U.S. GOVERNMENT PRINTING OFFICE

70–092 CC WASHINGTON : 2001

S. HRG. 106–936

U.S. AGRICULTURE EXPORT PROGRAMS

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

SUBCOMMITTEE ON PRODUCTION AND

PRICE COMPETITIVENESS

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

(

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

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAUL COVERDELL, Georgia

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CHARLES E. GRASSLEY, Iowa

LARRY E. CRAIG, Idaho

RICK SANTORUM, Pennsylvania

TOM HARKIN, Iowa

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

J. ROBERT KERREY, Nebraska

TIM JOHNSON, South Dakota

BLANCHE L. LINCOLN, Arkansas

KEITH LUSE, Staff Director

DAVID L. JOHNSON, Chief Counsel

ROBERT E. STURM, Chief Clerk

MARK HALVERSON, Staff Director for the Minority

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(III)

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

Page

IV

PREPARED STATEMENTS—CONTINUED

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

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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

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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 stateowned 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 esVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
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sence, 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

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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 spend- ing $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.

5

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 nearrecord 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.

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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.

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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

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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.

9

That is nowhere near too much food. There are 800-million-hungrypeople 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

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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 reVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
11

porting 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,

12

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

13

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-millionmetric-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 objecVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
14

tive 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.

15

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-tonsof-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-millionmetric-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

16

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

17

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.

18

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.

19

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 valueadded.

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.

20

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.

21

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?

22

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.

23

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.

24

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.

25

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

26

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

27

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 monitorVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
28

ing 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

29

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 proVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
30

vides 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 armslength 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.

31

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 directVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
32

ing 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.

33

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 emerVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
34

gency 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.

35

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 longterm 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

36

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 yearby-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.

37

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 interVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
38

agency 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

39

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

40

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

41

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

42

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 confidencebuilding 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——

43

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

44

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 tradedistorting 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 nontrade-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

45

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.

46

[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.

47

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 recipi- ents 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 utiVerDate 11-MAY-2000 13:47 Mar 16, 2001 Jkt 070092 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 70092.TXT SAGRI1 PsN: SAGRI1
48

lize 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.

49

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

50

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.

51

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

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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.

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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

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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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