, with actions? 

Dr. RAYMOND. Of the 35 recommendations, there are about eight 

or so that are definitely linked to risk-based inspections. The others 

are definitely linked to having a better food safety inspection system. They all kind of interconnect and inter-correlate; yes. 

Ms. DELAURO. I truly do want to know what is being regarded 

as imperative before we try to move to a risk-based system versus 

what are the items that are the key ones. 

Dr. RAYMOND. The two keys are getting the food safety assessments done and having an up and running functional public health 

information system. 

Ms. DELAURO. You said that there were about eight or so. I want 

to know how you have delineated what you view and whether the 

OIG concurs that you can or cannot move before the eight or the 

remainder can be implemented. 

Dr. RAYMOND. May we get back to you on that one? 

Ms. DELAURO. Yes, please. That is for the record. 

[The information follows:] 

Since FSIS began to talk publicly about risk-based inspection (RBI) in processing 

in November 2005, the agency has ensured an open and transparent process involving all public health and food safety stakeholders and will continue to do so. 

Of the 35 recommendations, eight directly address the proposed RBI processing 

establishment algorithm (#3–#10). Seven recommendations, however, also directly 

addressed the conduct of food safety assessments (FSAs), which USDA’s Office of 

Inspector General feels must be expanded and improved before RBI can be implemented. 

FSIS had always planned to include FSA results in the RBI algorithm, but initially planned to test RBI prior to quantifying FSA results for inclusion in the algorithm. 

Dr. RAYMOND. Thank you. 

POULTRY SLAUGHTER FACILITIES

Ms. DELAURO. Talk to me about what you are doing with the 

poultry slaughter facilities and what your intentions are. 

Dr. RAYMOND. Our intentions with poultry slaughter, young poultry slaughter, is to go forward with rule making to allow us to 

change the way we do inspection in those facilities based partly on 

what we have learned from the HIMP projects and make it a better 

system throughout. 

We will go through formal rule making. We have taken it to the 

National Advisory Committee for Meat and Poultry Inspection and 

have given them our proposal, and it is on our Web page. 

Ms. DELAURO. You said earlier this was potentially—you are 

looking for this information service piece to be in place before you 

can do anything. 

Dr. RAYMOND. Correct. 

Ms. DELAURO. That is May of 2009? 

Dr. RAYMOND. The information piece is the third quarter actually 

of calendar year 2009, so July to September. 


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Ms. DELAURO. Nothing is going to happen on this issue of the 

poultry slaughter facilities until you have this other piece in place; 

is that right? 

Dr. RAYMOND. I think it is right because I do not think we can 

do rule making in less than two years, the way the rule making 

process is. I certainly do not see any way to have it—— 

Ms. DELAURO. Have you started the rule making process? 

Dr. RAYMOND. We are in the process of writing a proposed rule. 

It has not gone through any kind of clearance or anything like that 

yet. We are just in the early, early stages. 

Ms. DELAURO. What consideration was given to eliminating the 

maximum line speeds at poultry slaughter facilities and how could 

this in any way contribute to public health? 

Dr. RAYMOND. The line speeds will be part of the consideration, 

and line speeds are part of the consideration based on the Salmonella Initiative also. Those plants that consistently come in at 

very low positive rates on the Salmonella sets will be allowed the 

opportunity to propose to us different ways they can bring about 

increasing efficiencies within their slaughter systems. 

That is half the question. I am sorry, I forgot the other half. 

Ms. DELAURO. It had to do with public health. 

Dr. RAYMOND. The HIMP plants that we currently have, and I 

think I had a slide or a poster last year at this hearing, and I 

would be glad to make it available to you, the Salmonella rates on 

carcasses in the plants that are in the HIMP Program are dramatically lower than the rates in the traditional ultra slaughter plants, 

having more off line inspection services, we do believe, helps drive 

down Salmonella contamination rates on those carcasses. 

WORKER SAFETY

Ms. DELAURO. Has FSIS given any consideration to worker safety? 

Dr. RAYMOND. We always consider worker safety when it relates 

to our workforce. I do not believe any of this impacts our workforce. 

As far as the workers on the lines, that is a CDC or OSHA issue. 

Ms. DELAURO. Are you aware of any studies on this issue? 

Dr. RAYMOND. I am not aware of any studies that have ever been 

done; no. 

Ms. DELAURO. Has FSIS directed inspectors to report worker 

safety concerns relating to line speed to OSHA? 

Dr. RAYMOND. Do you know, Al? 

Mr. ALMANZA. Actually, we have a mechanism in place where we 

have a reporting mechanism for fatigue, for illnesses, for injuries. 

Ms. DELAURO. Is there a Memorandum of Understanding between OSHA and USDA on line safety? Is there anything that exists out there? 

Mr. ALMANZA. Not that I am aware of. I would be glad to look 

into it. 

Ms. DELAURO. Yes, would you? 

Mr. ALMANZA. Yes, ma’am. 

[The information follows:] 


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UNITED FOOD GROUP RECALL

Ms. DELAURO. Thank you very much. 

Let me just ask another question about the United Food Group 

recall. I think that was last July of last year. 

Dr. RAYMOND. Close; yes. 

Ms. DELAURO. 5.7 million pounds of beef. 

The Inspector General said ‘‘FSIS inspection personnel do not always follow instructions in linking NRs identifying recurring sanitary deficiencies. 

However, even when the NRs were linked, FSIS inspection personnel did not have the guidance on when to take further enforcement action when addressing repetitive non-compliance violations. 

This occurred because FSIS did not issue the necessary criteria 

for evaluating a repetitive non-compliance violation and to establish when further enforcement action must be taken as recommended in a prior OIG audit report.’’ 

The IG indicated that these prior audit reports were issued previously. Can you explain why FSIS did not get around to doing 

this? 

Dr. RAYMOND. Do you want to try? I cannot. 

Mr. ALMANZA. In fact, we did issue guidance to do that, and we 

incorporated that into our training. We are still in the process of 

doing that. The changes were articulated in our Directive 5000.1. 

Ms. DELAURO. This goes back to previous years’ IG reports. I told 

you on drug safety, they told us it had not been done for the last 

10 to 15 years. I am worried about 35 recommendations and where 

they are going. 

This is 5.7 million pounds. You are committed to doing this. You 

said you were going to do it. You did not do it. 

Mr. ALMANZA. Yes, ma’am. This Directive 5000.1 was issued in 

2004. 

Ms. DELAURO. I am going to take a look at a document I have 

here. This was the IG report on RBI, the recent report. 

‘‘The official stated that in his view the average inspector did not 

have the technical expertise to develop that type of NR because 

they lack sufficient training and expertise.’’ 

This is the most recent report from the IG. You do not know 

what to say. I do not know what to say. You did not do it. 

Mr. ALMANZA. I would say we are still in the process of making 

changes. In the survey and the checklist that we developed, and I 

know you have been provided copies of that, it helps us to look at 

the level of comprehension as far as the guidance that we are giving, and I certainly understand what you are reading there. 

We are doing a better job at changing those, and we are going 

to make some regulations and policies based on the survey and 

checklist that we did. 

Ms. DELAURO. Again, this is the IG. ‘‘In the months preceeding 

large recalls by two establishments on ground beef potentially contaminated with E. coli, the FSIS inspection personnel listed multiple NRs and sanitary deficiencies.’’ 

We have United Food Group. Then we have Topps. Then we see 

Hallmark/Westland. 


wwoods2 on PROD1PC60 with HEARING
588 

Nothing gets done in the interim here with the OIG recommendations to then prevent. The operative word is ‘‘prevent’’ 

and not react. 

All we are in the business of doing is reacting. Even with data, 

and even with information, and even with the IG, I am beginning 

to wonder maybe why we fund the IG or the GAO because they 

make all these recommendations and they do all this work and apparently nobody is paying attention to any of it. 

You did not pay attention to what they said to do. Therefore, we 

keep having these things occur. 

Dr. Raymond. 

Dr. RAYMOND. Yes. I share your frustration. With the OIG recommendations—— 

Ms. DELAURO. President Clinton used to say that all the time, 

I share your pain. 

Dr. RAYMOND. I will not touch that one. [Laughter.] 

Not on the record. 

The December audit report that came out, we knew what it was 

going to say, because we were working closely with the OIG, so we 

could begin to move. 

We have timelines and milestones set to address this particular 

issue, and the PHIS will address this issue to a good degree. It will 

help us link, instead of relying on individual inspectors or their supervisors to do these linkages. 

You are right. We keep hearing about if you would have done the 

linkage, perhaps you would not have had the recall. I could not 

agree with you more. 

I did not come here to supervise recalls. I came here to drive 

down the number. Unfortunately, it has gone in the wrong direction. I will do everything I can before I leave to help drive down 

that number again or get the things moving right, and I do believe 

strongly in this public health information system, and that it will 

help us do that linkage, and we will rely less on individuals, but 

we will have flags that will go up, and then we can say let’s go take 

a look at why that flag popped up. 

I do believe you will be very pleased with what we are going to 

produce. If we need to come up some time and give you a very detailed summary of what we are doing, I would be glad to do that. 

Ms. DELAURO. If you can get to us like in five days or so, before 

the due date of one of these actions, if you will, if you can let us 

know what is happening, if we are going forward, what it is, et 

cetera, so we have some idea of how this is progressing. 

Dr. RAYMOND. You want that by the end of the next week for the 

record? 

Ms. DELAURO. What I want to do, it is a dynamic process here. 

When these due dates occur, you have four or five of them, I think, 

coming up on March 15. We really want to know what is happening 

with these efforts before the date comes or may go, what has been 

put in place. 

Dr. RAYMOND. We will go back and start working on that this 

afternoon. 


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589 

CHINESE CHICKEN

Ms. DELAURO. That is great. I think I have just one more comment and that is about one of the issues that I spent a lot of time 

on, and that is Chinese chicken. 

We have had so many scandals involving China over the last several months. You can put the list together as well as I can. Heparin 

is on the front page of today’s Washington Post and the New York 

Times. It looks like it has caused more than 20 deaths. 

You have had several meetings, as I understand it, with the Chinese Government representatives. You were quoted as saying that 

the U.S. wants to ‘‘get back to business as usual with China.’’ I am 

not sure there are a lot of people in the nation who share that 

view. 

We now read that China is the largest growing export market for 

U.S. chicken and that getting its poultry products from the U.S. is 

China’s top agricultural export goal. 

There again, you are a public health official, Dr. Raymond, and 

not a trade promoter. 

Dr. RAYMOND. Correct. 

Ms. DELAURO. You know the kinds of issues we have. With 

China, we do not know. We have no idea what we would consider 

an acceptable level of government regulations. 

How can we possibly think we can? 

Dr. RAYMOND. We have a very robust system, and we deal with 

countries who do want to import to the United States, of which 

there are currently 34, and we have determined them to have 

equivalent systems. 

Before we give them that status, we will do paper audits to make 

sure they have rules and regulations and laws and statutes in 

place that are similar to ours or at least equivalent to ours, and 

then once that has been satisfied, we will do in-country audits. 

In the case of China, we did three in-country audits before we 

finally determined their inspection system to be equivalent, including daily inspections by Federal inspectors. 

At that point in time and in addition, for whatever product they 

do want to export, of course, we will work with APHIS to make 

sure there are no animal health issues, and in this case with 

China, APHIS tells us that as long as the chicken is cooked, there 

will be no animal health issues. 

We began that rule making process to allow China to export domestic poultry products that have been slaughtered and further 

processed and cooked in China. 

We do annual audits in every country that does export to the 

United States, and we do inspection at the border, re-inspection. 

Every product that comes from China would be re-inspected at the 

import houses, and ten percent, once it was down to a normal routine fashion, ten percent of that product would be more closely inspected, including pathogen and residue testing. 

Obviously, when a new country comes on board, we are going to 

increase that level of testing until we have developed a level of 

comfort with them. 

Ms. DELAURO. I have two or three questions and then we are 

going to wrap this up and let you go do your business. 


wwoods2 on PROD1PC60 with HEARING
590 

If the Chinese violate the rules, do you honestly think you will 

catch them? 

Dr. RAYMOND. The annual audits, we may not catch it that day, 

but the annual audits should very definitely be able to track where 

the poultry product came from. 

Ms. DELAURO. I just want to refresh your memory that FDA and 

DOT have failed to stop some of these problems. Have any plants 

in China expressed an interest in being approved to export to the 

United States? 

Dr. RAYMOND. I am sorry. I could not hear your question. 

Ms. DELAURO. Have any plants in China expressed interest in 

being approved to export to the United States? 

Dr. RAYMOND. First of all, the other agencies that you mentioned 

do not do annual audits in these countries. They do not do equivalency evaluations, and they do not re-inspect all products that come 

into this country and do the robust microbiological and residue 

pathogen testing that we do. 

As far as any specific plants, I do not know for sure. I have been 

in one plant that I know has an interest in exporting to the United 

States, but I do not know that any plant has raised their hand. 

Bill, can you help me out, when we do the audits, are those 

plants that specifically want to export? 

Dr. James says we have four plants that expressed interest in exporting to the United States. 

Ms. DELAURO. Has FSIS or anyone else in USDA sent any staff 

to China to help them prepare for possibly exporting poultry to the 

United States? 

Dr. RAYMOND. Not recently, but when we were doing our in-country audits, yes, we worked with them to help make certain their 

system would be at least equivalent to ours. 

Ms. DELAURO. We are preparing for this export of poultry to the 

United States? If so, when would staff go and to what cost to the 

taxpayers? 

Dr. RAYMOND. I will get that for you, but I will assure you that 

no one has gone since the amendment was put on our bill last year 

that did not allow us to expend any of the funds for implementation or further movement of the rule. We have sent no one over 

there for this purpose since then. 

[The information follows:] 

FSIS employees performed three in-country equivalence audits of China’s food 

safety system before Congress barred the use of funds to establish or implement a 

rule to allow poultry products to be imported to the United States from China. In 

May 2004, five FSIS employees visited China, at a cost of approximately $25,000. 

In December 2004, five FSIS employees visited China, at a cost of approximately 

$25,000. In July 2005, two FSIS employees visited China, at a cost of approximately 

$18,000. A few of the employees who went to China in May 2004 and December 

2004 were FSIS lab technicians who stayed in China for only a few days. The two 

employees who went to China in July 2005 stayed for the full duration of the audit. 

Therefore, the cost per person of the third trip was higher. 

Ms. DELAURO. I want to just say thank you for being here today. 

I want to say a particular thank you to my colleagues. We do work 

across the aisle. It is wonderful. 

I do very, very much appreciate your time and your efforts. 

We will have additional questions for the record, and what information we have requested, it will be helpful if you will provide it. 


wwoods2 on PROD1PC60 with HEARING
591 

Dr. RAYMOND. We will. 

Ms. DELAURO. Thank you. This hearing is adjourned. 


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(739) 

THURSDAY, APRIL 10, 2007. 

FARM AND FOREIGN AGRICULTURAL SERVICES 

WITNESSES 

MARK E. KEENUM, UNDER SECRETARY, FARM AND FOREIGN AGRICULTURAL SERVICES 

TERESA A. LASSETER, ADMINISTRATOR, FARM SERVICE AGENCY 

MICHAEL W. YOST, ADMINISTRATOR, FOREIGN AGRICULTURAL SERVICE 

ELDON GOULD, ADMINISTRATOR, RISK MANAGEMENT AGENCY 

W. SCOTT STEELE, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE 

INTRODUCTION OF WITNESSES

Ms. DELAURO. The hearing will come to order. I want to welcome 

Mr. Keenum, Mr. Gould, Ms. Lasseter, Mr. Yost, Mr. Steele. Thank 

you all for being here this morning. And let me just say in terms 

of my own timing, I found out late yesterday that I have been 

made a conferee on the farm bill, and it would appear that there 

is going to be a conference and that is going to occur sometime this 

morning or about 10:15 or so forth. So I will ask one of my colleagues to take the chair so I wanted to try to move us along if we 

can. 

CHAIRMAN’S OPENING STATEMENT

Today will be the last budget hearing this subcommittee will 

hold for the administration, a special request before we embark on 

drafting the fiscal year 2009 agriculture appropriations bill. We intend to move full steam ahead in passing all of the appropriations 

bills out of the House by the recess. I am not sure of the markup 

or floor schedule for the Ag appropriations bill yet, but I will be 

sure to keep my colleagues apprised as soon as possible. 

I also intend to hold additional oversight hearings during the 

year to provide the subcommittee members with the opportunity to 

learn more about programs under the bill and the impact on the 

American people. 

While this is the final budget hearing, we have indeed saved one 

of the most important subjects for last. The Farm Service Agency 

is a large agency with over 14,000 employees that administers farm 

credit, commodity, conservation and emergency assistance programs for farmers and ranchers. It operates an extensive network 

of local county offices and service centers. 

The Foreign Agricultural Service is such an important agency to 

this committee that we decided to convene a separate hearing last 

year covering just the issues under its purview. 

And finally we have the Risk Management Agency which administers the critical Federal Crop Insurance Corporation Fund. 


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When we held our hearing covering the Farm Service Agency last 

year, we had a very extensive discussion about the computer problems. It appears that we may be continuing that discussion today. 

I am concerned that the plan that FSA has developed for its computer system is flawed and will not stabilize or modernize its program delivery system. The subcommittee has tried to address this 

problem for many years during many hearings, and I am sure that 

the Agency is just as frustrated as we are. I hope that we can find 

a way to resolve this issue at some point once and for all. 

Another important issue I would like to focus on today is the 

international food aid. Everyone is aware of the soaring commodity 

prices around the world, and since it does not appear that these 

prices will be coming down anytime soon, a dangerous shortfall in 

key food aid commodities is emerging. According to USAID, prices 

for key food aid commodities have increased over 40 percent in just 

the past 6 months. USAID also reports the shortfall will force the 

program to reduce its emergency food aid operations. And to make 

matters worse, the Food for Peace program also is facing increased 

transportation costs to ship commodities overseas because of the 

high fuel prices. 

It is critical that we try to resolve this emerging global food crisis, and I look forward to discussing how we can work together to 

do that. There are other important topics to cover today. 

Let me stop there and let me recognize Mr. Alexander who was 

here at the outset. Would you care to make opening comments? 

Mr. ALEXANDER. Not at this time. 

Ms. DELAURO. Ms. Emerson. 

Mrs. EMERSON. Thank you. We have a lot of important things to 

discuss, and you will have to forgive me because I am going back 

and forth between Energy and Water and here. But we welcome 

you, we thank you very much. 

Ms. DELAURO. With that, Dr. Keenum, as you know, your testimony and everyone’s testimony is part of the record, and have you 

proceed with your testimony and summarize as you see fit. 

UNDER SECRETARY’S OPENING STATEMENT

Mr. KEENUM. Thank you, Madam Chair, and members of the 

committee. I am pleased to appear before you to present the 2009 

budget proposals for the Farm and Foreign Agriculture Services 

Mission area. With me today I have the administrators of these 

three agencies: Teresa Lasseter, Administrator of the Farm Service 

Agency; Eldon Gould, the Administrator of the Risk Management 

Agency; and Michael Yost, Administrator of the Foreign Agricultural Service. I also have Scott Steele who is the director of our Office of Budget and Program Analysis accompanying us as well. 

I would like to begin with the Farm Service Agency, which is the 

Department’s lead agency for delivering farm program assistance. 

FSA has had a total discretionary budget for salaries and expenses 

of $1,522,000,000, an increase of $91.6 million from fiscal year 

2008. This increase is necessary for pay and other necessary personnel compensation, and covers increases in operating expenses 

and inflation. 

FSA has been working to address the challenges of maintaining 

program delivery effectiveness through its field office structure, 


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741 

while also sustaining its aging and increasingly costly IT systems. 

Concerns about office structure and accountability highlight the 

crucial role of IT for FSA’s capacity to continue to deliver adequate 

service to its farm clientele. Consequently, the 2009 budget requests an increase of $8 million for operational costs for the current IT systems. Similarly, the supplemental appropriations of nearly $38 million 

provided by this committee last year was critical to supporting and 

stabilizing the operations for FSA’s Web-based computer systems 

that were suffering from severe performance problems last year. 

Turning now to the Risk Management Agency, the Federal Crop 

Insurance program represents the main risk mitigation program 

available to our Nation’s farmers and ranchers. RMA has a discretionary budget of 77.2 million, of which 95 percent, or 73.2 million, 

covers salaries, benefits, rent, shared services and information 

technology. The remaining 5 percent, or $4 million, covers other adjustable operating expenses. RMA is requesting a $1.1 million increase above fiscal year 2008 to cover increased operating costs. In 2007 the crop insurance program provided about $67 billion 

in risk protection to over 271 million acres. Our current projection 

is that indemnity payments to producers in 2007 will be about $3.3 

billion on a premium volume of over $6.6 billion. 

RMA’s most critical need in the coming years is the modernization of its aging IT systems. IT modernization is critical to RMA’s 

ability to continue operating and improving the Federal Crop Insurance program. The budget includes a two-pronged approach 

which will allow RMA to proceed with IT modernization in a budget-neutral manner. 

I will now like to return to the Department’s international programs and activities. The Foreign Agricultural Service is the lead 

agency for the Department’s international activities. It is in the 

forefront of our efforts to expand and preserve overseas markets. 

We have seen unprecedented increases in the levels of U.S. agriculture exports, which are projected to set another record during 

2008 at $101 billion. 

The agriculture trade balance is also improving and is expected 

to reach a $25 billion surplus this year, the highest level since 

1996. 

To accomplish these goals the budget provides increased funding 

for FAS. FAS has a total discretionary budget for salaries and expenses of $173 million, an increase of $10 million from fiscal year 

2008. This additional funding is needed to cover increasing personnel costs, to fund higher overseas costs, and activities that are 

mandated such as the Department of State’s shared expenses for 

International Cooperative Administrative Support Services or 

ICASS, and also for mandated funds for the Capital Security Cost 

Share Program. Also, the overseas value of the U.S. dollar adds to 

our challenge in meeting the costs that are inherent with FAS activities. 

USDA continues to provide vital assistance and global efforts to 

address humanitarian relief and promote economic development 

through international food aid programs. For the McGovern-Dole 

International Food for Education and Child Nutrition program, the 

budget includes appropriated funding of $100 million. This proVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00741 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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gram is expected to provide assistance to nearly 2 million children 

and mothers throughout the developing world. 

I would like to highlight for the subcommittee members action 

we have taken during the past year to improve the delivery and effectiveness of our food aid programs. Last July, USDA announced 

an initiative under which uncommitted CCC-owned commodities 

would be exchanged for food products that can be programmed 

under the Department’s foreign and domestic food assistance programs. This new program is referred to as Stocks-for-Food. The 

Stocks-for-Food program was designed to make productive use of 

existing CCC stocks, while enhancing the level of food assistance 

that could be provided during a period of higher commodity prices 

and fuel prices. 

To date, ownership of all existing uncommitted stocks have been transferred. The program is expected to provide about $120 million 

of food products to our domestic and foreign food assistance programs. In the case of the McGovern-Dole program, over $20 million in 

additional processed commodities will be made available, and those 

commodities are expected to provide assistance to as many as 

650,000 program recipients. 

Also The Emergency Food Assistance program, TEFAP, is ex- pected to receive nearly $100 million in additional funding to augment this vitally important domestic food assistance program. And 

at this time of high commodity and food prices the Stocks-for-Food 

program is helping to meet the nutritional needs of numerous individuals both domestically and internationally. 

In conclusion, Madam Chair, I would like to express our sincere 

appreciation to you and to this subcommittee for the support that 

you all have provided to our mission area. I look forward to working with you as you review and consider our 2009 budget proposal, 

and I am pleased to provide whatever assistance you may require. 

Thank you Madam Chair. 

[The information follows:] 


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Ms. DELAURO. Thank you very, very much, Dr. Keenum. I apologize for not mentioning the Stocks for Food program in my opening 

remarks. It is something I think is very interesting. It is a unique 

idea, and I commend you for looking at all of the areas in which 

we can continue to address and look at what we have that we 

might be able to engage in, in order to meet both the domestic and 

international food aid crisis that we have. 

Let me move to the computer. 

Mr. KEENUM. Yes, ma’am. 

FSA INFORMATION TECHNOLOGY

Ms. DELAURO. The subcommittee has asked for many years and 

at many hearings what long-term plans to modernize FSA’s delivery of the farm programs, including requests for funding. In fact, 

the long-term project called MIDAS has been in the planning 

stages since 2004. GAO just briefed the subcommittee staff—and 

there is a report in March of 2008—they briefed the subcommittee 

on their review of FSA’s plans for stabilizing and modernizing its 

farm program delivery system. 

This is what GAO pointed out: 

Several serious flaws in how FSA has been proceeding and stabilizing and modernizing the systems. Plans you have developed do 

not adequately assess cost and schedule estimates by using key information such as MIDAS’s business requirement, which you are 

just now in the process of developing. 

GAO further states that you have not addressed key managerial 

issues, such as there are no clearly defined organizational roles and 

responsibilities between FSA’s chief information officers and the 

Department’s chief information officer, and no tracking system for 

users to report problems with the system. 

In your testimony, you have suggested to Congress a proposal requesting authority to assess farm program beneficiaries in order to 

secure accurate resources to implement the needed technology. 

Your plan currently estimates a 2-year implementation schedule 

and that the cost of MIDAS will be $454 million, of which $62.5 

million was provided in 2007 through supplemental funding and redirection of salaries and expenses funding. What basis did you use 

for coming up with this cost in the schedule estimate? 

Mr. KEENUM. Madam Chair, we have been working very closely 

with our Chief Financial Officer at the Department who as taken 

on the responsibility of leadership for our MIDAS program. It has 

been a program that we have been working on, as you mentioned, 

for some time. We have had to engage the Office of Management 

and Budget to get their approval for us to be able to submit our 

proposals to the Congress. As you pointed out, it is a $455 million 

initiative, of which around $60-some-odd million has been made 

available through, again, supplemental appropriations and other 

redirecting of funds within the Agency. 

All told, to get the program implemented, we will need about 

$392 million, and we have looked to the authorizing committees, 

Madam Chair, to assist us in identifying ways to come up with 

those funds. This is a long-term initiative. As we talked about earlier, our computers are outdated. We are using 1980s-era computer 

systems, and we are in desperate need to upgrade and modernize 


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our computer systems. And it is a tremendous challenge to FSA in 

meeting our delivery obligations to farm clientele because of the 

outmoded and outdated computer systems that we are operating 

with. 

Ms. DELAURO. I think we are looking at estimates almost after 

the fact. Shouldn’t they have been based on actual business requirements for MIDAS to build a reliable cost and time estimate? 

Can you give us an example of a modernization project of the same 

size as MIDAS that was able to be completed within 2 years? In 

your plans you assumed it would take 10 years to complete 

MIDAS, so—— 

Mr. KEENUM. If you don’t mind, I will ask our Administrator to 

respond to that specific inquiry. 

Ms. LASSETER. I would just say that technology has changed so 

much, FSA has gone from writing many of our own programs and 

developing—to moving to more off-the-shelf software. We are in the 

process of reviewing our business processes to see how we can 

streamline, and we have indeed hired an SES project manager for 

MIDAS who is working on this full time with the Chief Financial 

Officer for the Department in OCIO and our FSA OC, our financial 

officer and the computer specialist. So it is all tied together. 

And Dr. Keenum and I get a report from the senior management 

oversight committee, so we feel like we are using our resources as 

best we can to make sure that we do what we should do. 

Ms. DELAURO. I understand. I still don’t get a sense, I don’t get 

a sense of the basis that you use for coming up with cost and 

schedule of estimates and what are the business requirements for 

MIDAS so that you could build in this cost in a time estimate. Two 

years. What is the reality of 2 years versus prior information that 

said 10 years? There is a big gap. 

You also made a proposal you say you are suggesting to the Congress. Have you submitted proposed legislation or a budget amendment to pay for MIDAS? What is the proposal? 

Mr. KEENUM. We worked with the authorizing committee to ask 

the committee as they put forward their farm bill to include an assessment on farmers. We have identified mechanisms on how we 

can do a very nominal fee assessment on producers. We have 2 million farmers in this country—— 

Ms. DELAURO. Was this in the farm bill? 

Mr. KEENUM. Farm bill? 

Ms. DELAURO. What you are talking about, is this in the farm 

bill? 

Mr. KEENUM. We are still working with the authorizing committees on this very topic. We are working with them and communicating with them. We have made numerous presentations, numerous presentations to the Members, to the Chairman, the Ranking Member and our members of the committee and senior staff. 

Yesterday, we were talking with the committee staff on this very 

initiative. 

Ms. DELAURO. What is the proposal? 

Mr. KEENUM. Well, the proposal is that we do an assessment— 

we proposed assessing a $50 fee on all producers who are recipients 

of farm program benefits. And that fee would be used to help—— 

Ms. DELAURO. A user fee? 


wwoods2 on PROD1PC60 with HEARING
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Mr. KEENUM. A user fee, that is correct. 

Ms. DELAURO. What is the likelihood of getting a user fee? 

Mr. KEENUM. Well—— 

Ms. DELAURO. Is it slim and none, and slim left town? I mean 

I don’t know. Proposals for user fees—— 

Mr. KEENUM. I wouldn’t characterize it as that, Madam Chair, 

because the members of the authorizing committees, the chairmen 

of both committees, really understand the needs and the challenges 

we are facing because of our IT situation. Will they do a user fee? 

I don’t know. And we have told them and we are working with 

them and we have provided language to them on this topic. We 

have told them we are willing to negotiate, work with them to find 

a reasonable way to assess farmers in a way that really is so nominal that when a farmer gets a $40,000 payment, a direct payment—and we are talking about as much as $50—it is not a very 

big assessment to a farmer. 

But having said that, there are opportunities to look to other 

ways through offsets and spending and other areas to come up with 

the needed moneys that we are looking at. 

Mr. BOYD. Madam Chair, would you yield? 

Ms. DELAURO. Go ahead. 

Mr. BOYD. What about a farmer that gets a $500 payment, is he going to pay $50 just the same as the $40,000 or—— 

Mr. KEENUM. Congressman Boyd, that is a good question. Part 

of our negotiation is we have identified the fact that there are 

farmers who get very small payments, and we were looking at 

doing a de minimis exemption or waiver that farmers who make 

small payments should not be required to make this kind of a contribution. 

Ms. DELAURO. But none of this is sorted out. What happens with 

the farm bill? The deadline is not in there. I am hopeful that by 

the 18th we will have a bill; but at the moment, it is not here. 

What happens? Are you coming back? What is your plan if it is not 

in the farm bill? 

Mr. KEENUM. Well, Madam Chair, that is a very good question 

and—— 

Ms. DELAURO. And it needs a very good answer. 

Mr. KEENUM. Well, we are working with the authorizers to try to get the funding. And to come to you all to say we need $392 million, we know the challenges that that presents. And so our hope 

is that we will be able to prevail upon—— 

Ms. DELAURO. Well, that is why—right, hope is wonderful, we 

all—I am from a place called hope, but hope is not reality. But the 

very fact of the matter is that this is—it is critically important, and 

that is why I asked my prior questions about what the estimates 

were based on and what the costs were based on, because if you 

are going to come to this committee with the $392 million request, 

I think I can speak up for both sides of the aisle here, saying you 

better have it nailed down, chapter and verse, as to what it is 

about, what it is based on, what are the estimates, have you looked 

at other systems. All of the questions that we are going to ask because of due diligence. 

We know that this is a problem, but what I don’t get a sense of— 

and I just say this before you come before this subcommittee askVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00808 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

wwoods2 on PROD1PC60 with HEARING
809 

ing for a go-ahead here—you really need to be dealing with a business plan that is a business plan and not just, you know, some 

hope. 

Mr. KEENUM. Well, I agree with that. We feel that the business 

plan that has been prepared by our Chief Financial Officer, working with our officials in FSA clear through the Office of Management and Budget, is very detailed. And it has been provided. I 

know it has been provided to members of this—committee staff 

have been briefed on this, but I will turn to our Administrators to 

add additional comments. 

Ms. LASSETER. We actually have been working on the business 

plan for 2 years. It was approved by OMB in November of 2007. 

It was not in time to be in this budget. And in putting together 

that plan, this team did review comparable projects at RAS, at 

USDA and at Department of Defense. 

Ms. DELAURO. Are NRCS and RMA going to be able to communicate with these systems with what you are doing, or are we going 

to wind up with a situation where we have agencies who can’t communicate because of the nature of the software or whatever. I am 

going to wrap up, my friends here, but I want to get to the end of 

this conversation. 

Ms. LASSETER. I cannot answer to you today the extent of the 

communication. I don’t know exactly if you are talking about us 

just communicating or actually sharing all of our—— 

Ms. DELAURO. No, the related systems are going to be able to 

communicate with what you are doing—the interoperability, which 

is a wonderful word we have used for Homeland Security. Are all 

these agencies and their computer systems going to be—I am coming kicking and screaming into the 21st century here, so I am not 

a maven in the technology, but there are others here who are. You 

know, are we stovepiping here, and then we have this one over 

here that we spent a ton of money on, and the other agencies, RMA 

or NRCS, can’t communicate with you. 

Ms. LASSETER. I am told no stovepipe. We will communicate. 

Ms. DELAURO. Final question. Are you addressing the managerial issues raised in the GAO report, because that will be critical 

as to whether or not we deal with serious funding. 

Ms. LASSETER. Yes. And there were indeed nine pages of comments given back to GAO on that report. Of course, we don’t agree 

with everything they said, and we made comments. 

Ms. DELAURO. We also will be looking at what the timetable is 

as to readdressing the problems that GAO laid out. So we know if 

we move in this direction we are standing on solid fiscal ground. 

Thank you. 

Mr. Alexander. 

Mr. ALEXANDER. No. 

Ms. DELAURO. Ms. Emerson. 

FOOD AIR COST INCREASES

Mrs. EMERSON. Thank you, Madam Chair. 

I am not going to talk about computers, although one wants to 

after that discussion. 

Dr. Keenum, the administration managed in its budget to actually budget for higher commodity prices, so you all showed sharp 


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decline in marketing assistance loans and countercyclical payments. Tell me how you all have budgeted for the impact that the 

same commodity prices will have on the effectiveness of our food 

aid programs. 

Mr. KEENUM. Well, I think as Madam Chair mentioned earlier 

about the increases that we have seen in our food commodities according to USAID and challenges that they face and are facing— 

and we are all facing in our food aid programs—the biggest increases that we have seen in and these commodity prices have occurred since the beginning of this fiscal year, October of last year. 

We have seen a huge surge or spike in commodity prices that really 

no one could foresee, particularly in putting together the budget for 

fiscal year 2009. 

When we submitted our budget earlier, we did look at challenges 

that we are facing. Particularly when we looked at our farm bill 

proposals, we did take into consideration the challenges that we 

face in anticipation of higher shipping costs. This is an issue that 

is a big issue with us: meeting our food aid obligations as the commodity price increases. We have seen the average shipping costs for 

shipping our food products increased by over $30 a ton, and that 

is for our bulk commodities. And products we see under McGovernDole, we have seen the shipping costs increase by nearly $50 a ton. 

So those have big impacts on all of our food aid programs and our 

ability to meet our humanitarian obligations. 

Mrs. EMERSON. Obviously, higher prices just in general from 

whatever means that we are going to have less food for emergency 

programs. So you know, the decisions about where do the cuts come 

from, do we cut rations, cut participants, or the aid intended to 

prevent emergencies from happening in the first place? Those are 

tough questions. 

STOCKS-FOR-FOOD PROGRAM

Mr. KEENUM. Those are tough questions. And I think when we 

were looking at last summer our situation with our surplus commodities in CCC inventory, one of the things we did realize is that 

we were going to have more demands on our food aid programs and 

challenges because of these higher costs of shipping and also higher 

commodity prices. That is one of the reasons we did get so engaged 

in trying to meet those needs with our Stocks-for-Food program by 

providing over—actually, since July, will have provided and committed over $20 million of assistance. And our technical staff that 

worked with the McGovern-Dole program has informed me that 

that will help us mitigate these added costs for food and transportation so that we will not have to cut rations, as you mentioned, 

or have to take participants off the rolls for the McGovern-Dole 

program. 

INTERNATIONAL HUNGER RELIEF SUPPLEMENTAL

Mrs. EMERSON. And I appreciate all that you have done to try 

to mitigate some of the challenges that we face. 

Recently the Chairwoman and Congressman LaHood, me, and 

several of our colleagues wrote a letter to the President seeking additional resources for international hunger relief. We have received 

the traditional $350 million supplemental budget request, but there 


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is that funding gap that still remains. And I think the last request 

I saw was about $500 million that we were short. 

In regard to that supplemental request, what rule do you all 

have at USDA as compared to USAID or OMB in deciding what 

the size of that might be? 

Mr. KEENUM. Well, obviously USAID is the lead agency for making recommendations for supplemental requests, working with 

OMB. We do have an interagency Food Assistance Policy Council 

that we participate in. We rely on the leadership of USAID to make 

the determinations, because these moneys are going to the Title II 

Program, which is a program that they have oversight over, and 

they know best what their international needs and obligations are 

going to be. 

Mrs. EMERSON. In our letter to—let me just mention that we suggested the possible use of the Bill Emerson Humanitarian Trust in 

fiscal year 2008. How do you all, who obviously administer that 

trust, view its use to meet any projected current food aid shortfalls? 

Mr. KEENUM. Well, just to give you a perspective, the Bill Emerson Trust today has 915,000 metric tons of wheat; that is 33.6 million bushels. It has a current value of around $326 million. Plus 

we have $117 million of cash in the Bill Emerson Trust, so that is 

almost $450 million of value that is in the Bill Emerson Trust right 

now that could be used for any supplemental humanitarian food 

aid needs. And one thing about that is that any commodities that 

are drawn out of the Bill Emerson Trust for the purposes of humanitarian aid, Title II, the shipping cost is paid out of CCC. We 

estimate that to be about $500 million. 

Mrs. EMERSON. So the shipping U.S. Made it 500 million? 

Mr. KEENUM. Five hundred million for shipping costs. So the 

total value of the Bill Emerson Trust is just shy of a billion dollars 

in value that could be used for humanitarian food aid needs. And 

as you mentioned, there is a $350 million supplemental before the 

Congress. We are going to continue, if we receive those funds, 

working with USAID, to monitor the needs that we are facing. And 

we do have this Emerson Trust, and characterize it as somewhat 

of a safety blanket that we can draw from. Since 1985, we have 

tapped the Emerson Trust 12 times. So it is a wonderful resource 

to have at our disposal if it is determined to be in fact needed. 

Mrs. EMERSON. I appreciate that. I am embarrassed to admit 

that I don’t know—are there minimal levels that we are required 

to keep in the trust? 

Mr. KEENUM. It is 4 million metric tons. That is the cap. It is 

not the minimum, it is the maximum. 

Mrs. EMERSON. Okay. But we don’t have a minimum? 

Mr. KEENUM. No, ma’am. 

Mrs. EMERSON. So we do have the ability to tap into whatever 

we need from that if the need arises? 

Mr. KEENUM. That is correct. 

Mrs. EMERSON. Thank you. Thank you, Madam Chair. 

Ms. DELAURO. Mr. Jackson. 

P.L. 480 LOCAL PURCHASE PROPOSAL

Mr. JACKSON. Thank you, Madam Chair, and thank you, members of the panel. Last year the panelists discussed a proposal by 


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the administration that will allow up to 25 percent of Title II funding to be used for the purchase of foreign agricultural products. Instead of giving food, the United States will give a check. While I 

understand both sides of the argument, I am very concerned about 

potential job loss in the city of Chicago. The Port of Chicago has 

a major involvement in the food aid program. Approximately 25 

percent of all Title II food is loaded onto shipping containers at 

that port. These are very labor-intensive and very good paying jobs. 

As many as 250 workers are employed at the Port of Chicago to 

handle cargo, operate forklifts, and provide trucking and rail service. 

If the administration’s proposal is adopted, those 250 good paying jobs are at risk. While I am aware of reports of wasteful spending and inefficient practices, the food aid programs are successful 

because of the broad support from agriculture and the maritime industries. If these jobs are lost and money given in place for food, 

support for these critical programs will obviously dwindle. 

I ask the panelists to consider these good paying jobs that are 

at risk when they discuss potential changes to the food aid program. 

Would you care to share with the panel what is the status of the 

administration’s recommendation of changing Title II or using up 

to 25 percent of Title II funding for the purchase of foreign agricultural products? Instead of giving food we are now giving a check. 

Mr. KEENUM. Thank you. You described the situation very well. 

The status is that this was a proposal that we made to the authorizing committees for consideration in the farm bill, and the farm 

bill that passed the House of Representatives did not include the 

local purchase provision. 

And the bill that passed the Senate had a pilot project that was 

far less than the 25 percent that we had recommended. It is in the 

conference. As you know, they are meeting this morning—conferees. 

I don’t know what will come out of the conference on this particular provision, but I would like to address a couple of points that 

you made and to put a little bit in perspective the magnitude of 

the 25 percent and the rationale behind why it was proposed to 

start with. 

If you consider the fact that commercially the United States, we 

export in the commercial markets about 146 million metric tons of 

grains and cereals and oilseeds. That is what is in the commercial 

pipeline that is exported. It creates the jobs for export trade that 

you alluded to. 

We as a country contribute to international food aid from grains 

and cereals and oilseeds about 3 million metric tons. The commercial environment is 146 million. We contribute 3 million, and we 

were talking about up to 25 percent of that 3 million. So if you put 

it in a commercial perspective, we are talking about one-half of 1 

percent of all the grains and cereals and oilseeds that we export 

would be affected by that. One-half of 1 percent. 

So from the effects on industry and trade and commodity farmers 

it is very minuscule, and we are only proposing up to 25 percent 

local purchase. When there is an emergency, when people’s lives 

are at stake—the local purchase would only occur if commodities 


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are in that region or in that area. And so we look at it as an option 

and an opportunity to help us address humanitarian needs to help 

save lives. Just as simple as that. 

Also, another advantage of this is with the higher shipping costs 

and fuel costs we are faced with, that is a portion that we would 

not have to ship; we would be able to go in and buy locally to address those humanitarian needs. 

Mr. JACKSON. Thank you, Mr. Chairman 

Mr. HINCHEY [presiding]. Mr. Latham. 

Mr. LATHAM. Thank you. 

Mr. HINCHEY. Did you say, Madam Chairman? 

FSA OPERATIONS UNDER A CONTINUING RESOLUTION

Mr. LATHAM. I did not, but if you put a skirt on, I’ll gladly—anyway, it has become very evident I think to everyone around here 

that, while the House is going to do their work this year as far as 

passing appropriation bills, the Senate has publicly announced, basically leadership over there, that they are not going to do anything. And you had a long discussion about the changes as far as 

information technology and your needs on that, but I would be curious if you had done any preparation for a continuing resolution 

that would freeze everything going forward; you are talking probably at least until March of next year. What does that do to your 

program? 

Mr. KEENUM. Well, needless to say, Congressman, that is a good 

point. I mean we have had to deal with continuing resolutions, obviously, many times in the past and we will find a way to get 

through the process and meet our obligations, but it will have a 

tremendous drain. 

As you know, our fiscal year 2008 budget for FSA is about $98 

million less than what was requested by the President. That has 

caused a strain on our operating ability for FSA and we have asked 

for increases. That is why we asked for a $96 million increase just 

to cover our increased cost, expenses that we will be incurring in 

this coming fiscal year. And to not be able to get the additional 

funding that we need to meet our personnel, our pay obligations, 

to pay our rents, you know, we have a lot of fixed expenses that 

we have to pay just to operate the Agency. 

And then if we get a farm bill implemented and we are hopeful 

again—use the word ‘‘hope’’—then that is all we have right now is 

hope. We can request and present the facts and outline why we 

have the needs, but the actual decisions rest with you, the Members of the Congress, members of the authorizing committee, as to 

whether or not they will provide additional moneys for us to implement the new farm bill. We are going to have more challenges and, 

obviously, to not be able to get any increases for whatever period 

of time we operate under a continuing resolution will put a strain 

on all the agencies. 

Mr. LATHAM. Ms. Lasseter, say hi to Willard for me, please. 

Ms. LASSETER. I will do that. 

CROP INSURANCE PROVISIONS OF FARM BILL

Mr. LATHAM. I don’t know if you have any other comments as far 

as the effects of the CR. If you do, fine. If not, I have a question 


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as far as that proposals in the farm bill are to make, in my mind, 

draconian cuts to profit-sharing. 

I just wondered, Mr. Gould, if you have studied those proposals, 

the crop insurance program, obviously, with the higher value of 

crops today, with what we have seen certainly in history, the effect 

that that is going to have and what—have you studied and can you 

give us some insight as to what you see the effects of those cuts 

will be in the farm bill? 

Mr. GOULD. Well, we have looked at those. As you said, in the 

last 2 years commodity prices have increased by a factor of 2 and 

it looks like our insured liability is going to be similar to that. The 

liability has doubled in the last two years. 

About half of the risk management program is in the heart of the 

Midwest, with corn, soybeans and wheat, where the increased commodity prices are the most dramatic. At the same time, the companies are paid—or because of those higher commodity prices, premium prices have gone up dramatically. We not only insure yield, 

but price. And in the last 2 years, volatility has been a large factor 

in the pricing of the premiums. As the premiums go up, companies’ 

compensation goes up and so the companies will be generating 

more income. 

The other side of that is the companies are going to have huge 

price risk. In fact, being back in Illinois two weeks ago, farmers 

and lenders alike were talking about at that time soybeans being 

‘‘in the money.’’ So it is a dramatic risk. 

Back to your question of the cuts being draconian, I think, at 

least the last report that I saw, they were less than draconian, at 

least some of them were. At the same time, we are concerned about 

the financial stability of the companies, and while they are making 

good money today I think in any insurance program you have to 

look at the long-term perspective. And while things are rosy for the 

2006 indemnity payments, and 2007 was even better, it is hard to 

predict what 2008—and now we are talking about the 2009 budget—will predict, will come to fruition. 

Mr. LATHAM. Are you saying that the financial stability of insurance companies could be put in jeopardy with the cuts? 

Mr. GOULD. We don’t think so. We take an in-depth look at the 

financial health of the companies. They have to be able to withstand huge loses for 2 years before we approve their plan of operations. Some of the companies came forth as recently as the first 

of the year, looking for ways that they could increase their capacity 

as they saw the increase in commodity prices affect their capacity. 

Again, the financial health of the companies is something we take 

seriously, and at least the last cuts that were proposed in the farm 

bill that I saw I would not consider draconian, and today would 

probably be acceptable; and from what we have heard from companies and agents alike would be palatable to them. 

Mr. LATHAM. Thank you, Mr. Chairman. 

Mr. HINCHEY. Thank you. 

Mr. Boyd. 


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FARM BILL FUNDING

Mr. BOYD. Thank you, Mr. Chairman. Dr. Keenum, Ms. Lasseter, 

Mr. Yost, Mr. Gould, welcome. Thank you for your service to farmers and to our country. 

Dr. Keenum, you have been around this process for a long time. 

I think you know as well as everybody sitting at the table that the 

user fee proposal won’t fly. Never has. It probably didn’t with your 

previous bosses when you were in the other body, and you know 

it is a non-starter over here. And we get somewhat amused, and 

I guess cynical, when we see these proposals. 

And you know, I think, I like many others who have to deal with 

the farm community understand the IT issue, how important it is 

and how we have to solve it. So I hope we can come to some solutions. 

I want to remind the committee that the farm bill is bogged 

down in many ways because of this administration’s persistence on 

not finding ways to pay for the proposals that the House and Senate have put forward and even some the administration has put 

forward. And I hope that we can get past that, because some of 

those offset proposals are—we are using some pretty onerous loopholes in the current Tax Code. That is an argument for another 

day, but I just want to remind us where we are. 

USDA REORGANIZATION

Now, I want to get to a pertinent question about the future of 

the Department of Agriculture, particularly the Farm Service 

Agency and the other agencies in the USDA that serve our farmers. 

Dr. Keenum, your staff on your right has a wealth of experience, 

life experience that serves I think all of our farmers and the Nation 

very well. Ms. Lasseter has spent all of her career in FSA and in 

a rural community; by the way, not too far from where I live. I’ve 

known Ms. Lasseter and her husband for a long time, and Mr. Yost 

and Mr. Gould with their experiences in the farm community using 

the FSA programs and the farm programs, USDA programs. 

My question really goes to—I would like to draw on that wealth 

of experience to answer this question. There are some folks here in 

Congress, particularly the authorizing chairman here in the House, 

Collin Peterson, talking a great deal about reorganization and restructuring. 

Maybe if I could ask Ms. Lasseter to answer this question: Has 

the USDA on the FSA side begun to think about reorganization restructure; and given your life experience, Ms. Lasseter, what would 

your recommendations be for that restructure as it relates to FSA, 

NRCS and how we do some of these things. 

Ms. LASSETER. You are right, I have worked for the Agency out 

there in the county office when we had some shared responsibilities, or more shared responsibilities than we do today, and whatever we have been given out there, the county office people have 

been able to make it work. 

I have not been a part of discussions for the administration as 

to whether or not reorganization should or should not happen. I 

guess we would have to see exactly what we are talking about in 


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the reorganization to know if it would be a better plan. I have been 

focused on FSA and what our present operations are today, our responsibilities and how we can do a better job of delivering to those 

of you who use our offices out there. I really believe that in the last 

2 years we have made significant progress with our delivery. 

Mr. BOYD. Well, I understand your reluctance maybe to step out 

in front. And maybe it is an unfair question, but I thought maybe 

I would ask permission for Dr. Keenum, for these folks who have 

spent their entire life using the farm program system and now 

have a chance to make a difference, how are we drawing on their 

experience? 

And I would like for them to tell the committee the FSA and 

NRCS are two distinctly different groups, agencies, when it comes 

to the way they operate. One is from the top down and the other 

is from the bottom up, and they operate differently as a result of 

that. 

Mr. Yost, you have spent a little time in the FSA and spent your 

life as a beneficiary of these agencies. Would you care to comment? 

Mr. YOST. Congressman Boyd, in the last year we have completed our reorganization on Agricultural Service, and it takes an 

enormous amount of time developing the concepts, talking to employees, talking to stakeholders. It is a relatively small Agency 

compared to the Farm Service Agency. 

Mr. BOYD. Right. I know you served some FSA time also. I really 

wanted to see you speak to that more than FAS. 

Mr. YOST. There is a lot of work that needs to be done. There 

is a lot of discussion with employees across the country, farmers 

across the country about what needs to be done. What we are trying to accomplish takes a lot of buy-in so that everyone realizes 

what the end goal is. I just want to make that statement because 

I think it is critically important. We felt strongly that the Foreign 

Agricultural Service needed to be reorganized to reflect 21st century agriculture. 

I think there needs to be some work done in the Farm Service 

Agency to also reflect 21st century agriculture. What that exactly 

is I wouldn’t really care to comment, but mindsets have to change, 

people that work there and people that use the services. They have 

to think about how we can incorporate 21st century technology in 

our structure top to bottom, what we are going to do for producers 

to improve service by doing anything of that magnitude, what we 

are going to do for employees. 

I throw those issues out because I think you have to start at the 

very highest level thinking about what needs to be done before you 

can get down to any details, and, quite frankly, take a lot of input 

from a lot of people. 

Mr. BOYD. Mr. Chairman, I know my time has run out. I apologize to the panel for asking them to step out into an area, and obviously I didn’t get very far with the answers, but I think it is important to highlight. Mr. Gould I see you pulling—— 

Mr. GOULD. Well, as long as your time ran out, I want to end 

this on a positive note. At the Agency level, I don’t know if I have 

any comments on reorganization. But I would like to comment on 

the cooperation just by the nature of the programs at the Risk 

Management Agency and the Farm Service Agency; cooperate toVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00816 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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gether on disaster payments, linkage between disaster and crop insurance. 

We do cooperate with FSA and RMA dramatically. 

The common information management system is coming on 

board and has been implemented at a minimal level. It will come 

forth with more States on board sometime this summer, hopefully 

by the 1st of June, and that will increase information sharing between the two agencies. 

And then in addition, a lot of our programs depend upon the information that comes from the Statistics Service, NASS. We are exploring opportunities to work with them to build a more robust 

data set that combines information that each agency has. So, 

again, I want to leave you with the impression that—maybe ‘‘reorganization’’ is not the right word, but an opportunity of cooperation. And increasingly so. 

Mr. BOYD. Mr. Chairman, there is a lot of work to be done to 

bring us into the 21st century and the way we deliver our services 

to our customers—and that is the farmer—and be accountable to 

the taxpayer. We need to draw—and I hope in the 9 months that 

are left in this administration that there will be some discussions 

about what kind of recommendations we leave for the next administration in terms of how we reorganize these agencies. Thank you. 

Mr. HINCHEY. Thank you. Mr. Kingston. 

Mr. KINGSTON. I wanted to say, Mr. Gould and Mr. Yost, you 

talk about there will be cooperation. The taxpayers have to—that 

is the bottom line. Certainly there is going to be cooperation. That 

is not what we hope, that the Federal bureaucracy cooperates. It 

is damn right you will; that is your job. 

And so to me it is not a matter of tiptoeing around the FSA offices and asking these people, hey, we have a new law out; will we 

follow it? I think Mr. Boyd touched on something very important. 

But to me the only question is will it be more efficient to the farmers. 

FARM PROGRAM DELIVERY

And I wanted to ask my friend, Ms. Lasseter—and you are my 

friend—she is a constituent so I have to underscore it a little bit 

more—the question really is: With this administration pushing 

payment limitations on conservation programs and so forth and the 

NRCS and FSA both having a paperwork role, is that going to be 

inefficient and cumbersome to the farmer? 

By the way I want to say, Mr. Gould, I am not picking on you 

at all for that, but I just want to make sure that we in the Ag family know that cooperation isn’t the issue here; it is efficiency ineffectiveness. And you weren’t saying that it is either. Okay, I am 

tired of being nice to you. 

Ms. LASSETER. Congressman, I would hope that we can make 

things work, that it is not cumbersome to the farmer. They presently use the FSA office to file their plan of operation and to give 

us their certification as to their gross income. And FSA is the face 

for the Department now for gathering that information and making 

the determination on that information. So I would say we can 

make it work. 


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I am not sure if this question is leading back to once upon a time 

FSA administered conservation programs as far as taking the application, making the payments, and that change was made and 

there are questions as to whether or not it would work. 

Mr. KINGSTON. As you know, the ones out in the field are ready 

to resume that role again and are certainly capable. I just think 

the real question is no matter what comes out of this conference 

committee, is we have to make it work for efficiency and effectiveness for the farmer. 

Ms. LASSETER. I think we are all for that. 

HARVESTING PINE STRAW ON CRP ACRES

Mr. KINGSTON. I do want to say I think you guys have done a 

great job on patiently waiting in mid-air to see. I know the FSA 

particularly has a lot of balls in the air since last year, but waiting 

on this farm bill, I know, has been frustrating. 

We have had some conversations, and I know Dr. Keenum you 

and I have had conversation about CRP and the idea that under 

CRP you can only get rental for taking the land out of cultivation. 

And yet there is a growing push that utilize profit centers, if you 

will, on the farm. And a lot of landowners have asked us after 10 

years, when it is not a nutrition for the tree issue, could they opt 

out of the rental portion of CRP and sell their pine straw? Not cut 

the trees or anything, but sell their pine straw; or would that be 

seen as hey, you know, we paid you for one thing, and now you 

want to switch to another? 

I do think there is a potential market out there. I know there is 

for the farmers. It could be a way to save money as a government. 

It could be a way to help the farmers of the rural economy. 

Mr. KEENUM. Thank you, Congressman. I tell you, with your encouragement, we have had several conversations on this topic, and 

I know it is of significant importance to you in particular. And 

based on the dialogues that we have had, and our offices have had, 

and discussions you had with the Secretary of Agriculture on this 

topic, we have engaged on this and we are beginning to work with 

University of Georgia—— 

Mr. KINGSTON. That is a great choice. 

Mr. KEENUM. I was hoping you would think so. 

To look at how we can address those very points that you outline. 

It is our policy to be able to effectively utilize our CRP lands without hampering the environmental benefits and the wildlife benefits 

that have occurred from the conservation program, CRP. 

And that is why we need to reach out to the technical people, to 

scientists, researchers in this field, to understand wildlife and the 

environment. 

So the point is we engaged in dialogue with the University of 

Georgia to initiate a research project to address this very point. We 

have also implemented or begun to work on addressing NEPA requirements that will have to be addressed on this as well. And our 

hope is that we can have the research and the review done on pine 

straw harvest on CRP land—done within 3 to 6 months. And again, 

this is because of your leadership and what you have brought, 

bringing this issue to our attention, that we have been focused and 

engaged on this very important topic. 


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Mr. KINGSTON. Thank you. I am out of time. I did have some 

other questions. Maybe the next round. 

Mr. HINCHEY. Continue if you would like. 

Mr. KINGSTON. I want to thank you for doing what you are 

doing—you are doing it very slowly and very carefully for environmental purposes, and also for the spirit of what CRP is really 

about. And we also need to be able to answer to constituents, We 

didn’t pay these folks to take land out of cultivation to maximize 

profit in a different way; we have to address the subsidy. I think 

you guys are doing a very good job of walking that line. 

CROP INSURANCE

Mr. Gould, just for my own background purposes, how many insurance companies are involved in crop insurance and how many 

reinsurance companies, do you know? 

Mr. GOULD. We have 16 proved insurance providers. I am not 

sure how many reinsurance companies there are. I want to guess 

a half a dozen, but that is only a guess. That is a handful. 

Mr. HINCHEY. A handful, five to start with. 

Mr. KINGSTON. The subsidy, is it on the premium or on the underwriting cost or on the underwriting loss? 

Mr. GOULD. Are you talking about the approved insurance companies or the reinsurance? 

Mr. KINGSTON. I know it is not actuarially sound. Would that be 

an accurate description? 

Mr. GOULD. No. 

Mr. KINGSTON. If it was, the Federal Government could get out 

of it completely, correct? If the private sector could consistently 

make a buck selling crop insurance then we would have no need 

for a Federal program. 

Mr. GOULD. Oh, I see. If you do not have to subsidize the producer premium. 

Mr. KINGSTON. Yes. 

Mr. GOULD. Our history shows that if we, the Federal Government, don’t do that, we have a limited participation from the farmer level. 

Mr. KINGSTON. But after we subsidize their premium, there is no 

further subsidy on the crop end in terms of paying an underwriting 

loss or in terms of the underwriting cost of acquisition of the account and processing the paperwork. 

Mr. GOULD. No. That is all provided by the insurance companies 

to the reinsurance companies, and there is a gazillion different arrangements that they have. At the same time, I don’t want to mislead you and say that—there is further subsidy to the insurance 

companies in the fact that the Federal Government pays the insurance providers an administrative and operating expense for delivery of the program. 

Mr. KINGSTON. Okay. So that is a second. 

Mr. GOULD. That is a second item. 

Mr. KINGSTON. And then if there is a disaster that goes beyond 

the value of the insured land, how does that work? Do you have 

a—can you give me—— 

Mr. GOULD. Well, without getting into a lot of detail, there are 

three different funds that approved insurance providers can place 


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their risk with the Federal Government to the extent that we 

share—typically we expect to get the high-risk funds, and they 

keep the good—the good business. So obviously that enhanced their 

rate of return on their book of business. Ironically for the 2007 crop 

year, and we just learned this this morning, that, in fact, the Federal Government had more gains on reinsurance than the companies did. Again, it was a result of a good crop year, and the bad 

book of business that we inherited from the companies turned out 

to be a good book of business. 

Mr. KINGSTON. If I just heard what you said, there is a quasireinsurance mechanism to the Federal Government. 

Mr. GOULD. Yes. We have a 5 percent quota share at the moment, and hopefully through our administration proposal in our 

farm bill to increase that quota share so the government would be 

a bigger player in the reinsurance business. 

Mr. KINGSTON. All right. Then last question I hope, Mr. Chairman. On an acre of insured cropland, if there is a disaster, is that 

producer eligible for any payment from the disaster outside of insurance at all? 

Mr. GOULD. Well, it obviously would depend on how the disaster 

bill is written. For the most part—at least certainly in recent disaster bills, there is a linkage between crop insurance and disaster. 

So if, in fact, the producer has crop insurance, then he is entitled 

to some level of disaster coverage. 

Mr. KINGSTON. Okay. But if he doesn’t have insurance, he doesn’t 

get anything, is that—— 

Mr. GOULD. That is correct. 

Mr. KINGSTON. Except for other—— 

Mr. GOULD. And as a producer, I think that is the way it should 

be. 

Mr. KINGSTON. Because, frankly, the disaster bills are so murky 

over the years that, you know, even on the committee that is doing 

it, you often just need to reclarify that and reeducate yourselves. 

So, thanks. 

WORLD FOOD SUPPLY

Mr. HINCHEY. Thank you. It has been a very interesting discussion. And I just want to express my appreciation for all of you for 

not just the discussion today, but for all of the work that you do. 

We have some votes coming up now, but I think I am the last 

one to ask a question or two. So if you don’t mind. 

Again, thank you. It has been an interesting discussion. I appreciate the response to the questions. I think you are engaged in one 

of the most fascinating and one of the most significant issues that 

we have to confront not just as a Nation, but as a species globally. 

Circumstances around the world on food are getting more and 

more difficult almost every day. There was an interesting editorial 

in The New York Times today, which, among other things, talks 

about how the World Bank president has just estimated that there 

are at least 33 countries in the world that are on the edge of social 

unrest because of the increasing price of food and, one has to assume, that in addition to the increasing price, the decline in the 

availability of food. We know that hunger is growing, and it is 

growing fast. 


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We are not one of those 33 nations yet, but it is interesting that 

we have such a dramatically increasing number of people on food 

stamps in our country, almost 28 million right at the moment, and 

that number is going up. And when you look at the situation in 

schools, school lunch programs, school breakfast programs, growing 

demand for that and the ability of the schools to deal with that is 

also going down. Very, very difficult. 

We have a complex set of circumstances here to confront. There 

is nothing more important for our species to deal with than food 

and fiber. That is one of the reasons why we all sit on this committee, because it is—you know, it is the basic ingredient of life. 

Without it, you can’t continue. 

So this farm bill that is coming up has been very contentious, 

and I think that a lot of the contention has to deal with a lot of 

these complex circumstances, situations in which we are dealing 

with. And there is a lot of ways people are trying to answer these 

questions, and you get a lot of answers depending on who you are 

talking to. 

So one of the responsibilities of this committee, of course, is to 

look out for big producers of agriculture in our country, farmers, 

but at the same time we are facing some interesting situations in 

that regard. For example, the amount of corn that is now being 

used in biofuel is estimated to—somewhere in the neighborhood of 

have doubled price of various elements of food not just here in the 

United States, but around the world because of the huge amounts 

of corn that are being put into biofuel and the large amounts of 

other food products that are now not being produced. People are 

rushing to try to start planting corn because there is a lot bigger 

profit to be made from the corn. 

So I am wondering if you might have any ideas about this set 

of circumstances, what we might be doing more constructively. 

What are the things that we should be engaging in? There is no 

question because of—the ability of people to get adequate nutrition 

in our own country is going down, but in a lot of countries, like 

Haiti, for example, which is very close to us, most of the countries 

in sub-Saharan Africa and a number of other countries around the 

world, including Vietnam and other places where dangerous, difficult circumstances are beginning to prevail because of the lack of 

food. 

What do we have in terms of storage? I used to take note of the 

huge storage amounts that we had for various kinds of food. What 

is the storage situation now? 

STOCKS-FOR-FOOD PROGRAM

Mr. KEENUM. Well, Congressman Hinchey, in my earlier comments when we were talking about our Stocks-for-Food Program, 

I made a point that we no longer own any CCC surplus stocks. We 

have converted all of our CCC surplus stocks into food to address 

many of the points that you just highlighted. And I appreciate your 

comments. 

Mr. HINCHEY. You turned the stocks into food? 

Mr. KEENUM. That is correct. 

Mr. HINCHEY. What does that mean? 

Mr. KEENUM. Well, we—— 


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Mr. HINCHEY. Stocks were food. They always were food or potential for food. 

Mr. KEENUM. Right. For example, we took a bale of cotton that 

we own in our CCC inventory. 

Mr. HINCHEY. Pardon me? 

Mr. KEENUM. Cotton. We own I don’t know how many thousands 

of bales of cotton. 

Mr. HINCHEY. Let’s just talk about wheat and corn and soybeans. 

Mr. KEENUM. Sure. We own wheat and corn and soybeans and 

peanuts and rice and cotton. 

Mr. HINCHEY. Who owns those stocks now? 

Mr. KEENUM. Well, the U.S. Government had those stocks. 

Mr. HINCHEY. Now they are in private hands? They are in corporate hands now? 

Mr. KEENUM. Rather than sell those commodities and have the 

proceeds— 

Mr. HINCHEY. When was that change made, back in the 1980s? 

Mr. KEENUM. July of last year. We are responding to those points 

that you highlighted. What we tried to do was say that—you know, 

we have got these surplus commodities. When a farmer takes out 

a loan from the government, and he puts his crop up for collateral, 

and so rather than pay back the government, a lot of farmers just 

forfeit their commodity to us, and we own it. 

Mr. HINCHEY. Who are the main owners of those stocks now? 

Mr. KEENUM. Well—— 

Mr. HINCHEY. Which corporations own them? 

Mr. KEENUM. Well, sir—— 

Mr. KINGSTON. Dr. Keenum, if you don’t mind me interjecting 

myself. 

Mr. HINCHEY. I do mind you interjecting yourself. Wait a minute, 

wait a minute, Mr. Kingston. Just relax. Your time is up. 

Mr. KINGSTON. This is such a friendly comment, you will be so 

happy. 

Mr. HINCHEY. Your time is up. Don’t interrupt me. Your time is 

up. 

Mr. KINGSTON. I don’t think you can have a hearing with one 

person here. Your hearing is over because you can’t have a hearing 

without anybody here. 

Mr. HINCHEY. Thanks very much. Thanks for leaving. 

So what were you saying? 

Mr. KEENUM. Well, with the commodities that we obtain through 

a farmer forfeiting his commodities to us, our job is to dispose of 

those commodities because we have to pay storage on those commodities that we own. That is the way the program is structured. 

But rather than selling those commodities, what we do was we 

looked at the law and we determined that we could swap or barter 

those commodities for processed foods. We could take bushels of 

wheat and exchange them for canned vegetables or canned meats, 

stews. 

Mr. HINCHEY. Who do you exchange them with? 

Mr. KEENUM. Food companies that come in who want to— 

Mr. HINCHEY. Which are the major food companies that own the 

major foodstocks in the country now? 


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Mr. KEENUM. These are major companies. ConAgra, Cargill, 

Louis Dreyfus are just some of the major companies that come to 

mind. But it is an opportunity we saw—— 

Mr. HINCHEY. Why aren’t those companies dealing with the 

growing problem of malnutrition in America? 

Mr. KEENUM. Hmm, I can’t—— 

Mr. HINCHEY. What kind of intervention could we engage in to 

ensure that those corporations, which now control the surplus agricultural commodities for America, begin to look at the situation 

and begin to deal with it in ways that are not just in corporate interests, but in the interests of the country? 

Mr. KEENUM. Well, Congressman, I don’t know the answer to 

that. You pose somewhat of a philosophical question. 

Mr. HINCHEY. Do you think it might be reversing that process of 

getting the corporations out of the ownership of those huge stocks 

and putting it back in the hands of the Agriculture Department so 

that decisions like that can be made on the basic interest of the 

population of the country rather than corporate interests? 

Mr. KEENUM. Again, we are talking about dealing with farmers, 

farmers who have forfeited their commodities to us. And rather 

than just simply sell these commodities, we have tried to put them 

to a constructive use to address our international humanitarian 

needs and our domestic food programs. 

You mentioned about the humanitarian needs in this country, 

TEFAP, which is The Emergency Food Assistance Program. But 

TEFAP, which is a very important program, has a budget of $140 

million, and by these actions that we took as an initiative, we are 

putting more than $100 million into TEFAP. Again, it is a $140 

million budget. We are taking our commodity, a bulk commodity, 

and converting it into a food that a needy American can utilize for 

their families. And we have a lot of families in need in this country. We saw some of the points that you outlined in your comments, and we took an action to address those concerns and those 

needs both here domestically and internationally, as you pointed 

out about a lot of countries that are on the verge of very serious 

problems. And this is an attempt by the Department of Agriculture 

to address all of these humanitarian needs. We are obviously, as 

you can tell, very pleased with this program. 

Mr. HINCHEY. Yeah. Well, thanks very much. We have some 

votes on now, and I think maybe we will try to keep this open, if 

you don’t mind staying with us for a little while. 

Mr. KEENUM. Absolutely. 

Mr. HINCHEY. Appreciate it. 

Mr. KEENUM. Yes, sir. 

Mr. HINCHEY. I think these issues that you have been talking 

about, I think, are very critical, and they are critical not just domestically, but they are critical internationally. And the set of circumstances that are prevailing around the world and growing are 

increasingly dangerous. 

Mr. KEENUM. I agree. 

Mr. HINCHEY. And thanks. Thank you very much. 

Mr. KEENUM. Thank you, Congressman. 

[Recess.] 


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FARM BILL CONFERENCE

Ms. DELAURO [presiding]. Again, my apologies. I will report that 

there was the opening session of the conference, House and Senate. 

It is the largest conference I think I have ever seen. It is in the 

Russell Building, 345. So there was opening statements, and the 

House made its formal proposal to the Senate. The Senate is taking 

a look at that. And then obviously there will be the deliberations 

amongst the finance people, Mr. Rangel, Mr. Baucus, Mr. McCrery. 

And actually, the leadership of the conference laid out its positions, 

and there isn’t anything different than any of us in this room know 

about. So that is where we are, and we are recessed subject to the 

call of the Chair. There we are. 

FARM BILL IMPLEMENTATION COSTS

Let us get back under way. Thank you again for your patience 

here. Let me just—this goes actually to the farm bill again. In 

order to implement—the budget request or the farm bill proposal 

doesn’t include funds to implement the 2008 farm bill. And the testimony says, Secretary, then I quote, we will evaluate the necessary administrative resource requirements and work with the appropriate authorizing committees to implement the new and reauthorized programs and policies once the specific provisions and 

operational requirements have been determined. 

I am trying to get a sense here of how you would expect to know 

what funding is necessary to fix your IT problems and to implement the new farm bill. When you put together your farm bill proposals, why did you not include an estimate at that time of what 

administrative expenses would be necessary to implement your 

own proposal? And when do you plan to work with the appropriate 

authorizing committees after the farm bill has passed? It seems a 

little late in that context of doing that. 

And then again, this isn’t the first agency or agencies that I have 

asked this question. You know, you never get everything you want 

out of a conference. It always winds up being less than you anticipated. And again, our hope is that we will have a farm bill in the 

next week or so. So, you know, did you include an estimate at the 

time of your administrative expenses and what it was going to take 

to implement your own proposals? And what is the status of your 

working and your continued work with the authorizing committees? Where are we? 

Mr. KEENUM. Yes, ma’am. To my knowledge, we did not submit 

an implementation budget proposal when we submitted our farm 

bill policy ideas to the Congress, but we have subsequently—since 

presenting our policy ideas to the Congress, we have followed up 

with the leadership of both committees and their pertinent staff to 

inform them of what we would need to implement the farm bill. 

And what we did was we waited until the House actually passed 

their farm bill, and we had a chance to evaluate the bill. And our 

estimates on implementing the House-passed farm bill would be 

roughly $217 million. We have since evaluated the Senate bill. And 

just the Senate bill itself, without a disaster component, our staff 

has informed me and we have informed the committees that it 

would cost $320 million to implement the Senate farm bill. And if 


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you have the disaster provision that was in the original Senate bill, 

the total cost would be about $360 million. 

Now, when we put that in perspective, when the 2002 farm bill was enacted, the authorizers provided $50 million to the Department to implement the farm bill. We wound up spending about 

$157 million to implement it. But the appropriators came back in 

fiscal year 2003 and provided the Department with another $60 

million. So all told in the 2002 farm bill, the Department received 

from the Congress $110 million for implementation. But an actual—— 

Ms. DELAURO. It is hard to get the money if you don’t request 

it. You know, I mean, I just think that—— 

Mr. KEENUM. But we are requesting it, Madam Chair. 

Ms. DELAURO. Then you didn’t put anything—— 

Mr. KEENUM. We have given it to the authorizing committee 

members and their staff, and we have made it very clear what our 

needs are. 

Ms. DELAURO. Okay. We will have to figure it out. As far as I 

know, we do not have copies of what your—what you listed and 

what they are, et cetera. So actually that—— 

Mr. KEENUM. Madam Chair, I think it would be very appropriate 

for us to provide that information to you, absolutely. 

NATIONAL AGRICULTURE IMAGERY PROGRAM

Ms. DELAURO. Let me ask a quick question about the NAIP. I 

have got other questions, but we will go back and forth here for a 

while. 

Let me just say, fiscal year 2007 FSA did not spend the $24 million for NAIP even though under the continuing resolution terms 

and conditions of the 2000 conference report were applicable in 

2007, not the National Agriculture Imagery Program. Some of 

those funds were redirected to pay for the stabilization of the farm 

program delivery systems. Fiscal year 2008 House report also contained language; $24 million was provided for NAIP, and this language was not contradicted in the conference report. 

How much did you spend on NAIP in fiscal year 2007? How 

much do you plan to spend in 2008? And what amount is assumed 

in the fiscal year 2009 budget request? And the other piece is, are 

you redirecting the funds in 2008 from NAIP to stabilize the farm 

program delivery system? 

Mr. KEENUM. Madam Chair, in 2007, the FSA provided $6.3 million to NAIP. As you recall, last year when we were facing a lot 

of challenges with our IT system, we had to come up with some additional funds to make sure that our computers at the time did not 

completely collapse, and we had to make a very difficult decision 

to redirect moneys. And the only moneys, working with our budget 

office, that we could identify that we could fill those needs for our 

IT systems was out of the NAIP funds. That was a decision we 

made internally to fulfill our IT commitments. 

For fiscal year 2008, we are projected to spend $10.1 million. And 

we have partners with us that will contribute another $2.4 million, 

and we are negotiating another $1.5 million from a partnership. 

Ms. DELAURO. When you talk about partners, who are these 

partners? 


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Mr. KEENUM. Partners are the ones on the ground who are actually implementing the NAIP program. The State of Missouri, for 

example. 

Ms. LASSETER. Geological Survey, State government, the Forest 

Service, NRCS. 

Mr. KEENUM. So we are expecting this year to spend roughly around $14 million on NAIP. And the 2009 budget has $10.1 million in the budget request for NAIP. 

Ms. DELAURO. So are you redirecting the funds in 2008 from 

NAIP to stabilize the farm program delivery system? Are you going 

to take any money from that program again to do—— 

Mr. KEENUM. No, ma’am. That is not what our intentions are 

this time, no. 

Ms. DELAURO. Well, what I need to do is to see—because it was 

$24 million. You used $6 million in 2007. You used the balance of 

that for the IT system? 

Mr. KEENUM. Yes, ma’am. 

Ms. DELAURO. But you used the $24 million; 6 of it was for the 

NAIP program. Is that right? 

Ms. LASSETER. Well, we used the $20 million—— 

Ms. DELAURO. Twenty-four. 

Ms. LASSETER. Okay. But that was not all of our money that we 

had, that we were going to use for NAIP. So we still used the 2007; 

it was $6.3 FSA contributed or spent on NAIP. And my records 

show $4 million from our partners. So it was a total of $10 million 

in 2007. 

Now, in the 2008 budget, there is the earmark. But the President’s Budget, as I understand, did not have that much for NAIP. 

Ms. DELAURO. Can somebody get to me what we did here on the 

numbers with the NAIP program, 2007, 2008? We have got a request for 2009 for $10.1. I mean, we had 24. How much went to 

the IT program? There has got to be some accounting here someplace. 

Ms. LASSETER. Can we give you that? 

Ms. DELAURO. Sure. In a timely way. I don’t want to wait. I really do want to find out. 

Mr. KEENUM. Sure. 

[The information follows:] 


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Ms. DELAURO. If you bear with us again? And I promise you if 

we cannot finish up today, I am committed to try to finish up by 

1:00, and we will have to ask you to come back. But if you just bear 

with me for a few minutes. 

[Recess.] 

Ms. DELAURO. Ladies and gentlemen, let me just tell you what 

I have concluded is that we are going to reschedule. And there are 

a number of questions that I have. I think other Members do as 

well. And it actually may in the long run serve us well because 

many of the committees are finishing up today with what they are 

doing. And there are some areas that we didn’t get an opportunity 

to cover that I know are important areas. I know some of the food 

aid efforts have been covered, from, you know, my point of view. 

It is about, you know, again FSA and NCRS working together, and 

some other areas which I think merit a conversation with folks, 

and where we are with some of the crop efforts, crop insurance, et 

cetera. 

So I thank you again for your patience and apologize because I 

know your schedules are busy as well. So we will reschedule at another time. And the hearing is concluded. Thank you very, very 

much. 

Mr. KEENUM. Thank you, Madam Chair. 

Thank you, Congressman. 

Mr. HINCHEY. Thank you very much. 


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THURSDAY, JULY 10, 2007.

COMMODITY FUTURES TRADING COMMISSION (CFTC) 

WITNESSES 

WALTER LUKKEN, ACTING CHAIRMAN, CFTC 

MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER FEDERATION 

OF AMERICA 

TOM DEVINE, INDEPENDENT CONNECTICUT PETROLEUM ASSOCIATION AND THE NEW ENGLAND FUEL INSTITUTE 

MICHAEL GREENBERGER, LAW SCHOOL PROFESSOR AND DIRECTOR, 

CENTER FOR HEALTH AND HOMELAND SECURITY, UNIVERSITY OF 

MARYLAND 

JOHNATHAN SHORT, SENIOR VICE PRESIDENT, GENERAL COUNSEL 

AND CORPORATE SECRETARY, INTERCONTINENTAL EXCHANGE, 

INC. 

Ms. DELAURO. The hearing will come to order. Thank you to 

Ranking Member Kingston and the members of the subcommittee 

for taking part in this important hearing this morning. 

Actually, this is the first oversight hearing on the Commodity 

Futures Trading Commission that this subcommittee has held in 9 

years. 

I also want to say thank you to today’s witnesses for sharing 

their testimony and for answering our questions today. 

We are here to address the concerns of millions of Americans, 

families and farmers who simply feel powerless at the gas station 

and at the grocery store, sensing that something more than supply 

and demand is going on to produce breathtakingly high prices. 

The goal of this hearing is to take a hard look at the Commodity 

Futures Trading Commission to examine its mission and its funding to determine whether excessive energy speculation is driving 

up energy prices, making it harder for so many families just to get 

by. 

Let me give a brief definition of excessive speculation. It occurs 

when market price for a given commodity no longer accurately reflects the forces of supply and demand. This is basically the definition of excessive speculation that CFTC is charged with policing 

and preventing under the Commodities Exchange Act. 

This is a complex issue, but our responsibility as a Congress and 

a Nation is serious. We are in a crisis, and as such, we need to look 

at every aspect that could potentially affect energy prices. 

Of course, we must take into account factors such as a weak dollar, strong demand from an emerging economy, geopolitical tensions in oil-producing regions and supply disruption. But we must 

also do everything in our power to protect consumers from improper market manipulation and excessive energy speculation. 

It has not even been 7 years since Enron filed for bankruptcy, 

the lives of thousands of workers and retirees devastated, and the 


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so-called ‘‘smartest guys in the room’’ shown to have taken advantage of special influence and deregulated energy markets. 

Now the American people wonder if it is de ́ja` vu all over again. 

Today we will hear from people on the front line, like Tom Devine 

of the New England Fuel Institute, who suggest that we can no 

longer have faith in the power of our energy futures markets to 

provide realistic pricing or manage risk. Instead, loopholes and exceptions have grown, and experts point to interested parties with 

special access or information improperly speculating on the price of 

energy without much oversight. 

Of course, the American people have seen this movie before, and 

they know how it ends. From the savings and loans, the dot-com 

bubble, from the Enron debacle to an ongoing subprime mortgage 

crisis, speculative bubbles emerge. Regulators do nothing in the 

name of letting markets do their magic. The bubble bursts, and the 

consumers and the taxpayers pay the bill. 

We go from one financial crisis to another but do not ever seem 

to learn from the lesson. 

Today the consequences are as grave as they have ever been. Our 

most basic needs are at stake, fuel and food. We know that soaring 

gas prices are shattering everyone’s budget, killing middle class 

families trying to make ends meet, farmers harvesting their crops, 

truckers battling on our highways. 

To be sure, this Congress is not going to be uncovering every intricacy of the marketplace during one hearing, but I do believe that 

the marketplace has a whole host of problems. And we have a responsibility to investigate and to respond, to bring oversight and 

enforcement to our market. 

Again, no one wants to see wholesale price controls or the elimination of strong market incentives to deal with long-term issues of 

supply and demand. But when one sees prices weaving down the 

road as erratically as they have been, it may make sense to give 

the market a sobriety test. The amplitude of these swings does not 

appear to make sense. Ultimately, the one thing we know for sure 

is that we do not know enough. 

With so much at stake, transparent and efficient trading systems 

are essential, and, yet, we may not have the data to make that possible. According to a July 2007 Government Accountability Office 

report, some observers, and I quote, believe that higher energy 

prices were the result of supply and demand fundamentals, while 

all others believe that increased futures activity may also have contributed to higher pricing. 

But the effect on energy prices on individual change in these 

markets is unclear. At that time, the average price for a gallon of 

regular self-serve gas was $2.97. Just this Monday, with the price 

of gas now at $4.11 a gallon, the Congressional Research Service 

reported that, and I quote, Very little information is available 

about over-the-counter commodity markets, end quote. 

How much longer are we going to wait? So this is where we turn 

to you, the Commodity Futures Trading Commission, the agency 

charged with ensuring that our markets run effectively and our 

consumers are protected. 

According to its mission, the CFTC’s primary function is to, and 

I quote, Protect market users and the public from fraud, manipulaVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00916 Fmt 6601 Sfmt 6601 E:\HR\OC\B718P2.XXX B718P2

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tion, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive and financially sound futures and options market, end quote. 

But a regulatory agency cannot do its job without adequate resources and staff. The Agriculture Appropriations bill, the subcommittee’s recommendation included greater resources than the 

President’s proposal to help the CFTC make the needed down payment and begin recovering from years of underinvestment. 

I also understand the agency has already taken on a series of initiatives in order to meet these basic regulatory responsibilities: requiring ICE Futures Europe to match the current U.S. reporting 

requirements and to provide daily position reports; requiring traders in the energy markets to provide monthly reports of their index 

rating; and three, reviewing the trading practices for index traders 

in the future markets to determine the impact of futures trading 

on the price discovery process. 

But, I must wonder if all of this is too little, too late. I am glad 

the CFTC is moving aggressively to investigate the issue of swaps. 

But when the agency promises to present its report to Congress by 

September 15 of this year, it begs the question, how high will the 

price of oil have climbed at that point? 

We have more to do to ensure excessive speculation is not distorting energy prices. Since 2000, the Commodity Futures Modernization Act placed large segments of the commodities future 

market outside the CFTC jurisdiction and allowed for virtually unregulated over-the-counter and electronic trading of many commodities. 

We must bring transparency to the over-the-counter markets and 

foreign boards of trade, which today remain so obscure, and fully 

close the so-controlled Enron loophole. For too long, the CFTC has 

acted only when pushed hard by Congress. Another example, like 

the FDA, OSHA and the Consumer Product Safety Commission, of 

this administration’s failure to meet its regulatory responsibilities. 

Ultimately, this is part of something bigger, and our response 

must be bigger as well. The U.S. dollar is threatened, and people 

do not have confidence in the U.S. economy. Speculators are landing in commodities because they see few other places to go, and we 

are paying the price for neglecting our economic fortunes at home 

for 8 long years. 

Getting back on track will require broad and wholesale change, 

and the American people agree that we cannot afford to do anything less, and we can begin immediately and empower the CFTC 

to do its regulatory job. 

With that, let me turn the microphone over to Congressman 

Kingston before we move on to our first witness. 

OPENING STATEMENT

Mr. KINGSTON. I thank the Chairwoman for having this very important hearing. I think it is serious. It is something that is on the 

mind of the American people. 

And thank you, Mr. Lukken, for being here today. 

I do have an opening statement. 

The speculation is the target today, as it has been in the past, 

with plenty of history to support the philosophy. There have been 


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a number of times that speculation has resulted in manipulation 

and collapse followed. We need to look no further than in the 

1970s, when the Hunt brothers cornered the market on silver. 

The point here is not that speculation in itself is bad. It is that 

speculation is bad when speculators illegally manipulate the prices. 

And this is the question with the Hunt brothers. They were able 

to hoard silver physically in warehouses. 

Is someone doing that with oil? Is that possible to do it with oil? 

Does somebody have tanks and tanks that they are sitting on in 

the manner that the Hunt brothers were sitting on silver? I would 

like to know that. 

I am for finding out if a few speculators have bonded together 

in collusion to manipulate the price and impose great harm on our 

consumers. So far I have heard about pension plans administered 

by unions and State and city government; Fairfax County, Virginia, 

being an example. I understand that they have done well by buying 

some of these future contracts. I don’t know that they were 

colluding with each other. It would be interesting to know if they 

were colluding with each other. Maybe some of the witnesses today 

could enlighten us on that. 

I am opposed to attacking perfectly legal and essential speculation, including buying and selling of future contracts. Future contracts are essential ways that hedge risk and ensure the availability of a commodity at set price. They are bought and sold for 

people that actually have a stake, such as oil producers and the 

airlines. 

I want to read from an article about onions in Fortune Magazine 

that was just published this June 30th by Jon Birger, that he 

points out that onions do not have future contracts on it. And I am 

just going to a quote part of that, and it says: With no traders to 

blame, the volatility in onion prices makes the swings in oil and 

corn look tame. It diminishes the belief that future trading diminishes price swings. 

Listen to this: 2006, since 2006, oil prices have risen 100 percent; 

corn is up 300 percent. You can buy futures on those. But onions 

went up 400 percent, and you can’t buy futures on onions. And that 

was just since October of 2006 and April of 2007 when weather reduced the crops, according to the USDA. Then they crashed by 96 

percent in March of 2008 because of overproduction and then rebounded this past April 300 percent. 

So, speculation can stabilize prices, and that is why there are future contracts. Onions don’t have it. Corn does, but both of them 

swing a lot. Onions, though, probably more than them. 

The future of market is about the future, months and years down 

the road. It is not about the spot price of today or tomorrow. Speculators are on the movement of price, either it goes up or down, and 

they do not have any interest in buying or selling quantities of oil 

or narrowly—if they do, I want to know that again. They own barrels only on paper, as I understand it. 

Whatever the outcome of speculators, speculators have no impact 

on the price of spot oil, as I understand it. That oil is set by those 

who have the oil physically and sell it only to people who actually 

use the oil. Importantly, speculators lose money if they bet the 


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wrong way, so absent any physical control over oil, they do not 

have an incentive to move the price of oil upward. 

The only way that speculators can influence the price of oil is to 

directly turn their papers into real barrels, take the oil off the market entirely, for example, and try to force prices to rise like the 

Hunt brothers did when they started hoarding silver. This is what 

I understand, and I may be wrong in that, but I would like to know 

more about it. 

So as we move forward to ferret out the bad guys, we also should 

look to see if there are any other reasons for the rise in price. It 

is hard to imagine, but perhaps the demand for oil has risen 9 million barrels per day, and the supply has not kept up; that maybe 

we have a supply and demand issue here. 

More importantly, and I will say this, interestingly, I was in 

Saudi Arabia with Chairman Nick Rahall of the Natural Resources 

Committee, and we asked the folks over in the Middle East about 

the prices. And their reply to us, one of the oil ministers said, How 

dare you come to the Middle East to whine about oil prices when 

you won’t drill and you won’t build refineries? 

And having traveled all the way to the Middle East, it is true; 

why should we blame our oil prices on somebody else? We are unwilling to drill, unwilling to build refineries, unwilling to use our 

own resources. 

People need to remember that the number one producer for 

American oil is America, and then Canada and then Mexico. It is 

not Saudi Arabia and Venezuela and all the bad guys. They are on 

the list, but they are further down than we think. We need to look 

at long-term supply and long-term production since it is clear that 

the price of oil today is based not only on the supplies of today but 

what expectations there are for future supplies. We need to move 

immediately to increase in supplies in America. 

We can take a big step forward in doing this by restarting the 

appropriations process. Recently we had a motion to bring up the 

Interior Appropriations bill, which would have given Members an 

opportunity simply to vote on offshore drilling. That is something 

that I think we should be doing. We may be ending this session of 

Congress, going into an August recess, without moving one Appropriation bill on the floor because of the fear of the Speaker that we 

could bring up offshore drilling. 

I feel strongly that that should be debated vigorously in Congress, but it needs to be on the House floor, not just something that 

we talk about in talk shows. 

The price of oil is also, though, because of the weak dollar. There 

is also evidence to show that the rise in prices in the U.S. has been 

greater and faster than other countries with healthier currencies, 

the dollar to the euro, for example. This is a big factor. The Chairwoman mentioned it. I don’t know that we have anything that we 

can talk about today that would control that, but it is something 

that we need to keep in mind. 

We should also look at the fundamental economic issues that actually make the difference. If the futures markets were sending the 

correct prices about the future, eliminating speculation could actually make matters worse in the market by not allowing us to adapt 


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to the future and making markets more volatile than they are 

today. 

With that, Madam Chair, I pass. 

Ms. DELAURO. I thank the ranking member. 

Now we will move to testimony and to our first this morning. We 

are pleased to welcome our first witness. Walter Lukken—the acting chair—I thought he had been confirmed yesterday, so I am 

sorry, acting chair of the Commodities Futures Trading Commission. Mr. Lukken was appointed as acting chair in June 2007 and 

was first appointed commissioner in 2002. 

He has testified several times before Congress, represents the 

agency as part of the President’s Working Group on Financial Markets. He also represents the commission before international organizations and forums, serves as the chair of the CFTC Energy Market Advisory Committee, which was created by the commission in 

2008 to address regulatory issues connected to the role of the futures market, for discovering prices and managing energy price 

risks. 

Prior to joining the CFTC, Acting Chairman Lukken served for 

5 years as counsel on the professional staff of the U.S. Senate Agriculture Committee under Chairman Richard Lugar, specializing in 

futures and derivatives markets. 

Chairman, please, understand that the full testimony will be 

made part of the record, so you are free to summarize it. Thank 

you. 

OPENING STATEMENT

Mr. LUKKEN. Thank you, Madam Chairwoman and Congressman 

Kingston and other distinguished Members of the Committee. 

Thank you for inviting me to testify on behalf of the CFTC and its 

role in overseeing the futures markets. 

The CFTC’s mission, as the Chairwoman mentioned, is twofold. 

First is protecting the public and the market users from manipulation, fraud and abusive trading practices; and second is promoting 

open, competitive, and financially sound markets for commodity futures and options. These mandates are crucial because prices in the 

futures markets impact the cost of a loaf of bread, the price of a 

gallon of gas and the interest rate on a student loan. If the futures 

markets fail to work properly, all consumers will be impacted. 

We are quite aware that prices in these markets have been reflecting high, putting a considerable strain on American families, 

farmers and businesses. Although the Commodity Exchange Act 

does not give the agency the ability to set prices, our people work 

extremely hard to ensure that the futures markets are working 

properly, and that prices are reflecting economic factors rather 

than manipulative forces. 

As you know, the futures markets have changed dramatically in 

the last decade. Since 2000, volume on U.S. futures exchanges has 

grown sixfold as traders increasingly seek the price certainty and 

clearing benefits of the regulated futures marketplace. 

The growth in the regulated marketplace has been scrutinized 

lately, and appropriately so, as prices in crude oil and agricultural 

commodities have climbed. Specifically, concerns have been raised 


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recently regarding the role of speculators and index traders in commodity markets. 

Speculation has played a crucial role in the functioning of the 

U.S. futures market since their founding more than 150 years ago. 

Without speculators, the futures markets would not be able to work 

properly. Commercial participants cannot hedge their activities 

without someone willing to take the other side of that transaction. 

In the futures markets, this opposite role is often taken by speculators. 

The liquidity provided by speculators has tended to lower the 

costs of hedging to the benefit of the commercial participants in the 

markets. Nevertheless, our agency recognizes that any participant 

in the markets with enough power, including speculators, can detrimentally affect the functioning of the markets. 

Accordingly, our act requires all traders of sufficiently large size 

to report their futures positions daily to the CFTC. This information enables our surveillance economists to monitor large traders, 

to ensure that no one is attempting to manipulate the futures markets. 

The amount and detail of the trade data collected by the CFTC 

is unique among regulatory agencies, and this system has proven 

very effective in the proper policing of our markets. 

As the futures markets have changed, the CFTC has evolved to 

meet new challenges. In light of the recent developments and the 

impact of high prices on consumers, the CFTC has embarked upon 

a series of steps to ensure greater transparency, implement tighter 

controls and gather more energy market information. The commission recently announced an agreement with the U.K. Financial 

Services Authority to expand information sharing concerning crude 

oil contacts on ICE Futures Europe and London that is linked to 

the U.S. NYMEX crude oil benchmark. 

The CFTC also has required the imposition of position limits and 

accountability levels on these products that are equivalent to U.S. 

standards. Additionally, we called for additional information from 

swaps dealers regarding their index trading and a review of whether additional controls or classifications of these traders are needed. 

And the agency also announced the existence of an ongoing 7– 

month old nationwide crude oil investigation. 

More recently, the CFTC formed an interagency working group 

with the Federal Reserve, the Department of the Treasury, the 

SEC, the Department of Energy and other agencies to study investor practices, fundamental supply and demand factors and the role 

of speculators and index traders in the commodity markets. This 

group is making significant progress on completing a report to Congress, and we hope to provide an interim report on the crude oil 

markets in the coming weeks. 

Regulatory evolution and informed responses to market conditions are keys to effective market oversight and these challenging 

global conditions. The CFTC and its regulatory approach have 

evolved along with the futures markets, and the agency has pursued its mission while operating at historically low staffing levels. 

Over the last year, the CFTC worked with Congress to legislatively close the so-called ‘‘Enron loophole’’ as part of the Farm Bill 


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that provides the agency with the data and the authority to oversee 

these electronic energy markets. 

This is clearly a busy and challenging time for the CFTC, and 

I believe the agency has risen to the occasion, but we simply cannot 

sustain the current work load, let alone what is likely in the future, without some budgetary limitations being changed. 

I am appreciative of this Subcommittee approving an appropria- tion of $135 million for the CFTC in fiscal year 2009. This is a 

strong step during these tight budgetary times. 

With the passage of new authorities over exempt markets and 

additional responsibilities currently being considered for the agency, the Senate Appropriations Subcommittee yesterday approved a 

mark of $157 million to meet these growing oversight needs. 

I look forward to working with this Committee and Congress to 

ensure the proper functioning of these important markets, and I 

appreciate being asked to come here today, and I certainly want to 

answer any questions that you may have. 

Thank you very much. 

[The statement of Mr. Lukken follows:] 


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Ms. DELAURO. Thank you. 

What I am going to do with the questioning, because we have a 

full subcommittee here today, is hold myself and others to the 5- 

minute rule so we can have an opportunity to get in several rounds 

of questioning, and everybody gets an opportunity to raise questions, and you have an opportunity to respond. 

BUDGET

Let me, first of all, let me just review a bit of budget history 

quickly. During this administration through the House mark 2009, 

Congress has provided 98.6 percent of the funding requested by the 

President. In and of itself, this is fairly remarkable because we 

have had a tight budget every year, and there are many priorities; 

more remarkable when you consider that this includes providing 

discretionary funding in 2007, when the President’s budget proposed to fund the agency entirely through user fees. Since the fees 

were not enacted, we had to come up with the funds ourselves. 

The funds you received last year were nearly 14 percent higher 

than your 2007 level, and the 2009 request as submitted by the 

President is another 14 percent over that. You have told the Senate 

that you need more for 2009, and, yesterday, in their mark, they 

talked about $157 million this year. This was about a 29 percent 

increase over 2008. 

However, we have not received, this subcommittee has not received any kind of an official request for this, despite your having 

testified before the Senate asking for the increase. 

I have two questions with regard to this. Also, why now? Why 

is the CFTC coming to us in this last year of the administration 

seeking such a massive increase in 1 year? What is the sudden urgency that demands a 29 percent increase in your budget? You 

claimed that flat funding, you know, over the years, has resulted 

in an erosion in the staffing. You say the workforce shrunk by 4 

positions, over 16 percent of the commission’s workforce, in 2002 

and 2007. 

The flat budget requests, they have apparently, they have resulted in erosion in your staff. Why have you not come forward earlier in coming to us? And you haven’t come to us yet to ask us for 

the funding. The administration has not come to us asking for additional funding. 

This committee has no official request for additional funds for 

the CFTC. 

Mr. LUKKEN. Well, the CFTC, under its law, submits its request 

to the OMB for funding. This year, we submitted a request for $151 

million, which we did, and under our law, we are also required to 

share that with our Appropriations staff, so we did share the $151 

million request with this subcommittee last fall. 

And in addition to that, in the meantime, the farm bill was 

passed, and we shared with these committees that we need an additional $6 million as part of implementing the farm bill, which 

gets us to our $157 million request. OMB did come back with a 

$130 million mark and provided that to this Committee and to the 

Senate Committee. And that certainly is a good increase over last 

year’s mark. But this is the original mark that we have shared 


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with this committee—of $151 plus the $6 million for the farm bill, 

and gets us to the $157 million. 

So we felt that this was something that was shared with this 

Committee, and, certainly, over the last several months, with increases in commodity prices and the workload exponentially increasing at the agency, we felt it was important to, again, reiterate 

those requests with the Senate Appropriations Committee recently. 

Ms. DELAURO. I just might, for the record, note, that with regard to the $6 million from the farm bill, we received an e-mail request, 

nothing terribly formal, just an e-mail, you know, and the issue is, 

why, why now? All along you have talked erosion; it doesn’t occur 

overnight. Where have you been in addressing the serious mission 

that your agency has in letting us here know on both sides of the 

Capitol of the need to be able to address these issues? What is moving you and pressing you now to do that, and when—what would 

you deal with in terms of cuts? The Senate did $157 million. 

What should we cut in our bill to pay for the additional funding 

that you seek, the FDA, WIC, agricultural research, rural, water, 

sewer programs? What’s your view of how we address your need? 

Mr. LUKKEN. Well, again, this is something that we have been 

requesting since several years back. The President’s budget request 

was at $127 million in 2007. We received $98 million that year as 

part of the CR, so we have that gap of $30 million—— 

Ms. DELAURO. As I understand that, that was going to be funded 

totally by user fees; so that was the user fee number, I have just 

been informed. 

Mr. LUKKEN. Correct, but there was a request for needs for the 

agency, and we supported those needs for the agency of $127 million. 

Again, this last year, we asked for $151 million, and then, in the 

meantime, we had the farm bill passed with additional authorities. 

So those have been our requests over the years. We have been 

asking for more money, but we certainly appreciate this subcommittee making a strong step in getting us these additional 

funds in tight budgetary times. 

Ms. DELAURO. Mr. Kingston. 

Mr. KINGSTON. Thank you, Madam Chairman. 

Mr. Lukken, you are a smart guy. You graduated from business 

school with honors. You have a law degree. You have worked for 

the Senate Ag Committee, and you have been serving in this capacity since 2002. 

PRICE OF OIL

So based on what you know, do you believe that the price of oil 

is being set fairly on the market, supply and demand, or do you believe that there is illegal activity or just plain old price manipulation going on? Some say that speculators have added between $15 

and $70 to a barrel of oil. To what extent do you believe this occurred? Is it true, or is it not true? 

Mr. LUKKEN. Well, the CFTC looks at this in two ways. First we 

look at the data we receive from our market participants, and you 

talked about this earlier in your opening statement. We are trying 

to see if people are colluding together to illegally manipulate the 

markets, and we do see that on occasion. We have brought cases 


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against Amaranth, and the Hunt brothers, as you mentioned, in 

the past where they have tried to corner and squeeze the market 

by holding on and hoarding supply. 

So that is what our mission is, to prevent that from occurring. 

We don’t see systematically, in the current environment, people 

trying to drive up prices, working all together. I don’t think that 

has been the allegation of anybody. 

I think the concern is whether somehow new money coming in 

from the financial markets has somehow created an asset bubble. 

But we certainly have not seen it being manipulation. 

We work closely with our sister agencies, like the Department of 

Energy, to look at the data that they have. Just Tuesday they came 

out with a report showing that the markets are very tight, that 

production over the last 3 years has been flat. There is basically 

no spare capacity, 1.2 billion or million barrels a day. That is all 

held by Saudi Arabia in very sour crude. A lot of it is stuff that 

is not useful for our refineries. 

At the same time, we have non-OECD, China, India, growing at 

1.3 million barrels a day, even though there has been some decline 

in the developing world. We see about 660,000 or 760,000 barrels 

less a day from the developing world. 

But demand is still growing while supplies are flat. So our markets are reflecting that, and we feel very comfortable—we have not 

seen market participants driving this, but we do see supply and demand causing all of these price changes. 

Mr. KINGSTON. Are there any suppliers that are hoarding inventory, maybe overseas, or any buyers hoarding inventory, and would 

that be possible to hoard inventory? I mean, I can see where Saudi 

Arabia might be able to do that, but they are really not, I don’t 

think they are choking off the flow right now. 

Mr. LUKKEN. We do have a nationwide crude oil investigation 

that we look for people who try to hoard oil or for people who try 

to take oil off the markets, so this is something we also try to work 

with the Department of Energy on if we see any evidence of hoarding. We haven’t seen that to date, but we will certainly continue 

to look whether somebody is doing that, but we have no evidence 

that people are hoarding oil. 

OFF-SHORE DRILL

Mr. KINGSTON. If the President made an executive decision to 

drill for oil offshore, what would happen, in your opinion, to the 

price of oil immediately? 

Mr. LUKKEN. Well, it is difficult for us to tell, but our markets 

are predictive markets. So they take future decisions in mind in determining what the prices may be, so it is not just simply a current 

supply-demand; they look to the future. I will give a good example. 

The carbon markets, we have a carbon futures market right now, 

the Chicago Climate Exchange. The day Super Tuesday happened, 

and the only candidates left were Senator Clinton, Senator Obama 

and Senator McCain, all in favor of cap-and-trade carbon market 

systems, the price of carbon shot up, not because there was less 

carbon or more demand for carbon but because they knew it was 

reflecting future events that may happen in those markets. It shot 

up from $2.50 to near $7 for a unit. 


wwoods2 on PROD1PC60 with HEARING
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So these markets are reflecting future events, and certainly drilling would be a part of that. 

Mr. KINGSTON. But if I am hearing you right, speculators drove 

up the price of carbon, and that would be just betting on the come. 

Mr. LUKKEN. Well, there are commercials in those markets, too, 

just like the futures markets. There are people who are hedging, 

and there are commercial businesses. 

PRICE OF CARBON

Mr. KINGSTON. Perfectly legal, and it is not out of control. It is 

not a run-away train. What is the price of carbon now? Has it come 

back down—— 

Mr. LUKKEN. I think it has come off slightly, but we can check 

for you where the price of carbon currently is. 

Mr. KINGSTON. All right, I have got about 10 seconds, I think, 

but your energy group, the Energy Markets Advisory Committee, 

did you guys get behind the ball on that? Should you have been 

doing that 5 years ago? I think you just started that; it was created 

in February. 

Mr. LUKKEN. Well, it is something that came out of our recommendations. We held a hearing in September to talk to industry 

groups about energy markets, and that was a recommendation of 

Congress that we would form that, so that developed as a result 

of that. But that shouldn’t mean that, I don’t want anybody to misunderstand that we haven’t been on top of energy issues. We talk 

about this every week in our surveillance meetings. We have other 

advisory committees that deal with energy and have in the past, 

but we felt this was so important that we needed to distinguish 

and have a separate group in looking at these issues. 

Mr. KINGSTON. Well, thank you, I am out of time. 

Ms. DELAURO. Mr. Hinchey. 

Mr. HINCHEY. Thank you very much, Madam Chairman. 

Mr. CHAIRMAN, it is nice to have you here. 

There is a lot of speculation about the amount of the price of energy that has been driven up by conspiratorial speculation out in 

the market, and if I am correct, I have heard you say that that 

isn’t really a significant part of the issue here, that that kind of 

speculation isn’t having much of an effect. 

Mr. LUKKEN. Well, we are certainly looking to see if it is. 

Mr. HINCHEY. I know you are, and you have mentioned a couple 

of things way in the past, but you haven’t mentioned anything recently, so I am assuming that you are not doing anything recently 

to look into this. 

There are a number of operations called bilateral trades, foreign 

boards of trade, swaps loophole, the bona fide hedging exemption. 

All of those are involved in these kinds of speculation. 

BILATERAL TRADES

For example, the bilateral trades, they are made between two individuals and are not negotiating on a trading market, and have 

no oversight. Foreign boards of trade, the petroleum contracts offered on the Intercontinental Exchange. This is the largest dark 

market, and they are cleared by a farm board of trade in London, 

completely in the dark. 


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You have got bona fide hedging exemption, an exemption that allows businesses to hedge their legitimate anticipated business 

need. 

So the fact is, you have got a number of transactions involving 

oil futures. For example, on the New York Mercantile Exchange, 

which is the biggest market for oil, and almost triple since 2004, 

and the price of oil has tripled over the same period. I am sure that 

is just not a coincidence. There is a direct relationship to the way 

in which this financial operation is being manipulated and the way 

in which the price of oil is being driven up. 

Let me give you a couple of examples. There is the director of the 

Public Citizens’ Energy Program on May 7th of this year, just a 

short time ago, he estimated roughly $0.70 of the price of a gallon 

of gasoline is the direct result of investor speculation on the unregulated market. Well, you might anticipate that the director of 

Public Citizens’ Energy Programs might say something like that, 

but he is backed up by the IMF. The IMF has said, meaning, speculation has played a significant role in driving up the price of energy. Producers, in particular, argue that fundamental would yield 

an oil price of about $80 a barrel. Now, this is dated March 14, just 

a few months ago, yield an oil price of about $80 a barrel with the 

rest being of speculative activity. 

In summary, in this IMF report, which came out on May 14th, 

it appears that speculation has played a significant role in the runup in oil prices as the U.S. dollar has weakened and investors have 

looked for a hedge in oil futures. 

So, it is very clear, when this is being looked at objectively and 

openly, a lot of this big price increase in oil is driven by speculation. So why aren’t you driving into this to tell us who these speculators are and what the effect is as it is being done? 

Mr. LUKKEN. Well, certainly we have been looking at this since 

I became the chairman a year ago, first starting with exempt commercial markets, and you mentioned bilateral transaction, swap 

contracts. This is something that concerned us, whether these 

transactions were actually price discovering or whether they were 

influencing the price of natural gas, in particular. 

So we held a hearing last September, and Congress held hearings about this, and we made recommendations to Congress to 

close this loophole. 

ENRON LOOPHOLE

Mr. HINCHEY. Close the loophole that you made a recommendation on? 

Mr. LUKKEN. This is the so-called ‘‘Enron loophole.’’ So this is ensuring that these types of swap, energy swap transactions, when 

they start to influence prices, that is when we will put certain regulations on them, reporting requirements. 

Mr. HINCHEY. So then you are agreeing that there is speculation, 

that there is this kind of conspiratorial speculation out there, and 

that is helping to drive up these prices significantly? 

Mr. LUKKEN. Well, I am saying that we are addressing concerns 

there were with certain markets. You mentioned foreign boards of 

trade. 


wwoods2 on PROD1PC60 with HEARING
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Mr. HINCHEY. But how are you addressing them? You are not addressing them in any real way. You said you held a hearing, and 

you said the Enron problem should be addressed, that is being addressed by this Congress, this House of Representatives has been 

addressing it very aggressively. 

But the fact is that we need your operation to be much clearer 

about this, and the investigations that you are capable of carrying 

off, with the huge amount of money that you are being given, 

should be informing this Congress how much speculation is driving 

up the price of oil. 

Mr. LUKKEN. And we provided legislative language to our authorizing committees to close the ‘‘Enron loophole’’, and they did, as 

part of the farm bill. And we are also asking for additional information about swaps, you mentioned. We have asked for additional 

information for foreign boards of trade. We have imposed position 

limits on those foreign boards of trade. We have been taking action 

on all the issues that you have raised. 

Mr. HINCHEY. Well, my time is up, but I don’t see any result of 

your allegation of taking action. There hasn’t been any assertion. 

In fact, you have denied that there is any impact on speculation 

driving up the price. Now I know that you are driven by the administration, because the administration doesn’t want to admit that 

the speculation is driving up the price either. 

So I know that your statements today are directly influenced by 

the administration, but there is a direct inconsistency between that 

and what you are just trying to tell us and make us believe. 

Ms. DELAURO. There is a significant difference of opinion as to 

whether or not the Enron loophole has been closed, so we will get 

to that. 

Mr. Alexander. 

Mr. ALEXANDER. Thank you, Madam Chairman. 

COTTON MARKET

I wanted to talk just a little bit about cotton. Of course, oil is important to the State of Louisiana, but back in the early part of the 

year, there was some disturbances on the cotton market. So my 

question is, is CFTC conducting a thorough investigation of the 

events in the cotton market in early March? 

Mr. LUKKEN. We disclosed in, I guess it was in early June, that 

we have an open investigation of that price run-up in March, an 

enforcement investigation. 

Mr. ALEXANDER. So would you be issuing some kind of report to 

us at some point? 

Mr. LUKKEN. At some point, if we find criminal activity, we will 

make charges in that area. And if we don’t, we may, we have the 

option of providing a report of what actually happened during that 

price run-up, just as we did when natural gas spiked a few years 

back. So we will certainly keep Congress informed of that situation. 

Mr. ALEXANDER. Do you think there will be a recommendation of 

any legislative action that needs to be taken? 

Mr. LUKKEN. Well, I can’t get into the details of the enforcement 

action, but one of the concerns, I think, at the time was what the 

influence of index trading may have been during that run-up. And 

so we are certainly looking across the board at the role of index 


wwoods2 on PROD1PC60 with HEARING
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traders at all commodities, so that would influence the cotton situation, what our recommendations will be there. But we will certainly 

keep you informed as far as the enforcement investigation as well. 

Mr. ALEXANDER. Is there any evidence that traditional hedgers 

are returning to the futures market? 

Mr. LUKKEN. We have seen, of late, commercials, yes, during 

price run-ups because they need to hedge their risk. It depends on 

the markets, but certainly we have seen commercials returning to 

the markets in order to hedge their risk. 

Mr. ALEXANDER. Okay. 

That is all. 

Ms. DELAURO. Mr. Bishop. 

Mr. BISHOP. Thank you very much. 

Following up on Mr. Alexander’s questions regarding the cotton 

industry. There remains concern about the volatility in the market 

and the disconnection between cash and futures markets. For example, in the past few weeks, December futures have fallen from 

a low of $0.80 range to a low of $0.70 range with no significant 

change in the market fundamentals. Have you or your staff any insight about the reasons for the continued volatility and the lack of 

convergence between the cash and the futures markets? 

Mr. LUKKEN. Well, we closely, we have economists that follow 

that in the cotton markets. I can’t tell you specifically what caused 

that fall, but we can certainly have our economists follow up with 

you on the economics, the specifics of what is happening there. 

I do know that the New York Board of Trade, ICE Futures U.S., 

the trades, cotton, recently took some action to try to stabilize how 

they set margins in that area. I believe that they are no longer 

going to set it against the synthetic futures price, which is something I think the cotton merchants were supportive of, and so I 

think they are taking steps to ensure that the clearing house is 

protected through the use of margins but that there is also certainty of how margin is set. 

And so this is something we have been working with the merchants and the Exchange to try to promote. 

Mr. BISHOP. Thank you. 

One of my primary interests in today’s hearing is to learn if 

there are any substantive ideas on potential solutions to the challenges that we face as a result of the out-of-control commodity market. 

REGULATION OF SECURITIES AND COMMODITIES

As you know, in March, Secretary of the Treasury Paulson proposed a new Federal role and a plan for regulation of the securities 

and commodities. 

His plan will combine the Securities and Exchange Commission, 

which regulates equities and debt markets, with the Commodity 

Futures Trading Commission, the CFTC, which regulates exchanges, trading commodities and financial futures. The two commissions have very different regulatory approaches, with the SEC 

favoring direct regulation and a rules-based approach and the 

CFTC favoring a principle-based approach that relies heavily on 

self-regulation by the commodities and future exchanges. 


wwoods2 on PROD1PC60 with HEARING
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Given our experience, that is Congress’s experience and our government’s experience with the Department of Homeland Security 

in measures, our track record is not very good. 

What is your position on this proposal? 

Mr. LUKKEN. The blueprint that the Treasury Department proposed, certainly recognized that there is need for additional collaboration between regulatory agencies, both domestically and abroad. 

My worry with the blueprint was that somehow our expertise, the 

role that we provide in what we are talking about here today, 

would be lost in that transition, that somehow the commodity markets would not be, wouldn’t be the top priority of that organization 

that might come out of the unification. 

So we have had a good successful track record over our existence 

to ensure the markets are being protected. And certainly we want 

to make sure that these markets have a front-line regulator going 

forward. And that was my concern when that proposal came out. 

Mr. BISHOP. The CFTC has traditionally delegated much of its 

regulatory oversight to its Designated Self-Regulatory Organization, the DSRO, of which the most prominent of the National Futures Association are the Chicago Board of Trade and the New 

York Mercantile Exchange. Has this self-regulatory process really 

been effective in working, and should we, given what we are facing 

today, now move to a more direct oversight and more direct control 

with more regulatory examples such as the CFTC does? 

Mr. LUKKEN. Well, we have two layers of regulation. I wouldn’t 

say it has been delegated, because there are several things that we 

actually duplicate with the exchanges. For example, surveillance of 

the marketplace, what we are talking about today, the exchanges 

do this on their own, and it is because they are the front line of 

trading. They get to see it, they know their participants. They 

know who is trading, so they do this. But we also get the data and 

do this as well. 

There is duplication there, because this is important to ensure 

that manipulation is not occurring. There are certain functions we 

do delegate to the NFA and to others, including registration of 

traders and certain administrative functions. 

But certain things we want to make sure that we keep to ourselves and that there is duplication of effort. I think it has been 

a good balance of ensuring that the exchanges are doing the frontline regulating, but we are overseeing them and duplicating areas 

in a certain way. 

Mr. BISHOP. Well, you know, we are complaining now that we are 

seeing what is actually happening, and it appears that it is not 

really working. 

Mr. LUKKEN. But, again, the things that we have delegated, like 

registration, aren’t really what we are talking about here today. 

We certainly could register and audit firms more as an agency, 

that doesn’t really affect sort of the manipulation and the price 

issues that we are dealing with today. 

That would require more resources, so we would have to come 

talk to this committee about how many additional resources that 

might require. So it is trying to find that balance. 

Mr. BISHOP. Thank you. 

My time is up. 


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Ms. DELAURO. Ms. Emerson. 

Mrs. EMERSON. Thanks, Chairman. 

I appreciate you being here today, Mr. Lukken. 

Thanks, Chairwoman DeLauro, for scheduling this hearing 

today. 

The high energy price that Americans are faced with today certainly demands our attention, and I believe that we have got to 

look at every possible cause, every possible solution. 

I think that we may end up finding out, you never know, that 

this is a supply-and-demand issue, and with some manipulation, or 

we don’t know. But one thing is clear, that we need to have a longterm national energy policy in this country. 

But with that being say, I am going to take this first round of 

questions and deal with agriculture, if that is all right with you. 

You know, Chairman Lukken, I generally agree with your thermometer analogy. However, in regard to the grain markets, I would 

also ask whether that thermometer might be broken. 

FUTURES MARKETS

Just as an example that I am sure you are aware of, Toledo, 

Ohio, is the delivery point for the Chicago Board of Trade wheat 

contracts, and under the thermometer analogy, the price of wheat 

in Toledo should, not necessarily perfectly, mirror the futures 

prices on the Chicago Board of Trade at the end of the contract 

month. 

Now, the basis yesterday, the difference for those of us who 

aren’t aggies in here, the difference between the price a farmer receives at the grain elevator in Toledo and the price set for the July 

contract on the futures market was negative $1.20 to $1.30. Now 

put that pretty simply, the thermometer seems to be reflecting the 

actual temperature. 

So, do you have an explanation for the lack of convergence? 

Mr. LUKKEN. This is something that the convergence between the 

cash and futures price, which, then, again, is a separate issue with 

sort of what we are talking about, the high prices today, but—— 

Mrs. EMERSON. Well, except for the fact that the prices are high 

on grain, and our basises are inflated. 

Mr. LUKKEN. Right. It depends on where you are delivering the 

contract. Sometimes we have weak basis sometimes, we have 

strong basis, depending on where you are delivering. But as you 

said, a well-functioning futures market is when the prices converge 

at delivery. And that ensures that people who want to hedge can 

properly hedge in the markets. 

And so this is something we have been trying to figure out over 

the last year of why there has been a divergence and convergence 

on those agricultural products. 

On April 22, we held an agricultural forum in Washington. And 

we brought in people from the University of Illinois that have studied this and others to try to figure out, is there some way, either 

in product design or other ways, that we can try to address this? 

Commissioner Mike Dunn who heads up our Agricultural Advisory Committee, went out to Chicago recently and met with the exchanges and others to try to get at the root of what is causing this 

lack of convergence. 


wwoods2 on PROD1PC60 with HEARING
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He is also holding a hearing on this at the end of July. So I wish 

there was a simple answer of why the futures and cash markets 

aren’t converging as they have prior to 2006. We are looking into 

it. We are trying to figure out if product design or load-out fees 

may have to be exchanged in order to help with this proposition. 

Mrs. EMERSON. So you would have to admit that there is some 

kind of a problem here, correct? 

Mr. LUKKEN. With convergence, absolutely. 

Mr. BOYD. Would the gentle lady yield? 

Mrs. EMERSON. I certainly will. 

Mr. BOYD. Just to follow up, because it relates to your point, in 

certain parts of the country, are you aware that farmers can’t even 

get a cash contract, for instance, in my part of the country? And 

I wanted to ask if you might respond to that. 

Mrs. EMERSON. Please, go ahead, because that was the case, that 

has been the case in our neck of the woods as well. 

Mr. LUKKEN. Well, we have been talking with a lot of farm 

groups recently. It sounds like some forward contracting is starting 

to happen again, but part of this was due to the rise in margins 

as a result of high prices, that there was uncertainty as a result 

of not being, having the credit lines in place to forward hedge on 

some of this, of these issues. Some of it, again, gets to the convergence issue that, how can you lend money when you don’t know if 

this is converged and this hedge is going to work or not? 

So we are trying to bring that certainty back to the market so 

that there can be forward contracting. Some of it is coming around, 

is my understanding from talking to farm groups, but we are working on that exact issue. 

Mrs. EMERSON. You say, you say, Mr. Lukken, that, on July 

29th, when you have this next Agricultural Advisory Committee 

meeting, that Commissioner Dunn will be leading, that you will 

need to continue to develop solutions to this agricultural situation. 

And so I am hopeful that the solutions will happen, and we are 

not going to continue to study and study and study. 

Mrs. EMERSON. Because I will tell you that my producers, I must 

get 20 calls a day at not only in my district office, but here from 

producers who, number one can’t afford contract, or it is spotty 

whether they can depending on where they are. And so gathering 

of information analyses are all great. But we need some kind of solutions. And so I’m hopeful that we will be getting some, but ultimately, I think that the fact that we’re having trouble on this end, 

which is a little bit more explainable worries me and doesn’t inspire a whole bunch of confidence in CFTC’s ability to regulate 

other markets, such as energy. 

And so I just I hope that we are going to see some conclusions 

here, and I am out of time, but we will get back to this on the next 

round, thanks, Madam Chair. 

Ms. DELAURO. Mr. Rothman. 

Mr. ROTHMAN. Thank you, Madam Chairman. I would like to 

thank you, Madam Chairman, for holding this very important and 

timely hearing. I think I would like to thank you, Mr. Chairman, 

for being here and subjecting yourself to our questions. 


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PRICE OF OIL

Mr. Chairman, it has been said by people in the administration 

who have testified for the Senate that speculation in oil was currently adding as much as 10 percent to the price of oil, others who 

have testified from the private sector before the Congress have said 

that speculation in oil could be adding inflating the price to consumers by as much as 100 percent. What is your view on the 

amount of speculation that oil, that the effect of speculation in 

terms of the cost of gasoline and oil to consumers? 

Mr. LUKKEN. Well, we have tried to talk to those people with 

their estimates. I think we have called all of them, in fact, our 

economists, to try and figure out if this is based on certain models 

or data that they have and tried to reach out, because we want the 

best information available to understand where they are getting 

their estimates and to date, we have not gotten any new information or different information from what we currently have as we 

look at this. 

So we get all the participant data to see what speculators are 

doing, what swap dealers are doing, who are bringing in this index 

trading. We are trying to run analysis on whether they are driving 

prices or following prices. So far, we haven’t seen evidence that 

seem to be driving prices. The fundamentals seem to explain these 

price moves. But we are going to start getting additional over-thecounter data now from swap dealers to see if that is potentially 

having an influence on prices. So we are looking, but to date, we 

have not seen evidence that speculation is broadly driving these 

prices. 

Mr. ROTHMAN. So it is your view as of today there is no speculation driving these prices or distorting the market? 

Mr. LUKKEN. Distorting the market. You know, speculators are 

a part of our markets and certainly on a day, they take positions 

but it is important to remember too—— 

Mr. ROTHMAN. Mr. Chairman, forgive me. I only have 5 minutes. 

If I think I got your gist, I will move to to my next question. So 

you disagree with those who have testified before the House and 

Senate who said that the price of oil has been raised by these speculators? 

Mr. LUKKEN. Yes. 

Mr. ROTHMAN. But you continue to look into it? 

Mr. LUKKEN. Absolutely. It is our job. 

Mr. ROTHMAN. That is also your testimony. 

With regards to, so then the, Mr. Kingston’s question about the 

hoarding is not one perhaps then that resonates with you because 

you don’t see anything untoward going on out there, just normal 

market fluctuations, is that right? 

Mr. LUKKEN. Well, we look at to look for evidence of hoarding. 

That would be a key determinant on whether there is a speculative 

bubble occurring. So that is something we are looking for. We have 

an open nationwide crude oil investigation, and our economists look 

for this, and DOE looks for this and, so far, though, we haven’t 

seen evidence of significant hoarding. 

Mr. ROTHMAN. I did want to point out then, specifically, Guy Caruso, the administrator of the energy information information testiVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00944 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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fied on March 4, 2008, before the Senate and he was the one who 

had said that 10 percent of the price of oil was affected as, increased by speculation, and you specifically disagree with that as 

well? 

Mr. LUKKEN. Well, Guy is a part of our Energy Market Advisory 

Committee, so we want his input on what is going on in the markets. He is also a part of our interagency task force that we are 

conducting with the DOE and other organizations, the Fed and the 

SEC and Treasury, so his input will be a part of those reports and 

those discussions. I am not familiar with that statement, but certainly we have not, at the CFTC, found evidence that speculation 

is—— 

Mr. ROTHMAN. With regards to the models and other bases upon 

which the individuals who testified that there was a significant 

price effect coming from speculation in oil markets, have you found 

their models or other bases to be without merit or are you still analyzing them? 

Mr. LUKKEN. Well we haven’t gotten significant data from a lot 

of these individuals. Most of the reaction is ‘‘this is based on 35 

years of experience’’ or ‘‘this is sort of gut feels’’ or ‘‘it is that’’ sort 

of evidence that we are getting. We haven’t, we are still looking 

through some of the organizations, we are still looking through 

some of their data. 

Mr. ROTHMAN. With regards to a proposal that would allow you 

to say that one couldn’t speculate in oil, for example, without showing an ability to take delivery, would that be something you would 

be interested in pursuing or do you have an opinion on that? 

Mr. LUKKEN. Well, no one, hardly any of our traders, 99 percent 

of our traders never take delivery. Again, they are transacting on 

the expected price of crude oil. They are not trading physical oil, 

so that would significantly limit who could participate in our markets. And many of them, commercial businesses, that don’t necessarily take delivery of these products. Recent months, we have 

had some months where no one has taken delivery of crude oil 

products. So I think it is important to remember that these markets are financial paper markets, they are not physical crude oil 

markets. 

Mr. ROTHMAN. Would you be taking a position today to oppose 

that or you just want to point out those elements of for consideration? 

Mr. LUKKEN. I would just say that that would be—significantly 

limit the liquidity of the marketplace which could potentially harm 

the price discovery function. 

Mr. ROTHMAN. I understand that, but does that mean you would 

be opposed to it or you just want us to consider—— 

Mr. LUKKEN. Yes, I think that would be problematic. Yes. 

Mr. ROTHMAN. Thank you, Madam Chairman, thank you, Mr. 

Chairman. 

Ms. DELAURO. I think in later conversations what we need to do 

is talk through what the critics see that you don’t see with regard 

to speculation, because there is a substantial amount of information from the IMF and other very reputable organizations who do 

believe that speculation is playing some role in this effort, and it 

really is quite disturbing that you don’t even make that comVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00945 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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mentary in your testimony. You don’t address that issue at all. And 

nor do you, and, that potentially begs the question as to whether 

or not you really are looking at that issue in a way that others are. 

Sorry, Mr. Latham. 

PRICE DISCOVERY PROCESS

Mr. LATHAM. Thank you, Madam Chairman, and welcome, Mr. 

Chairman. This is an issue I think that cumulatively Congress 

knows less about than any other issue that I have ever seen 

around here in my 14 years and it is just incredible some of the 

statements that are being made. Can you just give us kind of a 

first grade level, what makes price, is it supply demand inflation? 

Mr. LUKKEN. Well fundamentally, people are trading on information, all sorts of information, supply, demand, expectations of inflation, value of the dollar, all these things come into the price discovery process. 

Mr. LATHAM. And we all want an open totally transport marketplace out there, and I will tell you in my background, maybe it is 

because I grew up in agriculture and had a family business where 

we could not have existed if it were not for the ability to hedge because as in the seed business, you buy from your growers, and if 

you haven’t sold that to your customer already you have to find a 

way to lay off that risk. And without a speculator in the market, 

I would not be able to hedge my risk. Is that normally the case? 

A true hedge, a speculator normally is on the other side of that? 

Mr. LUKKEN. Absolutely. 

OIL SPECULATION

Mr. LATHAM. Can you tell us in the oil market what side the 

speculators are on today? 

Mr. LUKKEN. Well, surprisingly they have been almost equally 

long and short. We came out with this data recently that they are 

about 4 percent net long, which means there is slightly more longs 

than there are shorts in the futures markets, so there as many that 

would benefit from the price going down, I mean in crude oil as 

they are with the price going up. 

Mr. LATHAM. And that normally is the case with an open transparent market you have people in that and speculators are part of 

making price? 

Mr. LUKKEN. They make money going up or down. 

Mr. LATHAM. Right, and also if you are going to hedge as we 

have to in our business, or if an airline has to in their business to 

cover theirs, their costs to know what their costs are going to be 

for the future and work on a margin and not speculate on those 

things you have to have the speculators in the market? 

Mr. LUKKEN. Yes. 

Mr. LATHAM. If in fact we were to shut out in our U.S. market 

speculators, where would the marketplace go? Would it be to unregulated markets like to Dubai and places like that? 

Mr. LUKKEN. Potentially, there is a vibrant crude oil market in 

London as we have talked about on the foreign boards of trade. 

Mr. LATHAM. Which is not as regulated as ours is. 

Mr. LUKKEN. Well it is regulated by a different regulator but it 

would be outside of the CFTC’s surveillance. We would no longer 


wwoods2 on PROD1PC60 with HEARING
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get to see, if the Brent crude oil contract all of a sudden became 

the benchmark and not the WTI contract, we would no longer see 

that as a regulator or it could go to unregulated over-the-counter 

markets or as you mentioned to other jurisdictions. 

Mr. LATHAM. There is a very good article today in the Wall 

Street Journal if anybody in opinion section that talks about what 

we need to do on a bipartisan basis around here to actually address 

the issue that is out there. On the one side, certainly and our feeling is that we need to drill, we need to go out and explore and get 

the resources we have here, and also on the our side, the other side 

we need to put a huge new investment as far as basic research, as 

far as trying to find alternatives for the future, things like that but 

we need to work together. And one interesting point in here is that 

in the past, any kind of spikes in oil prices, at the pump, whatever, 

obviously affects that, has been a short-term interruption in the 

marketplace where the futures out 3 or 4 years were not affected 

because it was a short-term spike. 

It is today’s spot price. What is different today is that the futures 

market out 3 or 4 years is the same as what the spot market is 

today. And could you tell us if, in fact, we were to tell the world 

today that we are going to have energy, much more energy supply 

in this country in 3 or 4 years, what would that do to those markets out 3 or 4 years from now as far as the futures market, and 

what affect would that have on the spot market today? 

Mr. LUKKEN. Well, it would likely come down and the futures 

market predict, are predictive in nature, so any sort of additional 

certainty of supply in the future or conservation on the demand 

side would be reflected in those markets. And I think what is lost 

in sort of the debate about the additional speculators you mentioned coming into the markets, they are also providing longer 

term the ability of hedgers to go out longer term. It used be you 

could only hedge a year or 2 in the futures markets. You can now 

go beyond 8 years, so we can lock in prices as a business far down 

the road and that is very helpful for businesses for planning purposes. So this has been useful, this additional liquidity, but it still 

requires us to keep looking into it. 

Mr. LATHAM. But the point is if we would start today and it 

wasn’t going to come on until 5 years from now, it would have an 

affect on price today? 

Mr. LUKKEN. Absolutely. 

Mr. LATHAM. Thank you. 

Ms. DELAURO. Mr. Jackson. 

Mr. Farr. 

Mr. FARR. Thank you very much, Madam Chair, I am just struck 

by the fact that, Mr. Lukken, you have created a whole new interest in Congress. We have had exchange under our jurisdiction for 

a long time, but I can never remember having a hearing that gets 

as substantively involved in this. And I would like to thank the 

Chair for doing this. It is an upgrading of our experience in a rather esoteric field and I was just reading a little bit about the history 

here, the number of just the activity in the exchange over the last 

few years. I mean, this is essentially involved with the electronic 

capability of being a global community, and your job is to protect 

the public and the markets’ users from manipulation, fraud, abuse 


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in practice, at the same time, to promote open competitive and financially sound markets for the commodities futures options. As I 

understand it, approximately $5 trillion of transactions flow 

through the U.S. exchanges daily. 

LONDON LOOPHOLE PROBLEM

And I don’t understand the system much. But how do you—and 

you have ability and there are other markets around, there are 

other exchanges around the world, and you allow those exchanges 

to be, or we allow them to bid on our exchange, what is the essentially the London loophole problem? How do you protect the public 

and market users from manipulation, fraud and abuse practices 

that go on in other exchanges? And how do you, I think, part of 

this hoarding you are talking about you are looking at whether 

people are hoarding supply, how do you know that that, how do you 

look at that? How do you understand that particularly when these 

actions can go on in other exchanges which we give electronic terminals in the U.S. so people can get access to those exchanges? 

Mr. LUKKEN. In the United States and this dates back about 

since about 1996 the CFTC users in the markets, institutions, 

wanted access, electronic direct electronic access to foreign exchanges. These were some of our registrants. They were able to get 

access by picking up the phone or going through foreign affiliates, 

but they wanted to actually put a trading screen in the U.S. to 

allow them access to those foreign exchanges. And so the CFTC, 

since 1996, has allowed these institutions access to those markets 

but they required certain things. 

They required us to do an analysis of the regulatory authority to 

make sure that they were comparable, regulatory objectives, and 

we do that whenever somebody asks for access to those markets. 

But we also then look at the exchange itself to make sure that it 

has the rules in place, the controls in place that we normally look 

for in our exchanges. And once that is done, we would allow U.S. 

participants access to that market. 

Mr. FARR. But there is not a common playing field around the 

globe of information— 

Mr. LUKKEN. These were normally foreign products, so if I was 

a U.S. institution and I wanted to trade the German bond interest 

rate contract, bond contract, I could trade these foreign products by 

placing a screen in the United States. What recently happened in 

2006 is that somebody started to list a product in direct competition with our crude oil benchmark, and they linked it off of our 

benchmark, and in 2006 we realized—well that had the ability to 

influence our price, our regulatory authority. 

And so at that time, we held a hearing, we went to the Federal 

Register for comment, and we decided that it was necessary to get 

additional information on the traders in those markets, not just 

U.S. traders but foreign traders as well that we normally would not 

see. And so we started to get that information in 2006. Since then, 

we have decided to improve on that information and make it equivalent to the information we get for our traders, and that was done 

in conjunction with negotiations with the U.K. Regulatory authority and then recently we applied position limits on those participants as well. 


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So now we have the equivalent position limits and information 

in order to surveil the marketplace so we can protect our pricing 

structure and that is the policy going forward for this agency. 

Mr. FARR. How about hoarding? 

HOARDING

Mr. LUKKEN. Hoarding, this is something, hoarding is a cash 

market, we have jurisdiction in the futures markets but our manipulation authority allows us to go out and investigate hoarding 

wherever it may be so our manipulation authority goes to the cash 

market, the over-the-counter markets, if people are manipulating 

overseas. We went after Sumitomo overseas a few years back for 

manipulation, so we have ability to police for hoarding that leads 

to manipulation. 

Mr. FARR. Thank you, Madam Chair. 

Ms. DELAURO. Mr. LaHood. 

Mr. LAHOOD. Mr. Chairman, what do you tell common ordinary 

citizens or simple-minded Members of Congress or your own family 

members, how do you answer the question, why are gas prices 

high? Why are they $4 or more a gallon? What do you tell them? 

What is your answer? 

Mr. LUKKEN. Well, my Mom calls me up and asks me those questions too. 

Mr. LAHOOD. I wasn’t referring to your mother as simple-minded. 

Mr. LUKKEN. I know. I know she is the smarter one of the family. 

We look closely like everybody is looking to try and find whether 

it is supply and demand or whether this is market participants 

that are driving this. And so we see production as flat around the 

world. Demand is growing, while production remains flat, and that 

is driving up prices. So again, at the same time, we are looking at 

market participants to ensure no one is artificially driving prices 

up. 

Mr. LAHOOD. Give me a much simpler answer. I can’t believe you 

are telling your mother about all these technical terms. What do 

you, is that really the way you explain it to her? 

Mr. LUKKEN. We are not, we are consuming more than we are 

producing. 

EFFECT OF DRILLING ON GAS PRICES

Mr. LAHOOD. And your answer to Mr. Latham very specifically, 

if the Congress passed a bill that allowed for drilling somewhere 

in this country, you name the place, we will just name a place, and 

the President signed it, would that send a loud message to these 

speculators and that would that then drive down the cost of a gallon of gasoline almost immediately? 

Mr. LUKKEN. Well, there is—it would be a factor in the price discovery process. 

Mr. LAHOOD. Do you think gasoline would come down if the Congress and the President enacted a law like that pretty immediately? 

Mr. LUKKEN. It is hard for me to tell, but certainly those signals 

are helpful to drive down prices. 


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Mr. LAHOOD. So it is quite possible that a gallon of gasoline 

might come down if Congress took that kind of action? 

Mr. LUKKEN. Quite possible. 

BIOFUELS

Mr. LAHOOD. Do you believe that the enormous influx of biofuels, 

primarily ethanol, has driven up the cost of gasoline? 

Mr. LUKKEN. It certainly had impact on the price of corn and 

other agricultural products. Our economists have looked at this. 

Mr. LAHOOD. I know that. I know that I am not talking about 

the price of food or the price of corn. I am asking you, if you think 

that ethanol has driven up the price of a gallon of gasoline because 

some people have said that. 

Mr. LUKKEN. I don’t think so. Actually it probably had some 

bearish factors on gasoline, in that I think it is helping with the 

supply of fuel. Alternative fuel. Thank you. 

Mr. LAHOOD. Those are my questions. Thank you. Thank you for 

your answers. 

Ms. DELAURO. I will just make one point. It would take a lot of 

years for that drilling to come on line and refiners are not dealing 

are what they already have and we are sitting on 68 million acres 

of land for which there are leases and where there hasn’t been any 

drilling today. And maybe that is a piece of this hoarding effort in 

which we are just sitting on it and continuing to drive the price 

and continue to drive price. Is that possible? 

Mr. LUKKEN. Well, all these factors would be a part of the price 

discovery process. 

Ms. DELAURO. Mr. LaHood did a very interesting thing, and Mr. 

Latham said something as well before, it is a very complex issue, 

very complex and a few people who understand it. On the other 

hand, we have agencies that are supposed to understand and are 

supposed to do something about it, and the fact of the matter is 

that the agencies charged with doing something about it and understanding it and being able to explain it and bring the kind of 

people together that we need to address the issue are not doing the 

job. Are not doing the job. That is your responsibility. And it was 

those smart guys at Enron who put us into the place we are now, 

with what happened there, and we are beginning to look at some 

very similar situations and as that Enron situation was all about. 

And get behind closed doors. 

Get behind closed doors, figure it out in a matter of 24 hours. 

They figured out the Treasury and others that Bear Stearns needed to be build out and we took care of that. The American public 

needs to get bailed out. The taxpayers and the consumers are on 

their backs and we sit and do nothing. Your agency is not addressing the issue. And for the first time in 9 years, we have begun to 

ask some questions. And the fact of the matter is we may not have 

all the right terminology, and be able to ask those questions but 

we better, we are going to ask them and we better get some answers and we better get some action very, very quickly. Mr. Jackson. 


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STATISTICAL ANALYSIS PERSONNEL

Mr. JACKSON. Thank you, Madam Chair, and I apologize for having to step out of the hearing. In the CFTC’s division on enforcement, Mr. Chairman, how many personnel are designated to perform statistical analysis on possible collaboration, and other illegal 

speculative behavior in the energy sector? 

Mr. LUKKEN. Well, our division of enforcement, I think professionals are roughly around 100 individuals. These are all litigators, 

so these are people who are bringing actions to court based on manipulation. They utilize, however, our chief economists’ office for 

analytical use to ensure that when they are trying to prove manipulation that they have the Ph.D economists working on these 

issues, so they have access to the six or seven individuals that are 

doing the economic modeling for that type of activity. 

Mr. JACKSON. Six or seven individuals are responsible for the entire energy sector in the country? 

Mr. LUKKEN. No. Absolutely not. We have a whole division of 

market oversight and surveillance. Economists are looking at these 

markets daily, these are, all of our economists are looking at this, 

this is just—you referenced the enforcement division, the people 

who are litigating these matters. Once we find evidence of manipulation, we will go after that aggressively and we use economists to 

help prove that. 

Mr. JACKSON. How much money is provided to the division on enforcement for these tasks? 

Mr. LUKKEN. I don’t know specifics of how much goes directly, 

but it is sizeable. These are our largest division and they get the 

largest chunk of our budget. 

Mr. JACKSON. I am also concerned that the emergence of commodity index funds are making commodity purchases far easier for 

a wide range investors, including hedge funds, investment banks, 

pension funds and university endowments. Many will argue that 

the index funds are contributing to the rapid rise in commodity 

prices and possibly creating a bubble. Mr. Chairman do you believe 

that the increase in trading by pension funds are having a negative 

effect on the price of commodities. 

Mr. LUKKEN. This is something we are trying to study and figure 

out. We had our energy markets advisory committee hearing and 

we invited several index pension funds to come and testify. Calpers 

came, for instance, and others, they pointed out, look, our average 

person at Calpers is making $42,000 a year, 46–year-old individual 

that is looking for better returns on their retirement. And so I 

think it is important to note that although there is concern about 

how much money is coming in, this is benefiting retirees as a result 

of this. But we have asked in late May, we are using our special 

call authorities to get additional information from swap dealers 

that bring this pension money into the markets, we are gathering 

that information that is coming in right now, and we are hopeful 

to get that information to Congress as quickly as possible so they 

can make informed decisions about its impact on the markets. 


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FUNDS’ IMPACT ON COMMODITY PRICES

Mr. JACKSON. Do you believe the increased trading by the funds 

are having a negative impact on the price of commodities? 

Mr. LUKKEN. Do you mean that it is driving down prices? 

Mr. JACKSON. That is correct. 

Mr. LUKKEN. We are not sure it is having any impact. In the futures markets, there are zero sum games, there are just as many 

longs as shorts, so for every participant that enters, there is somebody on the other side of that, and it is important to remember too 

that these never get to delivery the index funds. They are always 

selling before there is physical delivery of the product. So we have 

not seen, in looking at these products, people with commodities 

with high percentages of index trading such as live cattle, have had 

very weak prices over the last year. So some with no index trading 

have had high prices over the years. We have no direct correlations 

that index trading is impacting rises, but we are continuing to get 

this data from the swap dealers. 

Mr. JACKSON. How about the possibility of increasing the price 

of commodities as a result of the index trading? 

Mr. LUKKEN. Increasing or decreasing, we haven’t seen evidence. 

Mr. JACKSON. Thank you, Mr. Chairman. 

Ms. DELAURO. Ms. Kaptur. 

Ms. KAPTUR. Thank you, Madam Chair. Chairman Lukken, you 

used to work for a man I have great admiration for, Senator Lugar 

of Indiana, who long ago told America that our greatest strategic 

vulnerability was our dependence on imported petroleum. I happen 

to agree with him coming from adjoining Ohio. And I love to drive 

to South Bend and see that big smokestack up there, many years 

ago beginning to process ethanol. Everything he has written, everything he said is right and we are suffering from not listening to 

people like Senator Lugar and many people on this subcommittee. 

I wanted to read something from the Globe and mail and put it 

in the record for this hearing, an article from June 26th of this 

year basically says the focus of world investment activity is rapidly 

shifting from the established markets of the West to the emerging 

financial markets and I underline financial markets, in the Gulf 

and Far East. And we are all caught in this. And the question is 

whether we can see our way forward clearly and help our country 

and our citizens fast enough. A woman from my church came up 

to me a couple weeks ago after services and said, you know, Marcy, 

our country really doesn’t belong to us anymore. And let me ask 

you this for the record. Which company, to your knowledge, made 

the most profits last year, which company operating in our marketplace would you guess? Do you know? 

Mr. LUKKEN. I don’t know. 

EXXON MOBIL

Ms. KAPTUR. The answer is Exxon Mobil. Do you know how 

much they made in profits last year? 

Mr. LUKKEN. I don’t. 

Ms. KAPTUR. It was $40 billion, the largest profits of any corporation in our history. Do you happen to know the largest privately 

held corporation in the world? 


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Mr. LUKKEN. I don’t. 

Ms. KAPTUR. It is Saudi Aramco in Saudi Arabia. Do you happen 

to know the percent of oil that this country imports approximately? 

Do you know what percent of what we use we actually import? 

Mr. LUKKEN. I don’t know those exact figures. 

Ms. KAPTUR. It is almost 70 percent now. We are totally dependent. Totally dependent, and those petrodollars that we spend here 

are being recycled in the very markets that this article talks about. 

And one of my concerns because you are involved in regulation, but 

powers moving away from this country in the financial markets, 

because we are now the victims, we are moving into an economy, 

we are in an economy in this country, where we no longer produce 

as much as we used to, in terms of manufacturing and agricultural, 

we import we have $1 trillion trade deficit this year, and we have 

become the victims of finance capitalism. I agree with a Republican 

on this, a man named Kevin Phillips wrote a great book called Borrowed Prosperity. We are living in this era. And what concerns me 

about the agency that you operate is that you are being drawn into 

deals with Dubai and London and God knows where else that are 

causing you to provide exemptions in your regulations. 

And I want you to talk to us a little bit about that because the 

standards that we have used to historically to manage the economy 

of this country are being undermined because we are no longer carrying our own weight, and we are borrowing from the very instrumentalities that do not share our political point of view. And for 

me, this is a fight for freedom and for freedom’s institutions. 

Now, it is my understanding the CFTC exempted London and 

the Dubai exchanges from certain strict rules that you had historically used in your own regulation, and could you please outline for 

us a little bit about that because you know they had these words. 

Now we are going to harmonize our patents with Japan. That is 

crazy. We have the best patents system in the world under our 

Constitution. Now it sounds like we are harmonizing our regulatory process with the very places that we are literally in competition with and not on the good end of the teeter totter here for the 

moment, could you outline for us what kind of exemptions you have 

provided in your current regulation? 

And I want to know what other places other than London and 

Dubai have you provided these exemptions? And finally, what other 

steps are you taking to so-called internationalize your regulatory 

structure? Could you talk to us a little about this, please. 

Mr. LUKKEN. I think it is important to recognize that we don’t 

permit the trading of these types of contracts on other foreign 

boards of trade. For example, Hong Kong recently listed a WTI contract with no approval or access granted by the CFTC. There is another exchange in Dubai that has no access from the CFTC, the 

Dubai commodity and gold exchange, and they are listing a WTI 

contract that is linked to our contract. So they are allowed to trade 

and U.S. participants can access those markets through phones or 

foreign affiliates of theirs. They can trade in those markets. What 

we have done as an agency is try to, in granting direct participation in those markets, gain our leverage to condition that direct access of our U.S. participants on this access. 


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And so what we have done since 1996 is we go in and we look 

at the regulatory structure of these foreign jurisdictions. We go 

through to make sure that they are comparable with our regulatory 

structure. We also look at the exchange itself and since, and any 

of these linked contracts we are not harmonizing down to them, 

they are coming up to us, that we are going to get the same information that we get from NYMEX on the London exchange and the 

Dubai exchange. Dubai, by the way, is not listing a contract yet. 

And we also require the exact same position limits as our markets 

on those markets as well and so those are the issues that we felt 

so strongly about that we required them to abide by our standards. 

So I think it has been helpful to recognize the global marketplace. We are not trying to go down to the lowest common denominator here; we are trying to make sure that people raise up to the 

proper global standards. That is reinforced, by the way, by our 

membership in the International Organization of Securities Commissions with which sets global standards. And all these organizations, Dubai and London and others, are active members in there 

that are making sure they are abiding by high global standards 

and we try to encourage that. 

Ms. KAPTUR. Madam Chair, I know that my time has expired. I 

did want to place one other statistic on the record. It was the year 

1998 that the United States began to import over half of the petroleum it consumed. The teeter totter began to swing the other way. 

These are very important moments in history we should all be 

aware of because we have to get out of this hole together. Thank 

you. 

Ms. DELAURO. Mr. Boyd. 

Mr. BOYD. Thank you, Madam Chair. And I want to thank you 

also for holding this hearing. This has been an intriguing hearing, 

and obviously from the interest you can tell that it is one that we 

all should know more about. I think, Madam Chair, also, I want 

to thank you for holding it because if it helps us understand this 

very important part of our economy and about how commodity producers and commodity end users interact with each other and create some sort of stable market, an economy, then that is a good 

thing, and I think there is a lot of confusion like Tom Latham said 

amongst Members of Congress about how this indeed works: How 

a farmer in Ames, Iowa who is producing 100 acres of corn and a 

cattle grower somewhere in Nebraska that is going to buy that corn 

agree ahead of time on what the price would be and it gives them 

great certainty in the operation of their business. 

And not only that it goes beyond that what the end producer of 

that cow is at the producer level or at the slaughter level. So it is 

a market that works. It is a market that I know that some sitting 

on this committee have used and understood and certainly there is 

a lot, there is some psychology in that market. Would you agree 

with that. 

Mr. LUKKEN. Absolutely. 

Mr. BOYD. There is a psychology. And I think one of the things 

that is disturbing, a couple of things disturb me about the hearing 

this morning, and one is there is consistent going back to this oil 

thing and about what drilling may or may not do. Now, if there is 

some action by Congress on drilling, there will be a short term psyVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00954 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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chological effect on the oil market. But it won’t last long. Once the 

hedgers figure out that, it is going to be 10 years before that has 

any effect and you know what may or may not be found there, it 

will have very little effect. So I don’t want us to overstate that. I 

want to ask, because ultimately you would agree, Mr. Lukken, that 

the fundamentals of supply and demand are what sets the market? 

Mr. LUKKEN. Yes. 

INDEX TRADING

Mr. BOYD. Now, I want to ask you one question about your business and it hasn’t come up much today, but in your testimony, you 

said that the Commission recently announced several energy initiatives, including index trading and a review of whether additional 

controls or classifications for those traders are needed. Have you 

completed that study, and if so, what did it show? If not, do you 

think index trading of these commodities is a problem that relates 

to what we have been discussing here today? 

Mr. LUKKEN. Index traders have been a new—there has been a 

new influx of index traders in our markets, and these are pension 

funds and endowments that are looking for long-term sort of ‘‘buy 

and hold’’ strategy in the commodity markets. We certainly recognize that and that is where we are trying to get better information. 

Most of them don’t come directly to the futures markets. I think 

there is confusion about that. Most of them go through intermediaries, what we call a swap dealer. And a swap dealer such as 

Goldman Sachs or Morgan Stanley sells Calpers a product and says 

we are going to give you exposure to commodities. And they do this 

with lots of clients. And at end of the day, they take all those clients positions, but they also work with airlines and railroads and 

others and they bring all of that net risk to the market in the futures markets. 

Right now, swap dealers are flat the market, interestingly 

enough, there are just as many long swap positions as there are 

short swap positions, meaning there is as much pressure that the 

prices will go down as go up in the swaps markets. But we are 

looking at the step beyond that to what the index funds, to what 

the over-the-counter index funds are bringing to the marketplace. 

We are getting that information started this week. This is coming 

in. These are complex books. We are trying to unravel all these 

things and get a better understanding of it. But we hope to, as soon 

as practical, get recommendations to Congress on this so we can 

tell you what is going on. 

Mr. BOYD. If I could, when that Calpers, for example, goes to 

that broker at Goldman Sachs and says he wants to be long in the 

market Goldman Sachs doesn’t hold that risk. They go into the 

market and hedge that risk so actually you have a buyer on one 

end and a seller on the other so—— 

Mr. LUKKEN. Exactly. And that is why we treat them as hedgers. 

As you said, they are hedging their price risk. Now we are revisiting that. We are looking to see whether that still makes sense. 

This was done in 1991, a determination of the Commission at the 

urging of Congress to do this, but we are looking to see are they 

really a commercial participant like we think of a farmer or a grain 

elevator or United Airlines or something along those lines. So that 


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is something we are reviewing. But they certainly are exposed to 

price risk. And if we put limitations on that, we don’t want to expose them to systemic risk as we saw with Bear Stearns. So there 

is a balance there making sure they have access to transparent 

markets. 

Mrs. EMERSON. Allen, can you yield to me for a quick second? 

Mr. BOYD. Certainly, I yield. 

SWAPS

Mrs. EMERSON. Can you kind of explain when you talk about 

swaps, you are throwing out all these terms, I sort of understand 

what you mean by a swap, but perhaps it would be helpful to you 

know more fully explain how Lehman Brothers or whomever take 

all these different orders, if you will, and then does a swap with 

it and kind of explain. 

Ms. DELAURO. Like the subprime market. 

Mrs. EMERSON. Let’s talk about if you can just, in first grade 

talk, like Ray asked, explain that. If you don’t mind, Mr. Boyd. 

Mr. LUKKEN. A swap is just a transaction, a contract, so two individuals or entities, institutions sitting down and writing a contract based on potential risks. So let’s say I am Delta Airlines, and 

that I am going to be consuming fuel for the next year and I want 

to lock in a price and this is how much I need. And so I can go 

to individually tailor to Delta’s needs, how much risk they want to 

off-load, how much potentially they can even be involved in the 

physical transaction of the commodity. 

So you write these individually tailored contracts for these people. At the end of the day, they have a lot of these contracts, Goldman Sachs does, and they bring them all together and through 

their risk management, they find out, you know, we are subject to 

this amount of price risk in crude oil, for example. And so how do 

we offlay that price risk at the end of the day? Well, they do it by 

coming to the standardized futures markets. So swaps are individually negotiated contracts. Futures markets are contracts too, but 

they are standardized. 

And so you are converting individuals, individualized product to 

a standardized product and offsetting this risk. And it is helpful because, you know, Bear Stearns, they weren’t able to offset the credit default swaps in the futures markets and if they had access to 

a clearinghouse and a transparent market that may have been 

averted. But so that is we don’t want to cut off access of these institutions to our markets in whatever we do here. 

Mr. LATHAM. Is there a difference in margin, margin requirements? 

Ms. DELAURO. Yes. 

Mr. LATHAM. Between what a speculator would do on swaps to 

hedge those. 

Mr. LUKKEN. Because we don’t directly regulate swaps but they 

are also making sure that whatever, it is the same idea as making 

sure that on a 1-day price move that margin is able to cover those 

1-day price moves. So they are similar, but I am not sure they are 

exactly the same. 

Mr. BOYD. Madam Chair, if I could briefly follow up the example 

you use of Delta Airlines, for instance, they could go into the fuVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 00956 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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tures market themselves, they wouldn’t have to go into the index 

fund because they get an exemption and can trade for whatever 

they might actually use, can’t they? 

Mr. LUKKEN. Absolutely. 

Mr. BOYD. But the swaps related to the index funds trading, 

aren’t they generally just a combination of several commodities 

that now just are used to hedge against inflation generally? 

Mr. LUKKEN. They are broad—— 

Mr. BOYD. Not users. 

Mr. LUKKEN. Right. They are not commercials. Swap traders are 

bringing both. They are bringing passive sort of these endowment 

funds, these index trading as you referred to them, but they are 

also bringing in lots of commercial business as well. 

Mr. BOYD. Thank you, thank you, Mr. Chairman, and Madam 

Chair, for your time. 

Ms. DELAURO. One of the things we are going to try to do is, we 

have got several votes. And we want to go into a second round and 

I am going to ask the other panel to come up. And Mr. Lukken, 

I want to have you stay so we have an opportunity to get some 

more questions in. But there is a point that I wanted to try to 

make here which is that in 2000, as I understand it, that the Intercontinental Exchange became one of the exemptions entities. And 

so that, in fact, is not regulated by you. I think it is important to 

note and for the record, that when Enron failed and took its private 

unregulated energy exchange that went to the grave, another rose 

to take its place, something called the Intercontinental Exchange. 

It was the brain child of Morgan Stanley, Goldman Sachs, British 

Petroleum, Deutsche Bank, Dean Witter, Royal Dutch Shell, S.G. 

Investment Bank and Total Fina. 2001, ICE purchased the international petroleum exchange in London, renamed it ICE futures, it 

now operates as an exempt commercial market under section 

2(h)(3) of the Commodity Exchange Act. Now, I think it is important also to note that on your energy advisory board here, that both 

Goldman Sachs and Morgan Stanley sit as advisers to the CFTC. 

It is my concern, I don’t know if it is the concern of others, that 

they are primary or they really are major beneficiaries of what the 

activity is here in terms of their personal gain and their profit and 

the speculation. 

Does that not provide, does that not indicate to you that there 

is some major conflict of interest here in terms of, I mean, when 

I listen to Morgan Stanley or Goldman Sachs say the price of oil 

is going to go up to $200 a barrel, well, they know something 

maybe that the rest of us don’t know. I think that we have a very 

serious issue here in terms of conflict of interest which is one of 

the reasons why a number of us want to really bring back if you 

will, this exempt market under the regulation of the CFTC and 

speculation, yes. 

But to be at the core of this unregulated market and be making 

substantial amounts of money, yes, you take risks but they are 

making substantial amounts of money, and we see the costs in oil 

and prices going up, that it would just appear to me that that is 

your job is to protect the public from that kind of conflict and to 

be investigating that, not 2 weeks ago, not in May, not in June, but 

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crease, and so I don’t know if you want to comment. I am happy 

to have you comment. 

Mr. LUKKEN. The advisory committee we set up, we set it up so 

that we got everybody’s voices so we have the airline industry as 

part of that. We have consumer groups as part of it, we have—— 

Ms. DELAURO. You don’t have consumer groups. You have industrial groups. I have the list of people that are on your advisory 

board. 

Mr. LUKKEN. Petroleum marketers association, we have the Industrial End Users Association. 

Ms. DELAURO. Talk to me about—well—— 

Mr. LUKKEN. So we try to—— 

Ms. DELAURO. Is the Consumer Federation on the board? And 

who represents consumers? 

Mr. LUKKEN. Well, we have the people, that petroleum marketers 

are on your next panel, they are a part of our advisory committee 

and these are all held in open public meetings so we try to get as 

much as information as we can from—— 

Ms. DELAURO. Goldman Sachs, Morgan Stanley were founders of 

the Intercontinental Exchange, which is now an exempt entity out 

of the purview off the screen of regulation by the CFTC and there 

are differences of opinion as to how effective the FSA in London is 

with regard to their own oversight of these areas, lots of different 

opinions, they also overseeing Northern Rock and what happened 

in Britain when Northern Rock which finally got nationalized. So 

we have serious deficiencies. Yes, Mr. LaHood. 

Mr. LAHOOD. Sir, can you just respond to her question about is 

there a conflict of interest for these people to be sitting on your advisory committee? 

Mr. LUKKEN. No. We followed the Federal Advisory Committee 

Act to, by the letter of the law to get people who are involved in 

these markets. And Goldman Sachs is involved in these markets 

so—— 

Ms. DELAURO. You are not subject. You are not subject to the 

Federal conflict of interest requirements that is something that we 

have learned from CRS. 

Mr. LUKKEN. We follow the Federal Advisory Committee Act to 

the letter of the law to make sure that we are getting the right people on our advisory committee and this was approved by a bipartisan commission, these people who are involved on this commission. 

Mr. HINOJOSA. Have they advised you that there is no relationship between the increase in the price of gasoline and heating oil 

and the outrageous speculation engaged in this industry? 

Mr. LUKKEN. We have a variety of opinions on that, including the 

petroleum marketers believes it is speculation, and so does the airline industry, so we have heard from both sides of that committee. 

Ms. DELAURO. We have about 4 minutes to vote. I would like to 

go to vote and I ask the panel to come back and we will bring up 

the panel and including yourself, Mr. Lukken, if you can stay a 

while longer we appreciate that because I believe there are other 

people who have questions for you. 

Thank you. 

[Recess.] 


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Ms. DELAURO. Thank you all. I know some other members of the 

subcommittee are coming back, and I appreciate your waiting. 

And again, Chairman, I appreciate you staying and being able to 

answer some more questions. 

I am very pleased to introduce our second panel today. 

And Mr. Tom Devine, who is a small business owner of a full 

service biofuel and heating fuel company in southwestern Connecticut, Devine Bros., Inc. He manages the day-to-day operations 

of the Heating Fuels Department. And he is also here today representing the Independent Connecticut Petroleum Association and 

549 independent and locally-owned-and-operated motor fuels and 

heating fuels distributors in Connecticut as a board member of the 

New England Fuel Institute, a 60-year-old trade group and public 

policy advocate representing well over a thousand heating-related 

services companies in the northeastern United States. 

Dr. Mark Cooper is the director of research of the Consumer Federation of America and president of Citizens Research, an independent consulting firm. At the Consumer Federation, Dr. Cooper 

is responsible for energy, telecommunications and economic policy 

analysis, and is a frequent guest lecturer. As a consultant, he has 

provided expert testimony in over 250 cases on behalf of People’s 

Counsels, attorneys general, and citizen intervenors before State 

public utility commissions in over three dozen jurisdictions. Dr. 

Cooper holds a Ph.D. from Yale University and is a former Yale 

University and Fulbright fellow. 

Michael Greenberger is director of the Center for Health and 

Homeland Security at the University of Maryland and is a professor at the School of Law. Professor Greenberger teaches courses 

focused on counterterrorism and emergency response as well as 

constitutional law and a seminar on futures options and derivatives 

at the law school. Professor Greenberger has served as the Justice 

Department’s Principal Deputy Associate Attorney General and as 

counselor to the United States Attorney General. Prior to entering 

government service, he spent 20 years in private practice before becoming director of the Division of Trading and Markets at the Commodity Futures Trading Commission. In that capacity, he was responsible for supervising exchange-traded futures and derivatives. 

Finally, Johnathan Short is a senior vice president and general 

counsel of the Intercontinental Exchange, Inc., or ICE, and in his 

role as general counsel, he is responsible for managing ICE’s legal 

and regulatory affairs. As corporate secretary, he is responsible for 

issues of corporate governance. Prior to joining ICE, Mr. Short 

practiced in a corporate law group of McKenna, Long and Aldridge. 

We welcome you back, Chairman Lukken, and thank you all very 

much. 

We will start, Mr. Devine, with you. 

As I mentioned at the earlier panel, your full testimony will be 

part of the record, so you may feel free to summarize in whatever 

way you would like. 

Mr. DEVINE. Thank you. 

OPENING STATEMENT

Thank you, Chairman DeLauro, for having me here today, and 

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tion to appear before you on the issue of excess speculation and inadequate oversight of the energy commodities market and its impact on independent, small business energy distributors and their 

customers. 

Thank you for your introduction. I appreciate that. 

A little bit about Devine Bros. Devine Bros. is a 90-year-old family-owned business, a heating oil retail business in southwestern 

Connecticut. We retail bioheat as well as heating oil. We service 

lower Fairfield County, a full-service conservation service department and the heating oil. We are the largest facility between Stamford, Connecticut, and Bridgeport, Connecticut. We are located on 

the Long Island Sound. That is where our terminal is. 

I serve the family as corporate secretary of the company, and as 

you said, I manage the day-to-day operations of the heating oil department. 

Friday, June 6th, we refer to as Black Friday in the heating oil 

industry. On June 6th, the price of heating oil nearly went up 

$0.30 a gallon. I am totally amazed that the Chairman of the CFTC 

could not believe that speculation was not involved in something 

like that. The cost of crude hit almost $140 a barrel. Heating oil 

at that point was roughly $4 a gallon for the homeowners; 99 million barrels of heating oil traded that day, half of the United 

States’ consumption in a year. 

I am no longer confident that the markets are doing the job that 

they were set up to do. I can no longer use them as a risk-management tool. And if I had not purchased oil a day before the run-up, 

I wouldn’t be in a better position, as my competitor down the 

street. If I bought oil just the beginning of this week, I would have 

been about $0.30 out of the money compared to my competitor. In 

2 days, the price of heating oil moved $0.30 a gallon. If I bought 

a million gallons, I would basically have been out of $300,000 in 

2 days. 

A company like Devine Bros. cannot consistently lose that kind 

of money. Now, one could argue that I can get involved in options 

and buy call options, but that would add another $0.50 a gallon to 

my consumer. My consumer can’t afford that. My consumer can’t 

afford to spend an extra $0.50 a gallon to heat their homes when 

they are already paying $4 a gallon now. It just does not work. 

It is easier to believe that there is no speculation in the market, 

but I feel that it is there. It is very volatile right now. There has 

been an awful lot of statistics thrown out earlier, I am sure you are 

going to hear more. 

What I would like to focus on, if I could, is some of the stories 

that I have from customers that I am dealing with. They are actually bearing the burden of these high oil prices. And the fact is they 

can’t afford it. 

I am trying to collect the money from last year, which was a very 

high year for individuals. Next year is going to be double what it 

was last year. I am afraid to speculate and say what I think the 

price of oil per gallon may be next year because I might read it in 

the papers tomorrow, and it might drive the price up to where I 

think it might be, and that is due to the speculation that I believe 

is in the market. 


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I have a customer that actually has two sons that are fighting 

in Iraq, and he, basically, he fought in Vietnam. He is about 70- 

years old, and he can’t afford to buy his oil for next year. He has 

been a 20-year customer of mine. And I don’t know what I am 

going to do with him. I have to borrow an awful lot of money to 

pay for the inventory to deliver to my customers, and I have to be 

much stricter than I have been in the past. 

At my level, there is going to be very cold people this winter unless something is done about the train that is totally out of control. 

I hear that speculation is good for the market; it brings liquidity 

into the market. After sitting here and listening today, I do agree 

with that, but I am swimming in liquidity. I mean, we are drowning in liquidity. There is too much. I believe personally that we 

have to see the margins increased on noncommercial speculators. 

I think there is something to that, so I can deliver oil and trade 

with other commercials and see the supply and demand come back 

to this market. 

I deliver oil to a senior center that houses about 180 senior citizens. There are about 180 rooms. I had a meeting with them yesterday. I told them what the price of oil was going to be. They do 

get money from HUD, but he does not know how he is going to afford to pay for my heating oil that I have to deliver to him. He just 

does not know how to do it. 

I talked to him on Monday morning, and by Wednesday, I was 

able to tell him that the prices of oil are coming down. It came 

down $0.30. It was a beautiful thing to see, but the price was still 

so high he couldn’t figure out what he was going to do. 

My customers ask me if I am running out of product. They don’t 

see gas lines at the gas station. I say, no, I am not running out 

of product; I can get product. But the high speculation makes me 

jittery about buying any product. I don’t want to buy product and 

all the sudden have this thing dump and me hold a lot of high, expensive product, because then I won’t be able to make what little 

margin I need get by as a company. 

Today, in the Wall Street Journal, I read that there is a fellow 

by the name of Gregory Mocek that is leaving there, and I would 

just like to quote it if I may: ‘‘The sheer volume of trading in these 

markets increases the occurrence of illegal conduct.’’ That is his 

quote. I don’t know if there is any illegal conduct. But I do know 

that there is an awful lot of conduct, a tremendous amount of speculation, a tremendous amount of money in the market. 

I have heard the question regarding hoarding. I don’t believe 

there is any hoarding, and I am just an oil dealer. But I don’t believe there is any hoarding, but I believe the amount money that 

is in the market is creating the same type of outcome that hoarding 

would cause. And unfortunately, it is on the backs of my customers 

that are not going to be able to afford oil this winter, and they are 

going to be basically freezing, as far as I can see. 

In Connecticut, we are very unique. We have set up the Fuel Oil 

Conservation Board to make our customers as conservative as possible in using heating oil. It is amazing how an industry can work 

so hard to make their customers be more conservative. We are the 

forefront State I think in New England in terms of bioheat. We do 

believe in bioheat. It is a cleaner-burning product. It helps retain 


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the efficiency into the winter, which will help the consumer. But 

even though we have made steps, taken steps to reduce through 

the efforts of national oil heat research grants to reduce the 

amount of oil used in the average household from 1,100 to 700 gallons a year, the pricing of oil is still making it very difficult for 

these consumers to buy the product. 

And that is why I believe that the trading system at this point 

is not working. I think it is broken, and I think the efforts that you 

are doing here I commend, and I think you ought, you should keep 

on the heels of the CFTC, because I think that you alluded to a 

good point, and that is, why wait until this year to do something? 

And I think that with your efforts and staying on the heels of the 

CFTC and making them do something with the type of passion that 

I have seen here today may perhaps do something in the future. 

And I commend that. 

Thank you. 

[The statement of Mr. Devine follows:] 


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Ms. DELAURO. Thank you very much, Mr. Devine. 

Dr. Cooper. 

Mr. COOPER. Madam Chairman, members of the committee, I appreciate the opportunity to appear before you today. 

Mr. Kingston, you asked for an alternative account. There is one 

in my testimony. And here is a brief alternative view of what is 

going on out there in detail. 

Market fundamentals indicate both an upward trend in price and 

a huge speculative premium. They can both coexist. The supply-demand balance has been tight but steady for the last 6 years, as has 

OPEC’s spare capacity. The global reserve-to-production ratio has 

been rising slightly not falling. The world refinery industry is 

adapting to the heavier crudes that the world is producing. 

Market models based on fundamentals at the U.S. Energy Information Administration and the Japanese Ministry of Economy, 

Trade, and Industry show a premium of $40 to $60 a barrel above 

fundamental. Analysis of the cost of crude suggest a premium of a 

similar magnitude, as does a simple trend line from 2002 to 2006 

extended to today. 

And last and probably least, oil company executives and OPEC oil ministers say there is a premium of $40 to $60 a barrel that 

is not explained by fundamentals. Everybody knows that there is 

a speculative premium out there, and that premium of $40 to $60 

indicates a burden on the U.S. economy of $285 billion since January 2006. That is a direct bite out of the household budget of 

$1,200. 

If not fundamentals, then what might account for this premium? 

We believe excessive speculation epitomized by a sixfold increase in 

exchange trading in the past 4 years has created a vicious price 

spiral. We identify specific policy decisions—and you have heard a 

lot about 2006; that is when it went bad—we identify specific policy 

decisions that have invited new players, new money, and new practices into the market. And we demonstrate a close association between the growth of open positions and the skyrocketing of profit. 

So we have correlation. We have temporal sequence. We also provide the link, the explanatory link, between these two. 

We observe, and it is a fact, that as price rises and volatility increases, it becomes more and more difficult and expensive to get 

people who have oil in the ground to part with it. That observation 

is supported by statistical and anecdotal evidence. This is not about 

hoarding oil in tankers and tanks. It is about holding oil in the 

ground until you get bribed with a high enough price to bring it 

up. 

Now, why would anybody profit from a rising price? Yet there are 

people on both sides, we are told? Let’s be clear, traders profit from 

the upward spiral of prices because traders and exchanges benefit 

from transaction fees that grow with volume and value. Moreover, 

as account values rise, excess margins and special miscellaneous 

accounts allow the traders to take their money out of the market 

or leverage more trading to keep the upward spiral going. 

Moreover, as long as there is new money coming into the market, 

then the old money that was there first benefits by the rising price. 

And let’s be clear, major trading houses can promote that spiral 

and the inflow by advising the money, the new money, what to do. 


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They go to the pension funds and stay hey, bring the money in 

here. And then, of course, they benefit when they predict an everincreasing price spiral. 

So we have all of the elements here of an alternative explanation 

that fits the facts an awful lot better than the baloney that you 

have heard from the other side. 

Now opponents of prudential regulation invoke phrases like 

‘‘when unexpectedly high demand strains existing production’’ or 

‘‘after years of ignoring the rather obvious fact that oil is a finite 

resource.’’ Oil tripled in price from 2002 to 2006, and ultimately, 

they give me psychology, with a statement like, and I am reading 

from a New York Times opinion piece: ‘‘Everyone in the oil market 

is attuned to every little twitch that has the potential to damp supply increase demand. That is why, for instance, when Libya announced that it might cut oil production, oil jumped by $5. Meanwhile, when Brazil discovered a huge new oil field the market 

shrugs. That is not speculation at work,’’ they say, ‘‘that is psychology.’’ 

Well, even if it is just psychology, we suggest that Congress is 

not obliged to let the psychos run wild in a market as vital as oil. 

If the traders in this market have become irrationally attuned to 

every little twitch that might increase price but disregard facts 

that might lower price, it is hard to conclude that the market is 

functioning properly. Congress can and should act to restore prudential regulation which will quell excess speculation and calm irrational exuberance by sedating the cycles. 

I say ‘‘restore’’ prudential regulation because, let’s be clear, the 

financial instruments, trading practices, and loopholes that are the 

target of the current policy debate did not exist or were rarely just 

utilized a decade ago. Commodity markets performed just fine 

without any of these contrivances which has opened the door to excessive speculation and the stampede of the psychos. 

Bad policy and lax oversight created the problem. Good policy 

and effective oversight can burst the bubble, returning these markets to their proper role in society. 

I would ask you, Madam Chairwoman, to provide me with a list 

of every question that was posed to Chairman Lukken in the last 

session. I will provide you with an alternative set of answers that 

gives you a very different view of what is working and what is not 

working in these markets. 

Thank you. 

[The statement of Mr. Cooper follows:] 


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Ms. DELAURO. Professor Greenberger. 

Mr. GREENBERGER. Thank you, Madam Chairwoman, and I also 

want to thank you for the leadership you have taken on this issue, 

not only in seeing what the resources are of the CFTC but also in 

the substantive side of these issues. Your bill, 6341, which I think 

you have introduced with Congressman Van Hollen, I think is a 

very, very good piece of legislation, which I support. 

And I also know that you were very involved in getting H.R. 

6377 passed in the House on June 26th. It was introduced in the 

morning and passed that night by a vote of 402 to 19. And I hope 

the Senate takes the same bipartisan approach. 

The reason I think that bill is important is because what it essentially does is having Congress declare an emergency in these 

markets. And it asks for the CFTC, who could have declared their 

own emergency under their statute, to do an investigation across 

the markets and answer the questions that have been posed. 

I am in support of what Dr. Cooper says, that I do believe there 

is a speculative premium. I don’t discount for a second that we 

have a supply-demand problem, and everybody has a solution for 

supply-demand, but I think the United States’ energy-consuming 

public, including some of our most important industries, are paying 

a speculative tax that has nothing to do with supply-demand. And 

I think, within a matter of weeks, we are going to see some very 

serious dysfunctions—I would look to the airlines first—if we don’t 

provide relief in this regard. 

The reason I say H.R. 6377 in its immediate effect and the kind 

of legislation that you have supported in a long-term effect is important is, I would say let’s forget about trying to answer in the 

dark whether this is supply-demand or speculation. Let’s get the 

information. Let’s do a thorough investigation of these markets. If 

that thorough investigation shows that those of us who think speculation is at the heart of this shows we are wrong, God bless. But 

it is not healthy for a lot of people, and I would imagine a lot of 

your constituents, to walk around believing that this is a speculators problem if it is not. 

So I think whichever side of this argument you are on, you 

should be in favor of transparency. Now we don’t have transparency because of the Enron loophole and the so-called London 

loophole, which I would be happy to talk about at greater length, 

we switch, from December 20th, 2000, to December 21st, 2000, we 

allowed these energy futures contracts to be traded off-exchange, 

over-the-counter markets that don’t have the same transparency 

that our regulated exchanges have. 

Now it is true that Mr. Lukken since May 29th has been trying 

to get more information from one of these exchanges, but we don’t 

have the kind of information and the tools to get it, and the kind 

of oversight to be sure about what we are dealing with here and 

to answer the fundamental questions. We are in the middle of a 

terrible economic emergency here, and I think we are only halfway 

down the slope. And I think when we get to the bottom of it, there 

is going to be some very serious consequences. 

I would also say that your attention that you are paying to the 

CFTC, I believe, is important because it is not just energy futures. 

We have got agriculture futures problems, too, which fall on the 


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same line, and I can talk about that. But even more important, the 

subprime meltdown goes, in my view, to, is premised on an instrument, credit default swaps, which were deregulated by the December 20th, 2000, legislation. Swaps were excluded from State and 

Federal oversight. And I can elaborate on that, but the New York 

Insurance Superintendent who is trying to hold up an insurance 

company that has insured the banks against their losses took the 

position, why are these credit default swaps? These are nothing 

more than insurance contracts. And had they been insurance contracts, Bear Stearns would have had to have a adequate capital reserve to pay them, but they didn’t because they thought housing 

prices would always go up, and they would never be called on their 

bets. We are now holding those instruments as United States taxpayers. 

So the CFTC is a very, very important agency. I was there for 

2 years. I have watched it. As far as I am concerned, if you wanted 

to pick out one financial regulator who has more to say about 

where our economy is today, it is the CFTC. When you are talking 

about deregulated energy futures, poorly managed—and I can explain that; I don’t fully blame the CFTC for that—but the ag markets are not supposed to be deregulated and yet there are deregulated products out there, and the credit default swaps. 

If we had not passed the Commodity Futures Modernization Act, 

I think Bear Stearns would still be here today. In fact, I think 

Enron would still be here today. So I congratulate you for focusing 

attention on this important agency. And I think this is going to be, 

wherever we end up legislatively, the silver cloud I see here is that 

we are beginning to understand as an American constituency what 

the futures market is and how vitally important it is to the United 

States economy. 

Thank you. 

[The statement of Mr. Greenberger follows:] 


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Ms. DELAURO. Mr. Short. 

Mr. SHORT. Madam Chairwoman DeLauro, Ranking Member 

Kinston. 

I am Johnathan Short, senior vice president and general counsel 

of Intercontinental Exchange, or ICE. I very much appreciate the 

opportunity to appear before you today to provide our views on the 

energy futures markets, regulation of energy futures trading, and 

the role of speculation in these markets. 

ICE is and always has been a strong proponent of transparent 

and properly regulated markets. As a public company our business 

depends upon it. ICE operates four separate lines of business, an 

OTC exempt commercial market through its parent holding company, and three regulated futures exchanges through three independent subsidiaries. Each of these regulated futures exchanges 

was an existing marketplace prior to its acquisition by ICE, and 

each of them has a separate governance and regulatory infrastructure mandated by their regulator in order to maintain their regulatory status. 

Focusing on ICE’s energy markets, ICE’s ECM market, or exempt commercial market, was introduced in 2000 as the antiEnron. It was a mini-to-mini marketplace that provided transparent electronic trading. Enron was a mini-to-one marketplace 

where Enron was the market. You traded with Enron; Enron traded with someone else. Enron also controlled the physical assets, 

and if you look at the California energy crisis, that is how Enron 

manipulated the California energy market, by withholding physical 

assets. 

This is very important and ironic because the founder of ICE, 

Jeff Sprecher, was a California power plant developer who actually 

saw California’s deregulation and saw that it was ripe for manipulation and thought that the better way to do this was on a minito-mini transparent platform like ICE. And he went out. He bought 

a company to prove his point. And I would note with some pride 

today that ICE is the only transparent part of the OTC market, 

and we take absolutely no positions in our market and do not control any physical assets. 

Turning to our futures business, energy products are traded 

through ICE Futures Europe, which is formerly known as the 

International Petroleum Exchange. It is a fully regulated exchange 

headquartered in London, and it is a leading futures exchange outside of the United States. 

ICE Futures Europe trades the benchmark Brent crude futures 

contract, which forms part of the complex that prices two-thirds of 

the world’s crude oil, along with a West Texas Intermediate or WTI 

crude oil futures contract that is a financially settled derivative of 

the NYMEX futures contract. 

ICE Futures Europe is a recognized investment exchange, and it 

is overseen by the U.K. Financial Services Authority, which is the 

equivalent of the CFTC in the United Kingdom. 

Much has been said in the preceding weeks about the role of 

speculation in the crude oil futures market and what role trading 

in ICE’s markets may be playing in determining crude oil prices. 

Some have improperly characterized ICE’s markets as dark markets and have suggested that closing supposedly regulatory loopVerDate Nov 24 2008 04:18 May 20, 2009 Jkt 048718 PO 00000 Frm 01026 Fmt 6601 Sfmt 6602 E:\HR\OC\B718P2.XXX B718P2

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holes is the key to dramatically decreasing oil prices. Unfortunately, much of what has been said in this regard is factually inaccurate and unsupported by economic evidence, and furthermore, it 

is inconsistent with the following basic facts. 

First, ICE Futures is a fully regulated exchange and, importantly, has been providing trading information regarding its WTI 

contract to the CFTC since April 2006, shortly after the launch of 

our WTI contract. As recently as June of this year, the director of 

enforcement of the CFTC publicly stated that the CFTC has seen 

no evidence of manipulative activity in ICE Futures WTI markets. 

Second, trading in ICE Futures WTI contract comprises only 15 

percent of the broader WTI trading market compared to the 85 percent of trading that considers on the NYMEX and has been steadily 

declining since prices began to spike last year, suggesting that 

there is little evidence that a London loophole is the root cause of 

recent increases in crude oil prices. 

In any event, to the extent that there is concern that a London 

loophole ever existed, I think everyone would have to concede that 

it has been closed by the recent actions of the CFTC in modifying 

ICE’s no action letter to impose accountability and position limited. 

Third, ICE over-the-counter or OTC markets comprise approximately zero percent, I want to emphasize, again, zero percent of 

the OTC market for oil products, which are still predominantly 

traded through so-called voice brokers. Furthermore, the so-called 

Enron loophole for electronic OTC markets has been closed through 

provisions of the farm bill. 

To be clear, Congress is right to examine trends in oil prices and 

to leave no stone unturned here. Unfortunately, however, we believe that the culprit here is an economic one. With markets driven 

by strong global supply and demand fundamentals and macroeconomic issues, such as the devaluation of the United States dollar, this view is supported by a plethora of economists and energy 

market experts, whom I cited in my written testimony. 

In considering the proper level of speculation in futures markets, 

it is important to understand that futures markets are inherently 

speculative. They are attempting to predict the future price here of 

a global commodity anywhere from 1 month to 8 years into the future. Importantly, in trading futures contracts, speculators are not 

taking any physical crude oil off the market. They are simply attempting to predict what the future price may be based upon the 

best information available at the time, thereby serving as a very 

important early warning system for consumers and businesses 

alike about what the future may actually hold. 

One of my co-witnesses here mentioned Friday, June the 6th, 

and the run-up in oil prices on that date. I just would like to point 

out that three separate events occurred on that date that were very 

significant. One was the European Central Bank raised interest 

rates, thereby further depressing the U.S. dollar. Another event, 

there was a Nigerian platform outage on that date. The third event 

was an Israeli government official said that war with Iran was inevitable. 

When you want to think about properly operating markets and 

whether prices should rise on that news, consider what would have 

happened if Israel had actually bombed Iran the next day and the 


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Straits of Hormuz had closed. People that hedged their price risk 

at $138 that day would have been very pleased having done so because the price of oil would have shot through the roof. 

In closing, ICE believes that Congress should proceed carefully 

in this area. If, as we contend, markets are accurately reflecting 

fundamentals, legislation aimed a diminishing speculative activity 

in the market could have the opposite of its intended effect, potentially making markets more volatile, driving energy prices higher, 

and making the cost of hedging more expensive. 

I thank you. I would be pleased to answer any questions. 

[The statement of Mr. Short follows:] 


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Ms. DELAURO. Thank you, Mr. Short. 

And thank all of you for your testimony. 

ENRON LOOPHOLE

I am going to see if I can open with several folks here. What I 

want to do is look at the Enron loophole. 

And Chairman Lukken, let me just start with you. 

And Mr. Short, both you and Acting Chair Lukken believe that 

the loophole has been closed. 

But to the Chair let me just say this, critics of the farm bill alleged that the act has not sufficiently closed the loophole because 

it requires the CFTC to make determination of which contracts on 

ECMs need to be regulated on a case-by-case basis. Therefore, what 

happens is the burden of proof winds upon being on the CFTC and 

not on the industry. 

Under the farm bill, you have up to 6 months to issue a proposed 

rule to implement the new provision, another 3 months to issue a 

final rule, then up to 6 months to complete reviews of electronic 

trading facilities that may have contracts performing significant 

price discovery functions. The farm bill was enacted May 22nd this 

year. So we could be looking at 14 months until you really make 

your findings that would lead to an actual closure of the loophole. 

This is a year and a half until we get to some sort of a conclusion. What are you doing to expedite this? When will your proposed 

rule be published in the Federal Register for public comment? 

What target date have you set for issuing the final rule? 

I will repeat those because I want to get in another piece here. 

There appears to be public statements by CFTC that say that the 

language would apply only to ICE’s natural gas contracts. And further, well, if you are going to work with the farm bill on a contractby-contract basis, sounds to me like an overwhelming task you are 

dealing with here, and can you tell us about how many contracts 

that we are talking about? 

And then with regard to the farm bill, it is my understanding 

that you made it clear that you will not cover any U.S. future contracts relating to the price of U.S.-delivered commodities traded on 

the U.S. terminals of foreign exchanges operating pursuant to your 

no-action letters. 

So if you would just talk about the rule, when you plan to do 

that, and if you could just talk about the, you know, your comments with regard to what you will cover and not cover. 

Mr. LUKKEN. Certainly, we are trying to beat congressional deadlines in this area. Congress did provide us 180 days to come out 

with a proposed rulemaking. We are working feverishly to try to 

expedite that. Hopefully it is much quicker than that. I wish I 

could give you a certain date, but these are the same people that 

are also looking at the swaps information that is coming in, trying 

to put the foreign boards of trade information that is coming in. 

This is all being handled by our Division of Market Oversight. So 

we are working to try to do this in a very expedited manner so that 

we don’t have to wait the 14 months, as you outlined. 

Ms. DELAURO. Five months? Six months? Eight months? Ten 

months? 


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Mr. LUKKEN. Again, this is congressional timetables, but we are 

trying to beat this so that we are able to do this much more quickly. 

I think the contract that was of concern when this was developed 

was the look-alike natural gas market that is listed on ICE’s exempt market in Atlanta. We are certain this is something that is 

going to be a part of this new regime. And so we are looking at 

ways to expedite those that we are certain that these contracts are 

going to be part of this new oversight regime. 

But it is not limited only to natural gas. Any product that is 

traded on an exempt commercial market that is either linked or 

somehow a price-discovery market that develops, we will regulate 

in this manner. So it is neutral in regards to any type of exempt 

product. 

Ms. DELAURO. Professor Greenberger, again, Mr. Lukken and 

you just heard Mr. Short testify that the farm bill closed the Enron 

loophole. You maintain that it is still open, and you have two main 

criticisms, as I understand it from your testimony of the bill, that 

it puts the onus on the CFTC to regulate and that the 15-month 

issue is of concern. 

Why are you concerned about the CFTC using its discretion to 

identify appropriate contracts of ECMs? 

Mr. GREENBERGER. Well, when the Enron loophole went into effect on December 21st, 2000, the rule was that all energy futures 

contracts had been to be traded on a regulated exchange. So I 

would have thought, if you were going to close the Enron loophole, 

that you would go back to where you were on December 20th, 2000, 

and say that all energy futures contracts are going to be traded on 

a regulated exchange. 

That is not what happened. What happened is the close the 

Enron loophole on the farm bill says that the CFTC in its discretion can re-regulate an energy futures contract if it can show that 

it has a, quote, significant price discovery function. 

So ICE, when it testified in front of the CFTC, said they have 

thousands of contracts. Now my understanding is, I have read two 

statements by Mr. Lukken, and I read what Mr. Sprecher said before Mr. Lukken said anything, and they said the Henry hub contract on their unregulated United States exchange should be subject to significant price discovery—should be significant price discovery and re-regulated. Well, natural gas has nothing to do with 

petroleum. 

Now, Mr. Short says, oh, but there are zero petroleum contracts 

being traded under the Enron loophole. I would dispute that from 

a general thing, but there are lots of bilateral standardized contracts being negotiated on a daily basis. As we sit here, there are 

hedge funds in investment banks in New York using standardized 

agreements to trade energy futures. On December 20th, 2000, 

those would have been regulated. Today they are not. 

So we went from a posture of all futures contracts; what did that 

mean? That means position limits. That means large-trader data 

reporting. That means they have to have their own self-regulatory 

organizations, which is very important because they police wrongdoing. That means the CFTC would have had clear emergency authority over them. 


wwoods2 on PROD1PC60 with HEARING
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But now we are going through, and my reading of the legislation 

is they have 270 days to do their general rule and then 180 days 

to apply it. I came up with a 15–month period. If I am wrong about 

that, I certainly want to know about it. But anyway it is going to 

be a long time. That is September 2009. What is Mr. Devine’s people going to do until September 2009? And then it won’t affect 

heating oil. 

Mr. SHORT. Could I—— 

Ms. DELAURO. Yes, you can. 

I also want to get Dr. Cooper in here. 

Go ahead, Mr. Short, go ahead. 

Mr. SHORT. A couple of points. First, ICE is actually not even 

awaiting the final rules that are going to be promulgated by the 

CFTC on this issue. We are actively working on implementing the 

systems today so that when the rules come out, we won’t be in a 

situation where we are waiting for 15 months. That is the first 

point. 

The second point about the coverage of contracts traded on ICE, 

trading in the contracts that we expect to be significant price discovery contracts will cover about approximately 90 percent of our 

traded volumes. The other contracts that we are talking about are 

illiquid swap markets for which we compete with telephone voice 

brokers and other people in the bilateral markets that don’t serve 

a significant price discovery function. They are not linked to a designated contract market, or the cash markets aren’t basing their 

prices off of them. 

I think that is a very important distinction that Professor 

Greenberger has overlooked. I would also point out that his suggestion that we go back do the status quo ante of, what happened before the CFMA, I think there were plenty of people trading these 

contracts pursuant to exemption letters before the CFMA. And I 

also think that the CFMA has brought very valuable market benefits. Exempt commercial markets are electronic. They are transparent. There is a digital record of every trade that occurs on them. 

The CFTC can call in that information and look at it any time they 

want. They get weekly transaction reports from us on trading information. 

To suggest that the CFMA was a bad thing I think was wrong 

because it has led to some positive things like the introduction of 

clearing for OTC swaps, and that is one of the problems that Mr. 

Lukken alluded to previously about Bear Stearns. If there had been 

a market where there was a clearable credit default product, 

maybe Bear would not have gone down. These are all very positive 

attributes that I think Professor Greenberger is overlooking. 

Mr. GREENBERGER. I would just like to respond, Madam Chairwoman. 

First of all, which ICE are we talking about here? Are we talking 

with ICE United States? Are we talking about ICE Futures Europe? Are we talking about ICE Futures United States? When Mr. 

Short says, oh, ‘‘we,’’ he is talking about the Atlanta headquarters 

and their natural gas contracts. What about the WTI contracts on 

ICE Futures Europe? 

Mr. SHORT. Absolutely, let me address that. 


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Mr. GREENBERGER. Mr. Short, if you would let me finish, I will 

let you talk. 

If you the let me finish, Madam Chairwoman. 

ICE Futures Europe a wholly owned subsidiary of ICE, which is 

located in Atlanta. It is run by ICE. It has U.S. Trading terminals 

in the United States. Its trading engines are in the United States. 

It is trading 30 percent of our West Texas Intermediate contract. 

It took 30 percent away from the regulated exchange. It is trading 

them in U.S.-denominated dollars, and the close the Enron loophole 

does not address that. 

Now, when Mr. Short says, oh, we are providing all of this information to the CFTC, I wonder is it ICE U.S., or is it ICE Futures 

Europe? ICE Futures Europe, because of Mr. Lukken’s actions on 

June 17th, will now start providing. I don’t know where the information was in 2006, if Mr. Lukken is asking for it on June 17th. 

But even more important, Mr. Lukken had to negotiate—that is 

the words I believe that were used—with the United Kingdom’s Financial Services Authority to get this information about our trading terminals wholly owned by a United States subsidiary with 

trading engines in Chicago trading 30 percent of our West Texas 

Intermediate contract. 

Now, is that a wholly transparent situation? Up until June 

17th—and by the way, the FSA has not agreed that they will do 

this—that information was not coming to our customers. I think we 

have to be clear which of these ICE subsidiaries we are talking 

about. 

Mr. SHORT. I would absolutely like to answer that factually, because Professor Greenberger is again mischaracterizing the facts. 

First, I was, in fact, referring to ICE’s OTC markets when I just 

spoke, but there is a separate market, ICE Futures Europe, as I 

indicated in my testimony. It is a fully regulated U.K. Futures exchange, independent governance, mandated by the Financial Services Authority. That market does come into the United States for 

direct market access pursuant to the no-action regime, and we are 

providing additional information to the CFTC on an expanded basis 

pursuant to the modifications they made to the CFTC no-action letter. 

But factually, there are mischaracterizations that are occurring 

here, and if you don’t believe me, please look at the Senate Permanent Committee staff rebuttal on the factual inaccuracies that we 

have had in the—— 

Ms. DELAURO. I have—I have, I have, Mr. Short. I have read it 

carefully, and I also read Professor’s Greenberger’s response to 

each of those questions. 

So I am going to ask my colleague, Mr. Kingston, I would just 

like to get Dr. Cooper here for a second. And then, Jack—— 

Mr. COOPER. Let me pick up on a different point. 

I mean, they have debated this question—it is quite clear the 

CFTC did not have enough information for years and years, and in 

the last month, they discovered that the FSA is not properly regulating that market. They want them to have a speculative limit and 

accountability, which they did not have before. Let’s be clear. So for 

years when they said, hey, they have equivalent regulation, they 

did not have it. 


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Let me make a different point. Enron was the darling of the 

traders because they were an asset-lite corporation. They loved the 

idea that you did not have to have any assets in order to play this 

humongous game. They had a book with three-quarters of a trillion 

dollars with nothing behind it. 

Bear Stearns, it turns out, as Mr. Greenberger suggested, might 

have been an asset-too-lite corporation. They were selling insurance without the backing of the necessary capital reserve. So one 

of the things that we talk about is capital reserve requirements 

here and margin limits, which are sucking money into this market 

and sucking it out of the stock exchange. 

Let’s be clear. Money goes where it is easy, where it is not regulated, where it is not asked to do much. And that is what has happened in these commodity markets. It is too easy for money to get 

there, so they don’t have to try and work hard to build real productive assets. It is all paper, and it is sucking the money out of the 

rest of the economy. 

Ms. DELAURO. Quick question. Is it 15 percent or 30 percent of 

the WTI? 

Mr. SHORT. It is approximately 15 percent when you consider options and their convertibility into futures. I don’t think Mr. 

Greenberger’s statistic took into account options that ultimately, on 

an as-converted basis, would determine the overall market share. 

It is approximately 15 percent. 

Mr. GREENBERGER. I have cited the information. I have cited the 

30 percent figure. Everybody is operating, and ask Dr. Newsome of 

NYMEX what the figure is. This business was taken away from his 

regulated exchange. He uses the figure 30 percent. They have 50 

percent, 47.8 according to their last 10(k), of all the world’s futures 

markets. And how many people do they have surveilling that? Ten 

people. How many does Dr. Newsome have surveilling that on his 

exchange? Forty people. He spends $6.5 million to surveil trading 

ahead of customers, wash trades. 

The FSA, which regulates ICE Futures Europe, wholly owned by 

ICE, has never brought an energy futures enforcement action since 

it began being a regulator. 

Mr. SHORT. Again, Mr. Greenberger is just wrong. 

Mr. KINGSTON. You know, this is very interesting. 

I will say I am—I join Mr. Short being disturbed about Mr. 

Greenberger’s testimony. I mean, this is a bipartisan rebuttal of 

your testimony. Bipartisan. And it is very specific on statements 

that you made and very thorough saying why it is not true. 

Mr. GREENBERGER. This is my response to it, and I will tell you 

Mr. Kingston—— 

Mr. KINGSTON. I have not seen it. 

Mr. GREENBERGER. No, I know you have not, but I will tell 

you—— 

Mr. KINGSTON. I am not yielding quite yet to you, but I will yield 

to you. 

Have they accepted that response. 

Mr. GREENBERGER. Chairman Peterson of the Agriculture Committee asked me to give him a response today. 

Now, let me tell you, Mr. Kingston, go look for that bipartisan 

thing on their Web site. It is not there. I understand what you are 


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saying. My, what I understand is, that there are feelings that 

maybe that should not have seen the light of day. It is not on their 

Web site, and I certainly didn’t want to join in the thing. But I 

would encourage you to look at what I say. 

Mr. KINGSTON. Let me say this. I will do that, and I would not 

say putting something on the Web site is the gold standard either. 

But this is not just a page or two; this is pretty thick. 

Mr. GREENBERGER. Well, this is a pretty thick response. 

SPECULATION IN PRICE OF OIL

Mr. KINGSTON. And you know, the thing I think we have kind 

of gotten away from in this hearing because there are so many 

technical things. You guys have built careers learning this stuff. 

What my question is, is clarity on are speculators driving up the 

price of oil? 

And I wanted to say one thing, that I read an article in—well, 

it was on the Web, from CNN Money, and it said today the number 

of paper barrels of oil traded on the NYMEX is over three times 

the number of physical barrels consumed worldwide. 

And I was wondering if Mr. Short, Mr. Lukken, or anybody 

wants to respond to that. 

Mr. LUKKEN. In risk-management markets, anybody who handles 

one barrel of oil has risk potentially from the person that is bringing it out of the ground, to the person who is shipping it, the person who refines it, to the person who consumes it ultimately. All 

of those people, those four or five people have risk involved with 

the price of that one barrel of oil. So naturally you are going to 

have multiples of the physical market. And certainly these are financial markets. They are not consuming. They are not taking a 

single barrel of oil off the marketplace. 

So lots of information comes into the market through speculators 

and other participants to make sure that we are trying to find the 

right price. But the natural tendencies of these markets are to be 

a larger factor than the underlying crude oil markets. 

Mr. KINGSTON. Let me ask this question, because I want to tie 

it to Mr. Devine on the Black Friday situation, which you gave 

three reasons, Nigeria’s platform and so forth, tie this into that, because it does seem to me that he is so vulnerable now. Why wasn’t 

he so vulnerable 5 years ago? 

Mr. SHORT. I think what you saw on so-called Black Friday was 

a properly operating market. I think you did see the market come 

back down after the market had digested the news. But importantly and in particular, if one of those events had played out, you 

would have had a situation where the price would have probably 

gone up in the market, and you know, the ability to hedge at that 

price on that day, not withstanding it was $12 higher than the 

prior day, was good. 

I wanted to circle back on the issue of overall trading volumes. 

I think when you cite a statistic like, look the at overall trading 

volumes compared to the underlying barrels of oil consumed in the 

country, it does not get at the issue, because a lot of that trading 

volume is intraday, making markets tighter. It is making markets 

tighter for commercials to come into the market and hedge at the 

cheapest price. It is not directional driving the prices up. 


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You may have a bunch of speculators going between $136.10 a barrel and $136.12 a barrel, constantly shrinking that market and 

making it as tight and liquid as possible. So I would hope no one 

would take that statistic and say, ipso facto, there must be a directional correlation in the price of oil. 

Mr. COOPER. There is a directionality there. Let’s be clear. Every 

one of these transactions costs money. Because these guys don’t 

trade this stuff for free. They get a vig. They want a percent of 

that. When they increase the risk, they want their risk covered. So 

let’s be clear, all of those transactions are not free. They increase 

costs. Liquidity ain’t free. It is very expensive. 

And that ends up—that is where Morgan and Goldman Sachs 

make their money. They charge for all these transactions, and they 

get it as a percentage of the total price. And darn it, the higher 

the price, the more they make. That is a heck of a coincidence. 

Mr. KINGSTON. Madam Chairman, I want to get back to the 5- 

minute rule, but we have some very spirited witnesses here. So I 

hate to—I think it would be nice to have Mr. Short respond to that, 

but I do want—if you could do it in 20 seconds. 

Mr. SHORT. Just very quickly, ICE does not get paid on the value 

of the underlying asset. I want to make that clear. It gets a flat 

fee. So whether the value of the underlying goes up, down, it does 

not make any difference to us. I would say that there are a lot of 

speculators out there who are pure liquidity providers. They are 

trying to capture those price increments, and it is not always Goldman Sachs or Morgan Stanley. It is true; I mean, if you are working with an investment bank, it is true they are making a profit 

off of this. But they are providing a service for that profit. 

Ms. DELAURO. Mr. Bishop. 

Mr. BISHOP. Thank you, very much. 

CONSOLIDATION OF THE SEC AND CFTC

I have enjoyed this very spirited discussion. And I would like, 

Mr. Cooper, all of the witnesses, with the exception of Mr. Lukken, 

who I have already asked a question regarding the consolidation of 

the SEC and the CFTC, I would like to address it to the other four 

witnesses to find out how you feel about it as well as the self-regulation question. 

That is, Mr. Paulson’s plan to combine the SEC, which regulates 

equities and debt markets, with the Commodities Future Trading 

Commission, which regulates trading commodities and financial futures, with the different regulatory approaches that they have, 

what would your position be on the mergers? I would like to ask 

each of the four panelists other than Mr. Lukken’s position. 

And I would also like to ask whether or not, as I asked Mr. 

Lukken earlier, the CFTC, whether that traditional delegation of 

its regulatory oversight has really worked? Or whether or not we 

should move to more direct regulatory and oversight control? 

Mr. SHORT. I don’t profess to be an expert on the Treasury blueprint. I mean, certainly you can make a pretty strong argument 

that you do see convergence in financial markets. I think the real 

problem here is that we have probably had an underfund CFTC 

strained for resources. And I would in particular be afraid of losing 

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kets, because I think one thing that has been shown today by the 

testimony before this committee is, this is a very kind of inside 

baseball type area. And I would be afraid, if they were subsumed 

within SEC, some of that expertise might be diluted. 

Mr. BISHOP. So you agree with Mr. Lukken on that? 

Mr. SHORT. I do. 

Mr. BISHOP. Professor Greenberger. 

Mr. GREENBERGER. I want to make clear that I have studied Secretary Paulson’s recommendations, and his recommendation—I 

think I am right about this, Walt—is that the CFTC be merged 

into the SEC but the SEC follow the principles-based regulation of 

the CFTC. As far as I am concerned, that is pushing the SEC into 

the CFTC and not the other way around. 

Now, this principles-based regulation comes out of the thesis of 

the way the Financial Services Authority in England operates. And 

in March 2007, there was a lot of push from Wall Street that the 

United States should regulate the way the Financial Services Authority regulates in London. Now that agency, and I have got it in 

my thing, they basically regulate by conversations. For example, in 

the energy markets, they have not brought since 1997 an enforcement action. Mr. Lukken proudly says that his agency has brought 

39 and referred 35 to the Justice Department in that same period. 

Wall Street would love to be regulated by the Financial Services 

Authority. Now the Financial Services Authority is in a big hole 

right now, and this is the reason why. They oversaw the need to 

nationalize the fifth largest bank in the United Kingdom, Northern 

Rock. The Financial Services Authority is the equivalent to the 

Treasury, the SEC and the CFTC. Northern Rock had billions of 

U.S., in equivalency, U.S. dollars poured into it to save it from its 

subprime crisis. And finally, they had to nationalize the bank. 

The FSA has done a self-regulatory study and said, we dropped 

the ball. The European Union has started an investigation of the 

FSA. So when Mr. Short says, our ICE Futures Europe, our wholly 

owned subsidiary, which really isn’t here but is in London, is, 

quote, fully regulated, they are fully regulated by the FSA. I think 

with those terminals in the United States trading 30 percent of our 

product, they should be fully regulated by the CFTC. 

So I am not supportive of these recommendations because the 

bottom line is, it is to deregulate, not to have further regulation, 

in my book. 

Mr. COOPER. Frankly, now is the moment to restore prudential 

regulation across a number of sectors. Neither of the agencies you 

talked about have done a very good job in the last few years. We 

have a mess here. Merging them will not solve the mess. It will 

simply make it harder to see what is going on. 

That does not mean they shouldn’t cooperate. Certainly in our 

analysis of the natural gas spiral that I did for four attorneys general in 2006, we concluded that the ability of certain entities to 

straddle all of these markets made it very difficult for regulators 

to know what was going on, so they should cooperate. 

But, frankly, we think each of them should be individually 

strengthened, and absolutely we need a return to direct regulation. 

Because each of these little loopholes that have been mentioned 


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here, which were created in the 1990s and expanded dramatically 

in 2000, have now swollen to overwhelm these markets. 

So the indirect regulation, the self-regulation, is where all the action is. That is where all the money goes. We have to squeeze that 

bubble back down and get back to solid, sound prudential regulation of these commodities. 

Mr. BISHOP. Mr. Devine. 

Mr. DEVINE. Thank you. 

I, too, believe that we don’t need too much regulation, but I do 

believe, and I do believe that the CFTC should be funded and have 

the authority for direct regulation. And I believe, unfortunately, it 

is at this point in time, after sitting here and following what is 

going on for quite a while now, I think it is up to you to put the 

pressure on the CFTC to exert their authorities. Because I fail to 

see that it is happening. I don’t see that it is happening. But I do 

believe that they ought to be a stand-alone organization. I don’t believe that there should be too much oversight of them. 

Mr. BISHOP. You don’t believe that there should be too much 

oversight of them? 

Mr. DEVINE. Of the CFTC. I think the CFTC ought to exert the 

authorities that they have. But I do believe that you, Congress, 

need to look at them and say, you guys have got to step up. 

Mr. BISHOP. So you don’t think the merger is a good idea? 

Mr. DEVINE. I do not. No. 

Mr. BISHOP. Thank you. 

My time is up. 

Ms. DELAURO. Mr. Farr. 

Mr. FARR. Thank you, Madam Chair. 

OIL FUTURES

Mr. Lukken, I was interested in your earlier comment about 

the—in exerting your authority and the budget that we have approved for that, and the new additional responsibilities in the farm 

bill, of the $5 trillion, approximately $5 trillion, that flows through 

the exchange daily, what percent of that flow goes into the oil futures? 

Mr. LUKKEN. I think, on a percentage-wise, our markets are 85 

percent financial. I think roughly 10 percent—let me make sure I 

have this right. I think 85 percent are financial products. And 

roughly 7 percent are agricultural, and the remaining are energy. 

If that adds up. Is that about right, 8 or 9 percent energy? I think 

that is approximately about the right percentages. 

Mr. FARR. Is 10 percent all energy, or is that—I mean how much 

of that is natural gas, electricity? Are they all lumped together? 

Mr. LUKKEN. They are all lumped together. So I think crude oil 

is the largest of those contracts. Natural gas is probably second. 

Mr. FARR. And if the mission is to protect the public from manipulation, do you also look into whether, for example, the oil companies are manipulating by keeping the oil in the ground? 

Mr. LUKKEN. In May, we announced an ongoing enforcement investigation into crude oil products which includes us looking at 

physical storage, pipelines, and all the cash over-the-counter as 

well as the futures markets. 


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Mr. FARR. What about just sitting on the leases that they have, 

the Federal leases, offshore and onshore leases? 

Mr. LUKKEN. We haven’t limited ourselves in what we are looking at. 

Mr. FARR. So you are looking at that, at whether—they have 

paid for these leases. They have 38,000 acres of leased land that 

they are not doing anything on. 

Mr. LUKKEN. We are certainly looking at whether people are 

hoarding oil or keeping oil off the markets to intentionally manipulate the markets. 

Mr. FARR. When will you know that? 

Mr. LUKKEN. It is ongoing. We hope to have results as quickly 

as possible. 

Mr. FARR. How about the impact of the things like the Arab oil 

embargo and other kinds of hoarding or withholding? 

Mr. LUKKEN. I don’t think we have the ability to go after government entities; the CFTC does not. 

Mr. FARR. No, but you have the ability to discuss—maybe it isn’t 

your responsibility, maybe it is the Energy Department, I don’t 

know where it comes from—but the information about how much 

oil would be on the market if there wasn’t this embargo. 

Mr. LUKKEN. We certainly talk with DOE about what we are seeing and what they are seeing. They are part of this task force that 

is looking into the supplies of crude oil as well as other commodities. We are always in discussions about that. And the participants 

in our markets are trading futures contracts. 

Mr. FARR. You are looking at refining capacity, oil line capacity, 

infrastructure capacity to see whether that is being fully utilized? 

Mr. LUKKEN. We are looking to see if anybody is intentionally 

utilizing any movements of oil to manipulate prices. 

Mr. FARR. We have this dentist mentality around there that everybody is talking about drill, drill, drill. And I wonder if in fact 

there is manipulation of oil not being drilled that could be, of refining capacity that is not being used that should be, of pipeline capacity that is not being utilized. We ought to get that information 

out before we just lose it. 

Mr. LUKKEN. I think that is something that DOE closely follows 

but certainly something that we would be interested in as part of 

this investigation. 

Mr. FARR. I am just curious as to how much time it is going to 

take to get that information. It is the mantra of some people here 

in Congress. I would like to refute that mantra with some good 

data. So? 

Mr. LUKKEN. Certainly. We are working as fast as we can. These 

are complex cases. They require resources, and if we find something, we will bring it as quickly as we can. 

Mr. FARR. Well we have another call. 

Thank you. 

Ms. DELAURO. I am going to try to see if we can get through a 

round here with the three of us before we have to go to vote. I 

think there will be four votes so what we will do, I am going to 

try to move quickly. I actually have three questions. 


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NO-ACTION LETTERS

One has to do with the no-action letters. I think they are rather 

odd. The letter on June 17th to ICE says: The no-action position 

taken herein is taken by the Division only and does not necessarily 

reflect the views of the Commission or any other unit or member 

of the Commission’s staff. 

That seems to be boilerplate language. But then when you take 

a look at what the director of enforcement for CFTC says about 

ICE in particular: A foreign board of trade listing for trading a contract which settles on the price of a contract traded on a CFTC-regulated exchange raises very serious concerns for the Commission. 

In the absence of certain preventive measures at the foreign boards 

of trade, these circumstances could compromise the Commission’s 

ability to carry out its market surveillance responsibilities, as well 

as the integrity of the prices established on CFTC-regulated exchanges. 

Aren’t the commissioners of the CFTC nominated, confirmed and 

paid to make decisions like this? Why are these letters done on 

such an arm’s length basis by staff? And why don’t the commissioners vote to approve or disapprove requests for no-action letters? 

Mr. LUKKEN. This is something that started in 1996, I think, 

prior to Michael coming down to the agency. But we have limitations in our law that says that any individual can trade—must 

trade a futures contract on a U.S.-designated exchange unless it is 

located outside the United States. We also have a provision in our 

act that says we cannot regulate foreign boards of trade. So the discussion has been whether we can develop some policy to ensure 

that we are not regulating foreign boards of trade but we are allowing access to those foreign boards of trade. And this is the process 

that developed, but it was processed fully with the Commission’s 

input. 

We held, in 1999, there was significant discussions about this 

issue. Eventually they adopted the no-action policy. In 2006, again, 

when ICE linked a contract to one of our regulated contracts, the 

Commission again held hearings and put out for Federal comment 

on the issue of what we should do in this area. 

Ms. DELAURO. The process seems to be flawed. 

Mr. LUKKEN. Well, certainly, we have limitations as a result of 

our law. But also all of these no-action letters that come through 

the agency come through the Commission; they are fully aware of 

it. They have the ability to object to these as they come through. 

We could stop any of these as they are coming through. But it has 

worked well to ensure that global markets are properly regulated, 

but the CFTC is getting the right information to protect its marketplace. 

Ms. DELAURO. That it does not reflect the view of the Commission or any of the Commission’s staff. I think it is a flawed process. 

Dr. Greenberger, I will give you a second. 

I want to ask a question of Dr. Cooper and maybe even Mr. 

Devine. 

Mr. GREENBERGER. Yes, I am the villain of the peace who drafted 

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sion could not reach—the commissioners could not agree on what 

to do, and they said, you take care of it. And we did. 

Now, that was supposed to be a temporary process in 1999 until 

the commissioners enacted a rule. There is no rule today. Mr. 

Lukken is right. In 2006, they held a 1-day meeting to decide, and 

they re-endorsed the process of the staff making these decisions. 

Now one other point I just want to make quickly, because I know 

you are running, as you pointed out, in the no-action letter that 

Mr. Lukken’s staff issued, on June 17th, they say, look, here are 

four new conditions, guys. If you don’t meet them, we are going to 

bring enforcement action against you to register as a U.S. exchange. There is no doubt in that letter about the jurisdiction of 

the Commission that they can’t deal with these people. 

I briefed this in my testimony elaborately. They are—this isn’t 

located outside the United States. They are in the United, States. 

Trading our West Texas Intermediate contract in U.S.-denominated 

dollars. When they enter the United States—and I dealt with these 

guys—they did not say, you can’t regulate us. They said, please, 

grant us an exemption from regulation. We understand you can 

regulate us. 

Now the bargain that was struck was that they were foreign exchanges, not wholly owned by a U.S. corporation, and that they 

would not trade U.S. contracts in competition with U.S. exchanges. 

That changed in 2006, and that is why I believe these letters 

should be terminated. 

Ms. DELAURO. Dr. Cooper, let me ask you, you make some suggestions about what we should do. Your recommendations about 

how we ought to address these issues, can you just briefly kind of 

summarize those? I would love to get some sense—— 

Mr. COOPER. There are five categories of things, and you have 

heard them already. And this comes primarily from our analysis of 

natural gas. One, we have to close the Enron loophole definitively, 

effectively. The presumption should be regulation, and the exception should be self-regulation. So everyone has to report, register, 

report, be certified, and you have to prove to the Commission that 

you don’t need to be, not vice versa. Change the burden of proof. 

Second of all, we have to eliminate this funny money. The margin requirements, the capital requirements, have made it too easy 

to go there. Those are thing that the CFTC could actually effect 

that if it so desires by declaring an emergency and a problem of 

excess speculation. 

We have to reduce the ability to push up prices. Position limits 

are too low. The settlement window on natural gas is too short. We 

have to ban these conflicts of interest, where Goldman Sachs tells 

their pension funds, buy this stuff, buy the index, and then issues 

the report that says the price is going up, and then goes back and 

says, see the price is going up. That is a conflict of interest. 

We also, in a broader sense, have to restore the profitability of 

productive investment. We need to rebalance the attractiveness of 

making long-term investments in steel in the ground, assets, not 

asset-lite corporations, versus this flipping of paper which is basically sucking up our assets in this country. 

Ms. DELAURO. A quick question to you, Mr. Devine. 


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CREDIT ACCESS

How might companies like you get credit access that you need to 

purchase the product for the coming winter should there be no 

market relief present? What are you going to do? 

Mr. DEVINE. What am I going to do? Right now, we are actively 

engaging with our banks to make sure we have the proper amount 

of credit that we need. We are lucky enough to have assets that 

we could leverage to get that kind of money that we think we need 

at this point in time. 

We are also working closely with our wholesalers to make sure 

that we have a kind of credit limit with them. However, they are 

becoming extremely tight as well. And that is becoming more difficult. In Connecticut, the Independent Connecticut Petroleum Association is working with the Small Business Administration to 

look into perhaps getting loans from them as well. There is no 

question about it that the fuel oil dealers in Connecticut are going 

to need a lot more money. 

Ten years ago, I would need about maybe $2 million a year to 

capitalize what I needed. This year, I am looking at $10 million, 

perhaps $3 million in 1 month, probably January. For my company, 

that is pretty big, to wait sometimes 45 to 60 days for the money 

because my customers can’t pay for it. 

Ms. DELAURO. I am going to bring the hearing to a close. I do 

know that Mr. Kingston wanted to come back. I have to bring the 

formal hearing to a close. 

Mr. Kingston, I believe, will be coming back, if you could for 5 

or 10 minutes, I think there may be a question that he would like 

to ask, and I would like to afford him the opportunity to be able 

to do that. 

Let me just conclude with this comment. I do something called 

office hours every week in some town or city in my district. I was 

in a place called Naugatuck, Connecticut, a working, blue-collar 

middle-class community. A woman came to see me and she said, 

Rosa, and as she started to talk tears welled up. And she said, I 

don’t know what to do. Tell me what I should do. Do I starve? Do 

I freeze? Do I not take my prescription drug medications? 

She said, I have worked hard all of my life. I raised two kids. 

I just can’t make it. 

I went in to purchase a product and the gentleman said to me, 

Rosa—he wasn’t angry. He said, what I think what I have to do 

is shut down my second floor, bring my kids downstairs. We can 

all sleep in the same place. It would be crowded, but that is the 

only way that I am going to make it. 

That is the reality. That is the reality. And we have to respond. 

We come to people who have the obligation and the jurisdiction to 

do something about what is happening out there. We look to experts for information from all perspectives to do this. This is a national crisis. 

And I hate to go back to the analogy again, but Bear Stearns appeared to be a national crisis as it was. We went with all deliberate 

speed to sort it out, to fix it, and so whether people liked it or did 

not like it, and they did something to keep the financial markets 

from crashing. 


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Please, please, let’s keep the American people from crashing and 

burning this winter. That is why we are holding this hearing. And 

we are going to continue to ask these questions. And we are going 

to continue to look at what the solutions are in order to turn this 

around. That is the reason why we came here. And it ought to be 

the reason why the governmental agencies responsible for doing 

this are doing their job as well. 

Thank you all very, very much for your patience, for your candor. 

I can yield to Mr. Kingston, so I will go to vote. 

I do have to come back. Mr. Kingston cannot close the hearing. 

There are rules and regulations around this institution. 

Mr. GREENBERGER. Get a no-action letter. 

[Recess.] 

Mr. KINGSTON [presiding]. Actually, I wanted to ask Mr. 

Greenberger a question, but Mr. Cooper, I will switch to you. 

You had talked about the hoarding of oil is in the ground. 

Mr. COOPER. Yes. 

Mr. KINGSTON. What ground would you be referring to? 

HOARDING

Mr. COOPER. Well, this is a global question, because they keep 

telling me about the global market. And so over the past decade, 

you have had a very, very vigorous effort by OPEC to manage supply. It is an illegal cartel that we have never challenged on legal 

grounds, but clearly, there is strategic underinvestment in production capacity in OPEC. 

Mr. KINGSTON. Let me ask you this, because I was recently over 

there and talked to them, and they said you come over here and 

whine about oil, but you will not build refineries and you will not 

drill on your own land. And when you talk about hoarding oil, the 

U.S. Government may be leading the way with 85 percent of our 

offshore tied up and 65 percent of our land resources. And so, 

well—— 

Mr. COOPER. In the U.S., you do have this immense number of 

idle leases. And so those are leases that, you know, maybe they 

were not economic at $30 a barrel when they were let, but at $100 

a barrel or $80 a barrel, they are awfully economic. So the question 

of—and the minute you let the leases for these other environmentally sensitive areas, you are going to hear all kinds of other 

complaints why they can’t go there. They don’t have the rigs. An 

industry that does not have the rigs is clearly telling you that the 

supply side is not responding to increases in price. The question 

here is, you have got these idle leases and—— 

Mr. KINGSTON. Let me say what the oil companies say about 

these idle leases. You know, they are saying—first of all, they have 

paid a lot of money for it. Then they pay a lot of money to research 

to see what you just said, how expensive is it to extract the oil from 

that particular piece of land. And then these leases do expire. So 

I don’t know what the definition of ‘‘idle lease’’ is. I know what 

‘‘idle’’ really means, but I think it has become a political term 

which we need flesh out and say what is idle? 

Mr. COOPER. They have them, and they ain’t working them. That 

is a pretty good definition. 

Mr. KINGSTON. Well, but they are working them. 


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Mr. COOPER. Well, but there is a lot of them that they are not 

working. 

Mr. KINGSTON. How do you know that? Because I got to tell you, 

I don’t know that they aren’t working them, but I know they tell 

me that they are working them. 

Mr. COOPER. They are working some of them. 

Mr. KINGSTON. Maybe Mr. Lukken’s committee, in response to 

what he just told Mr. Farr, is the answer here. Are they working 

those leases or not? Do you know? Are we finding out? Is anybody 

finding out? We are throwing around a term, ‘‘idle lease.’’ 

Mr. LUKKEN. Right, but we are looking at illegal manipulation, 

so—— 

Mr. KINGSTON. A little bit out of your realm. 

Mr. LUKKEN. This is out of our lane a bit, but if they are, for 

business purposes, either developing or not developing, those are 

legitimate business purposes and are not a part of our manipulation investigation. 

Mr. COOPER. But they are a part of the strategic underinvestment in resources, which is clearly evident in OPEC. 

Mr. KINGSTON. Let me tell you this, Dr. Cooper, as a Member of 

Congress, people say to me, well, I guess the oil companies are a 

big presence up there. I don’t think they are. I think they are fat, 

dumb, and happy exactly in this situation. I don’t have Exxon Mobile knocking on my door to drill in ANWR or offshore. I do have 

lots of people who are paying $4 a gallon at the pump who are saying do that. 

ICE

Let me ask Mr. Greenberger a question. On the London market 

that you have raised some concern about ICE, what is the difference between the U.K. Regs and the CFTC regs? Are they better? Are they worse? Are they inferior? 

Mr. GREENBERGER. Well, I am sure Mr. Short will disagree with 

me, but I think they are much inferior. I mean, I think that is the 

whole reason people are so upset that this big bank failed over 

there, and the European Union is saying, hey, guys—there is an 

article I cite in my testimony from Jeremy Grant in the Financial 

Times where he described their regulatory techniques, and it is 

really dialoguing with people who are not doing what they should 

be doing. And that might have been fine when London was a little 

city—when I say ‘‘city,’’ the city is like Wall Street, and they all 

knew each another—but now it is a world market. 

Mr. KINGSTON. Well, let me stop you right there. You know, we 

are in this global situation, and markets tend to follow countries 

with less regulatory environment for good reasons and perhaps for 

some reasons that aren’t so good. But let’s say that Congress, 

through some act, closed down ICE Atlanta. You know, just decided, because I think Congress can be very dangerous on things 

they don’t understand. And if you watch the ridiculous debate we 

had on horse meat last year, you would know what I mean. 

But Mr. Short, suppose that happened, if the regulatory burden 

became too much on you, what would you guys do? 

Mr. SHORT. First of all, the reason we are sitting down at this 

table and working with Members of Congress and working with the 


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CFTC is, you know, we want access to the United States and we 

think that the U.K. is an equivalent regulator. I think—— 

Mr. KINGSTON. Well, I guess, here is what my question is: 

Wouldn’t it be the case that if ICE did not move to London, somebody else would pick up your mantle and move to London or Dubai 

or Singapore or Shanghai? 

Mr. SHORT. I think there is a real risk of having too heavy a 

hand here and driving business offshore. That is not ICE. I mean, 

we are here at the table doing everything we have been asked to 

do. But I think there are some risks. 

And just to circle back on the issue of FSA regulation, it is different, but these telephone calls that Professor Greenberger talks 

about, they happen with a high degree of frequency. You have kind 

of the equivalent of handlers, unlike, you know, in the U.S. So 

while they may not be, I guess, as prescriptive or have brought as 

many enforcement actions, they are sitting there with you. 

I can’t sit here and say that the FSA was a model of regulatory 

sanctity in the bank failure, but I don’t think our regulatory system is perfect either. And we have had plenty of black eyes that 

we would be called to account for. 

Mr. KINGSTON. Go ahead. 

Mr. GREENBERGER. Well, I was just going to say, I think your 

question about whether they will go abroad is a really, really good 

one, and it is a fundamental one. And I am pleased to hear ICE 

will not go abroad. And I don’t want ICE to go abroad. I believe 

ICE should be more regulated, but I think they are a valuable contributor to these markets. There is some consolidation on these exchanges that people are not happy about. 

But for whatever it is worth, and I have this in my testimony, 

look, I was sitting in the Division of Trading and Markets—Mr. 

Lukken was right. In 1996, Germany came before I got there and 

said, we want to bring our terminals in the United States, and we 

are not going to be trading U.S. products in competition, but we 

want to have our terminals in. And I think nobody thought, well, 

what difference does it make? We will get them in. We will get 

some assurances from them. Well, it jumped into the number-one 

world exchange just because they had terminals in the United 

States. I arrived on the scene, and I have foreign regulators down 

my hallway saying, hey, you let Germany in, let us in, too. By that 

time, the Commission says, oh, this is a really big deal, and we do 

a dance; should there be a rule? And they settled on the no-action 

letters. 

Now, my reading of the Web site is there are 15 exchanges. I 

think I heard Walter say at one point there are 20. But they are 

all coming this way. This is where the liquidity is. This is where 

the markets are. After all, ICE could have said, we will set up shop 

up in London. 

Mr. KINGSTON. But at the same time, your fear and my fear 

seems to be the same, that they really don’t have, since they don’t 

have the commodity; they are a paper exchange. They are mobile. 

They could move anywhere they want if we over-regulated. 

Mr. COOPER. Let me jump in here, if you assert the jurisdiction 

over U.S.-designated commodities on U.S. soil, okay, and you intend to regulate and you say, we will regulate all of that stuff, they 


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will come and register. They will succumb, submit to our regulation. They need to be trading in legal tender; that is U.S. dollars. 

Mr. KINGSTON. You are talking about any country? 

Mr. COOPER. The exchanges will come, absolutely. Because they 

want to be able to trade in this product legally. 

Now what are the traders going to do? And I get a little flamboyant here, because you heard about the phone call. If you are sitting 

in America and you place that phone call to a foreign exchange 

trading in a U.S.-designated commodity that has not registered, 

you broke the law. And let’s enforce that law. And I believe most 

traders in America don’t want to live in Bangladesh or Sing Sing. 

They will obey the law, and they will not trade illegally. And countries that have agreements with us, that is extradition agreements, 

will in fact say, we want an exchange, we will register. 

So, therefore, this is about U.S. authority, U.S. jurisdiction, and 

clearly, our product is very attractive. So you can in fact make the 

world conform to your regulatory scheme, not reduce your standards to theirs. 

Mr. KINGSTON. Okay. 

Mr. Short. 

Mr. SHORT. I just wanted to clarify something. ICE will not come 

to the United States to register as a designated contract market, 

and let me explain why. You can’t have duplicative regulation. You 

need a lead regulator with a lead regulatory system. There can be 

regulatory equivalency. ICE is all about the dialogue that we have 

had with the CFTC about the need to have regulatory equivalency, 

but there has to be a read regulator. 

It would be like somebody standing up and saying, the New York 

Stock Exchange has screens in the United Kingdom, and someone 

in Parliament standing up and saying, well, you have got to become a recognized investment exchange here. That is not the way 

global electronic trading will ultimately work. And there are some 

very real problems with regulatory overlap and regulatory burden 

that I don’t think anybody here at this table is talking about. 

I think the proper way through this thicket is to look for regulatory equivalency. And by all means, if you don’t think there are 

important regulatory steps being taken, there should be regulatory 

dialogue, and perhaps the screen-based access letter should be 

modified. But the idea of coming and registering as a DCM is just 

a terrible idea, because you are going to have CME registering in 

China. NYMEX registering around the world. 

Professor Greenberger is talking about the past, about the 

United States being the be all, end all. I am talking about the future. We won’t be in that position for long if we do that. 

Mr. KINGSTON. Well, it does worry me, as somebody who just 

came back from Dubai and saw the largest building in the world, 

and the e-mail that goes around and tells you that 15 percent of 

the cranes in the world are in Dubai. I think that is accurate. If 

anything, probably under. I wonder what is going on in the Middle 

East when you have an emir making the laws with no regulation, 

and I just think it could be wide open. 

Mr. GREENBERGER. I was just going to say, Mr. Kingston, one of 

the things is also, you know, Dubai has gotten a no-action letter 

to have U.S. trading terminals and trade West Texas Intermediate 


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and the principal regulator—now, Mr. Lukken is tightening that 

up. I am going to concede that. He just sent a letter the other day. 

But the principal regulator will be the Dubai Financial Services 

Authority. 

Now, I want to make it clear, I don’t want to regulate every foreign exchange. I don’t know whose figure is right, and I will take 

Walter’s word. It is 20 foreign exchanges are here. Only two of 

them are trading U.S. West Texas Intermediate. Well, let me be 

clear. ICE Futures Europe is trading West Texas Intermediate. 

Dubai has permission to do so and says it will do so soon. My view 

is I don’t want to—and I am a minority on this because some of 

the people who are supportive of my views would say, let’s regulate 

everybody. I don’t want to regulate Germany. They are not competing with us. They came in and are following the rules. It is a 

German exchange trading German product. But if you come in and 

put U.S. trading terminals in the United States and trade our West 

Texas Intermediate, they should register. 

Now also, do they have to register and have dual regulators? 

Why can’t they do what ICE has done and set up a U.S. subsidiary 

and have that subsidiary be regulated rather than the whole exchange? 

Mr. SHORT. I will answer that question directly if I could. We 

have European and U.K. customers that feel very strongly about 

U.K. regulation, U.K. bankruptcy law, keeping capital in a U.K. 

clearinghouse. In the U.S., if we came, we would have to split out 

our energy commodities across different exchanges. They would be 

cleared in different clearinghouses, and these are real regulatory 

obstacles. Our customers may not follow us. 

Now I think that would be a great result in some people’s mind, 

but it is one, from an operational standpoint, is just not the right 

result if you can get there through regulatory equivalency. 

Mr. KINGSTON. I yield back. 

Mr. COOPER. Let the FSA recede to CFTC for U.S. commodities. 

If U.K. customers don’t want to be regulated by U.S. regulators for 

U.S. commodities, let them trade Brent. They can trade Brent. We 

won’t regulate Brent. We will regulate WTI traded in the U.S. 

Mr. SHORT. I would just add one point there. The idea that WTI 

is a, quote, U.S. commodity is—it has a U.S. delivery point, but if 

you really scratch the surface and you look, it is just a grade of 

light sweet crude oil. And there are a laundry list of substitutes for 

that grade of crude oil, and we import most of it in this country. 

Mr. COOPER. How much WTI is exported? 

Mr. SHORT. I didn’t say any WTI was exported. 

Mr. COOPER. There is a physical reality here we ought to remember. WTI is drilled here, produced here, and consumed here. 

Mr. SHORT. Check the NYMEX contract spec. 

Mr. KINGSTON. So it is not? 

Mr. SHORT. Substitutable grades under the NYMEX contract include Brent, Nigerian, Bonny, Forties. You are just factually 

wrong. 

Mr. COOPER. How much is exported? I ask you—I will tell you. 

Zero. 

Mr. SHORT. I don’t think—— 

Mr. COOPER. It goes into American refineries. 


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Mr. SHORT. If you are talking about something—— 

Mr. COOPER. Well, there is a physical reality. 

Mr. SHORT. If you are talking about West Texas, the actual stuff 

that comes out of the ground in Texas, I doubt much of any. But 

that really isn’t the question. We are talking about markets that 

are priced on the margin, and we are importing most of this into 

our country. And I think we have got to face the fact that we have 

got an energy problem here, and that is being reflected in the markets. And this isn’t any effort to lay blame at anyone’s doorstep, 

but we have got a problem. And regulation is not going to solve 

that, I am afraid, in terms of bringing down the price of oil. 

Mr. GREENBERGER. The other thing, Mr. Kingston, because your 

question is really, as you can see, a provocative one and a good one, 

but what we are arguing about here is the speculation, speaking 

of the speculation, that people will go abroad. I am sure your constituents are like everyone else’s constituents; they are being hurt 

real hard. 

Mr. KINGSTON. You know, one of the things that I don’t get, why does the price of gas at the pump go up $0.08 in 1 day, and then 

it crawls back down. And you may see it yourself, Mr. Devine. But 

the spikes are always like that, and then it just kind of—— 

Mr. COOPER. It is a theory called rockets and feathers. A series 

of articles analyzing the oil price, and basically, it goes up like a 

rocket and comes down like a feather because there is market 

power there. And so you hold on to every penny you can for as long 

as you can. And it has been in the literature for 30, 40 years, and 

the last round said, yeah, it does look like rockets and feathers, 

and that is a result of market power. 

Mr. KINGSTON. Madam Chairman. 

Ms. DELAURO. This has been a great hearing. 

As it turns out, I do have one more question, which has to do 

with Mr. Lukken. We did pass legislation on June 26th in the 

House, a remarkable margin, 402 to 19. By those numbers, it is a 

bipartisan piece of legislation. It directs the CFTC to use all of its 

authority, including its emergency powers, to curb excessive speculation in the energy markets. 

SPECULATION IN THE ENERGY MARKETS

I wanted to get your view of the legislation, and would you use 

that emergency authority if you were to find such speculation? 

And I guess the third piece is, because of your inability in terms 

of regulating these exempted entities, does this in any way compromise the legislation in terms of what you are, does this compromise your ability to carry out the legislation? 

Mr. LUKKEN. Certainly, in my written testimony, what we have 

been doing over the last year is trying to look for evidence that 

speculation is driving these price. Whether that is looking into the 

swaps markets to seeing if the swap dealers are bringing excessive 

speculation that is driving prices; whether it is happening on exempt commercial markets as part of the farm bill; whether it is 

happening on foreign boards of trade, we are looking for that. So 

certainly we are using every existing authority that we have now. 

Ms. DELAURO. So you would use the emergency authority if you 

found such speculation? 


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Mr. LUKKEN. Well, we have a broad range of emergency authority. And certainly, if we felt it was necessary—emergency authorities traditionally have been used in very distinct short-term situations. We have used it four times. Not really in the last 25 years 

have we used it. But it has typically been either an active manipulation of the markets, so we see somebody illegally manipulating 

the market, and we have to get them out of positions; or a huge 

disruption in supply, such as the Russian grain embargo. So we 

used it four times over the last 33 years. 

Raising margins is one of the issues that I think has been discussed as part of getting speculators out of the markets. I think my 

personal concern is that there are speculators on both the short 

and long side of the market. 

Ms. DELAURO. Yes or no? Would you use the emergency powers— 

we passed a piece of legislation in this body. The House did. The 

Senate may be doing that in the next couple of weeks, presuming 

it is the same piece of legislation. I don’t know whether or not the 

President has any intention of signing such a piece of legislation. 

But we passed a piece of legislation that directs—it says it directs. 

It was not a Sense of the Congress. It was not a resolution. It was 

specifically saying, directing you to use it. If you were to find—I am 

just asking, and this is if, would you use the emergency authority 

if you did find the speculation? And this is an if. 

Mr. LUKKEN. Certainly, if we find that excessive speculation is 

driving prices, we will use all authorities in order to stop that. 

Ms. DELAURO. Okay. Thank you. 

Mr. KINGSTON. I have another question. 

Mr. Lukken, I really would like you to explore this idle versus 

active lease definition. You said to Mr. Farr that you are looking 

at everything. So the leasing question has to come under some of 

your subcommittee work or your committee on it. I think it would 

be very interesting for us to have a definition of idle versus active. 

Mr. LUKKEN. I think, in reference to Congressman Farr, I was 

talking about our manipulation investigation, and we are looking 

at all aspects of how crude oil is transported, stored, looked at. So 

we haven’t ruled out any way. If somebody is intentionally holding 

back oil from the markets, that is something we would be interested in. It is for legitimate business purposes, whether they don’t 

think there is oil there or there is other reasons not to drill, that 

would not be something that we would be investigating. 

Mr. KINGSTON. Well, I do not support windfall profit taxes and 

punitive measures on that. But I think what Ms. Kaptur said reflects the view of so many millions of people that Exxon Mobil had 

a $40 billion profit. And my question would be, is there anybody 

out there who is handling these leases to say, you are not drilling 

here? Because I can tell you, Ms. DeLauro don’t agree probably on 

a lot of this energy issue, but I don’t ever get lobbied by an oil company asking for more drilling area. 

Do you? 

I mean, so to me, they are fat, dumb, and happy in this current 

market. I have been a Member of Congress for 16 years, and I remember one time there was some lease issue off the Gulf that some 

oil company wanted to talk to me about, but I—to me, they like 

this market as is. And so you could be that thin line between the 


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consumer, you know, to make sure that you are not kind of looking 

at, well this is capitalism, and is not—you know, just steady hand 

at the wheel here. 

Mr. Greenberger. 

Mr. GREENBERGER. Just quickly, I would say that the FTC was 

also asked to look into these markets in the December legislation, 

so you should also be—your question is an excellent question. They 

are also looking, and they should be asked the same thing you are 

asking of Mr. Lukken. 

Mr. KINGSTON. Well, let me ask you—do I have more time? 

I want to close with Mr. Devine but only after asking the other 

four panelists a question. Candidate forum. You guys are all running for Congress. 

Dr. Cooper, you are going to go first. We are going to ask you, 

are oil prices being driven up by speculators? 

Mr. COOPER. $40 to $60 a barrel. That is $1 to $1.50. And think 

about it, if oil were $3 today, would we be having this hearing? We 

probably would not be. We had adjusted. So I believe there is a premium there. Everything I look at says there is a premium there. 

The fundamental models and whether it is excessive speculation or 

cycles, we can fix it. 

Mr. KINGSTON. Hold on one second, I am going to add a sub 

question to this. 

Why, Mr. Short, particularly for you and Mr. Lukken, why is this 

happening now? Say 5 years ago, Mr. Devine did not have this 

problem. Why suddenly is it happening now? Because I think Dr. 

Cooper is going to tell me it is because of the speculators using the 

loopholes and the trading volume; people have found out another 

way to make a buck. And so the supply and demand curve really 

isn’t that out of whack; it is the speculation. 

So I will start again with my friend Dr. Cooper who has probably 

a very unpassionate answer to this. 

But would you—— 

Mr. COOPER. If you look at the curves, January 2006 was the key 

date when we began to make these changes to—and I have now 

learned about the swaps guys coming in and saying, now we want 

to be treated—it is the explosion of value, of dollars in those markets at that time. With ICE coming in, WTI came in at the same 

time. If you look the at curve—— 

Mr. KINGSTON. I saw your charts. I want to get Mr. Short to look 

at those. 

Mr. COOPER. That is a causal and temporal relationship to which 

we put the theory around about how that trading pulls the price 

up. 

Mr. KINGSTON. Okay. 

Candidate Greenberg. 

Mr. GREENBERGER. Oh, boy, would I love to do it? 

Look, I have come to the view that I would like to be able to tell 

my constituents is that there is a debate going on now. I have one 

view. My personal view as a candidate is that there is speculation. 

But, by God, we have people looking into this market, and in 45 

days, we are going to have answers. I will tell you then. And by 

God, if there is speculation, I will do everything I can to stop it. 


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But what you do not have is this kind of aggressive, full court 

investigation. 

Now look, one thing I will say about the CFTC, they are being 

asked to do an awful lot. They are short staffed. Walter is making 

a lot of things. And I think they could say—and I know your committee is trying to give them more—look this is a lot to ask us to 

do. 

But the acting chair has set up an interagency task force. I think 

the Bush administration, what I would say is, you know, 45 days, 

get us an answer. Get Greenberger to shut up. I want to show him 

it is supply-demand. And by God, if you do, I will go back to teaching counterterrorism law. 

But that is what I really feel now. We need answers, and I just 

came from the House Ag Committee, and there is speculation, 

where is the money going? Here, there, and everywhere. And all I 

say is, give me an answer. 

Mr. SHORT. I guess, first of all, I wouldn’t run for anything. I 

couldn’t do your jobs. 

So I will note that I think markets largely work in an efficient 

manner, and we are talking about the future price of a very scarce 

commodity with a lot of different factors at play. I don’t think this 

is a loophole question. 

With all due respect to Dr. Cooper, if you look at the actual statistics of when we launched our WTI contract and actually started 

building our market share, the price of oil was going down. I want 

to emphasize that; it was going down. And we have been losing our 

market share as it is going up. So I don’t think it is a loophole 

issue. 

I think there are a lot of different fundamentals at work here, 

including the devaluation of the dollar. And look, people are jittery 

given the very tight, you know, supply-demand situation we find 

ourselves in today. I couldn’t hazard a guess as to, you know, if 

there is any type of speculative premium built into it. 

What I will say is that I am a believer in markets and that if, 

in any market, speculators can, you know, impact a price for a 

short period of time. But they can’t do it for a long period of time 

out of balance with physical supply and demand fundamentals. 

Mr. LUKKEN. Certainly supply and demand factors are significant 

in the price of crude oil and other commodities. But as a candidate, 

I would do exactly what you are doing, which is holding the agency 

accountable for doing its job. And we are trying to do as best we 

can, the employees at CFTC, with historically low staffing levels, 

to do everything we can to ensure that speculation is not occurring. 

We have not found evidence that it is, but we all understand that 

we have to keep looking under every rock possible to ensure that 

it is not happening. And we owe that to the American public. 

So we are doing that through fixing the foreign boards of trade 

issue, exempt commercial markets in the farm bill, speeding up implementation of that. We are doing that with regards to swap dealers. I think we are trying to address that. 

I agree that, as candidates, you are doing the right thing. I have 

been up here six times to talk to Members of Congress to try to 

educate and inform so that people can make educated decisions as 

policymakers. 


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Mr. KINGSTON. Mr. Devine, I don’t want to make you the voter 

and you choose one of them. But what I would like you to answer, 

I mean, you have been sitting here. You are an intelligent businessman. You have been listening to all of this. You are on the 

front line of these fuel prices. You know, what did you think today? 

We have some really smart people here. 

Mr. DEVINE. Yes, and I am actually very honored to be here. 

I would get involved in speculation that if the margin rates were 

increased, the price of oil would probably be decreased. I think 

that, in answering Chairman DeLauro’s question earlier a little bit 

more, regarding what oil companies need to do going forward, is 

cut back on employment, which we have done. And it is going to 

happen more, which means the unemployment rate is going to go 

up. I think that stop investing in growing markets, which we have 

done in bioheat unfortunately for this year. We put off a major 

piece of work that we were going to do to our terminals. That is 

all going to stop, which is going to slow the economy. 

But I think that we have a huge challenge on our hands. I do 

think we need an energy policy, but I think that we have to find 

out if the speculators are moving this market. And I think they 

are. I think that the speculators—I think there is speculation in 

this market. I am not a professional. I am not a trader, but the 

markets are moving very, very volatilely, and they are very, very 

high which creates in my industry just-in-time inventory, which 

when we do get to a cold winter, unless that oil is there, it is going 

to be extremely hard to get. So not only will we have a difficult 

price to deal with, we are going to have a difficult time getting 

product, because my wholesalers right now are telling me, if you 

don’t have a contract for July, don’t bother coming and picking up 

oil because you are not going to get it because we are not going to 

invest in it now, because if it drops tomorrow by 30 or 40 cents and 

we are holding a million gallons, then we are out 400,000 bucks. 

That is the reality of it. That is a scary thing. 

And it is energy. It is energy. Natural gas is up 86 percent since 

January. It is going to be a tough, tough winter. 

Thank you very much. 

Ms. DELAURO. [presiding]. Again, thank you all very, very much 

for being here. 

And again, I can’t pass up this one point, though. And I think 

Professor Greenberger said, get us some answers. And I appreciate—I think it has been important for Members of Congress to 

take this issue on, as tough and as complex as it is, to begin to 

learn some things about it. 

I will speak for myself, we are, you know—I am not an economist, and I am not an academic here, but trying to get hold of this 

very, very serious issue. But we do have 45 days or less. Let’s get 

some answers, whatever the outcome is going to be. So that we can 

move forward. 

Again, thank you. This hearing is concluded. I appreciate it. 


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(i) 

W I T N E S S E S 

Page 

Acheson, Dave .......................................................................................................... 213 

Almanza, A. V .......................................................................................................... 363 

Calfee, J. E ............................................................................................................... 134

Chappell, M. A ......................................................................................................... 1 

Cooper, Mark ............................................................................................................ 915 

Devine, Tom ............................................................................................................. 915 

Goodman, J. L .......................................................................................................... 1 

Gould, Eldon ............................................................................................................. 739 

Greenberger, Michael .............................................................................................. 915 

Keenum, M. E .......................................................................................................... 739 

Lasseter, T. A ........................................................................................................... 739 

Levi, Jeffrey .............................................................................................................. 213

Lukken, Walter ........................................................................................................ 915 

Malarkey, M. A ........................................................................................................ 1 

Murray, Greg ........................................................................................................... 213 

Pellett, N. C .............................................................................................................. 1063 

Powers, J. H., III ...................................................................................................... 134 

Raymond, Dr. R. A ................................................................................................... 363 

Short, Johnathan ..................................................................................................... 915 

Steele, Scott .......................................................................................................... 363, 739

Taylor, M. R ............................................................................................................. 213 

Wolfe, S. M ............................................................................................................... 134 

Woodcock, Janet ....................................................................................................... 69 

Yost, M. W ................................................................................................................ 739 


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I N D E X 

Page 

Center for Biologies Evaluation and Research ............................................ 1 

Biologics....................................................................................................... 11, 59, 66 

Biotechnology Products, Regulation ................................................................ 58 

Blood Donations ................................................................................................ 36 

Blood Donor Restrictions .................................................................................. 33–34 

Blood Shelf Life ................................................................................................ 38 

Blood Supply...................................................................................................... 52, 65 

Critical Path ...................................................................................................... 56 

Drug Recall Process .......................................................................................... 51 

Drug Safety Plans ............................................................................................ 51 

Emergency Preparedness ................................................................................. 62 

Emerging Science ............................................................................................. 61 

Facility Inspections .......................................................................................... 57 

Global Health .................................................................................................... 18 

Hereditary Hemochromatosis .......................................................................... 41 

Human Tissue, Inspection of Firms that Recover ......................................... 60 

Inspection of Foreign Biologics Firms ............................................................. 29 

Pandemic Influenza .......................................................................................... 64 

Pandemic Preparedness ................................................................................... 12 

Patent Protection .............................................................................................. 42 

Questions Submitted by Representative Bishop ............................................ 42 

Questions Submitted by Representative Farr ................................................ 41 

Questions Submitted by Congressman Kingston ........................................... 56 

Questions Submitted by Congressman Latham ............................................. 64 

Questions Submitted by Representative Kaptur ........................................... 52 

Safety ................................................................................................................. 14 

Tissue Recipient Tracking ............................................................................... 28 

Tissue Recovery ................................................................................................ 26 

Tissue Regulation........................................................................................ 22–23, 27 

Tissue Retrieval ................................................................................................ 39 

User Fees ........................................................................................................... 24–25 

Written Statement, Jesse L. Goodman, Director, FDA Center for Biologics 

Evaluation and Research ............................................................................. 9 

Center for Drug Evaluation and Research .................................................... 69 

Abbott Manufacturing Violations .................................................................... 200 

Additional Funding .......................................................................................... 97 

CDER Budget, User Fees ................................................................................. 98 

Center for Drug Evaluation and Research ..................................................... 85, 98 

Citizen Petitions—Generic Drugs ................................................................... 131 

Clinical Trial Inspection Training ................................................................... 125 

Clinical Trials, Database ................................................................................. 120 

Clinical Trials.................................................................................................. 86, 120 

Congressional Oversight .................................................................................. 196 


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iv 

Center for Drug Evaluation and Research—Continued 

Counterfeit Drug Web Sites ............................................................................. 117 

Counterfeit Drugs ............................................................................................. 93 

Critical Path ...................................................................................................... 72 

Database Cost ................................................................................................... 122 

Different Standards for Devices and Drugs ................................................... 197 

Downgrading Enforcement Action Recommendations ................................... 125 

Drug Approval Time ......................................................................................... 90 

Drug Establishment Database ........................................................................ 118 

Drug Regulation, Value .................................................................................... 76 

Drug Safety Funds ........................................................................................... 99 

Drug Safety ....................................................................................................... 79 

Employee Morale .............................................................................................. 130 

Estriol ................................................................................................................ 204 

FDA Funding Sources ...................................................................................... 94 

Foreign Counterfeit Drugs ............................................................................... 116 

Foreign Drug Establishments .......................................................................... 85 

GlaxoSmithKline Manufacturing Violations .................................................. 126 

Globalization...................................................................................................... 78, 92 

Hatch-Waxman ................................................................................................. 189 

Human Capital Survey Results ....................................................................... 182 

Human Drugs Program, Funding ................................................................... 75 

Imported Drugs ................................................................................................. 111 

Imports and Re-importation........................................................................... 92, 118 

Improving Inspections ...................................................................................... 112 

Industry Influence on FDA .............................................................................. 129 

Inspection of Foreign Manufacturing Facilities ......................................... 111, 120 

Inspectors....................................................................................................... 119, 122 

Lack of Funding ................................................................................................ 178 

Medication Guide .............................................................................................. 131 

Neurontin/Gabopentin ...................................................................................... 94 

Office of Surveillance and Epidemiology..................................................... 133, 193 

Official List of Drugs ........................................................................................ 86, 87 

Opening Statement, Dr. Calfee ....................................................................... 163 

Opening Statement, Dr. Powers ...................................................................... 146 

Opening Statement, Dr. Wolfe ........................................................................ 135 

Outsourcing Regulatory Functions ................................................................. 178 

Post-Marketing Study....................................................................................... 86, 89 

Prescription Drug User Fee Act................................................................... 180, 185 

Private-Sector Incentives ................................................................................. 202 

Problems with the Administration .................................................................. 183 

Questions Submitted by Representative Farr ................................................ 204 

Questions Submitted by Representative Hinchey ......................................... 209 

Reduced Funding for Inspections .................................................................... 113 

Reduction in Warning Letters ......................................................................... 128 

Regulatory Burdens .......................................................................................... 201 

Request for Investigators ................................................................................. 114 

Risk-Based Inspections .................................................................................... 132 

Safety First ....................................................................................................... 72 

Trasylol .............................................................................................................. 186 

Unapproved Uses of Drugs........................................................................... 187, 199 

Union of Concerned Scientists ......................................................................... 181 

User Fees .......................................................................................................... 98 

Virtues of Market-Driven Incentives .............................................................. 198 

Written Statement, Dr. John E. Calfee, American Enterprise Institute ..... 165 


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v 

Center for Drug Evaluation and Research—Continued 

Written Statement, Dr. John H. Powers, Assistant Professor, George 

Washington University ................................................................................. 148 

Written Statement, Dr. Sidney M. Wolfe, Public Citizen’s Health Research Group ................................................................................................. 139 

Written Statement, Janet Woodcock, Chief Medical Officer, FDA ............... 74 

Center for Food Safety and Applied Nutrition ............................................. 213 

Access to Facilities in China ............................................................................ 334 

Agency Coordination ........................................................................................ 283 

Agency Reorganization ..................................................................................... 283 

China Office Job Descriptions ......................................................................... 361 

Country of Origin Labeling System (COOL) .................................................. 294 

Epidemiology ..................................................................................................... 280 

EU Food Regulation ......................................................................................... 282 

FDA and CDC Interaction ............................................................................... 268 

FDA and USDA Coordination ......................................................................... 280 

FDA Authorities ............................................................................................... 267 

FDA Beyond Our Borders ................................................................................ 270 

FDA Presence in Five Countries ..................................................................... 332 

FDA-State Partnerships ................................................................................... 326 

Food Protection Plan ........................................................................................ 232 

Food Safety Modernization Act ....................................................................... 214 

Food Safety, More Funding for ........................................................................ 274 

Foodborne Illness Outbreaks ........................................................................... 213 

Fresh Produce ............................................................................................... 226, 231 

GAO Report—International Food Safety ........................................................ 322 

GAO Report ....................................................................................................... 214 

Import Safety .................................................................................................... 232 

Imported Fruits and Vegetables ...................................................................... 269 

Inspection Budget ............................................................................................. 294 

Intention Adulteration ..................................................................................... 330 

Lessons Learned ............................................................................................... 287 

Mexican Import Safety ..................................................................................... 320 

Nationwide Food Safety Program ................................................................... 277 

Opening Statement, Dr. David Acheson ......................................................... 217 

Opening Statement, Greg Murray .................................................................. 259 

Opening Statement, Jeffrey Levi .................................................................... 248 

Opening Statement, Michael Taylor ............................................................... 235 

Private Sector Consequences ........................................................................... 215 

Produce Distribution Chain ............................................................................. 293 

Produce Trace Back .......................................................................................... 293 

Product Traceability Initiative ........................................................................ 269 

Product Tracing ................................................................................................ 227 

Recall ................................................................................................................. 328 

Revenue-Based Insurance Program ................................................................ 278 

Salmonella............................................................................................. 225, 263, 274 

Sick Americans ................................................................................................. 289 

Third Party Certification ................................................................................. 326 

Tomato Imports, Increase in ............................................................................ 271 

Tomato Industry, Losses .................................................................................. 285 

Tomatoes and the Salmonella Outbreak ........................................................ 274 

Trace-Back Authority ....................................................................................... 267 

Written Statement, Dr. David Acheson, Associate Commissioner for 

Foods, FDA .................................................................................................... 220 

Written Statement, Greg Murray, Murray Farms, GA ................................. 261 


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vi 

Center for Food Safety and Applied Nutrition—Continued 

Written Statement, Jeffrey Levi, Executive Director, Trust for America’s 

Health ............................................................................................................ 250 

Written Statement, Michael Taylor, Research Professor, George Washington University .......................................................................................... 238 

Food Safety and Inspection Service ................................................................ 363 

Antemortem Inspections .................................................................................. 723 

Athens Facility .................................................................................................. 703 

Bovine Spongiform Encephalopathy (BSE)......................................... 376, 407, 446 

Chinese Chicken ............................................................................................... 589 

Codex Alimentarius .......................................................................................... 679 

Condemned Product ......................................................................................... 656 

Consumer Information ..................................................................................... 703 

Country-of-Origin Labeling (COOL) ............................................................... 455 

Domestic Inspections ........................................................................................ 599 

E. Coli Testing .................................................................................................. 571 

Egg Products ..................................................................................................... 700 

Emergency Response ........................................................................................ 423 

Enforcement ...................................................................................................... 705 

Exempt Establishments ................................................................................... 669 

Food Emergency Response Network (FERN) ................................................. 674 

Food Safety Assessments ................................................................................. 455 

Food Safety Research ....................................................................................... 593 

Food Safety.................................................................................................... 451, 708 

Foodborne Illness Data......................................................................... 433, 440, 460 

Foodborne Illness .............................................................................................. 456 

Foreign Inspection and Imports ...................................................................... 606 

Foreign-Owned Establishment ........................................................................ 452 

Hallmark/Westland ..................... 372, 404, 434, 442, 450, 458, 467, 468, 721, 724 

Homeland Security ........................................................................................... 715 

Humane Handing Noncompliance ................................................................... 445 

Humane Handling ............................................................................................ 451 

Humane Methods of Slaughter Act ................................................................. 722 

Import Safety ................................................................................................ 394, 419 

Information Technology ................................................................................... 647 

Inspection Activities ..................................................................................... 573, 731 

Inspection Personnel Vacancies................................................................... 436, 728 

Inspector Training ............................................................................................ 690 

Inspectors .......................................................................................................... 681 

Interstate Shipment ......................................................................................... 436 

Lab Accreditation ............................................................................................. 667 

Mandatory Recall Authority ............................................................................ 467 

Natural Claims ................................................................................................. 720 

Non-Ambulatory Disabled Cattle .................................................................... 446 

Opening Statement, Dr. Richard A. Raymond ............................................... 365 

Plant Surveillance......................................................................................... 442, 444 

Poultry Slaughter Facilities ............................................................................. 575 

Public Health Data Infrastructure .................................................................. 410 

Questions Submitted by Chairwoman DeLauro ............................................ 592 

Questions Submitted by Representative Hinchey ......................................... 728 

Questions Submitted by Representative Kingston ........................................ 720 

Questions Submitted by Representative Kaptur ........................................... 731 

Recall Authority ................................................................................................ 727 

Recalls.................................................................................................... 447, 659, 734 

Reporting Foodborne Illness ............................................................................ 448 


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vii 

Food Safety and Inspection Service—Continued 

Retail Distribution Lists .............................................................. 438, 441, 442, 469 

Retail List Rule ................................................................................................. 728 

Retail Rule ........................................................................................................ 439 

Risk-Based Inspection .................................................................................. 451, 574 

Small and Very Small Plants .............................................................. 449, 698, 725 

Small Producers, Protecting................................................................................. 734 

State Inspection ............................................................................................ 447, 653 

Surveillance/Increased Inspection Activities .................................................. 457 

Tests .................................................................................................................. 671 

TOPPS Recall .................................................................................................... 571 

Trade Issues ...................................................................................................... 646 

Training and Inspection Coverage .................................................................. 457 

United Food Group Recall ............................................................................... 587 

User Fees....................................................................................................... 453, 717 

Veterinary Loan Repayment Program ............................................................ 447 

Worker Safety ................................................................................................... 576 

Written Statement, Alfred V. Almanza, Administrator, FSIS ...................... 401 

Written Statement, Dr. Richard A. Raymond, Under Secretary for Food 

Safety ............................................................................................................. 369 

Farm and Foreign Agricultural Services ....................................................... 739 

Administrative Expenses ................................................................................. 829 

Administrative Support ................................................................................... 772 

Agricultural Knowledge Initiative with India ................................................ 837 

Agricultural Trade Offices ............................................................................... 840 

Bi-national Agricultural Research and Development Fund (BARD) ............ 842 

Buyout Authority .............................................................................................. 846 

China ................................................................................................................. 846 

Cochran Fellowship Program .......................................................................... 846 

Commodity Credit Corporation.................................................................... 747, 766 

Compliance Activities ....................................................................................... 804 

Conferences ....................................................................................................... 849 

Conservation Programs .................................................................................... 748 

Conservation Reserve Program ....................................................................... 767 

Continuing Resolution, FSA Operations Under ............................................. 813 

Crop Insurance.............................................................................................. 813, 819 

Dairy Export Incentive Program ................................................................. 792, 853 

Dairy Indemnity Program ................................................................................ 771 

Disaster Assistance .......................................................................................... 763 

Emergency Conservation Program .................................................................. 770 

Emerging Markets Program ............................................................................ 853 

Employee Management Retreats .................................................................... 854 

Export Enhancement Program ........................................................................ 855 

Export Incentive Program ................................................................................ 887 

Export Promotion and Market Development Programs .................... 758, 790, 854 

Facilities Guarantee Program ......................................................................... 855 

Farm Bill Conference ....................................................................................... 824 

Farm Bill Implementation Costs ..................................................................... 824 

Farm Loan Programs.................................................................................... 748, 768 

Farm Program Delivery ................................................................................... 817 

FCIC Fund ........................................................................................................ 796 

Federal/State Loss Adjuster Licensing and Rebating Enforcement Initiatives ................................................................................................................ 802 

Food Air Cost Increases ................................................................................... 809 

Food For Progress ............................................................................................. 898 


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Farm and Foreign Agricultural Services—Continued 

Food Shows ....................................................................................................... 856 

Foreign Agricultural Service ........................................................................... 753 

Foreign Market Development .......................................................................... 859 

Grassroots Source Water Protection Program ............................................... 771 

GSM Program ................................................................................................... 904 

Harvesting Pine Straw on CRP Acres ............................................................ 818 

Information Technology, FSA .......................................................................... 806 

Information Technology........................................................................ 750, 761, 797 

International Food Assistance ............................................................. 755, 791, 810 

Language Training ........................................................................................... 883 

Livestock Gross Margin (LGM) ....................................................................... 802 

Livestock Risk Protection (LRP) ..................................................................... 801 

Market Access Compliance .............................................................................. 883 

Market Access Program (MAP) ....................................................................... 884 

McGovern-Dole ................................................................................................. 888 

National Agriculture Imagery Program .......................................................... 825 

Office of Capacity Building and Development ............................................... 880 

Opening Statement, Mark E. Keenum ........................................................... 740 

Overseas Offices............................................................................................ 837, 888 

P.L. 480.......................................................................................................... 811, 891 

Pasture, Rangeland, and Forage Pilot Programs ........................................... 801 

Performance and Accountability ..................................................................... 762 

Provincial Reconstruction Teams .................................................................... 899 

Quality Samples Program ................................................................................ 900 

Questions Submitted by Chairwoman DeLauro ............................................ 829 

Reconstruction in Afghanistan and Iraq..................................................... 757, 792 

Remote Sensing ................................................................................................ 880 

Risk Management Agency ............................................................................... 749 

Risk Management Education and Outreach .................................................. 803 

Salaries and Expenses.................................................................................. 747, 754 

Sanitary and Phytosanitary (SPS) Issues................................................... 778, 903 

Section 416(b) .................................................................................................... 904 

State Mediation Grants .................................................................................... 770 

Stocks-for-Food Initiative..................................................................... 765, 810, 821 

Technical Assistance..................................................................................... 777, 910 

Tobacco Transition Payment Program ............................................................ 764 

Trade Capacity Building .................................................................................. 912 

Trade Development .......................................................................................... 776 

USDA Reorganization ...................................................................................... 815 

USTR and USAID ............................................................................................ 913 

World Food Supply ........................................................................................... 820 

Written Statement, Teresa C. Lasseter, Administrator, Farm Service 

Agency ............................................................................................................ 760 

Written Statement, Eldon Gould, Administrator, Risk Management Agency .................................................................................................................... 793 

Written Statement, Mark E. Keenum, Under Secretary for Farm and 

Foreign Agricultural Services ...................................................................... 743 

Written Statement, Michael W. Yost, Administrator, Foreign Agricultural 

Service ............................................................................................................ 774 

Commodity Futures Trading Commission ..................................................... 915 

Bilateral Trades ................................................................................................ 937 

Biofuels .............................................................................................................. 950 

Consolidation of the SEC and CFTC .............................................................. 1046 

Cotton Market ................................................................................................... 939 


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Commodity Futures Trading Commission—Continued 

Credit Access ..................................................................................................... 1052 

Effect of Drilling on Gas Prices ....................................................................... 949 

Enron Loophole ........................................................................................... 938, 1040 

Exxon Mobil ...................................................................................................... 952 

Funds’ Impact on Commodity Prices .............................................................. 952 

Futures Markets ............................................................................................... 942 

Hoarding ...................................................................................................... 949, 1053 

ICE ..................................................................................................................... 1054 

Index Trading ................................................................................................... 955 

London Loophole Problem ................................................................................ 948 

No-Action Letters ............................................................................................. 1050 

Offshore Drilling ............................................................................................... 936 

Oil Futures ........................................................................................................ 1048 

Oil Speculation............................................................................................ 946, 1045 

Opening Statement, Johnathan Short ............................................................ 1026 

Opening Statement, Mark Cooper .................................................................. 971 

Opening Statement, Michael Greenberger ..................................................... 999 

Opening Statement, Ranking Member Kingston ........................................... 917 

Opening Statement, Tom Devine .................................................................... 959 

Opening Statement, Walter Lukken ............................................................... 920 

Price Discovery Process .................................................................................... 946 

Price of Carbon ................................................................................................. 937 

Price of Oil........................................................................................... 935, 944, 1045 

Regulation of Securities and Commodities ..................................................... 940 

Speculation in the Energy Markets ................................................................ 1058 

Statistical Analysis Personnel ......................................................................... 951 

Swaps ................................................................................................................. 956 

Written Statement, Johnathan Short, IntercontinentalExchange, Inc ........ 1029 

Written Statement, Mark Cooper, Consumer Federation of America .......... 973 

Written Statement, Michael Greenberger, University of Maryland School 

of Law ............................................................................................................ 1001 

Written Statement, Tom Devine, Independent Connecticut Petroleum Association ......................................................................................................... 963 

Written Statement, Walter Lukken, Acting Chairman, CFTC ..................... 923 

Farm Credit Administration ............................................................................. 1063 

Corporate Activities .......................................................................................... 1066 

Farm Credit System, Condition of .................................................................. 1067 

Federal Agricultural Mortgage Corporation ................................................... 1067 

Regulatory Activity ........................................................................................... 1065 

Written Statement, Nancy C. Pellett, Chairman and CEO, Farm Credit 

Administration .............................................................................................. 1063 

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