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[Senate Hearing 106-936]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 106-936

                    U.S. AGRICULTURE EXPORT PROGRAMS

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

                                HEARING

                               before the

                      SUBCOMMITTEE ON PRODUCTION,
                       AND PRICE COMPETITIVENESS,
                                 OF THE
                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   ON

                    U.S. AGRICULTURE EXPORT PROGRAMS

                               __________

                             JULY 18, 2000

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry

                   U.S. GOVERNMENT PRINTING OFFICE
70-092                     WASHINGTON : 2001

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

                  RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina          TOM HARKIN, Iowa
THAD COCHRAN, Mississippi            PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia              THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas                  MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois        J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa            TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho                BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania

                       Keith Luse, Staff Director

                    David L. Johnson, Chief Counsel

                      Robert E. Sturm, Chief Clerk

            Mark Halverson, Staff Director for the Minority

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing:

Tuesday, July 18, 2000, U.S. Agriculture Export Programs.........     1

Appendix:
Tuesday, July 18, 2000...........................................    55
Document(s) submitted for the record:
Tuesday, July 18, 2000...........................................   125

                              ----------                              

                         Tuesday, July 18, 2000
                    STATEMENTS PRESENTED BY SENATORS

Roberts, Hon. Pat, a U.S. Senator from Kansas, Chairman, 
  Subcommittee on Production and Price Competitiveness, of the 
  Committee on Agriculture, Nutrition, and Forestry..............     1
Kerrey, Hon. J. Robert, a U.S. Senator from Nebraska.............     3
                              ----------                              

                               WITNESSES
                                PANEL I

Timothy J. Galvin, Administrator, Foreign Agriculture Service, 
  U.S. Department of Agriculture, Washington, D.C................     5
Parmer, Hugh, Assitant Administrator, Bureau for Humanitarian 
  Response, U.S. Agency for International Development, 
  Washington, DC.................................................     7
Viadero, Roger, Inspector General, U.S. Department of 
  Agriculture, Washington, DC., accompanied by James R. Ebbitt, 
  Assistant Inspector General for Audits, U.S. Department of 
  Agriculture, Washington, DC....................................     9

                                PANEL II

Cavanaugh, John, Chairman and CEO, Summit Limited, Omaha, 
  Nebraska.......................................................    31
Curtis, Marc, Chairman of the Board, American Soybean 
  Association, Leland, Mississippi...............................    46
Griffith, Bill, U.S. Rice Producers Association, Bolivar County, 
  Mississippi....................................................    50
Hamnes, Bruce, National Association of Wheat Growers, Stephen, 
  Minnesota......................................................    44
Levinson, Ellen, Government Relations Advisor, Cadwalader, 
  Wickersham, and Taft, Executive Director, Coalition for Food 
  Aid, Washington, DC............................................    33
Molz, Otis H., Chairman of the Board, CoBank, Deerfield, Kansas..    28
Pine, Roger, Chairman of the Board, National Corn Growers 
  Association, Lawrence, Kansas..................................    48
                              ----------                              

                                APPENDIX

Prepared Statements:
    Cavanaugh, John..............................................    89
    Curtis, Marc.................................................   111
    Galvin, Timothy J............................................    56
    Griffith, Bill...............................................   120
    Hames, Bruce.................................................   104
    Levinson, Ellen..............................................    95
    Molz, Otis H.................................................    85
    Parmer, Hugh.................................................    63
    Pine, Roger..................................................   116
    Viadero, Roger...............................................    71
Document(s) submitted for the record:
    Position statement submitted by The Coalition to Promote U.S. 
      Agriculture Exports........................................   126
    Position statement submitted by The USA Rice Federation......   130
    Position statement submitted by, John H. Costello, on behalf 
      of the Citizens Network for Foreign Affairs................   134

 
                    U.S. AGRICULTURE EXPORT PROGRAMS

                              ----------                              

                         TUESDAY, JULY 18, 2000

                                       U.S. Senate,
  Subcommittee on Production and Price Competitiveness, of 
     the Committee on Agriculture, Nutrition, and Forestry,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:44 p.m., in 
room SR-328A, Russell Senate Office Building, Hon. Pat Roberts, 
(Chairman of the Subcommittee,) presiding.
    Present or submitting a statement: Senators Roberts and 
Kerrey.

  OPENING STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM 
    KANSAS, CHAIRMAN, SUBCOMMITTEE ON PRODUCTION AND PRICE 
 COMPETITIVENESS, OF THE COMMITTEE ON AGRICULTURE, NUTRITION, 
                          AND FORESTRY

    The Chairman. Good afternoon, and welcome to today's 
hearing. This is the Subcommittee on Production and Price 
Competitiveness, and we have a hearing today on the export 
programs we have available to us within the Department of 
Agriculture.
    Let me say that by creating jobs and providing very needed 
income to rural America, our U.S. agriculture exports will 
always be an integral part of a strong national economy. If you 
consider that 1 out of every 3-harvested-acres in America is 
exported, and over 25-percent of the Nation's farm income is 
generated by foreign trade, maintaining a strong and aggressive 
trade policy remains one of the Government's most vital roles 
for the farming community and for all of our citizens.
    I think everyone involved in American agriculture is 
interested not only in feeding the people of this country, but 
the malnourished and the hungry of the world, and establishing 
new markets and hopefully increasing America's agricultural 
market share. This hearing should help us examine the current 
trade programs and pinpoint our strengths, as well as areas 
that would need improvement, as we move into the development of 
the new farm bill.
    With international discussions underway to ensure free 
trade in the world marketplace, the United States has the 
weapons in its trade arsenal, if I could refer to it in that 
way, that effectively help farmers move commodity surpluses 
abroad, meet the international nutrition needs, and develop new 
markets without distorting a free trade atmosphere. That is a 
tall bill, but it is a bill that we hope that we can 
accomplish.
    In particular, food aid and credit guarantee programs 
remain a cornerstone of our agricultural trade policy. 
Unfortunately, these programs have unfairly been subject to 
substantial scrutiny in the international arena. We need to 
fight to preserve these programs. At the same time, we must 
make every effort to ensure these programs do not displace any 
commercial sales that would otherwise take place.
    As other countries continue to use their export subsidies 
and other very questionable trading practices, it is especially 
important that the United States effectively utilize the tools 
at our disposal, while working to achieve the ultimate goal of 
free trade.
    As we move into the 21st century and strive to stay 
competitive in a changing world market, the credit guarantee 
and food aid programs can be better used to be even stronger. 
Considerable concerns with the programs still exist in the 
areas of monitoring and interagency conflicts, the ever-
present. Bureaucracy, and full implementation. Improvements 
should be made.
    For example, opening new markets for our Nation's farmers 
does little good if the Government is unwilling to use our 
credit programs to facilitate a commodity's introduction into 
these foreign markets. In addition, the same bureaucratic 
hurdles that I mentioned have severely slowed this year's 
delivery of food aid to countries in need of relief. This hold-
up is especially counterproductive to our overall trade 
objectives because countries that receive food aid will 
eventually become trading partners once they are able in terms 
of their own economics.
    Let me inform the panel and all present I just returned 
from Cuba, where I took part in a 10-hour meeting with Fidel 
Castro, and probably about a 12-hour meeting with 6-various-
ministers. And I must tell you that many of these concerns, I 
think, apply to the situation in regard to Cuba.
    I believe that we must achieve real sanctions reform that 
will work. However, as far as Cuba is concerned, and to some 
degree with the nations of concern that also are affected in 
regard to sanctions reform legislation, I must tell you that 
our goal should be for a long-term market. But I don't think 
that we are going to have any short-term gold mine as far as 
sales are concerned.
    Simply put, the country of Cuba does not have the cash to 
purchase U.S. products. The economy must be allowed to open up 
and expand before these commercial sales can take place. As a 
matter of fact, in talking to Fidel Castro, we really pressed 
very hard to try to see if we could not get what I call a 
breakthrough arrangement, a breakthrough sale, to empower the 
Cuban people to enable them to have the means to trade with us, 
as opposed to the state-owned enterprises, where we always seem 
to find the hurdles.
    In the interim, we must find ways to provide insurance for 
private financing, use our general sales manager [GSM] credits, 
and pursue food aid donations. However, I am concerned that the 
sanctions language that is proposed in the House--and I am 
referring to the nations of concern and Cuba--will tie our 
hands in this regard, and I look forward to discussing this 
issue with Mr. Galvin, who has had a long and valued experience 
in these matters.
    In addition, I learned on my trip to Cuba that last year 
the European Union made $255 million in agricultural sales to 
Cuba under financing programs with 22-percent interest. Cuba 
has not and most likely will not repay this principal or 
interest. This is, in essence, a $255 million export subsidy 
that the European Union is providing to its farmers. I also 
look forward to asking Mr. Galvin to comment on how the U.S. 
can compete with these kinds of subsidies, and to also discuss 
how we can address issues such as these in our World Trade 
Organization [WTO] negotiations.
    So with those issues in mind, I welcome today's guests. 
Because of the magnitude of this issue and its importance to 
U.S. agriculture, let me point out that a number of 
organizations have expressed a desire to offer testimony before 
the Subcommittee. But, unfortunately, time constraints will not 
allow us to hear from all the concerned parties, so at this 
time I will submit their testimony into the record.
    I would like to remind the panelists that your entire 
testimony will be submitted for the record, and ask that you 
limit your statements to no more than 5-minutes, if that is 
possible, so that everybody has ample time to be heard.
    We have an outstanding panel in regard to panel number one: 
Mr. Timothy J. Galvin, the Administrator of the Foreign 
Agricultural Service within the Department of Agriculture. Tim 
and I go back a long way; we are sort of bucket-toters in 
regard to Capitol Hill experience both on the House side and 
the Senate side.
    We have Mr. Hugh Parmer, the Assistant Administrator for 
the Bureau of Humanitarian Response within the United States 
Agency for International Development.
    We have Mr. Roger Viadero, the Inspector General of the 
Department of Agriculture. Let me say something in regard to 
the Inspector General. Back about 4-years ago when we were 
trying to basically streamline and save the Food Stamp program 
to make it better, Mr. Viadero worked very long and hard on 
this issue. He saved the American taxpayer literally billions 
of dollars.
    His efforts made it possible for us to keep the program, to 
eliminate the fraud and abuse. So for the people who receive 
food stamps and the people who are involved in the program and 
the long-suffering taxpayer, he did an outstanding job. I 
wanted to go on record to thank you again for that, Roger, and 
welcome you to the panel.
    I now turn to my distinguished colleague, the Senator from 
Nebraska, for any comments that he would like to make.

    STATEMENT OF HON. J. ROBERT KERREY, A U.S. SENATOR FROM 
                            NEBRASKA

    Senator Kerrey. Well, thank you very much, Mr. Chairman. 
First of all, I welcome the witnesses, and appreciate very much 
everybody willing to come, especially Mr. Galvin and John 
Cavanaugh, who will testify with a later group of people.
    Unfortunately, at least as I look at the appropriations 
this year, we have, in my view--though I think the 
administration has done a good job in promoting exports, it is 
relatively easy for us to take our eye off the ball and to get 
distracted and to look for some magical solution to solving our 
problems.
    It is perfectly legitimate for us to be arguing about this 
farm program versus that farm program. I have done a fair 
amount of that in the last 12-years that I have been here in 
the Senate. But regardless of what kind of farm program we have 
got, we have got to continue to work to expand our export 
markets, for a whole range of reasons, for humanitarian 
reasons, for economic reasons, for reasons of political 
stability, especially in Russia that is engaged in the most 
important democratic experiment on the planet.
    If that experiment is successful, there is no question in 
my mind that there will be enormous benefits that will accrue 
to the United States as a consequence of that success. So we 
have a stake in every single case to successfully transitioning 
to a market economy and to a liberal democracy, being able to 
successfully figure out the things that the United States has 
done to develop productive agriculture, and there is a whole 
range of things that we have done.
    However, again, I have got to emphasize, Mr. Chairman, 
there is a tendency especially, I think, on the congressional 
side to forget that we have got to support this export effort. 
I know that in our Ag appropriations bill, we have a sufficient 
amount of money to prevent further downsizing of the FAS. We 
downsized six Foreign Ag Service offices around the world, 
including Tokyo, which Nebraskans consider a very prime market 
for our beef, and obviously a very, very important part of our 
capacity to be able to support about 100,000 jobs in the State 
of Nebraska that are involved with beef in one way, shape, or 
form.
    Ag approps on the Senate side has a $4.2 million increase; 
the House has nothing. Ag approps also has, I think, $1.1 
billion of emergency spending. I don't know what the Republican 
caucus talked about, but one of the things we talked about in 
our caucus is some of our guys are already talking about 
another ad hoc disaster program, which Bev Paul is morally 
opposed to, she tells me, who works for me.
    But we could be knocking on the door, Mr. Chairman, of 
spending $40 billion direct, and I think we have got to balance 
those expenditures with more direct expenditures, trying not 
just to promote and to move exports through the export 
enhancement program and other export efforts, but through the 
P.L. 480 Food for Peace program and other efforts like that.
    There are very few situations where we have an intersection 
of things that are in our economic interest and our moral 
interest and in our interest in trying to promote political 
stability throughout the world as there is in the promotion of 
good export policies.
    So I appreciate very much, Mr. Chairman, your holding these 
hearings because I think we have to expand beyond what we are 
currently doing our support for export policies, at the same 
time that we continue to ask those who are engaged either on 
the Government side or on the private sector side, how do we do 
this better, how do we do this so that it does reduce worldwide 
suffering, how do we do this so it does promote the development 
of private sector agriculture, how do we do it so that it does 
promote the values and the interests that the United States of 
America hopes to be promoting through these policies.
    So I look forward to the testimony of the witnesses.
    The Chairman. I thank my distinguished colleague. I would 
only add that my predecessor in the House used to have a saying 
that in western Kansas, similar to western Nebraska, if you 
don't sell it, you smell it, and the taxpayer has certainly 
done that to a great degree.
    It was just about 2-weeks ago I was in the constant 
listening that we do to our farmers and ranchers, and he said, 
Pat, you know, it is about time we took a gun to a gun fight. 
And he was referring to the competition that we have overseas. 
I think there is a belief on the part of many in agriculture 
that we certainly need to improve, to have an export program 
that is more consistent, more aggressive.
    I am not trying to question the ability or the record of 
any of our panel here, but I think it is obvious what we face. 
Let me point out that Mr. Galvin used to work for a Congressman 
by the name of Berkley Bedell, and Berkley Bedell and I 
attended the first meeting of the export enhancement program, 
when we thought it was going to move product, but then it 
became sort of a--I am not sure what it became, sort of a 
foreign policy, I guess, jump ball, and they had a working 
group trying to figure out where we could apply this.
    I would also point out the Public Law 480 program, the Food 
for Peace program, which has been such an outstanding program 
for so many years, was first written by the Honorable Cliff 
Hope, who was a Congressman from the 1st District of Kansas, 
and we need to build on that.
    I thank my friend for his comments.
    Let's start with you, Tim. Thank you so much.

    STATEMENT OF TIMOTHY J. GALVIN, ADMINISTRATOR, FOREIGN 
     AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE, 
                        WASHINGTON, DC.

    Mr. Galvin. Thank you, Mr. Chairman, and Senator Kerrey. It 
is a real pleasure to be before the Subcommittee this afternoon 
to review the export and market development programs for U.S. 
agriculture.
    I would like to ask that my full statement be made a part 
of the record.
    The Chairman. Without objection.
    Mr. Galvin. After three straight years of decline, we now 
expect that U.S. agricultural exports will reach $50 billion 
for fiscal year 2000, up $1 billion from last year. While 
export values remain below the peak of 1996, demand is 
expanding more rapidly than anticipated. In 2000, the world 
economy is expected to return to a growth rate rivaling the 
high recorded in 1996. So while the forecast is far short of 
the $60 billion recorded in 1996, it shows that U.S. exports 
are turning around and once again moving in the right 
direction.
    The fact that export volume actually increased by more than 
15-percent last year, even as export value fell, confirms that 
one of the major factors suppressing the export outlook has 
been the recent string of worldwide production increases for 
major commodities. We have now seen four, going on five, 
straight years of record or near-record production for grains 
and oilseeds, and the result is being felt in our export values 
and certainly at the farm gate. A rather strong U.S. dollar has 
also hindered our foreign sales, as have economic crises in 
Asia, Russia, Brazil, and elsewhere, although they seem to be 
abating.
    The staff at USDA, including the Foreign Agricultural 
Service, has been working hard to bring about and sustain the 
current upturn. Through our broad array of export programs, 
including the market access program, the foreign market 
development programs, the dairy export incentive program, our 
food aid and export credit guarantee programs, we have been 
very aggressive in using our authorities to increase exports 
and help our farmers and ranchers earn a better income from the 
marketplace.
    To illustrate the extent of our efforts to support U.S. 
agricultural exports, I would like to take a few moments to 
highlight activities under our export credit guarantee and food 
aid programs.
    Over the past 2-years, export credit guarantee programs 
have supported sales of more than $7 billion in U.S. 
agricultural products. For FY 2000 to date, we have announced 
the availability of more than $5 billion in export credit 
guarantees for sales to countries where lack of credit might 
otherwise present a barrier to sales.
    Last year, USDA used its food aid programs to move nearly 
8-million metric tons of farm surpluses to help relieve hunger 
abroad. This was the largest quantity in recent history and it 
is in addition to the quantities provided by our friends at 
AID. U.S. commodities were shipped to 50 countries, from the 
unprecedented assistance package for Russia, to food for Kosovo 
refugees, famine victims in Africa and North Korea, and 
hurricane victims in Central America and the Caribbean. Once 
again this year, USDA will donate significant amounts of food 
aid to needy countries, including about 5.4-million-tons-of-
wheat, rice, soybean products, and milk powder, and again this 
is in addition to what AID provides.
    We are also working to improve long-term opportunities for 
our farmers and ranchers. Last year, the President announced 
sweeping sanction reforms that open new markets to U.S. 
agricultural exports. Despite continuing sanctions on most 
other products, American farmers and ranchers are now able to 
sell their commodities to Iran, Libya, Sudan, and North Korea. 
Already, there have been corn sales to Iran, wheat sales to 
Sudan and Libya, and wheat donations to North Korea through the 
World Food Program.
    During this past year, USDA also helped to reach two major 
trade agreements with China. The agreement on U.S.-China 
agricultural cooperation resulted in sales of U.S. meat, 
citrus, and wheat. USDA also helped negotiate the U.S.-China 
WTO accession agreement, which offers major long-term benefits 
for U.S. agriculture. We understand that the Senate has a full 
agenda, but we are very hopeful that a vote can occur on 
granting permanent normal trade relations to China in the 
immediate future. This is an opportunity for our farmers and 
ranchers that we must not let slip away.
    Three weeks ago, the United States presented an ambitious, 
comprehensive negotiating proposal for the next round of WTO 
agricultural talks. It establishes a blueprint for meeting the 
goals we have been talking about for more than a year--
eliminating export subsidies, lowering tariffs and expanding 
TRQs, disciplining state trading enterprises, and facilitating 
trade in products of new technologies such as biotechnology.
    It also seeks to cap trade-distorting domestic support at 
an equal, fixed percentage of a country's total value of 
agricultural production. If we have heard one thing from U.S. 
producers over the past several years, it is that we must level 
the playing field by avoiding further across-the-board 
percentage cuts that leave our farmers at a disadvantage.
    With our new WTO proposal, the U.S. is very much in a 
leadership position in Geneva. In the months ahead, we will 
continue to work closely with our farmers, ranchers, 
processors, Congress, and our private sector advisory 
committees to refine our negotiating proposal further. The U.S. 
has proposed concluding the negotiations by the end of 2002 and 
reaching agreement on the fundamentals of further reform by the 
mid-term of the negotiations.
    As USDA moves ahead with these efforts, we face many 
challenges. For example, we must continue to do more with less, 
as resources for administering our export market development 
programs have not increased. If the U.S. is going to be 
competitive, especially as nations compete for access to 
markets opening in China, Vietnam, and elsewhere, we will need 
to redouble our efforts.
    Mr. Chairman, that concludes my statement and I would be 
happy to answer any questions.
    [The prepared statement of Mr. Galvin can be found in the 
appendix on page 56.]
    The Chairman. We thank you, Tim.
    Mr. Parmer.

 STATEMENT OF HUGH PARMER, ASSISTANT ADMINISTRATOR, BUREAU FOR 
     HUMANITARIAN RESPONSE, U.S. AGENCY FOR INTERNATIONAL 
                  DEVELOPMENT, WASHINGTON, DC.

    Mr. Parmer. Thank you very much, Mr. Chairman, and I also 
would like to have my written remarks submitted to the record, 
please.
    The Chairman. Without objection.
    Mr. Parmer. I had a brief prepared oral statement, Mr. 
Chairman, but in the course of your statement and Senator 
Kerrey's statement, you made the point about food aid leading 
to agricultural markets for American products. That was one of 
the major points of my oral statement. And then Senator Kerrey 
made the point about food aid representing a unique 
circumstance where our agricultural economic interests and our 
humanitarian ethic meet. And so I am left with very little in 
terms of an oral statement.
    I would like to take the opportunity, if I could, to put 
just briefly a human face for you on food aid as I have seen it 
in the 2 \1/2\ years that I have been in this role. One of the 
first things I think we all have to recognize is that the bulk 
of United States humanitarian assistance around the world is 
food assistance. It is the point of the lance of the U.S. 
capability in responding to humanitarian disasters, whether 
they be man-made or natural.
    I remember, Mr. Chairman, when I was in Kosovo the first 
time, which was in September of 1998, and I was in a truck 
delivering United States food aid to people who had been driven 
from their homes by Serbian paramilitary and police forces. We 
were way up in the mountains 1-day and I came upon a group of 
people. There were 5-little-huts in the village and they were 
250 people trying to live there, drinking water out of a 
polluted stream.
    As I spoke with them through my translator, one of the 
people as we handed out some United States food assistance 
said--I said, what else do you need? And they said, we need 
peace. And I said, well, I can't bring peace; I bring food. 
That is a matter for diplomats and perhaps soldiers. And the 
gentleman to my left said something and my translator said--I 
said, you have to pray for peace. And he said, we will pray for 
peace; we will put our faith in God and the United States of 
America.
    In the mountains of the Dominican Republic during Hurricane 
George, by United States Blackhawk helicopters accompanied by 
special forces soldiers, we were delivering United States food 
aid to people who had been cut off for over a week. And because 
we were fearful that people would rush the helicopter in their 
need for some sustenance, we had taken the local bishop along 
with us, and he and I were out in our shirt sleeves passing out 
50-pound-bags that said ``a gift of the people of the United 
States.'' An elderly woman as we finished grabbed me by the arm 
and said something. Well, I think I speak Spanish, but I did 
not understand her, and I turned to the bishop and he said, she 
said God bless America.
    Finally, I was back in Kosovo after the war with a member 
of the United States Congress and we were traveling, again, 
looking at the aftermath and we met with a gentleman whose 
family was living under a tent. I said, this is really bad, 
maybe I could find you a place in town. He said to me, this is 
not so bad, we lived in the mountains and we lived on leaves 
and grass last winter, but now we are here and we are safe and 
we are alive.
    And I said, well, are you sure you don't want to go to 
town? He said, no, I can't, I would have to leave what you gave 
me. And he opened the tent to show me those bags of food that 
said ``gift of the people of the United States,'' and he said, 
you know, we have enough and we are safe. And I said, and you 
are free. And then he cried and I cried, and then the Member of 
the United States Congress shed a few tears as well.
    So I appreciate the kind words you have said about the Food 
for Peace program. I think it is one of the most marvelous 
programs that I have an opportunity to administer, in what is 
the best job in Government, I think. I think you all know that 
we get a little over $800 million of appropriations; we have 
for the last few years. Over 70-percent of that is spent right 
here in the United States with agricultural producers and 
transporters and private voluntary organizations here in the 
United States.
    This need for food internationally is not going to go down. 
The population in these low-income countries, particularly with 
the AIDS problem as severe as it is--AIDS strikes generally 
those people who are in the most productive age ranges, so 
agricultural production, we believe, is going to go down at the 
same time that the need for food in these countries and the 
ability to pay for that food is going to go up.
    I would urge the Congress, and I am very grateful to the 
Senate for fully enacting the requested appropriation of $837 
million for P.L. 480, Title II. Whatever influence you have 
with your colleagues across the way we would be deeply grateful 
for as well. That is nowhere near too much food. There are 800-
million-hungry-people in the world. That is a little over a 
buck apiece.
    So I would say to you we are grateful for the bipartisan 
support that Food for Peace has enjoyed. We look forward to 
continuing to work with the committee and the Congress. And I 
personally want to thank the Senate who confirmed me a few 
years ago for an opportunity to serve in what is really the 
best job in the U.S. Government.
    [The prepared statement of Mr. Parmer can be found in the 
appendix on page 63.]
    The Chairman Mr. Viadero, and he is ably accompanied by Mr. 
James Ebbitt, the Assistant Inspector General for Audit.

    STATEMENT OF ROGER C. VIADERO, INSPECTOR GENERAL, U.S. 
  DEPARTMENT OF AGRICULTURE, WASHINGTON, DC.; ACCOMPANIED BY 
 JAMES R. EBBITT, ASSISTANT INSPECTOR GENERAL FOR AUDITS, U.S. 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC.

    Mr. Viadero. Mr. Chairman and members of the Subcommittee, 
I appreciate the opportunity to be here today to testify about 
our work on the Department's food aid assistance programs. With 
me is James R. Ebbitt, Assistant Inspector General for Audit.
    I have a prepared statement, Mr. Chairman, which I would 
like to submit for the record and summarize here this 
afternoon.
    The Chairman. Without objection.
    Mr. Viadero. Thank you.
    Since 1994, the Office of Inspector General has been 
involved in evaluating various aspects of the Department's food 
aid assistance programs. We have evaluated and monitored almost 
$3 billion in food aid assistance in the newly independent 
states of the former Soviet Union; evaluated the Department's 
control over private voluntary organizations, or PVOs, in the 
Food for Progress program; and investigated several elaborate 
schemes to defraud the Department's export programs.
    Our reports identified that cooperating sponsors, both 
foreign governments and PVOs, did not always comply with their 
agreements. Also, the Department needed to better monitor these 
programs. I would like to note that the Department has 
implemented positive changes in response to many of our audit 
recommendations.
    Let me first highlight our work on the 1999 Russian food 
assistance agreements. In December of 1998, the Governments of 
the United States and Russia entered into agreements that 
provided over 3-million metric tons of commodities. The 
agreements' goals were to provide contributions to the Russian 
pension fund and to distribute food directly to the most needy 
groups in Russia. From the outset, we monitored FAS' efforts to 
minimize the potential misuse of the commodities.
    In February 1999, and as a result of our observations in 
Russia during May 1999, we made recommendations that included 
increasing the size and effectiveness of the on-site monitoring 
staff and verifying the financial integrity of private Russian 
institutions that would handle monetized proceeds. We believe 
that FAS made a significant effort to establish controls and 
strengthen its monitoring efforts.
    Let me now focus on the Department's actions to address our 
concerns. These concerns fall into two categories. First, 
cooperating sponsors did not always comply with agreements. 
Second, the Department needed to strengthen its management 
controls over these programs.
    In the first category, we found that cooperating sponsors 
did not always comply with their agreements because they did 
not file required reports, follow monetization requirements, 
and effectively control the commodities they received. In 1994, 
we first reported that because reports were not filed, the 
Department had no reasonable assurance that more than $99 
million in donated commodities were properly used.
    In 1994, we also reported that sponsors did not follow 
monetization requirements because they abdicated their control 
and violated the agreements. In 1994, we first reported that 
cooperating sponsors did not effectively control the 
commodities they received. As an example, a sponsor's control 
did not prevent the unauthorized diversion of almost 2,000 
metric tons of donated butter valued at in excess of 
$2,800,000.
    For one case we investigated in 1995 involving vegetable 
oils, the U.S. company defrauded the program by failing to 
deliver 4,200,000 pounds of oil and diverting an additional 1 
million pounds of product. As a result of this scheme, the 
Department was defrauded of over $2 million in vegetable oil. 
This case represents one of the largest successful prosecutions 
involving Commodity Credit Corporation [CCC], contract fraud.
    Effective controls over the monetized proceeds derived from 
commodities are also essential--a weakness we reported in 1999. 
FAS officials recently informed us that their compliance staff 
would begin to monitor the use of monetized proceeds.
    As part of the second category of concerns, we found that 
management controls needed to be improved. In 1994, we reported 
that since effective management controls had not been 
instituted, the Department would be unable to recognize when 
commodities were at risk. The Department's improvements 
included publishing regulations and increasing oversight 
visits.
    During 1999, we reported that the Department had improved 
its monitoring of private voluntary organization activities. 
However, we found PVO reports were not timely reviewed. These 
reports were held up until the grant close-out reviews were 
performed, a process that was significantly backlogged. As of 
September of 1998, 130 of 185 agreements for fiscal years 1992 
through 1996 were in the process of being closed. In response 
to us, the Department developed a plan and time frame to 
eliminate this backlog and develop procedures to ensure that 
future reviews are timely performed.
    Now, what does FAS need to do to look to the future? If the 
Department authorizes greater use of monetization of 
commodities, we believe that FAS will need to be vigilant in 
monitoring that intended recipients receive the commodities and 
the monetized proceeds are used for the intended purposes. This 
means timely reporting by sponsors and timely review by FAS, as 
well as increased on-site presence by FAS where large programs 
are operating.
    Thank you for your kind comments at the opening of the 
hearing, Mr. Chairman. I would also extend an invitation on the 
very topic of food stamps, and particularly EBT. We are 
presenting testimony tomorrow before Mr. Kasich's committee in 
the House, and we would very much appreciate it if you would 
like to attend.
    Thank you so much.
    [The prepared statement of Mr. Viadero can be found in the 
appendix on page 71.]
    The Chairman. We always had to give Mr. Kasich a Ritalin 
pill when he started out. I don't know if you will want to do 
that or not, but thank you for your testimony.
    I think I will start with Mr. Galvin. Tim, I think you are 
aware that I recently visited Cuba, and I appreciated your 
advice and your suggestions prior to that with Senator Akaka 
and Senator Baucus. I think we have an opportunity. I am not 
very sanguine about this. I think long term we can make some 
progress, but short term we really have some problems, it seems 
to me, some complexities to work out.
    But my question is if you take up the complexity of the 
situation--I am going to put you on the spot here a little 
bit--would adopting the sanction removal language that is being 
discussed in the House of Representatives be sufficient to help 
our farmers really penetrate this market?
    And I will add on my second part of this. Does the 
administration prefer the House or Senate version of the Cuban 
sanction removal? Do you believe that it is important to retain 
the ability to feed the island's population through food aid 
programs or help our importers that are working to establish 
credit purchase in regard to U.S. commodities with export 
credits?
    Mr. Galvin. Thank you, Mr. Chairman. I think, given some of 
the constraints in the House language, we would find that the 
potential trade with Cuba would be very limited indeed. The 
prohibitions on government credit, private credit, that sort of 
thing, would, I think, vastly limit the potential, especially 
given, as you pointed out in your earlier comments, that the 
Cuban people themselves don't have much to trade in return. So 
their purchasing power is rather limited. In addition, as you 
pointed out, we certainly already face some competition in that 
country, given the presence of the EU and Canada and others.
    With regard to which legislation we prefer, I think the 
President has been very clear in his public statements that he 
wants to see us trade food and medicine with Cuba, as well as 
the other countries that we lifted sanctions against last year. 
He has indicated that he prefers the flexibility of the type 
offered by Senator Lugar in his earlier bill, and he and Deputy 
Treasury Secretary Eizenstat and others have indicated concerns 
about restraints on the President's authority in the House and 
even the original Senate bill, restraints in terms of the 60-
day notice period before any future sanctions could be imposed, 
as well as, again, the limits on credit, and that sort of 
thing.
    The Chairman. I appreciate your candid answer. This also 
applies to the other nations of concern. It not only applies to 
Cuba, if you have a major market like Iran where you are trying 
to achieve a breakthrough. And I know the administration is 
trying to do this on a case-by-case basis. I get calls about 
every week from Secretary Eizenstat and others within the State 
Department indicating some progress.
    It seems to me that if that bill would pass, we would take 
about one step forward in regard to, I guess, public attention, 
but maybe five steps back in our ability to actually make some 
progress. That is an editorial comment on my part.
    We have a lot of low commodity prices. We have come through 
some very depressed times in our markets. There is a concern 
that the large food aid shipments are displacing potential 
commercial markets. What effect has the food aid program had on 
world commodity prices, and what efforts does the USDA take in 
approving the food aid programs so that you do not displace the 
domestic markets or disrupt any free trade in the world 
marketplace?
    Mr. Galvin. We think there has been minimal impact in terms 
of displacement and a depressing effect on world prices. In 
fact, one of the reasons that it takes so long in some cases to 
provide this food aid and do the agreements that we have to 
reach with each of the 50-recipient-countries is that we have 
to go into each one of those countries each year and do an 
assessment of their own production, their own consumption, and 
then estimate what their commercial purchases might be absent 
any sort of food aid.
    So we have to go in and do a careful assessment and 
determine the so-called usual marketing requirements, and on 
that basis make a judgment as to how much food aid we could put 
in there without displacing commercial sales, without 
destroying the local incentive to produce, and that sort of 
thing. So we believe that we are very careful, and again this 
is one of the things that results in this taking a bit more 
time than we always want to see happen.
    Senator Kerrey. Could I just follow up on that line of 
questioning? The Chairman invited me to do this.
    You have raised a subject, it seems to me, that is critical 
to examine, and that is aid can have a negative impact. We see 
it here in the United States. I mean, there are all kinds of 
examples. The most recent one is we are urging USDA to allow 
haying and grazing on CRP land, and my alfalfa guys are nervous 
that, that could crop the market for alfalfa, which is not a 
program crop. So we see it all the time, and that is one 
concern, provide a subsidized sale into a Nation as a 
consequence of humanitarian concern that could hurt the market 
price for products in that country, decrease the profit for 
established growers and processors, and actually produce 
economic dislocation as a consequence. That is concern number 
one.
    Concern number two, which is an even larger one in some 
ways especially for emerging democracies and emerging market 
economies like Russia, where there is an argument going on 
inside the nation--the argument is the Government does it best, 
rather than having the market do it, so that the second concern 
is the assistance reinforces and strengthens preexisting 
government agencies as opposed to reinforcing and strengthening 
emerging individuals who are trying to survive in the 
marketplace.
    How do you assess that, and do you think that we have 
mechanisms in place that enable us to direct the aid in a 
fashion that increases the chances that the private sector in 
those nations will continue to strengthen and grow?
    Mr. Galvin. Well, it is a real balancing of interests, and 
sometimes that is very difficult. I believe the Subcommittee 
has a copy of the chart that we passed out showing how we 
really ramped up food aid from 1998 to 1999. A big part of that 
increase is represented by the food aid to Russia, which was a 
bit over 3-million-metric-tons in 1999. We had to make a 
judgment that much of it should go to the Government in the 
sense that they were best equipped to see that was distributed 
to the people in need.
    The Chairman. Can I challenge that, though?
    Mr. Galvin. Yes.
    The Chairman. Were they best equipped? Didn't they have a 
conflict of interest, in that they would prefer that the 
Government agencies stay strong relative to the private sector?
    Mr. Galvin. That is right, they do, and we would like to 
see more of it go to the private sector, more of it monetized. 
But as Mr. Viadero pointed out in his statement, when you go to 
monetize a commodity or to provide it to all these different 
private sector interests that have good ideas that are trying 
to change things, that just means that you are dealing with a 
whole lot more folks, and it takes a much larger administrative 
capability than we currently have to make sure it is done 
right.
    The Chairman. In fact, let me tie into what Mr. Viadero was 
saying. It seems to me that one of the things we have to be 
careful of doing is that in discovering evidence of fraud in 
transactions in the private sector, we don't want those 
fraudulent transactions, or shouldn't let those private 
transactions that are fraudulent spook us into doing more 
business with governments that might not look like they are 
fraudulent, but in fact might be just as fraudulent as what is 
going on in the private sector, especially in terms of the 
desire, it seems to me, that we ought to have on our part 
especially in Russia, but I would say everywhere. We ought to 
be trying to promote stable private sector economies, as 
opposed to stable government economies which are never very 
stable.
    Mr. Galvin. We most certainly want to do that.
    The Chairman. As we send Mr. Viadero out to do his good IG 
work, which we need to do because the taxpayers are concerned 
about how the money is being spent, do we have to be careful 
not to overreact to instances of private sector fraud and alter 
our policies in a fashion that may make it difficult for the 
private sector in those countries to develop?
    Mr. Galvin. I understand. All I can say is that it is an 
extreme challenge in the case of operating in Russia. That was 
why a decision was made last year that a lot of the proceeds 
that would follow from monetization would go into the Russian 
pension fund as opposed to being put in different sorts of 
agricultural development accounts, that sort of thing, just 
because of the concern about fraud and misuse. But we continue 
to be engaged with Russia, looking for opportunities to support 
the reform that is occurring there. Under Secretary Schumacher 
was in Russia on that point just about 10-days ago.
    The Chairman. Well, I would observe that just taking 
Russia, but I would do it with all countries, I would set some 
sort of objective goals that say, okay, here is the percent of 
the agricultural economy in Russia that is handled by the 
Government and here is how much of it we have in the private 
sector, and we have a goal of increasing the percentage of 
private sector agriculture, both production and processing, 
from whatever it is today to a higher number in 10-years or 5-
years, or whatever the number is.
    It puts some sort of benchmark out there to determine 
whether or not--and it is USAID as well, and it can be P.L. 
480, it can be Commerce Department programs. It seems to me 
that we ought to set some objective goals of increasing private 
sector activity because if we don't set those goals, we will 
never know whether or not we are achieving any progress.
    Mr. Galvin. Well, I can tell you that is certainly our 
objective in a number of countries, to try to encourage reform 
where we can, given the limits on our capabilities.
    The Chairman. It is those limits that I think are 
important, Tim. We don't want to ask for more reports from you, 
but I would hope that in your budget recommendations--and, of 
course, I know we are at a crossroads in regard to budget 
recommendations with the election coming up and a new 
administration coming on. But we will still be here. Well, I 
will still be here, at any rate, and you will in spirit, I 
know.
    Senator Kerrey. No, I won't.
    [Laughter.]
    The Chairman. Well, we will remember you. That is for sure.
    We are going to wrestle with this thing, and all the way 
through this you have been indicating ``with the personnel we 
have, with the resources we have.'' I have a lot of questions 
here for the Inspector General involving some things that I 
think are just incredible, and basically it is the lack of 
personnel, lack of funds, lack of adequate resources.
    It seems to me that if we are going to do the job, we at 
least ought to have--I am not saying it is a laundry list or a 
wish list, but we have to become much more aggressive. And so 
any help you could give us along those lines would be 
appreciated by the Subcommittee, and I know you will.
    I know you mentioned Secretary Schumacher's trip to Russia, 
and I think he just returned about a month ago. Was that 
basically to oversee the shipments of food aid, or is there a 
possibility of additional shipments? I know that the Russian 
crop--they have a shortfall.
    Mr. Galvin. He was there primarily to see how our current 
food aid effort is going, and he was pleased to note that we 
are ahead of schedule in terms of these payments into the 
pension fund that I mentioned. So we believe that things are 
going well. But he was also there to assess as best we could 
current needs in Russia, and I think he has talked about the 
obvious need for more feed grains and soybean meal if they hope 
to sustain, much less rebuild their livestock industry.
    The Chairman. Mr. Parmer indicated that USDA reported that 
800-million-people in the world are food-insecure. Boy, there 
is a PC word. They are hungry. Food-secure. Who the heck put 
that together? That is not my staff. Somebody must have written 
that.
    Each night, 300-million-children go to bed hungry. That 
puts it in stark numbers. Those numbers come from the Economic 
Research Service, and they publish a report on the world's food 
security each year. I think every member of the Senate and the 
House are in agreement this is a global problem. It can't be 
ignored. However, the FAS Deputy Administrator of Export 
Credits, Mary Chambliss, characterized this year's food aid 
program best at the Food Aid Forum just last month when she 
said one word summarized this year's program--late.
    My question is, if we all recognize the severity of the 
hunger situation and the understanding of the problem, why on 
Earth did it take over 6-months, after the beginning of this 
fiscal year, for the Department to announce the particulars of 
the food aid program? What role did interagency interaction 
play in this delay? What steps were taken to ensure that those 
nations in most need were not left without food while they were 
awaiting a decision, and what steps are being taken to make 
sure that such delays do not occur again next year?
    Tim, you knew we were going to ask the question, so if you 
would like to respond, we would be happy to have you.
    Mr. Galvin. Well, as you point out, there is an interagency 
process involved in making these decisions. Mr. Schumacher does 
chair the Interagency Food Aid Advisory panel that looks at all 
the recommendations in terms of allocations by country and that 
sort of thing. But in the end, what is agreed to is a consensus 
sort of view, and other agencies certainly have an opinion in 
that.
    All I can say is, yes, it does take a lot of time, 
including the kind of time I mentioned earlier to do these 
needs assessments in each country so that we can assure that 
the amount of food that is programmed is appropriate. But we 
are always looking for suggestions on how to improve the 
process. It certainly isn't perfect and we are open to 
recommendations.
    The Chairman. That might even be the topic of a separate 
hearing. I am reminded of Mr. Parmer's personal experience over 
and over again. I had the same experience in Kosovo. Senator 
Kerrey has been involved in this, where you look people in the 
eye and it is a little tough to explain that to somebody who is 
going through a real problem in terms of the delay.
    I sent a letter to President Clinton, along with the 
distinguished Chairman of the full committee, in regard to the 
Iranian market. In the past year, it seems to me that America 
sent 600,000-tons-of-corn, worth about $60 million, to Iran. We 
can certainly sell more to this important market.
    I make a speech in farm country that Iran purchased 6-
million-metric-tons--that is about half of the Nebraska wheat 
crop and one-third of the Kansas wheat crop--from our 
competitors. And we have tried very hard to use agriculture 
basically as a tool for peace, a tool for better understanding 
between our two countries. We know we have some other problems 
with Iran. 1.7-tons-of-wheat from Canada, worth about $200 
million--a member of my staff just came back from Canada and 
learned that Iran will most likely be Canada's number one 
customer again this year.
    I think it can be a very large market, especially for 
wheat, but we can't compete without some kind of foreign 
assistance. I would call it a subsidy or an investment. We need 
the tools at our disposal. The GSM program is not available to 
Iran. I talk to Secretary Eizenstat about every 2-weeks about 
this, and here again we are on a case-by-case basis, and I 
encourage that. I don't want to put in statute what is in the 
House language in regard to sanctions reform and say you can't 
use these. Then you have got 535 people horsing around with 
this in terms of trying to get an answer.
    The exporter today is in a swamp, or what I call export 
purgatory, to try to figure out where the heck we are. But we 
have this working group, and I would tell Senator Kerrey that 
about every second foggy night at Foggy Bottom I am trying to 
figure out where the working group is and will they allow the 
sale. Well, we are allowing pistachios and rugs to come into 
this country, and perhaps we can allow a sale and we are not 
quite sure with GSM yet, but maybe. And then, of course, a lot 
of that depends on the category of the country in regard to 
state terrorism and some of our national security concerns.
    I am not asking a question, I am making a speech, but 
basically does the Department have any plan to expand the 
export credit program's use around the world? You announced 18-
months ago that we were going to eliminate food and medicine 
from the sanctions. We are doing it on a case-by-case basis, 
but it is pretty slow. So, you know, can you give me an update?
    Mr. Galvin. Well, there are no current plans to allow GSM 
financing in those formerly sanctioned countries.
    The Chairman. Nations of concern.
    Mr. Galvin. Nations of concern.
    The Chairman. We don't call them rogue nations anymore; 
they are nations of concern.
    Mr. Galvin. That is right, and that is not simply a 
departmental decision. That is an administration position.
    The Chairman. Well, shucks.
    [Laughter.]
    We are just going to have to have meaningful dialogue there 
as best we can.
    Let me just follow on. The next question is if, in fact, 
our competitors are doing that, and they are--France, the 
European Union, Canada, Australia making those sales to those 
countries--it follows with the rhetoric that the President has 
made in regard to sanctions. What is the obstacle here? What 
can we do to push that on over?
    Mr. Galvin. Well, I think there are concerns that somehow 
this financing will directly benefit the Governments of these 
countries.
    The Chairman. It can only be used for food. I mean, you 
can't monetize it for something else. That is what the programs 
are for. We have designed those programs like that. That is 
what they are for.
    Mr. Galvin. I understand. I am just trying to convey what 
some of the concerns are.
    The Chairman. What can we do to compete with the unfair 
subsidies that the other countries are using to facilitate 
their Ag exports? Are our current policies and programs 
sufficient? That is a big-ticket item. You have been in this 
business a long time. There are a lot of complexities out 
there--nations of concern, the Cuba situation, the WTO. We have 
the GMO issue, we have almost every other issue I can think 
of--the value of the dollar, record crops, all sorts of things.
    Have you come up with any ideas, Tim, as to an improvement 
with the current programs that could tailor into what I 
consider to be an unfair advantage by our competitors?
    Mr. Galvin. Well, as I have pointed out, we are using GSM 
and food aid programs essentially at record levels, and 
certainly using the Section 416 program at virtually 
unprecedented levels. It was a big boost to wheat, for example, 
in 1999. If you again look at the chart, the big red bar there 
is about 6-million-tons-of-wheat that we programmed under food 
aid last year.
    We have some, I would call them rather minor 
recommendations for improving the operation of the 416 program 
and some of our other authorities. We provided that to the 
House at their hearing 3-weeks ago and we would be glad to 
provide those same recommendations to the Subcommittee if you 
would like.
    The Chairman. I have a great suggestion for you. You are 
going to like this, okay? I know the announcements are very 
difficult if you consider that the 416 program is dependent on 
the surpluses within the CCC, and the Department must wait for 
the final harvest numbers before any surplus projections are 
made.
    Let me tell you that last year researchers at Kansas State 
University, home of the ever-optimistic and fighting Wildcats, 
developed a remote sensing model, and it was 95-percent 
accurate in predicting the Iowa corn harvest by 2-months in 
advance of the actual harvest, even better than Senator 
Grassley. The Department of Agriculture did not get their final 
numbers until after harvest.
    Why couldn't you be better able to use technology like 
remote sensing to help speed up the process of determining the 
particulars of the Section 416 program?
    Mr. Galvin. Honestly, I don't feel that is a limitation on 
our operations right now. We clearly have plenty of 
commodities. We know that there is quite a bit more on the way. 
That is not the real constraint right now.
    The Chairman. Yes, but the announcements are made late in 
part because you have got to wait on those numbers. Is that not 
correct?
    Mr. Galvin. Well, I think the delay is more the result of 
the interagency process.
    The Chairman. Well, you know we are going to have surplus.
    Mr. Galvin. There is no question.
    The Chairman. Look at the corn carryover that we have got 
and the wheat carryover we have got. I mean, you know that is 
going to be the case.
    Mr. Galvin. Right.
    The Chairman. You have as much commodity as you want to use 
in any of the program crops.
    Mr. Galvin. Right, but I think the bigger problem is the 
fact that it takes a while to get a decision out of the 
interagency process, as you pointed out and as everybody 
understands. And even once that happens, then, and it comes 
back to FAS simply to administer the decisions made, we frankly 
face a situation where our budget has been frozen for 3-years 
now.
    And I know I just sound like a bureaucrat asking for more 
staff and more resources, but it is a fact that our agency 
appropriation has been frozen for 3-years now. As a result, we 
have lost staff. We have people operating with Pentium 90s that 
crash two and three times a day as they are trying to program 
all this data and get these agreements out the door, and it is 
just a real limitation on our----
    The Chairman. It is a real problem, and I think we should 
do something about that. I think we are penny-wise and pound-
foolish.
    Senator Kerrey. Let me follow on that. First of all, do you 
have suggestions on the interagency process? Do you think you 
are willing to share with us how to expedite that process? Do 
we need to consider, for example, changes in the law that would 
give FAS more authority, that would specify that we want the 
process to occur in ``x'' number of days? We are doing that all 
the time with export of technology products that are getting 
slower and slower and slower. We set a time limit on the 
process itself.
    Mr. Galvin. I might simply point out that I believe 
Congresswoman Kaptur is looking at just that sort of thing in 
the House and has a proposal along those lines.
    Senator Kerrey. So your answer would be, yes, that you have 
some ideas on how to expedite the process? I mean, is it 
uncomfortable for you to make those suggestions?
    Mr. Galvin. I can't speak on behalf of the administration 
on that point here today.
    Senator Kerrey. So we could go to the Old Ebbitt Grill and 
have a couple of beers and you would tell me what you think 
ought to be done?
    [Laughter.]
    Is that a yes?
    [Laughter.]
    On the budget thing, Tim, simultaneous with the freezing of 
the budget over the last 3-years, although, as I said, the 
Senate Ag appropriations has some additional resources for 
FAS----
    The Chairman. Yes, we have better numbers.
    Senator Kerrey. Simultaneous with that, what we are hearing 
from the private sector--and by the way, we will see votes just 
breeze through the Senate for ad hoc disaster assistance, 
another $6 billion for emergency this, emergency that. There is 
no trouble getting enough votes to do that.
    The Chairman. It sounds like you have been at the Old 
Ebbitt Grill here lately.
    Senator Kerrey. And we will get tied up in knots and have 
very close votes on market access promotion for $90 million.
    The Chairman. That is true.
    Senator Kerrey. I think the Congress really has to come to 
terms with this schizophrenia that it has got over agriculture 
programs and understand that no matter what you do, no matter 
how you slice this thing, I think relative to what we ought to 
be doing, we are spending too little to promote our exports. We 
just aren't doing it. You can't just put words in the air about 
it. We have got to actually do it, and if you don't do it, you 
are going to lose the market share. The markets get more and 
more and more competitive.
    One of the things that I hear is that we spend this money 
to open the market itself, although, again, to be clear, I 
think it is less than we ought to be doing. We could give more 
resources to the IG to make sure we are not wasting that money.
    Mr. Viadero. We would gratefully accept them, Senator.
    Senator Kerrey. But at some point, you know, you have got 
to put the money on the table to promote the market because it 
creates jobs in the United States. But at the same time that we 
are doing that, what I am hearing is either our own Government 
or increasingly foreign governments are putting new 
requirements on the exporters for labeling, for product 
registration, for certification, new national standards that 
are being put up.
    The companies are saying is FAS prepared to help us with 
this? And the answer has got to be no, because I hear you 
saying you have got to do more with less and you just can't do 
it. So it seems to me there is an urgency here to stop this 
game of starving FAS, on the one hand. On the other hand, the 
next statement we make, we kick you in the rear end for not 
doing more. I mean, you can't have it both ways.
    Again, this Ag appropriations bill is going to be a great 
example. We are going to have $1.1 billion of emergency 
assistance on that thing, while we are struggling to get 
another couple hundred million dollars for FAS. It is nuts. I 
mean, the priorities are wrong. I don't know whether it ought 
to be $10 or $20 million, or whatever the dollar amount ought 
to be, but something is out of whack here because to hear us 
talk, you would think we had doubled our bet on export 
promotion. To hear both Republicans and Democrats talk when it 
comes to agriculture, you look at the budget numbers and you 
think we would double it up, that we are just awash with cash. 
But we are not, just the opposite.
    Is that your experience? I mean, do you listen to us talk 
and sort of scratch your head and wonder whether or not we know 
what the hell we are talking about?
    The Chairman. We will hold you harmless on that.
    Mr. Galvin. Thank you.
    The Chairman. Or you can take the Fifth.
    Senator Kerrey. Or do you just scratch your head and wonder 
if I know what the hell I am talking about?
    The Chairman. You can take the Fifth Amendment, Tim, if you 
would like.
    Senator Kerrey. If we are going to hold on to market share 
and get more market share both in the raw products and I would 
say in the value-added--I mean, if you want to have a higher 
standard of living in the United States of America, it is the 
value-added you have got to follow, and we are just barely in 
the game in the value-added.
    Mr. Galvin. If you look at some of our major program tools 
in this area, the cooperator program, for example, has been 
frozen at $30 million basically for 10-years now. The MAP 
program is now down to $90 million; it used to be better than 
$200 million. This is what really moves the high-value 
products. It is an area where our competitors are clearly 
spending more, both by their governments as well as by their 
private sector.
    The Chairman. Let me interrupt you and just say we had to 
change the name to get the $90 million.
    Mr. Galvin. Right, I understand, yes.
    Senator Kerrey. So, anyway, your answer would be yes? I 
mean, your answer would be that you think that we are not 
spending enough money to promote exports in the United States 
of America, things that are either grown here or processed here 
in the United States?
    Mr. Galvin. I would point out that one of the 
recommendations from the administration in the last couple of 
years has been to allow us to use unused EEP balances each year 
for some of these other activities from food aid to other 
things.
    The Chairman. Would you say that if a company expects to 
get assistance from FAS to do some of the certification work, 
the registration work, the forms that are going to be required 
for labeling and national standards--if they expect the FAS to 
do it with the current budget instructions, that is an 
unreasonable expectation?
    Mr. Galvin. Well, we are going to try very hard just as we 
do right now on the biotech front, on problems with new 
pesticide standards in Taiwan. And I could go on and name item 
after item after item. We are still going to continue to try, 
but I think we could do better if we had more resources.
    Senator Kerrey. But did I detect earlier in your testimony 
as well that you talked about the negotiations that are going 
on in OECD and in the Uruguay Round and that you believe that 
the WTO is a vehicle that the United States of America should 
use to----
    The Chairman. Here, just read my question.
    Senator Kerrey. In your testimony, you briefly touched on--
I can't do it, I can't do it. It is a Kansas dialect.
    [Laughter.]
    The Chairman. It is not written in red.
    Senator Kerrey. Do you think that strengthening the WTO 
and/or reforming the WTO, or however you want to describe it, 
is something that this Congress ought to put high on our agenda 
as we try to figure out how to promote exports and increase 
jobs here in the United States?
    Mr. Galvin. I would say we have been very pleased to get 
the strong bipartisan support that we have received from 
Congress on this issue. A whole lot of people lined up to 
endorse the proposal that we tabled in Geneva a couple of weeks 
ago, and I think it was understood by the other countries there 
that the proposal has strong bipartisan backing back home, and 
that sent a very strong signal. So I think Congress is right to 
place a priority there and I think that message has been sent.
    The Chairman. Why are those talks stalled so much? Why are 
they stalled so much? Actually, that is what I wanted you to 
ask.
    Mr. Galvin. Well, I think agriculture has always been a 
contentious part of these sort of talks, but we are pleased 
that now we have sort of got things going again in agriculture, 
in part, because agriculture and services were part of the 
built-in agenda. But I do feel like the proposal that we laid 
down here a couple of weeks ago is really going to breathe some 
new life into the process.
    I think it is also understood, however, that we are only 
going to be able to get so far just on agriculture before we 
really have to launch a broad round that affects other subjects 
like industrial sectors and that sort of thing.
    The Chairman. I know you are not going to do this, but this 
has happened time and time and time again where agriculture 
ends up being the caboose because it too damn difficult to do. 
And you cannot do that or we will have another tear gas round 
in Seattle.
    Mr. Parmer, I am going to ask you a similar question to the 
one I asked Mr. Galvin in regard to Cuba. Would the sanction 
removal language being discussed by the House enable you to 
meet the hunger needs on the island through food aid?
    Mr. Parmer. Well, first of all, Mr. Chairman, as I am sure 
you know, the P.L. 480, Title II, emergency program, the 
humanitarian program, contains ``notwithstanding'' language. If 
there were, for example, a major hurricane that struck Cuba 
and----
    The Chairman. Well, they are suffering from drought right 
now, and on the east side of Cuba the lines are growing longer 
and longer. You have the families standing in line for an hour 
or two to get the milk ration, and it is getting worse.
    Mr. Parmer. If that situation were to reach the point where 
it constituted an immediate humanitarian crisis, I believe that 
under the existing law we could, in fact, provide humanitarian 
assistance to Cuba.
    When I first came here in the spring of 1998, the drought 
situation in Cuba was very bad, and I can tell you that we had 
under active consideration a Food for Peace emergency response 
to deal with that drought. And you may recall that somewhere in 
that period, Premier Castro announced that he would not accept 
any humanitarian assistance from the United States. So I think 
that from an emergency point of view, we really don't need any 
authority other than what we have right now to deal with 
humanitarian crises.
    The Chairman. OK, but now the question I had was--and I am 
not clear on this. Of course, I think the reason I am not clear 
is because we haven't seen the final language of the compromise 
that is being shaped in the House. But I am not sure that under 
the House language, you would be permitted to do what you have 
said.
    Mr. Parmer. Senator, because of our belief, at any rate, 
that sanctions do not apply to humanitarian response, the 
language in our legislation says ``notwithstanding any other 
provision of law or rule or regulation.''
    The Chairman. We will have to check on that because I think 
that is very important. Let me also point out that in my 
discussions with Fidel Castro, I think it is obvious that he 
does not want the blockade lifted because it gives him a very 
good excuse as to why his failed policies are not working. And 
he certainly doesn't want to become dependent on the U.S. for 
his food supply, and it puts his whole perception of the 
revolution in a very bad light if he has to accept that kind of 
relief. Now, those are big-time hurdles, so I wanted to get 
that out.
    In April, you moved under the umbrella of the State 
Department. How has this marriage worked out?
    Mr. Parmer. Well, it is an interesting one to observe 
because it was a compromise that resulted from a lot of 
negotiations. What happened was that USAID remained an 
independent agency, but our administrator is subject to the 
authority of the Secretary of State.
    So the way that has developed, Mr. Chairman, is that 
clearly, if the Secretary of State gives an order to the 
Administrator of USAID and he passes that down the chain of 
command, that is an order that will be obeyed. Conversely, 
however, if an assistant secretary of State for, let's say, 
Africa, to use that as an example--they have no line authority 
to compel or to make orders within the Africa Bureau of USAID. 
I would say so far it seems to be working rather well, and I 
think it has increased coordination between State and USAID.
    The Chairman. Well, let me raise just a Hobson's choice. 
Every administration has a foreign policy agenda, every 
administration has target countries. How do you make sure that 
the assistance programs are based or targeted on the 
humanitarian need if, in fact, there was some kind of a--or 
that wouldn't be just based simply on whatever administration 
was in power in terms of their foreign policy agenda?
    Mr. Parmer. It is an inherent conflict and it is not 
entirely resolved by the present system. And I am not sure that 
there is not something healthy about that. I think that there 
ought to be a certain personal view, not total independence 
from your country's foreign policy, obviously, but a certain 
level of independence within the administration so there is a 
strong voice advocating humanitarian perspectives to counter-
balance sometimes.
    The Chairman. Here is the example that I would give. We 
have spent a great deal of time in the Balkans. I am not going 
to go into that in terms of that whole debate. We also have 
360-million-people in what I call the Southern Command, or what 
Marine General Charles Wilhelm calls his Southern Command, 31 
nations in the Southern Hemisphere, average age about 15, 16-
years old, most of them malnourished.
    Now, in terms of our foreign policy and what affects our 
daily lives and pocketbooks and how much energy we get from 
Venezuela, Mexico, etc., etc., immigration, sitting right next 
door, a lot of resources have been taken more especially within 
the Department of Defense, but also in regard to the USDA, from 
that area and focused on the Balkans. I have some problems with 
that, and you folks could certainly indicate in terms of the 
targeting and the criteria where it is most needed. That is 
sort of where I am driving at.
    Mr. Parmer. I think that your question may have more 
relevance as it relates to overall USAID, the development end, 
as opposed to the humanitarian response end that I am in. We 
respond to humanitarian crises wherever they are--North Korea, 
for example, Afghanistan. I may be reflecting back a little on 
your earlier question, but we don't make our priorities based 
on what the State Department tells us. Our priorities for the 
delivery of humanitarian assistance are determined by our 
assessment of where the humanitarian need is greatest.
    The Chairman. That is the answer I am looking for, that is 
precisely the answer I am looking for.
    We have got a $67 million funding discrepancy for commodity 
donations between the House and Senate version of the Ag 
appropriations bill. We have the Ag bill up this afternoon. How 
would such a decrease from the administration's request in 
fiscal year 2000 affect your ability to meet the hunger needs? 
There is a softball for you.
    Mr. Parmer. I think I talked earlier about the number of 
hungry people in the world. And, you know, a dollar apiece is 
certainly not an adequate amount of money for the United States 
to believe that it is going to deal with the hunger issues that 
we face around the world.
    Cutting from that level, quite frankly, I think, would 
cause us to try and make priority decisions we don't want to 
make. Is a hungry kid in East Timor a little less important 
that is programmed for food currently than a hungry kid in 
Ethiopia. Those are not decisions that we want to make, and 
again I commend the Senate for the level of support, your 
support for the administration's recommendation. And I am very 
hopeful that when the process is all over, we won't have to 
establish those kinds of terrible priorities.
    The Chairman. Are there too many agencies involved in the 
food aid program and too many agencies involved in the decision 
making process for food aid allocations?
    Mr. Parmer. We work awfully well with the folks at the 
Department of Agriculture and it is a very symbiotic 
relationship. We couldn't have met the needs that existed in 
the world in the last 2-years if it hadn't been for our friends 
at USDA and the availability of 416(b). That is something that 
Congress needs to look at on a longer-term basis.
    One of the reasons that you have delays, as you mentioned 
earlier, Mr. Chairman, is because when you are dealing with a 
commodities surplus mechanism as a primary mechanism for 
humanitarian response, you really can't make long-range plans 
because you do have to have a knowledge of what those surpluses 
are going to be. And I think in the future, from what these 
folks tell us it looks to us like there are adequate surpluses 
in the immediate future, but look 5-years down the road. With 
P.L. 480, Title II, we know what we have, we know what is 
available. We can program it, we can direct it, and we can be 
ready to respond to crises like the almost famine in the Horn 
of Africa.
    The Chairman. Who makes the decision on what commodities 
are chosen, and what part does OMB play in that?
    Mr. Parmer. I am not aware of OMB playing a part in the 
selection of the commodities. I would let my friends from 
Agriculture correct me if that at any time becomes the case. 
But generally speaking, we respond to requests from the World 
Food Program and from non-governmental organizations.
    Food for Peace does only limited government-to-government 
food, and so essentially what we do is we look at the requests 
that come in from either the international organization, World 
Food Program, or from the NGOs, and from that we determine the 
mix of commodities that are needed. And we communicate those 
needs to the Department of Agriculture, who again does our 
purchasing for us.
    The Chairman. In your opinion, what changes need to be made 
to the food aid program? If you could just name one or two to 
make it more effective, what would you do?
    Mr. Parmer. Well, I want to join Tim in not wanting to 
sound like a bureaucrat, but the truth of the matter is we 
administer at Food for Peace an $800 million-plus program with 
28 Government employees. We don't have the resources to really 
handle the level of program we have today without people 
working evenings and weekends. And there is nothing wrong with 
that in the short term and when you have a crisis, but it is a 
regular pattern of life at USAID's Food for Peace office.
    There is a proposal, I understand, in the House that would 
allow us to use some P.L. 480, Title II, funding for program 
administrative costs to hire personal service contractors to 
supplement the activity. I very strongly recommend the Congress 
favorably consider that. Food for Peace folks are good people 
and hard-working people, and they are overworked.
    The Chairman. One of the more surreal experiences I had in 
my life is when I was able to go to North Korea with Senator 
Stevens. We were trying to arrange a third-party grange sale at 
that particular time in our efforts to open doors with North 
Korea, or at least have a dialogue. It didn't work. Now, the 
situation hopefully has improved rather dramatically with the 
negotiations with the South Koreans and the North Koreans.
    The USDA recently announced a food aid donation to North 
Korea. This is repeat question; you may not know the answer. If 
the sanctions language proposed by the House is enacted, would 
you be able to make a similar donation to North Korea in the 
future?
    Mr. Parmer. Again, Senator, since we have operated under 
the presumption, and our legal people haven't brought to us a 
concern about the language affecting our ``notwithstanding'' 
authority, I'm sorry I probably don't have a precise answer. 
But I will get one not only because you asked for it, but 
because the raising of the question concerns me.
    The Chairman. I wanted to just very briefly go back to the 
OMB role and the role they play in the food aid program, in 
general. Is it simply oversight or do they make decisions on 
recipient nations? In other words, you make a decision as to 
where it goes, what commodity, etc., etc. I have just had a 
feeling down through the years, both Republican and Democrat 
administrations, that depending on which Senator or Congressman 
calls and the budget numbers and what happens to be deficient 
in terms of price in that particular area that we get decisions 
that may or may not be very wise.
    Mr. Parmer. Mr. Chairman, OMB has no input into the 
selection of countries for the Title II Food for Peace program.
    The Chairman. Can they overrule USDA and USAID on the 
recommendations?
    Mr. Parmer. I don't know about their legal capabilities.
    The Chairman. Of course, they can overrule damn near 
anything, come to think of it.
    Mr. Parmer. That has never happened in the 2 \1/2\ years I 
have been there.
    The Chairman. I appreciate that. I have no further 
questions, Mr. Parmer.
    Do you want to ask Mr. Parmer questions?
    Senator Kerrey. Mr. Viadero, in the P.L. 480 program, under 
Title I authorities, the United States Department of 
Agriculture can grant credit assistance, 30-years with 
extensions, to governments or private sector entities, and it 
has traditionally been used for government assistance.
    In 1999, I don't know what it was. Was it 1.7-million-
metric-tons or some such number like that? After the 1998 
collapse, we had a big shipment to Russia, and I think it has 
only been used--in fact, in later testimony Mr. Cavanaugh 
points this out, that it has been used once for providing 
assistance to private sector entities that are looking for 
credit assistance to make a purchase from the United States of 
America.
    And given my belief that it is in our interest to promote 
the development of the private sector not just in Russia but 
elsewhere, are you able to assist USDA, Mr. Viadero, ahead of 
time, before there is fraud, in coming up with procedures under 
which they might be able to minimize fraud?
    There is a lot of uncertainty, to put it mildly, inside of 
Russia and in the private sector, and the risk of fraud may 
deter--you may not think this, but people are afraid of you, 
and they are afraid the IG is going to come in and examine them 
and say, you have just done something horrible and there is 
going to be a big hearing, and so forth. So they may be 
reluctant to do something that might make sense just because 
they are not certain they can do it and adequately minimize the 
opportunity for fraud in the transaction.
    Are you able to provide assistance to USDA in making 
certain that we peremptorily minimize that opportunity?
    Mr. Viadero. I thank both of you gentlemen for having this 
hearing, if nothing else for this opportunity to answer this 
very question. We are just flat out of money.
    Senator Kerrey. Oh, gee, not you, too.
    [Laughter.]
    Senator Kerrey. Has anybody in this room got plenty of 
money?
    [Laughter.]
    Mr. Viadero. We are pooling our resources for a Metro 
ticket back to the building from here.
    This is my sixth year as Inspector General and we have been 
zero--I shouldn't say zero. We have been flat-lined; we have 
zero budget increase in 6-years, zero budget increases in 6-
years. I have a 24-percent reduction in staff.
    Do we think we can forestall this or get ahead of the 
curve, take a proactive approach? I guarantee we can. I will 
put it in writing to you that we can. Do we bring in 
exponentially more? Yes. Are the agencies afraid of us? That is 
a perception issue. We have alliances, we have working 
relationships so far as operating as a management advisory 
service within the Department with many of the large mission 
areas. I don't know what else we can do.
    I realize I am not a warm, fuzzy guy. I am neither a 
liberal nor a compassionate conservative. I think we covered 
both bases on that one. But I will say that this is the one 
hearing where I can use two quotes from two great Americans, 
the first one from Henry Wallace, former Vice President and 
Secretary of Agriculture, that so long as there is hunger, 
there are no food surpluses. Number two, from another great 
American, Dwight Eisenhower--this is a good quote--the 
unaudited deteriorates. And this is what we have here.
    Senator Kerrey. I will give you one from Al Capone, who 
said a smile will get you a long way in life, but a smile and a 
gun will get you further.
    [Laughter.]
    Senator Kerrey. And you, Sir, have a gun with a bullet in 
it.
    Mr. Viadero. Coming from the Bronx, we could arrange that.
    But quite seriously, we get involved in these issues after 
they have occurred, after they have occurred. Now, what do we 
have to do? Now, we have to put on the black suit.
    Senator Kerrey. Your answer is, yes, if the resources were 
there, you could assist in reducing the potential for fraud in 
the Title I program of P.L. 480? If USDA says you are right, it 
is in our interest to promote the private sector in Russia, we 
want to use more of that Title I to go for private sector 
assistance, you could, if you had the resources, assist the 
USDA in reducing the potential for fraud in those transactions?
    Mr. Viadero. Unequivocally, yes.
    Senator Kerrey. Thank you.
    Mr. Viadero. Thank you.
    The Chairman. How many billions did you save the taxpayer 
when you had that string operation with regard to the Food 
Stamp program?
    Mr. Viadero. On Operation Talon, Sir?
    The Chairman. Yes, Sir.
    Mr. Viadero. Thank you, Sir. Our Operation Talon, where we 
went out and apprehended fugitive felons based upon the law 
that you assisted us in passing at that hearing on February 5, 
1995----
    The Chairman. This was not planned, Senator Kerrey.
    Mr. Viadero. I remember it was a five-hour hearing without 
a break, vividly. But I will say we have saved millions to 
date.
    The Chairman. Sixty billion?
    Mr. Viadero. Yes sir, millions.
    The Chairman. There is your payoff.
    Mr. Viadero. And I would like to point out that is cash in 
the pocket. That is not economic loss prevented. Those are 
people that were justifiably removed from the rolls of food 
stamps. These were convicted felons that belonged in jail under 
the custody of the Department of Corrections and not out 
receiving food benefits from the Department of Agriculture.
    The Chairman. Let me give you an example. It says I am 
astounded and disappointed. I am not astounded, but I am 
disappointed about FAS's attempt to retroactively amend the 
fiscal year 1993 contract for the PVO that, for lack of a 
better term, stole $14 million from the American taxpayer.
    Could you elaborate for us a little bit on this issue? What 
halted the efforts to stop this retroactive amendment?
    Mr. Viadero. Yes, Sir. I would like to start by saying it 
is a mixed bag. We had some $3.6 million unresolved in the Fund 
for Democracy and Development, and basically no contracts were 
involved. We uncovered last year there was a fraudulent wire 
transfer for some $980,000 that we were able to track down in 
FDD. They have since recovered $966,000, or 98.6-percent, of 
that money. However, none of that money has yet to be returned 
to FAS or any other agency of the Department so it could be, 
again, put back into this specific program. So there is roughly 
$1 million right there.
    In addition, we have another organization by the name of 
Citihope for some $14 million. Again, we have unresolved issues 
with them, and my office's recommendation was to suspend and 
debar Citihope until something good happens there. Well, 
nothing good has happened there and FAS hasn't done anything. 
They haven't responded to the recommendation. We just felt that 
this was an unnecessary expenditure, and again this----
    The Chairman. When did you make a recommendation?
    Mr. Viadero. That recommendation went out in 1999, Senator.
    The Chairman. And still you have no determination?
    Mr. Viadero. No, Sir, not as we speak. For both of the 
gentlemen present, this is not rocket science. We are not doing 
necessarily financial reviews, debits and credits. This boils 
down to two questions. Are there controls in place, yes or no? 
And are they working, yes or no? These are more compliance 
audits than substantive or financial audits.
    Again, I don't know what to say other than this isn't 
astrophysics here. That is all we want to do, is get some 
control. We want to find some reliable factor out there that we 
can hang our hat on the audit side of the house to say the 
money that this body on the Hill appropriated for this program 
is properly spent.
    The Chairman. I think you will get an answer.
    There is obviously a problem with the ability of the PVO 
organizations being able to defraud our current system. I have 
several other examples here. I am not going to go into that. I 
am not speaking in a derogatory manner in regard to the fine 
work that the PVOs do. The vast majority are fine and 
upstanding organizations. They fill a very crucial need in 
regard to what we see in the world.
    But what can we do to prevent this from happening again? Is 
there a legislative fix that we need here or is it 
administrative, or is it resources again? Obviously, it is 
resources. I don't want to go back down that trail.
    Mr. Viadero. I think it is both, or shall we say all three. 
And, of course, the link between the administrative and the 
legislative one is the resource one. That is the link, and we 
more than concur with your statement that the vast majority of 
the PVOs are upstanding organizations doing the right thing for 
the people in the world.
    Again, we only highlight the ones that we found problems 
with, and that is again, Mr. Kerrey, the nature of the IG job, 
because we got in late. We would like to be included in and 
folded in the process early to work with FAS, as we do with 
other mission areas in the Department.
    The Chairman. Well, they have got a tremendous backlog of 
cases. I am reading here in terms of staff information--your 
report is dated September 1998--the FAS had not completed the 
monitoring of 130 of 185 Food for Progress agreements signed in 
fiscal years 1992 through 1996.
    Do we have a time frame that the Department has established 
to try to eliminate this backlog?
    Mr. Viadero. Well, I understand that as of today--and I say 
as of today; that is, all the backlog cases that have been 
closed, in other words not open. The only ones they haven't 
gone over to date as of today are those where there is current 
activity, especially current monetization of the commodities.
    The Chairman. I would tell Senator Kerrey I am not too sure 
but that we ought not have a separate hearing in regard to this 
particular problem. We have other panelists that have waited 
patiently. I have got one other one.
    It is apparent that improper monitoring has cost the CCC 
millions of dollars. How much of this money has been returned?
    Mr. Viadero. Again, I have to go back to your first 
question, and that is the mixed-bag answer, Sir.
    The Chairman. Senator Kerrey, do you have any more 
questions of the Inspector General?
    Senator Kerrey. No. I have got one for you, but I will wait 
until the end of the hearing.
    The Chairman. All right.
    Let's welcome the second panel. Many thanks to the first 
panel, and we thank you for your contributions. I think it has 
been most helpful.
    I would like to welcome to the hearing Mr. Otis Molz, the 
Chairman of the Board of CoBank, from Deerfield, Kansas; Mr. 
John Cavanaugh, a former colleague and a good friend, and 
Chairman and CEO of Summit Limited, of Omaha, Nebraska; and 
Ellen Levinson, of Cadwalader, Wickersham and Taft. She is the 
Executive Director of the Coalition for Food Aid here in 
Washington.
    We want to welcome the panelists. I think you have heard 
our admonitions in regard to your statements. Please feel free 
to summarize. And you don't have to ask; without objection, all 
of your statements will be made part of the record.
    Otis, please proceed.

    STATEMENT OF OTIS MOLZ, CHAIRMAN OF THE BOARD, COBANK, 
                       DEERFIELD, KANSAS

    Mr. Molz. Thank you, Mr. Chairman. My name is Otis Molz. I 
am a farmer and rancher from Deerfield, Kansas, and Chairman of 
the Board of CoBank. I am accompanied today by Candace Roper, a 
CoBank vice president and division manager. Ms. Roper has just 
returned to the U.S. after a 3 \1/2\-year stint as head of 
CoBank's Singapore-based Asian regional office. In that 
capacity, Ms. Roper worked extensively with foreign purchasers 
of U.S. agricultural products, exporters, foreign banks, and 
the U.S. Department of Agriculture's GSM programs. We 
appreciate this opportunity to provide testimony on the 
importance of the GSM export loan guarantee programs.
    Historically, CoBank has been the most significant 
financial institution participating in the GSM loan guarantee 
programs, accounting for nearly one-half of all the guarantees 
issued. Since 1982, the bank has provided about $25 billion in 
loans to support the export of agricultural products. About 90-
percent of this financing was provided in connection with the 
GSM loan guarantee.
    CoBank has offices in Singapore, Mexico City, Buenos Aires, 
as well as throughout the United States. We have correspondent 
banking relationships with more than 500 banks in 80 countries, 
and have financed the export of about 45 different agricultural 
products, everything from apples to wheat, and chicken feet to 
recycled telephone poles.
    In one important respect, CoBank is different from every 
other bank that operates in the international marketplace. We 
are involved in a transaction only when a foreign purchaser 
wants to acquire a U.S. agricultural product. Our competitors 
in the financial services industry, including U.S. banks, do 
not necessarily care if the transactions they finance result in 
the sale of U.S. products. International banks will 
aggressively pursue the opportunity to finance a country's 
purchase of a product without regard to the origin of the 
product. CoBank is unique because we are in the business of 
matching foreign purchasers with only U.S. sellers. That is the 
reason we have provided far more financing under the GSM 
program than all other U.S. banks combined.
    Today, I would like to comment on four topics: first, the 
importance of the GSM program in opening foreign markets to 
U.S. products; second, the GSM program changes; three, the 
value of the GSM program from the perspective of the foreign 
purchaser; and, fourth, the need for trade sanction reform.
    First, the GSM program continues to be a critical tool in 
opening and maintaining markets for U.S. agricultural products. 
Ten years ago, Korea was a major user of GSM loan guarantees. 
It was the GSM program that was instrumental in introducing 
Korean consumers to U.S. food products. As the Korean economy 
grew, that Nation began making cash purchases of imported food. 
The volume and value of U.S. products being purchased was 
increasing and the need for financing was decreasing. However, 
the recent Asian financial crisis has caused Korea to once 
again begin making use of the GSM program. The point is the GSM 
program has been a critical tool for ensuring access for U.S. 
exports to this important market, no matter where the country 
is in the economic cycle.
    I have included another example in my written statement of 
the benefits of being a reliable trade partner that relates to 
Mexico. It illustrates an important point, and I would like to 
call it to the committee's attention. To summarize this point, 
it would be very short-sighted to curtail the program or 
bargain away its key benefits to U.S. agricultural exporters 
during the trade negotiations because of market conditions at 
this particular time.
    My comments in regard to the value of the GSM program to 
purchasers: Recently, the U.S. has had to defend the GSM 
program in trade negotiations. In particular, some of our 
competitors have been calling for a maximum tenor for export 
credit guarantees on all commodities of 180 days. We are 
concerned that the importance of tenor, the duration of the 
loan, is underestimated.
    In many cases, the tenor of financing is the factor that 
determines who will ultimately make the sale. Tenor of the 
financing is often more important than the price of the product 
which is set in the world marketplace or the interest rate on 
the loan. GSM provides for tenors that are typically 
unavailable in the market, and this is a crucial strength of 
the program. Shortening the tenors of GSM-supported financing 
substantially decreases its economic benefit and the 
attractiveness of U.S. products. The current two-year tenures 
in Mexico and Korea and other markets already adversely affect 
export volumes in these markets, and the contemplated reduction 
in tenures to markets such as Turkey will have the same effect.
    Number three, the current GSM program rules prohibit a 
single entity from both issuing a letter of credit and being 
the beneficiary of the CCC's payment guarantee. The USDA is 
considering a proposal to end that prohibition. Effectively, 
this will mean that a single or related financial institution 
could be on both sides of the same export transaction, largely 
removing the checks and balances that exist when one bank has a 
vested interest in making certain that the counterparty is 
making every effort to meet its obligation.
    This change could lead to abuse of the program by banks 
that have operations in many countries. The change would make 
it possible for a bank with branches in two countries to 
receive payment twice, once from the purchaser in the foreign 
country and once from the U.S. Treasury when the foreign bank 
fails to make payments to its related institution in the U.S.
    Presumably, USDA would not allow such an abuse to occur 
more than once. However, this reform which was implemented 
several years ago to ensure the integrity of the program and 
the arms-length relationship between lenders should be 
retained. We have shared with the Department of Agriculture 
several other suggestions for improving the operation and 
utilization of the GSM program. A few of these suggestions are 
also included in my written testimony.
    Finally, the trade sanctions reform. Mr. Chairman, I would 
be remiss if I didn't take this opportunity to comment on the 
need for trade sanctions reform. I am not qualified to provide 
advice on our Nation's foreign policy positions with regard to 
specific countries. However, the general observation, it would 
seem to me, is that our Government is too quick to impose 
sanctions on too many countries.
    Mr. Chairman, I would personally take this opportunity to 
commend you on your initiative with Cuba. From my perspective 
as a producer who knows that almost 40-percent of what I raise 
must be sold to foreign purchasers, I am troubled that I am 
locked out of markets that are being served by my competitors 
in other countries. And we know from experience that once we 
but ourselves off from a market, it is difficult to reestablish 
the U.S. as a reliable source of products.
    I also have a perspective on this matter as an ordinary 
citizen who cherishes the freedoms we enjoy in the U.S. I have 
had the good fortune to travel to many parts of the world. As a 
result of my travels, I am convinced that through trade we can 
share our culture and values with people who live in countries 
that do not enjoy our freedoms. By doing so, we plant the seeds 
for democracy and the free enterprise system. When we turn our 
backs on those countries, we miss an opportunity to demonstrate 
the benefits of our political and economic system.
    Mr. Chairman, I appreciate the opportunity to appear here 
today and I would be pleased to respond to questions.
    [The prepared statement of Mr. Molz can be found in the 
appendix on page 85.]
    The Chairman. We thank you, Otis.
    John.

 STATEMENT OF JOHN J. CAVANAUGH, CHAIRMAN AND CHIEF EXECUTIVE 
            OFFICER, SUMMIT LIMITED, OMAHA, NEBRASKA

    Mr. Cavanaugh. Thank you, Mr. Chairman. It is a pleasure to 
be here this afternoon with you and with my longtime friend and 
colleague from Nebraska, Senator Kerrey. We are going to miss 
him tremendously, as I am sure you will, and I am happy that he 
invited me to be with him before he leaves in December.
    Mr. Chairman, this is an extremely important and I think 
timely hearing, and you and the committee are to be commended. 
The American farmer continues to be the envy of the world for 
his productivity and efficiency, while remaining the perpetual 
economic victim of an erratic and at times capricious global 
market. The challenge for American policymakers is to match the 
American farmer's genius for producing food with creating a 
global trading system and marketplace equal in efficiency.
    I have a very specific and narrow recommendation that I 
think can be implemented immediately and have positive effects 
not only on the current crop cycle but long-term effects.
    P.L. 480, Title I, provides for government-to-government 
sales of agricultural commodities to developing countries under 
long-term credit arrangements. In 1996, the Congress exercised 
considerable foresight in amending the Title I loan authority 
provisions to include permitting loans to private entities, in 
addition to foreign governments. To date, this authority has 
been utilized only for a single facility financing in 
Indonesia.
    P.L. 480, Title I, government-to-government commodity loans 
have been utilized successfully to facilitate the sale of 
millions of tons of American agricultural commodities to 
developing economies throughout the world. In 1991, Title I was 
used to finance the sale of 1.7-million-metric-tons of 
agricultural commodities to Russia in the wake of the 1998 
Russian economic collapse, which occurred at the same time that 
Russia experienced the lowest grain harvest in 40-years.
    This sale occurred at a time when all Russian credit 
facilities, both public and private, had collapsed as a result 
of the devaluation of the ruble and the fall of the Russian 
government. The sale succeeded in stabilizing Russian food 
supplies during this critical period in Russia's transition, 
and no doubt contributed to the social stability leading up to 
the successful democratic transfer of power in the elections.
    Without this utilization of P.L. 480, Title I, authority, 
Russia would have no doubt experienced a much more severe 
economic and social crisis during the past 12-months, and 
American farmers would have lost an opportunity to sell these 
commodities.
    But this transaction was not without its negative short-
term and long-term consequences as well. The use of the 
Government-to-government loan authority resulted in the Russian 
government directing all commodity sales through former Russian 
government monopoly trading organizations, to the detriment of 
what had been a rapidly developing private commodity trading 
structure.
    Consequently, private traders and food processors were 
further disadvantaged because they were denied access to 
commodities and credit. Traders also experienced the 
revitalization of government trading monopolies which had 
collapsed in the face of market competition.
    Second, deliveries of the commodities to Russia and 
distribution of the commodities within Russia were based upon 
Russian Federal and regional government goals and directives 
rather than actual market demand for specific commodities, 
resulting in disparities in pricing and utilization of the 
commodities delivered.
    Third, significant increases in Russian domestic poultry 
and pork production resulting from the widespread availability 
of American feed, corn and soy meal at affordable prices were 
not sustainable because of the lack of a follow-on program and 
the failure to revive commercial trading structures and credit 
facilities.
    Finally, the use of the proceeds from the sale of the loan 
commodities were directed at funding the Russian pension system 
rather than reinvested in improving Russian agricultural 
production or reviving commercial trade with U.S. commodities.
    The Russian food crisis continues today, and I have 
provided you with a rather dramatic chart which I think tells 
the whole story of the Russian agricultural collapse from 1990 
to the present, and it continues. This is a chart of Russian 
livestock inventories and feed grain utilizations, and if you 
track this dramatic decline, which I think is the most dramatic 
decline of any agricultural producing country in the 
industrialized world, in the history of the world, this chart 
could be matched with a similar decline in protein consumption 
and nutrition health among the Russian people.
    In fact, Russian meat consumption has declined from 70-
kilograms-per-person in 1990 to less than 42 today. The United 
States' average consumption is 123, and Russian meat 
consumption is the lowest in the industrialized world. That 
coincides with a similar decline in life expectancy in Russia, 
which in the last 10-years has resulted in male life expectancy 
declining to 59-years, which also is the lowest in the 
industrialized world. So this is a crisis that is ongoing and 
that is not over.
    What I think essentially, Mr. Chairman, could be done and 
should be done is USDA should respond to the market 
opportunities in Russia, and should be strongly encouraged to 
use the private sector loan authority granted by Congress in 
1996 in any future P.L. 480, Title I, lending program for 
Russia.
    Extending long-term commodity loans to private 
organizations focused on development of private agriculture and 
commercial trade in Russia will have immediate and long-term 
benefits to Russia and for American producers. Expanding a 
private, market-based Russian agricultural sector represents 
large long-term market opportunities for American producers and 
food processors. Reviving the commercial food trade with 
Russia, disrupted in 1998, and building an expanded 
agricultural market for American farmers should be a major goal 
of U.S. trade and economic policy for Russia.
    I do want to point out, Mr. Chairman, that in the past year 
U.S. policymakers have withheld support for further development 
of the private sector in Russia, adopting a wait-and-see 
approach to the new Russian government. The result has been a 
further weakening of the private sector in Russia at a critical 
time in the Russian evolutionary process.
    All of the USDA private sector development initiatives have 
been held in suspension in the interagency review process, in 
which all USDA program initiatives are reviewed by the State 
Department, Treasury, OMB, and NSC. Rather than achieving the 
goal of coordinated policy initiatives toward Russia, the 
process seems to produce a policy paralysis.
    During the past year, all private sector initiatives to 
develop and revive the agricultural sector in Russia and 
commercial trade have been stymied by this interagency review 
process. As a result, the current market opportunities for U.S. 
commodities are not being met.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cavanaugh can be found in 
the appendix on page 89.]
    The Chairman. We are happy now to welcome you, Ellen, and 
please proceed.

 STATEMENT OF ELLEN S. LEVINSON, GOVERNMENT RELATIONS ADVISOR, 
   CADWALADER, WICKERSHAM AND TAFT, AND EXECUTIVE DIRECTOR, 
            COALITION FOR FOOD AID, WASHINGTON, DC.

    Ms. Levinson. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify today before the Subcommittee regarding 
agricultural programs. I am going to focus my remarks on food 
aid.
    I am Government Relations Advisor at the firm Cadwalader, 
Wickersham and Taft, and I have been very fortunate since 1985 
to work on behalf of private voluntary organizations and serve 
as Executive Director of the Coalition for Food Aid.
    The PVOs, or private voluntary organizations. I represent 
have extensive experience in food aid. They have been 
conducting programs overseas for 50 or more years. They are 
very accountable for their resources. Under the P.L. 480, Title 
II program, which is actually reserved for PVOs and the World 
Food Program primarily, PVOs have losses of less than 1-percent 
of the commodities that are provided.
    They also are very concerned about the impact of their 
programs, and this is perhaps their biggest focus. What more 
can we do than just deliver food? That is what they want to 
focus on. What can we do to improve people's lives in the long 
term?
    In order to achieve those goals, multi-year programs are 
very important. P.L. 480, Title II permits this, and it is a 
very important part of the food aid program. Thus, one of our 
first recommendations is, please, if you can, increase the P.L. 
480, Title II program. We see multiple additional uses in child 
development. We see additional uses for HIV/AIDS. We see it for 
agricultural and irrigation projects, and also private sector 
micro-enterprise. These are all the kinds of programs that are 
being conducted under the Title II program. I know the remarks 
of Mr. Parmer tended to focus on emergency assistance, but 
under the Title II program--75-percent is for development, and 
it does have an impact.
    We do need some reforms in how that program is being 
administered. I appreciate the hearing today because I feel--I 
wrote a lot of this in my testimony there is a need to 
streamline at USAID. PVOs don't want to sound like cranks, but 
they are cranks when it comes to having to deal with all the 
paperwork, and I have to say we need to respect that. I think 
there is a reason for it.
    They don't need to be constantly micromanaged. There needs 
to be a balance, and I hope there is a way to move forward. 
PVOs try to work with USAID on streamlining, but I always feel 
that everyone becomes overcome by events. In a sense, they 
start on a process to talk about reengineering food aid 
programs and then something else comes up. PVOs have to do 
environmental impact reviews, or decide what to do about 
liability issues, and people get sidetracked. PVOs don't have 
endless staff, and so it is hard for them to keep track of all 
of this. So, anything we can do streamline would be 
appreciated.
    I also want to address something very, very important at 
USDA. PVOs are active under the 416 program, but their activity 
is extremely limited, and this is because of the way the 
program is administered. This year more than ever, it was a 
mess, and that is because of the big word you said, Mr. 
Chairman--late. It is more than late.
    This Food Assistance Policy Committee, this interagency 
group, from my outside perspective, seems to have interfered 
greatly in the proper procedures for the Section 416 program. 
Tonnages of commodities should have been announced publicly. 
All organizations--private voluntary organizations, World Food 
Program, governments--should have all had the opportunity to 
come in with good proposals. Then you would see good market 
analysis being done, good planning of programs.
    My members, the PVOs who are my members, worked with the 
American Soybean Association and the United Soybean Board, and 
created excellent proposals that could not get into the mix or 
be considered, and this is because behind closed doors the Food 
Assistance Policy Committee chose the countries and the 
allocations. I really feel sorry that Tim Galvin couldn't speak 
openly to this, and I guess he can't, but this isn't how it 
should be and there is a better way.
    I also want to mention Food for Progress. This is a 
wonderful program. It can be terrific. It is limited to 
500,000-metric-tons in current law. I highly recommend doubling 
that. The emerging markets that we are seeing today are 
demanding assistance. If we want them to have good private 
sector growth and development, we really need to lend a hand. 
This program could do it, and can do more. USDA received 150 
proposals for FY 2000 for that program and, of course, can't 
get anywhere near funding it. So anything you can do in that 
area would be very positive.
    The Chairman. Why don't you just briefly explain that 
program real quickly?
    Ms. Levinson. Sure. Food for Progress, which I have to give 
credit to Senator Helms for from 1985--he was the one who put 
it in the Food Security Act originally. It has been modified 
since then. It was established basically to help countries that 
are transitioning to market economies, particularly to improve 
their agricultural sectors in private sector marketing and 
production.
    It hasn't been used very well for that purpose because, 
again, when there was the dissolution of the Soviet Union, a 
lot of the food was provided almost like an emergency program. 
It was like putting a band-aid on rather than actually looking 
for the long-term benefits.
    It has changed. USDA has done a great job of changing how 
it administers this program and is trying very hard now to 
focus more on development. And it could do a lot more, not only 
in the former Soviet Union. We have proposals in for Africa. 
There are a lot of African countries making reforms. You have 
Latin American countries and Asian countries, as well, that are 
making reforms.
    When there is a structural adjustment program and a 
government is you are changing, basically cutting back on 
budgetary outlays, and also floating its your currency, what 
happens is that there are a lot of structural imbalances that 
occur in the economy and you are not able to all of a sudden 
reform everything. You don't have rule of law. You are not able 
to have fair trade or fair internal processes. It is very hard 
to make those transitions; it takes a lot of work. And I think 
that it would be very helpful if Food for Progress could be 
used more effectively to help the private sector in those 
countries during these transitional periods. So, that is that 
program.
    The Chairman. Give me an example where you think this has 
worked.
    Ms. Levinson. Where Food for Progress currently works?
    The Chairman. Yes.
    Ms. Levinson. Well, actually, there are programs right now; 
there have been some in the NIS that have worked. What they did 
is they sold the commodity and they used the proceeds for 
things like private sector credit, and those have worked. We 
also see the same kind of thing in Africa. We have recommended 
quite a few programs in Africa for Food for Progress and for 
416, and I hope that some of those could be----
    The Chairman. Can you tell me what that budget was?
    Ms. Levinson. For Food for Progress?
    The Chairman. Yes.
    Ms. Levinson. Well, it is capped at 500,000-metric-tons. It 
is funded through CCC.
    The Chairman. Oh, I see.
    Ms. Levinson. I don't know the cash outlays. The 
transportation costs are capped at $30 million, and that limits 
how much tonnage you can ship. Transportation can be very 
expensive to many of these countries. So if you lift the cap on 
commodities, you must also lift the cap on transportation in 
order to ship more commodities. They go hand in hand.
    The Chairman. I am sorry I interrupted you. I just wanted 
to get that clarity on this program.
    Ms. Levinson. The other things I was going to mention are 
really very much along the lines of what you have been saying 
today. First of all, for the future, besides the increases in 
tonnages there needs to be more flexibility. Could you really 
consider ways--I think USDA is open to this and I would like 
USAID to be more open.
    There has been collaboration between PVOs and the 
agriculture community, for example what I was saying before 
about the soybean producers working with PVOs. They work 
jointly on market analysis to choose the right commodity for 
programs in specific countries and literally work together on 
deciding the right commodity and program development. I would 
like to see more collaboration and encouragement along those 
lines.
    I also hope that for the Section 416 program, which is 
based on surpluses, this current fiscal year is already pretty 
much past, so, we can't do much more, but for the upcoming 
fiscal year, to encourage the administration to announce the 
program as early as possible. You raised that issue, I know, 
and it is extremely important.
    If you could put the notice in the Federal Register so 
everybody has access, which is how it used to be done, and do 
it early enough. That would help USDA so it is not stuck in the 
last few months of the fiscal year trying to program all this 
tonnage, because that is not effective. Plus, it makes it very 
difficult for USDA then to review a hundred proposals or so, 
proposals that they could receive from PVOs. So it limits 
access by PVOs.
    I really hope that something more could be done for a mix 
of commodities under 416. Section 416 is not a panacea, it is a 
year-by-year program, so we don't see it as a long-term panacea 
for emergency needs or for humanitarian needs otherwise. In 
order to have an effect long term, you really need to have 
multi-year programs. But in the short term it could do some 
very good things in a country if the programs are well 
developed.
    I will leave you with that. I have many other comments in 
my testimony. Thank you.
    [The prepared statement of Ms. Levinson can be found in the 
appendix on page 95.]
    The Chairman. I want to thank all the panelists not only 
for their testimony, but specifically for their suggestions. 
Ellen has 19 of them here, I would tell Senator Kerrey, and I 
am not trying to disparage that. I think she has some very good 
suggestions.
    Senator would you like to start off with the panel?
    Senator Kerrey. Well, actually, for both Ms. Levinson and 
Mr. Cavanaugh, and perhaps Mr. Molz as well, you heard the 
question that I was asking the Inspector General earlier. I 
think one of the problems that USDA has--and I suspect 
specifically to Russia it is apt to be there under Title I as 
they consider whether or not they are going to do a loan to a 
private sector company inside of Russia that all published 
accounts say is suffering from significant corruption in the 
private sector.
    So, now, we have got corruption in the private sector and 
an Inspector General that is going to check the transaction 
that I do. There isn't a government agency that has ever been 
created by human beings that didn't set up procedures that 
penalize mistakes much more than it rewards doing the right 
thing. So you are always sitting out there sort of risk-averse, 
trying to make sure you don't have 100 actions and have 99 of 
them that are perfect and 1 of them that is wrong. The one that 
is wrong could cost me my job.
    So they are sitting in that operating environment knowing 
that they are not likely to--the sort of ``what have you done 
for me lately'' mentality; they are worried about that. I am 
wondering if you have given some thought, either one of you--I 
mean, you are likewise asking for increasing flexibility, but 
that flexibility produces a risky environment for the 
individual who is making a decision on the Government side, who 
then could get investigated by IG and find themselves with a 
career-ending decision.
    Mr. Cavanaugh. Well, if I might just speak to the 
narrowness of what I am proposing in terms of having an 
expanded utilization of the Title I loan authority to private 
organizations, that would be envisioned that private U.S. 
organizations would be the borrowers of the commodities. You 
would put them in the place of the Russian government, who was 
the borrower this year and historically throughout the use of 
the program.
    There are a lot of implications to this, one of which is--
and the reason I think it has such great potential is that you 
would be able to lend the commodities to private U.S. 
organizations with good credit ratings, with good performance 
ratings, and with a detailed plan of development.
    The way this program would work, the way I would envision 
it, is what you would do is you would sell the commodities. You 
would establish an escrow account from the initial proceeds 
assuring repayment of the long-term low-interest loan. You 
would deploy the rest of the proceeds into some detailed 
development purpose.
    In the case of Russia, what is critically needed today are 
commercial credit facilities. So what we would envision is 
recycling the proceeds from the first sale into a credit 
facility that would immediately transition into the commercial 
markets. That is what is missing in Russia today. We dumped our 
commodities in last year through the Russian government and we 
have no residual benefit, when Russia is right now at a 
critical stage in which it needs to be bridged back into the 
commercial world. It has the financial capacity to do that. It 
doesn't have the structures to do that, and we should be using 
our development assistance, our financial assistance, to build 
those structures, because we don't want to continue and we 
don't want to be facilitators of reviving the Russian state 
structure with our own structures.
    We want to be capitalizing on what is this huge potential. 
This is, without question, a 10-year stable market to rebuild 
the feed industry in Russia, to rebuild their domestic 
production. They might at some point become self-sufficient, 
but in the interim, right now, they should be major customers 
of ours. They have the potential to be commercial customers. We 
haven't used our programs and our resources intelligently 
enough, strategically enough, to get ourselves to that 
position.
    What you will see in terms of what has happened to Russia 
is they had a huge ramp-up in pork production and poultry 
production based on the 1999 shipment. In May of this year, 
that fell off the charts and poultry prices skyrocketed in 
Russia. Poultry and meat prices skyrocketed in Russia because 
in May when the feed ran out, they had no commercial ability to 
replace that. They had no government program in place to 
replace it, and we sat here unable to make a follow-on 
decision, which gets you into this interagency process. So 
there wasn't a continuing strategy. We simply laid the 
commodities out there and now we are sitting here wondering 
what to do.
    Senator Kerrey. Well, there are several ways you can 
approach this, but you wonder if what is needed isn't almost a 
presidential assistant who is assigned the job of sorting this 
all out, with the direction of, in this case, promoting the 
development of the private sector inside of Russia and working 
out the checks that make certain that we minimize the 
opportunity for fraud.
    If I am the Agency making the decision, if I do a $500 
million loan to a Russian agency and they default on the loan, 
we don't call it fraud. So the IG is going to look at something 
like that and they may say, well, gee, you know, you paid your 
money, took your chances, no big deal. But if it is a private 
sector entity and there is a fraudulent transaction and they 
are in default there, it is really bad, even though the impact 
is the same as far as the taxpayer is concerned. The impact is 
exactly the same, but one is encouraged and one is very much 
discouraged with the penalties that are applied for making a 
mistake.
    So it seems to me some sort of procedural changes that 
reinforce from the top--if you don't get it reinforced from the 
top, it isn't going to happen, it just is not going to happen. 
You are talking about fairly substantial change with risk, and 
you need somebody up there with significant authority that can 
direct it to happen and then measure it.
    We have been talking about private sector development in 
Russia. I don't see a lot of progress in the agriculture sector 
over the last 10-years. There is a little toe-hold that has 
been established, but in part I think it is because we have not 
set benchmarks to determine whether or not we have been 
successful or whether or not we have failed.
    Mr. Cavanaugh. When you talk about the delay in granting 
the overall monetization approvals, there has been no approval 
of any Russian private sector development programs under 416 
this year.
    Senator Kerrey. And I would say to both you and Ms. 
Levinson, I think the biggest reason for that and the 
unwillingness to grant flexibility is they are afraid to do it. 
It is risky, it is risky to do it, and there can be 
consequences for making those kinds of mistakes. So it seems to 
me that permission has got to be granted to do this with 
checks, with reasonable controls.
    There are a lots of ways to set up a control system and 
minimize the opportunity, not eliminate the opportunity--you 
are always going to have mistakes made--but to minimize. It 
seems to me there is an urgency to do it. Otherwise, you are 
just going to get a bottleneck and nothing happens.
    Mr. Cavanaugh. That is where we are right now.
    The Chairman. Let me ask Otis a question, if I might. I 
want to come back to your testimony, Otis, about the 
administration's proposed changes in the GSM program. Would you 
go over that again in regard to how they could affect your 
operation, CoBank's operation? You raised some concern, I 
think.
    Mr. Molz. Well, in regard to the terms of the contracts, 
the mere availability of loan guarantees is not enough to make 
the program successful. Lots of times, the tenure is more 
important than the other terms of the guarantee, like the 
interest rate, and so forth.
    The other concern was in regard to having an entity on both 
sides of the transaction, which has been prohibited previously 
in law, and we would hope that the law would prevail in that 
respect and that would be continued. Now, the CCC has 
administrative authority to make changes, but we would hope 
that the law would prevail. And the committee needs to monitor 
that and keep that prohibition in place.
    The Chairman. OK, I thank you very kindly.
    I think all the witnesses heard my concern in regard to 
nations of concern, but more particularly in regard to Cuba. 
Any ideas?
    Ellen, what you say really strikes home. And, John, it is 
the same thing as well. You meet with the Cuban ministers and 
you meet with the state-owned enterprises that actually run the 
Catholic relief service programs. And then you talk to our 
people and they say, you know, we have made adjustments, we 
have exempted the food and medicine, and we have a streamlined 
procedure that is expedited. As a matter of fact, you can even 
get financing. It is like two different ships at night; they 
just don't--now, I have no illusions about the Castro 
government and what they will and won't do. Don't misunderstand 
me.
    Do you have any suggestions in regard to which of these--
you have the experience in Russia, John. And, Ellen, you have 
got several good ideas where we could--you know, what I am 
looking for here is right now they desperately need powdered 
milk. And it just seems to me that perception-wise--and in 
talking with the commandante for 10-hours, we were trying to 
figure out what kind of a breakthrough, not a sale, but an 
accommodation that could empower individual Cubans, much in the 
same fashion you are talking about with Russia, John. I am not 
sure what kind of a program we have that could scale all of the 
political problems that we have with this issue.
    Do you have any thoughts about this? I am sort of fishing 
here for your response.
    Mr. Cavanaugh. Let me tell you how I view what you have in 
terms of program right now, and if you used it coherently, 
looking at these emerging markets, what it would look like to 
me in a master plan.
    You have 416(b), which is basically a donation program run 
through PVOs, and if you directed that at economic development 
segments in particular economies and building private 
structures, whether they are in Cuba, whether they are in Iran, 
whether they are in Pakistan or Indonesia or Russia, that is 
almost a cornerstone of developmental direction using our food 
product as a development tool.
    What I am proposing is a second stage which really leads to 
the third stage, which is the GSM program, where you actually 
have viable commercial structures. But in the second stage, 
rather than--and I think we are caught in a mind set of P.L. 
480, Title I, loans to governments because we have done that 
for 30-years.
    The Chairman. Sure.
    Mr. Cavanaugh. And we really in some respects are still 
treating Russia like the former Soviet Union, in the sense that 
we see this huge market potential and what we want them to do 
is organize themselves so we have one buyer who is reliable and 
a good credit risk. It is not that way and it is not going to 
be that way again, and we really need to look at Title I as 
this interim step. What the name of the game is to use that 
step to build private structures, private commercial 
structures.
    Senator Kerrey, I think that, if properly implemented, you 
do treat this as a real commercial structure. You would get 
better pricing of the product by the private entities who would 
take the loans than you did in the Government-to-government 
program. You would get better marketing in the sense that--in 
some aspects of the delivery of the program last year, they did 
things differently everywhere.
    In St. Petersburg and Leningrad, what they did was deliver 
the soy meal, and they authorized through the oblast every farm 
in the region got 100 tons of the soy meal. All those little 
farmers didn't know what to do with it. A lot of them weren't 
feeding, so they all sold it to a distributor, who sold it to 
another distributor down the line. That was a very inefficient 
way of doing that.
    If you would have had a private borrower running that 
program rather than the Government, you would have targeted in 
exactly on the feeders and the emerging feeders and the feed 
mills because that is the way the business would be done. You 
would have cut out another step.
    Senator Kerrey. By the way, I think one of the points that 
you almost have to make as you are doing that is that we 
shouldn't fear the successful development of the Russian 
economy, because we can see in the decline of the consumption 
of protein all by itself what happens when you have got a 
decline in their economy. They have an inability to purchase 
the value-added products that at the end of the day we need to 
sell in order to lift our standard of living. So their 
purchasing capacity declines if they are not able to make the 
successful transition to a market economy in the agriculture 
sector.
    Mr. Cavanaugh. I apologize. That is a little bit of a long 
answer.
    Senator Kerrey. Well, Ms. Levinson did something that was 
very unkind in her testimony. She includes an excerpt from the 
Senate Agriculture Committee report from the 1990 farm bill, 
and here is what it says. ``If any message regarding the P.L. 
480 program came through loud and clear to the committee, it 
was the wide-ranging expressions of concern from both inside 
and outside the administration''--and here is the key phrase--
``that bureaucratic procedures and delays have seriously and 
adversely affected U.S. food aid programs. This frustration has 
been focused on the food aid subcommittee of the Development 
Coordinating Committee. The DCC is an interagency group 
comprised of USDA, AID, State, Treasury, OMB, and occasionally 
the National Security Council. Just as an employee can't work 
well with five bosses, Public Law 480 doesn't work well with 
five agencies overseeing its operations. This bill makes 
specific Government agencies responsible.''
    Well, apparently, it didn't because we are right back in 
the same--whatever we did in 1990 didn't work. Maybe it 
improved things at the margin and we would make a case, but we 
have got a problem when the person who understands what needs 
to be done, who was here earlier--I mean, I have got to haul 
him down to the Old Ebbitt Grill to find out what he actually 
thinks needs to be done, and even then I am not certain either, 
A, he is going to tell me what needs to be done or, B, I am 
going to remember it.
    Both of you have watched--Mr. Molz as well--this Government 
operation. I think you can be sympathetic to the dilemma that 
they are in. The decisionmaking process is flawed. It rewards 
people who avoid risk and rewards people who prolong the 
process of decisionmaking. That is what we had in 1990, that is 
what we had in 1996, that is what we have in 2000. How do we 
change that?
    Ms. Levinson. I think there are so many issues wrapped up 
in what you are asking. The problem isn't just a question of 
interagency; it is intra-agency as well, of course. There are 
difficulties within agencies.
    If I may, I would like to start with this concept of Cuba 
and some other countries that are difficult countries, not 
rogue, but let's just say difficult, because besides a Cuba or 
an Iraq, for example, you are dealing with countries that are 
difficult otherwise when you are dealing with food aid.
    You are reaching countries that are undeveloped. They have 
poor infrastructure. Their government structures are weak. 
There is really a lot of internal corruption, what you and I 
would call corruption, but is normal business in the country 
because they don't have contract laws. They don't have 
enforcement, they don't have a reliable judicial system. So you 
are really operating--and PVOs are used to this; I mean, my 
members are very used to that.
    So they have a delicate balancing act between working with 
the recipient country government, meaning a relationship, and 
also working at the local level, very targeted, in the 
communities, so that their programs really can be effective 
because they have people there on the ground.
    So I think one of the most important elements to consider 
is, is it possible to program food aid in a way that there is 
an intermediary such as a PVO there that can take that kind of 
responsibility, has ground experience, really has the 
experience to work there. This helps to mitigate the risk for 
USDA and USAID. They cannot be in all those communities. They 
cannot be there monitoring all those communities. It is really 
up to a reliable partner. So choosing reliable partners with a 
good track record, I think, is number one. And I think that 
could work even in Cuba, if you had reliable partners. I know 
Catholic Relief Services has raised this before, to have an 
intermediary that is reliable that can work locally.
    We have also seen some very good work done where you 
monetize commodities. For example, on 416, because it is short 
term, you can monetize and put that in an account and use this 
for private sector development. And there are many models of 
this and they have been done successfully all over, and I hope 
that we could build on that.
    I think one of the things USDA needs to do is, on 
monetization, not try to be in such a rush; in other words, 
give some more time for an organization; when it sells the 
commodity and puts the money into an account, give it a longer 
term to spend that money effectively and focus on the effective 
use of the money rather than trying to get it off the books in 
2-years or something, so maybe a longer-term outlook.
    Another way to mitigate, I think, this risk is multi-year 
programming, in general. What Mr. Cavanaugh is referring to is 
at two levels. One is assuming our Government is so together 
and coordinated that the State Department, AID, NSC and 
everyone, even if they sit together, can come up with a plan 
for Russia. Now, I wouldn't presume that, and we can't assume 
that is ever really going to happen. So let's drop that off the 
books for a minute because I think that is pie in the sky.
    So I think really finding at the second level reliable 
methods, reliable partners, not just relying on foreign 
governments but really good intermediaries, and using them to 
make things work better is really the best we can do, and 
having them on the ground with multi-year programming. We can't 
always have some master plan for a country, and then, of 
course, events occur and that master plan will be changed in a 
year anyway. So that is why it is good to rely on partners. So 
I hope that maybe addresses that. And powdered milk sounds 
great to me if there is a way to do it.
    Senator Kerrey. Well, Mr. Chairman, just in the interests 
of making certain that we get--I guess there is one more panel.
    The Chairman. Well, we have the growers. I did this once 
when I used to be somebody in the House of Representatives, 
when I was chairman, and I can't remember what hearing it was, 
but we actually had the commodity growers, the farmers, testify 
first. It made the Department of Agriculture mad as hell, but 
we got them first. And they have been waiting patiently, and we 
have four very fine individuals who have a lot of experience in 
this, so we do want to get to the panel.
    Senator Kerrey. Let me say to you, Mr. Chairman, my guess 
is the final panel is not going to do anything other than cause 
me to feel even stronger about it. I really think this is the 
pointed end of a very important spear. I am a person who 
graduated from the University of Nebraska in 1965, right in the 
teeth of the Cold War when they had a thing called the 
Selective Service and they were drafting us to go off and fight 
real wars in Vietnam and elsewhere.
    Now, what we are looking at is a different kind of war, and 
it is a war to make democracy work and it is a war to make free 
markets work. Of the all the Federal efforts we have got going, 
this is the most important one. Will it benefit farmers in the 
State of Nebraska? Yes, but there is a far bigger benefit, in 
my view. There is a humanitarian mission that is enormously 
important, and it does link to eventual trade and it can link, 
as well, to confidence-building on the democratic side and on 
the free market side.
    It can establish friendships that will make it possible for 
us to do things that we otherwise could not do. There is 
nothing quite like a friendship to give people confidence they 
can do things together. I mean, that is what you and did on 
crop insurance. We surprised everybody and nobody gave it any 
attention because it was 96 to 4, and it has got to be 50-49 
before it gets in the newspaper. But it seems to me that this 
is vital and that it is still dysfunctional. I mean, I think 
you and I ought to----
    The Chairman. Well, we ought to spear-head this and we 
ought to take the suggestions by John, by Ellen, by Otis, and 
by others and see if we can't come up with a specific 
recommendation. And I will commit that we will do this. After 
all, that is the job of the Subcommittee.
    Senator Kerrey. Mr. Chairman, I am willing to go so far as 
to say that we need to shift the authorities. I am in 12-years 
of doing this sort of thing, and these decisions get hung up at 
OMB. They get hung up at the National Security Council.
    The Chairman. Yes, they do.
    Senator Kerrey. They get hung up God knows where. You don't 
know where they are. Maybe the IRS is making some of the 
decisions, for all I know. I don't know, but it's like you are 
chasing it around and nobody has to accept any responsibility 
for it because nobody has any real authority. The authority is 
all cut up and divided all over the place, so there is no 
master plan.
    John, you used those two words together, and this is as far 
away from a master plan as I have ever seen. You know, it is 
one thing if it was something that wasn't terribly important. 
But 10-years from now, I hope we are able to look back and see 
fewer missed opportunities. The opportunities we have missed in 
Russia break your heart, given the consequences of bad 
decisionmaking. They just break your heart.
    The Chairman. Well, we have successfully poked them, I 
think, in the eye in so many different policy areas. The 
stability of Russia, more especially with Mr. Putin at the 
helm, and what we are involved in terms of our mutual 
discussions with that country are absolutely imperative.
    Senator Kerrey. What I am saying, Mr. Chairman, is I think 
we ought to think about even converting this to some 
legislative recommendations that will cause people to say, oh, 
my God, Roberts and Kerrey are doing it again.
    The Chairman. Can we make that Kerrey and Roberts?
    [Laughter.]
    Senator Kerrey. When the French were playing one of their 
games, you and I introduced legislation that said that the 
French had to put a label on their wine that said this bottle 
may include dried animal blood. Well, that got attention, and 
all of a sudden the French cared about us and who we were.
    The Chairman. I sort of hoped you wouldn't mention that 
again.
    [Laughter.]
    We want to thank the panel for indulging the Kerrey-Roberts 
show here for a while.
    Senator Kerrey. Thank you.
    The Chairman. I would like to welcome Bruce and Marc and 
Roger and Bill. We have got the Rice Producers Association from 
Mississippi. We have got the National Corn Growers from 
Lawrence, Kansas. We have Marc Curtis, the Chairman of the 
Board of the American Soybean Association, and Bruce Hamnes of 
the National Association of Wheat Growers.
    Gentlemen, I apologize to you that we are getting you on at 
10-minutes after five, and my sincere apologies. Rest assured, 
all of your statements will be made part of the record. And we 
will start with Bruce, go to Marc, to Roger, and to Bill, and 
we welcome you to the panel. Thank you for the job you are 
doing on behalf of our beleaguered producers.
    Pour yourself a glass of water and start off.

   STATEMENT OF BRUCE HAMNES, NATIONAL ASSOCIATION OF WHEAT 
                  GROWERS, STEPHEN, MINNESOTA

    Mr. Hamnes. Mr. Chairman and members of the Subcommittee, 
thank you for the opportunity to provide the wheat industry's 
perspective on the benefits of the current export programs and 
the future of these programs. I am Bruce Hamnes, a wheat grower 
from northwest Minnesota, and I have been a wheat grower since 
1963.
    Let me begin by saying that the importance of the USDA 
export programs for U.S. wheat cannot be overstated. U.S. wheat 
growers export nearly 50-percent of their production, making 
flexible, effective, and fully funded export programs critical 
to our long-term success.
    I commend you on the timeliness of your review of export 
programs, their future, and on their value in facilitating the 
market development and promotion process. We believe that these 
programs must be protected and allowed to expand under the 
rules of the World Trade Organization. As the negotiations of 
the next round are just beginning, it is appropriate to make it 
very clear to our trading partners that we believe these 
programs are not trade-distorting and that the industry expects 
our negotiators to protect them and our Government to employ 
them aggressively.
    Market promotion and development are ``green box,'' or non-
trade-distorting activities under current WTO rules. The trend 
toward reduction and elimination of trade-distorting programs 
clearly puts added emphasis on market promotion and development 
activities. These activities should be utilized to their 
fullest extent as a significant element in the foundation of 
future agriculture policy.
    Equally as important as the WTO negotiations is the need to 
expand these programs to the maximum extent possible in the 
upcoming farm bill discussions. Freedom to Farm made great 
strides toward improving flexibility and opportunity for 
American farmers. However, as historical support was 
eliminated, use of agricultural export programs remained 
stagnant, and in some cases decreased, as U.S. farmers were 
sent out into the world market to survive without their 
traditional tools of support.
    Well-funded export programs, which are a necessary part of 
the equation, were not reinforced. Now is the time to correct 
that oversight. As we embark on the debates surrounding the new 
farm bill, export programs that give American farmers and 
ranchers the tools to survive in the new economy must not be 
overlooked or taken for granted. Maintaining and increasing the 
export market for U.S. wheat is absolutely essential. What we 
don't use or export will sit in our bins and depress prices.
    The preliminary year-end sales figures for marketing year 
1999-2000 show that 79 countries purchased wheat on a 
commercial basis from the United States. Another 14 countries 
received U.S. wheat solely as a result of food aid, and 21 
countries that received wheat donations also purchased U.S. 
wheat on a commercial basis.
    We must have access to a variety of export programs that 
provide flexibility in reaching our customers around the world. 
Let me list the specific issues affecting export programs now 
used to move U.S. wheat in the world market. You have more 
detail before you in my written testimony: the foreign market 
development program, the Market Access Program, export credit 
guarantee programs, International Monetary Fund, food aid, and 
the Export Enhancement Program. Sanctions must continue to be 
reformed so that all markets are open and these programs are 
available. The export of American agricultural product is 
possible because of a large group of dedicated in the USDA who 
depend on you for their funding and to whom the industry is 
indebted. They make our export programs work.
    Now, what is in the future of agriculture export marketing? 
Every Nation has in place a set of policies and programs that 
are designed to help meet its citizens' food and fiber needs, 
as well as capitalize on potential trade opportunities. The 
Uruguay Round of GATT and the WTO have not changed this. The 
playing field is not level. Our national policies and programs 
must be equally competitive.
    American agriculture cannot compete against foreign 
governments. The U.S. must develop a comprehensive trade 
strategy for American agriculture that reflects the dynamics of 
the global marketplace and world competition. This includes 
passing fast track negotiating authority, responsible oversight 
of the WTO negotiating process, meaningful unilateral sanctions 
reform, the granting of permanent normal trade relations for 
China, and an unshakable commitment to provide American 
agriculture with the proper tools to develop markets and 
promote agricultural goods.
    We must tell the world that we are serious about 
negotiating, and fast track is an important part of that 
message. The paper tabled last month by the U.S. Trade 
Representative's office in Geneva before the WTO is a positive 
start toward efforts to promote free and fair trade in 
agriculture. Meaningful unilateral sanctions reform must be 
implemented to ensure that the U.S. is considered a reliable 
supplier of agricultural products to the world.
    If Congress fails to grant China permanent normal trade 
relations in a timely and honorable manner, we can expect to 
see very few, if any, sales in the future. There is no issue 
more important to the future of the industry than finalizing 
this process.
    We believe that the Market Access Program should be funded 
at no less than $200 million, and foreign market development 
should be no less than $42 million. While the EEP program must 
be maintained to counter unfair trade practices, we support 
congressional direction to the Secretary to use the unexpended 
funds in market promotion and development programs.
    The Foreign Agricultural Service and APHIS must be funded 
at levels that allow for adequate personnel and programs to 
meet the demands of opening and expanding world markets. In a 
dynamic, competitive world market, we need to strengthen the 
programs that will enable agricultural marketing development 
organizations to continue their partnership with Congress, the 
USDA, and the industry to maintain a growing market share in an 
extremely competitive world market.
    Thank you for the opportunity to discuss the export 
programs and their importance to the future of our industry.
    [The prepared statement of Mr. Hamnes can be found in the 
appendix on page 104.]
    The Chairman. Well, we thank you, Bruce, for a very 
comprehensive statement. Let me just say for the record that I 
would wave the flag for every one of your suggestions as we 
mount the parapets of a strong and consistent export policy.
    Marc, please proceed.

   STATEMENT OF MARC CURTIS, CHAIRMAN OF THE BOARD, AMERICAN 
            SOYBEAN ASSOCIATION, LELAND, MISSISSIPPI

    Mr. Curtis. Thank you, Mr. Chairman, and good afternoon. I 
am Marc Curtis and I am Chairman of the American Soybean 
Association. ASA represents 28,000-producer-members on issues 
of importance to all soybean farmers. We compliment you on 
having this hearing and we appreciate the opportunity to 
present our views on some important issues.
    Exports are vital to maintaining and enhancing soybean 
prices and U.S. soybean farmer profitability. One out of every 
two bushels of annual soybean production must be exported in 
the form of soybeans, soybean oil, and soybean meal. The 
importance of export markets has only increased, as U.S. 
soybean acres have increased from 62.5-million in 1995 to 74.5-
million this year.
    The 1996 FAIR Act introduced changes in U.S. farm policy 
that have heightened the importance of having effective export 
programs and trade policies. Elimination of crop acreage bases 
and set-asides in favor of full planting flexibility on all 
crop land has made U.S. agriculture truly market-oriented and 
market-dependent. This linkage was recognized by the authors 
and supporters of Freedom to Farm when it was enacted 4 years 
ago. It has been reiterated on various occasions since then, 
including in a letter of May 17, 1998, from major farm 
organizations to the administration and congressional 
leadership.
    The need for strengthening export programs and trade 
policies have been a top priority of ASA, and actions needed to 
make the current domestic program successful. Unfortunately, 
many of the initiatives urged by ASA and other farm groups 
since 1996 have either been ignored or given only partial 
attention by the administration and Congress.
    The exception, of course, has been the area of trade 
policy, with the House approval of China PNTR as a solid 
victory for U.S. agriculture. ASA strongly urges the Senate to 
take similar actions as soon as possible, and certainly before 
the August recess. Also, the WTO negotiating position tabled by 
the administration in Geneva last month contains a number of 
positive proposals to reduce import tariffs, eliminate export 
subsidies, and balance trade-distorting domestic support 
programs.
    On the other side of the ledger, however, we are very 
concerned about the inability of Congress and the 
administration to support reform of the unilateral economic 
sanctions on agricultural exports, as provided for in 
legislation authored by Senator Ashcroft and others. We will 
remain uncertain over the status of a new WTO round until 
Congress provides trade negotiating authority and comprehensive 
talks are finally launched.
    In addition, there simply has not been enough attention 
given to support for programs designed to enhance U.S. 
competitiveness in the short and long term. I was going to 
comment on five areas, but in the interest of time let me just 
touch on one and move to some recommendations we would like to 
make.
    Humanitarian food assistance; we have heard a lot about 
that already this afternoon. Ms. Levinson in the panel before 
me commented about our joint effort this past year in this 
program. The declining U.S. commitment to support humanitarian 
food assistance during the past 20-years is one of the most 
tragic casualties of the effort to balance the Federal budget.
    Between 1985 and 2000, Congress and the administration 
agreed to reduce by more than half, funding for our core food 
aid program; P.L. 480, from $2.2 billion to $1 billion. Worse, 
funding for the market development portion of P.L. 480, Title 
I, has been greatly reduced. As commodity surpluses have grown 
since 1997, the administration has turned increasingly to 
donations under Section 416(b) to offset the decline in P.L. 
480 programming.
    In March 1999, ASA submitted to USDA a list of potential 
recipients of soy products under Section 416 totaling $1 
billion. ASA also worked with soy processors and private 
voluntary organizations to develop 14 proposals that would not 
displace commercial sales covering 21 countries. These were 
submitted to the USDA last November.
    In February of this year, the Department announced its 
Section 416 allocation for this year. Soy products totaled only 
425,000-tons, a fraction of ASA's request, and included only 
two of the proposals and five of the countries targeted by the 
ASA. ASA estimated that this program would have raised prices 
and reduced LDP payments to farmers by as much as $2.5 billion, 
which has not been disputed by anyone.
    During my years as ASA president, this was the most 
frustrating issue I faced. I do not understand why this 
administration can choose not to invest $1 billion to save up 
to $2.5 billion for the taxpayers and help feed poor, starving 
people around the world, and help U.S. farmers in the process, 
just to say that we didn't give farmers more money. ASA has 
renewed its request for a substantial increase in soy product 
exports this year under P.L. 480 and the Food for Progress 
program, as well as under 416.
    Facing another large soybean crop, we are calling on 
Secretary Glickman to designate soybeans, soybean meal, and 
soybean oil as surplus commodities, and that USDA purchase a 
substantial quantity of these products using CCC Charter Act 
authority. We ask that these actions be taken as quickly as 
possible this fall to ensure a positive impact on prices at 
harvest, which would reduce LDP outlays on the 2000-soybean-
crop.
    Let me skip now to our recommendations, Mr. Chairman. U.S. 
agriculture is owed a substantial back debt of funding for 
export programs. ASA recommends the following actions to 
restore the competitiveness of U.S. exports and reduce price-
depressing surpluses.
    Point one: authorize funding of the foreign market 
development program of not less than $40 million. Establish an 
export program task force to work with USDA to identify 
additional markets to utilize the maximum $5.5 billion in 
export credit guarantees. Have a task force also work with 
exporters to determine how terms should be adjusted to make the 
supplier credit program effective for bulk commodities. Restore 
the Food for Peace program to its 1985 level of $2.2 billion 
under a super P.L. 480 initiative, with substantial funding 
utilized under the Title I market development portion of that 
program.
    Pass legislation authorizing unused EEP funds to be used 
for market development and export assistance activities. Expand 
exports of soybeans and soybean products, including soy protein 
products, under Food for Progress and Section 416. Have the 
export program task force develop recommendations on how the 
interagency Food Aid Policy Committee can streamline its review 
process in order to expedite USDA recommendations on Section 
416 and other food aid initiatives.
    Direct the task force to work with the World Food Program 
and PVOs to develop an international school lunch program or a 
child development program with the goal of providing nutritious 
meals for the preschool and school-age children of the world's 
poorest countries. And, finally, provide FAS and APHIS with 
additional staff and budget resources to support trade-related 
activities.
    Mr. Chairman, many of these programs would take substantial 
funding increases, and we realize that it would have to be 
ramped up over a number of years. But in this time of 
increasing surpluses and low prices, if we are to correct the 
situation and relieve the Government of having to provide 
supplemental support payments in the range of $17 to $19 
billion a year, we have to do something and do it soon.
    [The prepared statement of Mr. Curtis can be found in the 
appendix on page 111.]
    The Chairman. Well, your point is well taken about that. 
That is for sure. Thank you, Marc.
    We now welcome Roger Pine, who is from Lawrence, Kansas, 
and is the Chairman of the National Corn Growers Association.
    Roger.

 STATEMENT OF ROGER PINE, CHAIRMAN OF THE BOARD, NATIONAL CORN 
             GROWERS ASSOCIATION, LAWRENCE, KANSAS

    Mr. Pine. Thank you, Mr. Chairman. My name is Roger Pine. 
Our family raises corn, soybeans, wheat, and turf grass near 
Lawrence, Kansas. I am here today as Chairman of the National 
Corn Growers Association. We appreciate the opportunity to 
appear before this subcommittee to discuss ways to improve U.S. 
exports.
    U.S. corn farmers are efficient, but our export performance 
does not always reflect that comparative advantage. Ten-years-
ago, the United States controlled over 80-percent of world corn 
exports. This crop year, our market share is estimated at 59-
percent. World and U.S. corn exports increased during the 
1970s, but have not grown since. Domestic farm policy and an 
ill-advised grain embargo limited U.S. corn exports in the 
first half of the 1980s.
    Once farmers were permitted to use certificates to redeem 
price support loans at local market prices, U.S. corn exports 
began to increase. But weak export performance in the 1990s has 
contributed to the high stock levels and low prices that plague 
producers today.
    CCC export credit guarantee programs facilitate commercial 
sales of U.S. agricultural products to creditworthy foreign 
customers. The CCC guarantees payments due from foreign banks 
enabling U.S. financial institutions to offer competitive 
credit terms. The GSM-102 is the most significant program for 
corn exports. This program offers customers up to 3-years to 
repay loans. Mexico has been the largest user of GSM-102 credit 
guarantees for feed grain purchases this fiscal year. Turkey 
and South Korea have also used the program extensively.
    The U.S. and other members of the OECD are currently 
negotiating changes to export credit guarantee programs. Our 
competitors are demanding that we drastically shorten the 
repayment period for GSM loans. NCGA supports efforts to 
complete OECD negotiations. However, we must insist that our 
loan guarantee programs meet the credit needs of our export 
customers.
    Export price subsidies have cheapened grain on world 
markets. The U.S. proposal for agricultural trade reform in the 
WTO calls for the elimination of export subsidies. This is an 
objective that NCGA fully supports. The Market Access Program 
and the Foreign Market Development Cooperator Program help fund 
private sector market development activities. These programs 
boost exports through advertising, trade servicing, technical 
assistance, and other non-price market development activities. 
We spend only a fraction of what our competitors spend on 
market development activities. It is time for Congress to 
demonstrate that the United States is prepared to invest in new 
markets with increasing funding for MAP and FMD.
    The United States has shared our abundance with developing 
countries in times of famine and food shortages. Besides 
addressing critical food needs, our food aid and donation 
programs are an important part of broader foreign assistance. 
The United States individually and through international 
organizations can help developing countries meet critical food 
and health needs. Children provided proper nutrition, health 
care, and educational opportunities today will become more 
productive adults who will buy more U.S. products.
    If U.S. farmers are to remain competitive in the global 
market, they must be able to deliver their products to domestic 
and world markets efficiently and cost effectively. We urge 
Congress to provide adequate funding to upgrade our river 
transportation system to reduce costly delays and expedite the 
movement of corn and other products.
    The U.S. has imposed unilateral trade sanctions more often 
than any other Nation. Sanctions encourage the use of trade-
distorting domestic farm programs in every country that is 
unwilling to trust the United States as a reliable supplier of 
food. Congress must exempt commercial sales of food, feed, and 
other agricultural products from unilaterally imposed 
sanctions. Finally, the Senate must pass PNTR for China without 
amendment. This legislation will open the world's biggest 
country to U.S. corn farmers.
    This subcommittee provided the leadership to improve the 
crop insurance program to make adequate risk management tools 
affordable. We thank you for that leadership and for the 
financial assistance to help farmers faced with low commodity 
prices. We hope that the suggestions you hear today will lead 
to improved export programs and higher prices in the future.
    Thank you for allowing me to present the views of the 
National Corn Growers Association.
    [The prepared statement of Mr. Pine can be found in the 
appendix on page 116.]
    The Chairman. Well, we sure share that goal, Roger.
    OK, Bill, you are next.

 STATEMENT OF BILL GRIFFITH, U.S. RICE PRODUCERS ASSOCIATION, 
                  BOLIVER COUNTY, MISSISSIPPI

    Mr. Griffith. Chairman Roberts and members of the 
Committee, my name is Bill Griffith. I am a third-generation 
rice, soybean and wheat farmer from Boliver County, 
Mississippi. I currently serve as Chairman of the Rice 
Committee of Mississippi Farm Bureau, and also the National 
Rice Committee of the American Farm Bureau. I am here today 
representing the U.S. Rice Producers Association.
    There are several major points I would like to address as 
part of my testimony today. Federal export programs must assist 
all forms of commodities. The future of our industry, both long 
term and short term, will be determined by our Government 
export policies and programs.
    Export credit guarantees are an effective form blind export 
success. We do not need to tamper with the USDA GSM export 
credit guarantee program. This program has been very successful 
in opening and maintaining export markets. This program by its 
very design encourages overseas buyers and purchasers of U.S. 
products on commercial terms. This design makes rice growers 
and exporters equally eligible for credit guarantees. This form 
blind design is prevalent for every major commodity except rice 
and a number of other USDA food aid and export programs.
    An innovative success story is the quality samples program 
recently used by our fellow producers in Mississippi. This 
innovative program has many good points. This program allows 
the producer to ship a sample of a new rice variety to a 
foreign buyer for testing in the market. As a result, the 
overseas buyer has already agreed to purchase more rice in the 
coming year and the use of the USDA to promote the purchase. 
The quality sample program is a good example of an ingenious 
new program that helps farmers market their crops directly to 
foreign buyers.
    We urge the Congress and the USDA to continue supporting 
these types of programs. We also urge Congress to take another 
look at brand advertising programs for the purpose of making 
this type of program available to commodity groups. 
Traditionally, USDA food aid and export programs need producer-
friendly improvements. There are many other USDA programs 
designed to increase exports of U.S. farm commodities that 
should not be overlooked in our quest to improve the health of 
farmers.
    Rice is the only remaining major farm commodity that our 
Government repeatedly fails to offer and make available to 
potential customers in its unprocessed form. USDA's management 
of P.L. 480 and other food aid programs continue to 
discriminate unfairly against rice producers.
    For example, Grains Jamaica, the main importer of U.S. 
rice, still contends that they would make a 100-percent U.S. 
market if they were allowed to import rough rice under P.L. 
480. I have to wonder how the wheat producers would react if 
they were told that they could only ship wheat flour to a P.L. 
480 customer. Or what is the soybean producers were told that 
they could only ship soybean oil?
    All forms of rice should be considered in international 
trade negotiations, and we are hopeful that the U.S. 
negotiators will consider rough rice while discussing policy 
issues with the European Union and others at the upcoming WTO 
meeting.
    Unilateral sanctions hurt U.S. farmers. More than anything, 
we would like to see our farm and export programs work to raise 
farm income. We believe this can be accomplished by removing 
the trade embargo against Cuba. Cuban citizens consume 400,000-
tons-of-imported-rice, all of which is produced by our 
competitors. This would be the greatest single action that 
Congress can take this year to raise prices and export 
opportunities for the U.S. rice farmer.
    In conclusion, we already have the tools for expanding 
overseas sales and giving farmers a hand up in improving their 
current plight. When considering the food aid programs, we 
encourage this committee to allow the U.S. rice industry to 
break with a 45-year tradition and allow all forms of rice to 
be programmed. We thank you for seeing the need to help us with 
these issues, and we are grateful for your time and concern.
    Thank you.
    [The prepared statement of Mr. Griffith can be found in the 
appendix on page 120.]
    The Chairman. Thank you, Bill. Bill, give a quick summary 
on the quality samples program. I was reading about that in 
your statement and I know that you didn't have enough time to 
go over that. I think that is the Missouri rice producers. 
Could you just give me a quick summary of that?
    Mr. Griffith. Well, what they did was they have got a 
variety--now, this is what I have been told. I haven't talked 
to any of the producers themselves, but I understand they have 
a variety that they are working with a country that wants them 
to buy the rice and to use it.
    The Chairman. But that importer, according to your 
testimony, spent a sizable amount of their money to advertise 
its own brand of this product. And then on that label, it said 
it was a product of Missouri. So you have got a quality sample 
there or a program, a new variety, and with USDA help, the 
importing country actually helped pay for that.
    Mr. Griffith. Yes, Sir.
    The Chairman. You have described it as ingenious. I think 
that really attracted my attention. Then on page 5, you 
indicated, ``When considering food aid programs, we urge this 
committee to allow the rice industry to break with the 45-years 
of tradition and allow forms of rice to be programmed.'' Do you 
have support for that across the board?
    Mr. Griffith. Mr. Chairman, speaking as a rice farmer, I 
understand there are complications maybe with some that would 
rather have the rice milled. But as far as a rice farmer's 
standpoint, we don't care if it is cracked, split, milled, 
whatever. We just want it out of our surplus and moved on to 
another country.
    We don't really think that rice has been treated fair 
because it has always been it has to be milled, and we think 
that if a foreign country wants to buy unprocessed rice, let 
them buy unprocessed rice. Why not? As long as the surplus can 
come down, it would sure benefit the United States rice farmer.
    The Chairman. You said that about the most important thing 
we could do is to facilitate the opening up of trade with Cuba. 
I will report to you that virtually every Cuban minister I 
visited with this weekend, and that includes even discussion 
with Fidel Castro, when you mention commodities--obviously, I 
was going to try to mention wheat and corn, Roger, and 
soybeans, Marc, but I was sort of leading off with wheat--it 
always came back to rice, and that they are importing all that 
from Vietnam. It is a poor product and it takes forever, and it 
just doesn't make any sense.
    I am just not sure we have heard a great deal of 
discussion, and you have been very patient in the audience, as 
to what kind of a program we could devise, and then if you 
could get past the political opposition of the Cuban government 
and all of that, you know, to get that done. I agree with you, 
but I must say that I don't think that the House bill--and I am 
just going to be very frank--helps us much.
    As a matter of fact, I think that is more of a headline 
than it is a specific step forward. It is about five steps 
backwards. And I am not too sure we can do that this year. I am 
just not sure that the politics of it--and there is a lot of 
politics involved, to say the least--will be enable us to do 
that.
    But I want to make a promise to you. I mean, if I had to 
spend 10 hours with Fidel and all the ministers and go down 
there, I think rice is the one where we can get the 
breakthrough. We talk about powdered milk and that would be the 
humanitarian issue. But that makes sense to me; that makes a 
lot of sense. It also makes sense in regard to the strategic 
national security issue in regard to Cuba.
    Castro is 74-years old. He was talking about his own 
transition, and the more we are able to empower the individual 
Cuban and have that wherewithal so that infrastructure can 
withstand that transition, the better off we are going to be.
    So I really encourage your activities and your support and 
any suggestions that you might have. Do you have any 
suggestions along those lines?
    Mr. Griffith. Well, I don't know what the statistics are 
now, but back in February, of course, our rice surplus was 
about like the rest of the commodities. I mean, it is just 
overflowing. That is the reason our markets are down so much. 
Back in February, we had 425,000-tons too much. Well, you can 
see in my statement there that they eat 400,000.
    The Chairman. There you go.
    Mr. Griffith. So, you know, that right there would have 
taken care of us. It is like every time we can get a buyer, 
there is a sanction thrown on them. I can't remember what year 
it was, but it was back in the late 1980s, Iraq bought 90-
percent of Mississippi rice. Well, I think the following year 
or maybe the year after that was when they invaded Kuwait.
    The Chairman. I remember that debate. As a matter of fact, 
we were suspending trade relations with Iraq, and some fellow 
named Roberts got up and said once again the farmer is being 
disadvantaged. That was on about a Friday, and on about a 
Tuesday he invaded Kuwait, and I was trying to revise and 
extend my remarks.
    [Laughter.]
    But the point was still well taken. Obviously, when you 
have a national security threat, you know, that is the case.
    Let me ask all of you something, if I might. The Department 
of Agriculture is in Paris discussing the United States export 
guarantee program as we try to achieve some progress in the WTO 
and all of that. We have got a sticking point, and that is the 
issue of the loan duration period.
    Can you give me each commodity's view on that? Should all 
commodities receive equal treatment? I know some want a longer 
period, some want shorter. I would prefer longer, but where are 
you on that?
    We will start out here with wheat, Bruce. Do you have any 
commentary?
    Mr. Hamnes. One-year to 18-months.
    The Chairman. Marc, any comments?
    Mr. Curtis. Yes. Of course, we want to see the negotiations 
completed in OECD. We made that commitment in the Uruguay 
Round. We are very afraid that if it gets into the present 
negotiations for the new WTO treaty that it will be done away 
with completely. So we think it is very important that the 
negotiations be completed in OECD.
    Of course, we want terms as long as we can get them, but 
the soybean industry wants to be very emphatic in the fact that 
we want to be treated equitably. We are not willing to stand 
aside and let one commodity get 2-years and us get 1-year, and 
so on. We have to all get the same.
    The Chairman. Roger?
    Mr. Pine. It is 3-years now, isn't it, I think? We could 
probably do a little bit less than that, but we don't want to 
go too far down. I would say a year-and-a-half to 2-years.
    The Chairman. But you are consistent with the others. 
Everybody is in the same boat.
    Bill, do you have a----
    Mr. Griffith. It is about the same here, Mr. Chairman. It 
is working right now for us.
    The Chairman. We have only got 31-working-days-left in this 
Congress, and you all indicated that the number one issue of 
concern--or I think you did--was the successful passage of 
PNTR, and I think that is going to happen. There is some 
question as to whether we will take that up in the Senate prior 
to the convention break in August or whether or not it will be 
the first thing that we take up in regard to September. But I 
want to emphasize the bipartisan support of the Subcommittee 
and the Committee in that behalf.
    Other than PNTR, is there anything--there is a tax package 
that we passed, but unfortunately it got taken out, that was 
part of the ledger that I kept talking about clear back in 
1996, and then also sanctions reforms. Is there anything else 
you think we ought to be doing here in the last 31-days that we 
could actually do, where we could get a concerted effort in 
behalf of all of our farm organizations and our commodity 
groups?
    [No response.]
    All right. Any final comment?
    [No response.]
    We thank you for coming, and the Subcommittee stands 
adjourned.
    [Whereupon, at 5:44 p.m., the Subcommittee was adjourned.]
      
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                            A P P E N D I X

                             July 18, 2000

      
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                             July 18, 2000

      
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