(C^'lttAUTHORIZATION OF THE FEDERAL GRAIN INSPECTION SERV-
\\\ / ICE; AND TO EXTEND THE AUTHORTTY OF THE FEDERAL
\^ GRAIN INSPECTION SERVICE TO COLLEQ FEES TO COVER
ADMINISTRATIVE AND SUPERVISORY COSTS
4. AG 8/1:103-31
uthorization of the Federal Grai... HEARING
BEFORE THE
SUBCOMMITTEE ON GENERAL
FARM COMMODITIES
AND THE
SUBCOMMITTEE ON FOREIGN
AGRICULTURE AND HUNGER
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
ON
H.R. 2689
AUGUST 4, 1993
Serial No. 103-31
f^J^y
'K -
^ 199^
V* »-'-
Printed for the use of the Committee on Agriculture
U.S. GOVERNMENT PRINTING OFFICE
74-910 WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043430-0
74-Q10 o - 94-1
{T^mmHomAm^ of the federal grain inspection serv-
VW / ICE; AND TO EXTEND THE AliTHORITY OF THE FEDERAL
\^ GRAIN INSPECTION SERVICE TO COLLEQ FEES TO COVER
ADMINISTRATIVE AND SUPERVISORY COSTS
M.AG 8/1:103-31
leauthorization of the Federal Grai... HEARING
BEFORE THE
SUBCOMMITTEE ON GENERAL
FARM COMMODITIES
AND THE
SUBCOMMITTEE ON FOREIGN
AGRICULTURE AND HUNGER
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
ON
H.R. 2689
AUGUST 4, 1993
Serial No. 103-31
Printed for the use of the Committee on Agriculture
U.S. GOVERNMENT PRINTING OFFICE
74-910 WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043430-0
COMMITTEE ON AGRICULTURE
E (KIKA) DE
GEORGE E. BROWN, Jr., California,
Vice Chairman
CHARLIE ROSE, North Carolina
GLENN ENGLISH, Oklahoma
DAN GLICKMAN, Kansas
CHARLES W. STENHOLM, Texas
HAROLD L. VOLKMER, Missouri
TIMOTHY J. PENNY, Minnesota
TIM JOHNSON, South Dakota
BILL SARPALIUS, Texas
JILL L. LONG, Indiana
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, California
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
JAY INSLEE, Washington
THOMAS J. BARLOW III, Kentucky
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
CYNTHL^ A. McKINNEY, Georgia
SCOTTY BAESLER, Kentucky
KAREN L. THURMAN, Florida
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
PAT WILLIAMS, Montana
BLANCHE M. LAMBERT, Arkansas
LA GARZA Texas, Chairman
PAT ROBERTS, Kansas,
Ranking Minority Member
BILL EMERSON, Missouri
STEVE GUNDERSON, Wisconsin
TOM LEWIS, Florida
ROBERT F. (BOB) SMITH, Oregon
LARRY COMBEST, Texas
WAYNE ALLARD, Colorado
BILL BARRETT, Nebraska
JIM NUSSLE, Iowa
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
JOHN T. DOOLITTLE, California
JACK KINGSTON, Georgia
BOB GOODLATTE, Virginia
JAY DICKEY, Arkansas
RICHARD W. POMBO, CaUfomia
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
Professional Staff
DiANNE Powell, Staff Director
Vernie Hubert, Chief Counsel and Legislative Director
Gary R. Mitchell, Minority Staff Director
James A. Davis, Press Secretary
(II)
Subcommittee on General Farm Commodities
TIM JOHNSON,
DAN GLICKMAN, Kansas,
Vice Chairman
COLLIN C. PETERSON, Minnesota
HAROLD L. VOLKMER, Missouri
JILL L. LONG, Indiana
CALVIN M. DOOLEY, CaUfomia
DAVID MINGE, Minnesota
EARL POMEROY, North Dakota
CHARLIE ROSE, North Carolina
GLENN ENGLISH, Oklahoma
CHARLES W. STENHOLM, Texas
BILL SARPALIUS, Texas
GARY A. CONDIT, CaUfomia
THOMAS J. BARLOW III, Kentucky
SANFORD D. BISHOP, Jr., Georgia
EVA M. CLAYTON, North Carolina
BENNIE G. THOMPSON, Mississippi
PAT WILLIAMS, Montana
South Dakota, Chairman
BILL EMERSON, Missouri
ROBERT F. (BOB) SMITH, Oregon
LARRY COMBEST, Texas
BILL BARRETT, Nebraska
JIM NUSSLE, Iowa
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
JOHN T. DOOLITTLE, California
JAY DICKEY, Arkansas
NICK SMITH, Michigan
Subcommittee on Foreign Agriculture and Hunger
TIMOTHY J.
CHARLIE ROSE, North Carolina,
Vice Chairman
THOMAS J. BARLOW III, Kentucky
CYNTHIA A. McKINNEY, Georgia
SCOTTY BAESLER, Kentucky
CHARLES W. STENHOLM, Texas
PENNY, Minnesota, Chairman
WAYNE ALLARD, Colorado
TOM LEWIS, Florida
JOHN T. DOOLITTLE, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
(III)
^
CONTENTS
Page
H.R. 2689, a bill to amend Public Law 100-518 and the United States
Grain Standards Act to extend through September 30, 1998, the authority
of the Federal Grain Inspection Service to collect fees to cover administra-
tive and supervisory costs, and for other purposes 4
Johnson, Hon. Tim, a Representative in Congress from the State of South
Dakota, opening statement 1
Smith, Hon. Robert F. (Bob), a Representative in Congress from the State
of Oregon, prepared statement 3
Witnesses
Buchanan, James B., vice president, Illinois Cereal Mills, Inc., and chairman.
Grain and Feed Safety, Quality, Grades, and Weights Committee, National
Grain and Feed Association 52
Prepared statement 00
Galliart, David R., Acting Administrator, Federal Grain Inspection Service,
U.S. Department of Agriculture 6
Prepared statement 32
Response to written question from Hon. Glickman 17
Lyons, David C, vice president, government relations, Louis Dreyfus Corp.,
on behalf of the National Gram Trade Council, North American Export
Grain Association, and Terminal Elevator Grain Merchants Association 26
Prepared statement 70
Weller, Paul S., Jr., executive director, American Association of Grain Inspec-
tion and Weighing Agencies 20
Prepared statement 48
Submitted Material
Swenson, Leland, president, National Farmers Union, statement 74
(V)
REAUTHORIZATION OF THE FEDERAL GRAIN
INSPECTION SERVICE; AND TO EXTEND THE
AUTHORITY OF THE FEDERAL GRAIN IN-
SPECTION SERVICE TO COLLECT FEES TO
COVER ADMINISTRATIVE AND SUPER-
VISORY COSTS
WEDNESDAY, AUGUST 4, 1993
House of Representatives; Subcommittee on Gen-
eral Farm Commodities; Joint With Subcommittee
ON Foreign Agriculture and Hunger; Committee
ON Agriculture,
Washington, DC.
The subcommittees met, pursuant to call, at 1:40 p.m., in room
1300, Longworth House Office Building, Hon. Tim Johnson (chair-
man of the Subcommittee on General Farm Commodities) presiding
together with Hon. Timothy J. Penny (chairman of the Subcommit-
tee on Foreign Agriculture and Hunger).
Present from Subcommittee on General Farm Commodities: Rep-
resentatives Johnson, Volkmer, Minge, Pomeroy, Smith of Oregon,
and Ewing.
Present from Subcommittee on Foreign Agriculture and Hunger:
Representatives Penny and Allard.
Staff present: Glenda L. Temple, clerk; Anne Simmons, Jane
Shey, Anne Keys, James A. Davis, John Riley, Neil P. Moseman
and Lynn Gallagher.
OPENING STATEMENT OF HON. TIM JOHNSON, A REPRESENT-
ATIVE IN CONGRESS FROM THE STATE OF SOUTH DAKOTA
Mr. Johnson. The General Farm Commodities Subcommittee
and Foreign Agriculture and Hunger Subcommittee joint public
hearing is called to order.
We are here today to discuss the reauthorization of the authori-
ties of the Federal Grain Inspection Service to collect fees to cover
administrative and supervisory expenses associated with grain in-
spection as well as fees for the testing of equipment utilized in per-
forming official inspection, official weighing or supervision of
weighing of grain. Also included in legislation are the authorities
for the agency to invest these fees and for appropriations as are
necessary to supplement the fees.
This bill was last authorized in 1988 and the reauthorization
that was submitted to the committee by the administration also
calls for a 5-year extension through September 30, 1998. Chairman
(1)
de la Garza, ranking minority member Pat Roberts, Mr. Penny, Mr.
Emerson, Mr. Allard, and I introduced H.R. 2689 on July 21 at the
request of the administration.
I look forward to working with my colleagues when we return
from the August recess to expeditiously move this legislation. I am
also looking forward to working with my fellow South Dakotan,
Senator Tom Daschle on extending the authorities of the FGIS.
We will be hearing this morning from the administration with re-
gard to the agency's mission and current status as well as from a
panel of persons representing those who are approved by FGIS to
carry out official inspections and those who utilize these inspec-
tions and export inspections made by the FGIS itself.
Ranking minority member Emerson, I understand, has a conflict,
and Mr. Penny as well has a conflict, so other members may be
coming and going throughout the course of this hearing, but I feel
we should go forward with taking what I think is very important
testimony for the record. Any prepared statements from the mem-
bers will appear at this point in the record.
[The prepared statement of Mr. Smith of Oregon and H.R. 2689
follow:]
STATEMENT OF
ROBERT F. SMITH
BEFORE THE
SUBCOMMITTEES ON
FOREIGN AGRICULTURE AND HUNGER &
GENERAL FARM COMMODITIES
AUGUST 4, 1993
Mr. Chairman, I'd like to thank you for calling this hearing today on
HR 2689, to extend the authority of the Federal Grain Inspection Service to
collect fees to cover administrative and supervisory costs.
As you know, I have been a consistent and vocal advocate of
maintaining and expanding the export of U.S. agricultural commodities. It
Is my long held belief that, since domestic markets of agriculture products
will remain relatively flat, we must look to exports in order to enhance
profitability for our nation's farmers and ranchers.
The role of grain inspection cannot be understated. Our Federal
Grain Inspection Service, by accurately and consistently certifying quality
and providing uniform inspection and weighing, ensure potential customers
they are buying the product they have specified.
This Is a vital service in Oregon, which exports about 70 percent of
the wheat we grow. Last year, 621,910,000 bushels, or 15.6 percent of U.S.
grain exports, went down the Columbia River.
On September 30th, next month, the authorization for the collection
of fees by the FGIS will expire. Since only about one quarter of the
agency's $40 million operating budget is obtained through appropriations.
Congress will have to act or activities will cease.
Natural conditions have proven disruptive to FGIS operations this
summer. The recent and ongoing flooding on the Mississippi River has
virtually halted barge traffic. Grain isn't moving, so grain isn't being
Inspected in New Orleans, and fees are not being collected. I hope we can
explore the agency's response to this problem at a port that handles nearly
60 percent of our grain exports.
Again, Mr. Chairman, thank you conducting this hearing, I encourage
you to act swiftly to reauthorize FGIS. I hope you are able to proceed
with this process easily and without having to tolerate and mischievous
actions by those who would take advantage of our looming deadline.
I look forward to the testimony of today's witnesses and the
questions from Members of these Subcommittees.
103d congress
1st Session
H. R. 2689
To amend I*ublic Law 100-518 and the United States Grain Standards
Act to extend through September 30, 1998, the authority of the Federal
Grain Inspection Service to collect fees to cover administrative and super-
visory costs, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
July 21, 1993
Mr. DE LA Garza (by request) (Mr. ROBERTS, Mr. JOHNSON of South Da-
kota, Mr. Penny, Mr. Emerson, and Mr. Allard) introduced the fol-
lowing bill; which was referred to the Committee on Agriculture
A BILL
To amend Public Law 100-518 and the United States Grain
Standards Act to extend through September 30, 1998,
the authority of the Federal Grain Inspection Service
to collect fees to cover administrative and supervisory
costs, and for other purposes.
1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 That section 2 of Pubhc Law 100-518 (102 Stat. 2584)
4 is amended by striking out in the introductory clause "Ef-
5 fective for the period October 1, 1988, through September
6 30, 1993, inclusive," and inserting in lieu therefore "Ef-
2
1 fective for the period October 1, 1988, through September
2 30, 1988, inclusive,".
3 Sec. 2. Effective for the period beginning with the
4 date of enactment of this Act or October 1, 1993, which-
5 ever shall sooner occur, and ending September 30, 1998,
6 the United States Grain Standards Act, as amended by
7 the United States Grain Standards Act Amendments of
8 1988 (Public Law 100-518; 102 Stat. 2584) is further
9 amended;
10 (1) in section 7D (7 U.S.C. 79d) by striking
11 out "for each of the fiscal years 1989 through
12 1993" and inserting in lieu thereof "for each of the
13 fiscal years 1989 through 1998";
14 (2) in section 19 (7 U.S.C. 89h) by striking out
15 "during the period beginning October 1, 1988, and
16 ending September 30, 1993, to the extent that fi-
17 nancing is not obtained from fees and sales of sam-
18 pies as provided for in sections 7, 7A, and 17A of
19 this Act" and inserting in lieu thereof "during the
20 period beginning October 1, 1988, and ending Sep-
21 tember 30, 1998, to the extent that financing is not
22 obtained from fees and sales of samples as provided
23 for in sections 7, 7A, 7B, and 17A of this Act"; and
24 (3) by striking out section 21 (7 U.S.C. 87j).
o
HR 2689 IH
Mr. Johnson. Our first panel today is Mr. David Galliart, Acting
Administrator of the Federal Grain Inspection Service, U.S. De-
partment of Agriculture, accompanied by Robert E. Soderstrom, Di-
rector, Resources Management Division, and Mr. Neil E. Porter,
who is the Director of the Compliance Division of FGIS.
Welcome. I think we will begin with your observations and your
testimony. I would invite you to summarize your testimony in any
way that you feel comfortable. Your entire written record is re-
ceived in the record of this committee for examination by the other
members and the staff, but I would invite you to go forward in the
way that you think is most comfortable.
STATEMENT OF DAVID R. GALLIART, ACTING ADMINIS-
TRATOR, FEDERAL GRAIN INSPECTION SERVICE, U.S. DE-
PARTMENT OF AGRICULTURE, ACCOMPANIED BY ROBERT E.
SODERSTROM, DIRECTOR, RESOURCES MANAGEMENT DIVI-
SION, DAVID ORR, DEPUTY DIRECTOR, FIELD MANAGEMENT
DIVISION, AND NEIL PORTER, DIRECTOR, COMPLIANCE DI-
VISION
Mr. Galliart. Mr. Chairman, Mr. Neil Porter is with me, and
also on the panel is David Orr, the Deputy Director of our Field
Management Division. We appreciate the opportunity to discuss
H.R. 2689, which authorizes the Federal Grain Inspection Service.
As you indicated, a full written statement has been submitted for
your consideration.
With regard to reauthorization, on September 30, 1993 Public
Law 100-518, which authorized FGIS to collect fees to cover ad-
ministrative and supervisory costs, will expire. This provision was
last extended by Congress in 1988. H.R. 2689 authorizes the provi-
sions of the statute to continue the agency's programs to September
30, 1998.
A bit of information about our mission. FGIS was created by
Congress in 1976 under the U.S. Grain Standards Act. The agency
was charged with managing the national grain inspection system,
which initially was established in 1916, and with instituting a na-
tional grain weighing program.
The mission of FGIS is to facilitate the marketing of grain, oil-
seeds, pulses, rice, and related commodities by:
Establishing and maintaining official U.S. standards for grain —
when we talk about grain, I might mention that we refer to barley,
canola, com, flaxseed, oats, rye, sorghum, soybeans, sunflower
seed, triticale, wheat, and mixed grain; pulses, which are beans,
peas, lentils; and rice;
Inspecting and weighing nearly all grain and related products for
export markets and, upon request, for domestic trade; and
Supervising the official grain inspection and weighing system,
which is a network of FGIS field offices and authorized State and
private agencies. There are some 2,900 inspectors in the official
system, of which about 480 are FGIS employees.
Under the act, almost all grain exported from the United States
must be officially weighed and inspected. Essentially, FGIS in-
spects and weighs grain to certify that grain exported from the
United States meets contract specifications. In addition, all U.S.
corn exports must be tested for aflatoxin prior to shipment, unless
the contract stipulates that testing is not required.
These mandatory official inspection and weighing services are
provided by FGIS on a fee basis at 54 export elevators, and by 8
delegated States at an additional 21 export elevators.
Domestic inspection and weighing services are provided by 72
agencies that employ personnel licensed by FGIS. The official in-
spection and weighing of U.S. grain in domestic commerce are per-
formed upon request and on a fee basis.
The United States has the most sophisticated and reliable grain
marketing system in the world. We strongly believe that the official
grain inspection system plays, and will continue to play, an essen-
tial role in that marketing system.
The official inspection system provides U.S. agriculture with two
critical services — standardization and impartial service. The stand-
ardization process promotes fair and efficient trade. This includes
grading standards which reflect a consensus of the market and
serve as a common language for merchandising and standard test-
ing procedures that promote the uniform application of the grading
standards. The impartiality of the official inspection system en-
sures that everyone in the market has the opportunity to receive
a fair and unbiased assessment of the quality and quantity of the
grain that they are buying or selling.
It is essential that the national inspection system remain effi-
cient, cost-effective, responsive, and productive. FGIS, with indus-
try support, continues to explore new and innovative ways to re-
spond to changing market conditions with improved service deliv-
ery, new procedures, and programs. One such program is the offi-
cial commercial inspection service, which provides official agencies
with the flexibility to tailor services for domestic trade to meet the
needs of their applicants.
Since 1976, FGIS' weighing and inspection activities have been
funded by user fees. This certainly has fostered efficiency. The
agency has developed and applied numerous cost-effective operat-
ing procedures, from efficient employee scheduling and cross-utili-
zation of personnel to tighter space management and improved in-
spection procedures. This has allowed us to cost-effectively serve
both high- volume, as well as low-volume export locations, and to
oversee the operations of official State and private inspection agen-
cies.
In 1987, the FGIS export inspection and weighing programs cost
the grain industry an average of 24 cents per metric ton. In 1992,
this cost was only 22 cents per metric ton, despite inflation and sal-
ary increases.
In conclusion, the official grain inspection system plays, and will
continue to play, a critical role in the successful marketing of U.S.
grain, both in domestic and international markets.
Throughout the years, our records show that FGIS has responded
to the financial and program challenges presented by the competi-
tive market. Approval of H.R. 2689 will allow us to continue to
meet future challenges.
Mr. Chairman, this concludes my statement. I will be happy to
answer any questions.
8
[The prepared statement of Mr. Galliart appears at the conclu-
sion of the hearing.]
Mr. Johnson. I appreciate your testimony.
We had a notice for a vote going on, and I am weighing the wis-
dom of beginning some questions and then taking off and coming
back; or whether I might be better off just to run over and vote and
come back and begin the questions. I think there may be greater
continuity if I were to recess the subcommittees momentarily, run
across the street, vote, and come back; and then we can begin ques-
tions and not have further interruptions.
So with your patience, we will recess the subcommittees momen-
tarily. I will come back, and we will pick up where we left off.
[Recess taken.]
Mr. Johnson. The subcommittees will be back in order. I regret
the disruption, but votes on the floor are a fact of life around here
and something we simply have to work around.
Again, Mr. Galliart, I wonder if you would share with the sub-
committees your views on the status of the current advisory com-
mittee, its makeup, the number of meetings they are having,
whether there are any producers that are on the committee, and
how you think the advisory committee is working.
Mr. Galliart. The advisory committee is made up of 15 mem-
bers. They alternate, five members rotate off each year. There are
five producers on the committee, and then the rest is a mix of han-
dlers, merchandisers, members from academia, and a member from
the association of grain inspectors. So it is a good mix of committee
members who provide advice and counsel to the Administrator on
grain inspection matters.
Mr. Johnson. How often do they meet?
Mr. Gallluit. We try to meet at least twice a year. There was
a time we met more frequently than that. Because of funding, we
are meeting even less. We have not met this year. We are hoping
to have one meeting, and again because of funding, we think we
can afford just the one.
Mr. Johnson. Do you think that the grain quality working group
is a credible forum for discussion if the advisory committee is not
continued?
Mr. Galliart. It is a credible forum, Mr. Chairman, but if we get
involved with that group, we probably would move toward an advi-
sory committee kind of system anyway.
Mr. Johnson. Do you feel a need for some form of advisory com-
mittee over and above any dialog that you have with the grain
quality working group?
Mr. Galliart. The general thinking has been that the advisory
committee has offered good counsel and guidance to the Adminis-
trator.
Mr. Johnson. As you are aware, there has been a great deal of
discussion lately regarding the use of water in dust control in the
grain elevators and handling facilities. It is my understanding that
the agency is publishing today in the Federal Register a proposed
rule for comment that would eliminate the addition of water to
grain.
I wonder if you would comment on this proposed regulation since
it has been published. I believe members have a copy. I inserted
a copy of the notice for the record.
[The information follows:]
10
Proposed Rules
41439
Federal Register
Vnl. 58. No. H8
Wednesday. August 4. 1993
This McBoo o( the FEDERAL REGISTER
contains notices to the public of th« proposed
Issuanc* ol rules aiy) regulations The
purpose of these rx)tlces Is to gtve Intereslect-
persons an opportunity to pan>dpate in the
tula maldng prior to the ack>ptlon of the fir^
rules.
DEPARTMENT OF AGRICULTURE
Federal Grain lnspectlor< Service
7 CFR Part eOO
RIN 0S«0-AA2S
Prohibition on Adding Water to Grain
AGENCY: Federal Grain Inspection
Service. USDA.
action: Proposed rule.
SUWMARY: The Federal Grain Inspection
Service (FGIS) is proposing to revise the
regulations under the United States
Grain Standards Act (USGSA) to
prohibit the application of water to
grain. This prohibition would be
applicable to all persons handling grain,
not just those receiving ofHcial
inspection and weighing services under
the USGSA. FGIS has determined that
water, which is sometimes applied as a
dust suppressant, can be too easily
misused to increase the weight of grain.
Additionally, externally-applied water
has a significant potential for degrading
the quality of grain. This action would
foster the marketing of grain of high
quality to both domestic and foreign
buyers and promote fair and honest
weighing practices.
OATCS: Comments must be received on
or before December 2, 1993.
ADDRESSES: Written comments must be
submitted to (George Wollam, FGIS,
USDA. room 0619 South Building, P.O.
Box 9M54, Washington, DC. 20090-
6454; telemail users may respond to
mSTAFF/FGIS/USDA; telex users may
respond to 7607351. ANSiFGIS UC; and
telecopy users may respond to the
automatic telecopier machine at (202)
720-4628.
All comments received will be made
available for public inspection in room
0632 USDA South Building. 1400
Independence Avenue SW..
Washington, DC. during regular
business hours (7 CFR 1.27(b)).
FOR FXJRTMER INFORMATION CONTACT:
George Wollam. address as above,
telephone (202) 720-0292.
SUPPLEMENTARY INFORMATION:
Executive Order 12291
This proposed rule has been issued in
conformance with Executive Order
12291 and Departmental Regulation
1512-1. This action has been classified
as nonmajor because it does not meet
the criteria for a major regulation
established in the Order.
Executive Order 12778
This proposed rule has been reviewed
under Executive Order 12778, Civil
Justice Reform. This action is not
intended to have a retroactive effect.
The United States Grain Standards Act
provides in section 87g thai no State or
subdivision may require or impose any
requirements or restrictions concerning
the inspection, weighing, or description
of grain under the Act. Otherwise, this
proposed rule will not preempt any
State or local laws, regulations, or
policies, unless they present an
irreconcilable conflict with this rule.
There are no administrative procedures
which must be exhausted prior to any
judicial challenge to the provisions of
this rule.
Regulatory Flexibility Act Certiflcalion
David R. Galliart, Acting
Administrator, FGIS, has determined
that this proposed rule will not have a
signiTicant economic impact on a
substantial number of small entities.
Most users of the official inspection and
weighing services and those persons
that perform those services do not meet
the requirements for small entities as
defined in the Regulatory Flexibility Act
(5 use. 601 e( seq.).
Information (Collection Requirements
In accordance with the Paperwork
Reduction Act of 1980 (44 U.S.C.
chapter 35), the information collection
requirements contained in the rule to be
amended have been previously
approved by OMB under control
number 0580-0013.
Background
In the March 4, 1987, Federal Register
(52 FR 6493), FGIS amended the
regulations under the United States
Grain Standards Act (USGSA) to
establish provisions for ofncially
inspecting and weighing additive-
treated grain. These provisions were
established to offer the grain industry
the opportunity to utilize available dust
suppression technology, apply insect
and fungi controls, and mark grain for
identification purposes with Food and
Drug Administration (FDA) approved
additives-
Industry comments received during
the rulemaking process supported the
new provisions, but also expressed
concern over the possible misuse of
additives. A total of 15 comments were
received. Three commenters were in
favor of the then proposed regulations
without any reservations. Two
commenters were opposed to the
proposed additive provisions, as related
to dust-suppressing agents. They
asserted, in part, that water may be
added just to increase the weight of the
grain. Additionally, three of the
commenters who were in favor of the
proposed provisions expressed concern
about the potential for improper
addition of additives for the purpose of
adding weight to the grain. Applying
any substance for the purpose of
increasing weight is prohibited by the
Food, Drug, and Cosmetic Act (see 21
use. 342(b)).
The final rule specified that if
additives are applied during loading to
outbound grain after sampling of
weighing, or during unloading to
inbound grain before sampling or
weighing for the purpose of insect of
fungi control, dust suppression, or
identification, the inspection and/or
weight certificate must show a
statement that describes the type and
purpose of the additive application. A
statement was not requireo to be shown
when additives are applied prior to
sampling and weighing out-bound grain
or after sampling and weighing inbound
grain. But, all incidents or suspected
inddenis of unapproved additive usage
or improper additive application were
required to be reported to the
appropriate Federal, Slate, or local
authorities for action.
Even after establishing the labeling
provisions for officially inspected and
weighed additive-treated grain, FGIS
continued to receive complaints about
high moisture grain and improper use of
additives. In 1992, several foreign and
domestic grain mert±ants expressed
concern over potential quality
degradation due to water application
and emphasized that alternative dust
control techniques are available that are
practical and effective. They also
contended that the primary purpose of
11
41440
Federal Register / Vol. 58, No. 148 / Wednesday, August 4, 1993 / Proposed Rules
applying water is to incrtiaso the weight
of the grain, and, hereby, gain a market
advantage. Furthermore, liey expressed
deep concern about possible negative
marVet reaction by both domestic and
foroigo buyers; i.e., buyer confidence in
U.S. grain will decline if concerns
develop over potential quality
degradation caused by water and
"paying grain prices for water." Those
who support allowing the application of
water to grain contend that it is an
effective method for reducing diist
emissions.
In response to these concerns, FGIS
recently amended sections 800.88 and
800.96 of the regulations under the
USGSA to require a stalameni on official
export inspection and weight
certiBrates whenever water is applied to
export grain at export port locations (58
FR 3211). The purpose of this action
was to ensure that foreign buyers of U.S.
grain are informed when additives have
been applied to grain exported from
export port locations. This action did
not address non-export grain.
During and since development of the
regulations requiring a statement on
export grain certificates, numerous grain
industry groups, including exporters,
importers, millers, processors, and
producers, have voiced their growing
concern about the effect that the
application of water has upon all US.
grain, whether or not such grain is
exported from the U.S. or even offered
for ofRcial inspection and weighing
services. They have stated — and
available information confirms — that
applying water to grain poses a risk to
grain quality end can provide a strong
incentive to improperly increase weight.
FGIS believes that the practice of
adding water to grain indiscriminately
may be occurring and that this practice
not only adds weight but creates
favorable conditions for microbial-
conlamination of grain. Section 13(e)(lJ
of the USCGA (7 U.S C 87b) authorizes
the Administrator of FCIS to prohibit
the contamination of sound and pure
grain as ■ result of the introduction of
nongrain substances. Even though
kernels of grain contain moisture,
externally-applied water is a "nongrain
substance." Therefore. FGIS proposes to
prohibit the application of water to
grain. This prohibition would apply to
all persoru handling grain — not just
those receiving official services under
the USGSA.
FCIS recognizes, however, that the
amount of moisture in grain may
increase due to natural environmental
reasons during handling and storage.
FGIS also realizes that water must be
applied to grain during certain end-use
processes. The proposed action does not
restrict either naturally-occurring
moisture changes or the addition of
water during milling, malting, or similar
processing operations.
Althougn studies including research
initiated by the National Grain and Feed
Association which was conducted by
the Department (see for example, Lai,
F.S., Martin. C.R.. and Miller, B.S.,
1982, "Examining the Use of Additives
to (Dontrol Grain Dust" and "Control of
Grain Dust with a Water Spray") and
industry experience indicates that
applying water to grain can suppress
dust, there are alternative dust control
methods available end in use
throughout the industry. Alternative
methods such as pneumatic dust
collection systems do not represent the
same potential degradation of grain
quality, and do not provide an
equivalent incentive to increase weight.
Most elevators, including those that
currently use water, already have
pneumatic dust collection systems
installed. Furthermore, many elevators
that use water also have oil-based dust
suppression systems in place that are
more affective than water. These
systems use either USP white mineral
oil or food grade vegetable oil (eg,
soybean oil). Research has shown that
water applied at a level oro.3 percent
to com reduced the dust concentration
by at least 80 percent on the gallery
floor. At the same location, soybean oil
or mineral oil applied at a level of 0.05
percent reduced dust by more than 90
percent.
Thus, even though water is more
economical than mineral or vegetable
oil (mineral oil costs over S2 a gallon),
far less oil is needed to control the same
amount of dust. More importantly, oil is
adsorbed (adheres) on grain, thereby
providing long-term dust suppression.
Water, on the other hand, is either
absorbed (soaked-in) into grain or
evaporates, and therefore, must be
repeatedly applied. Consequently, FGIS
believes that prohibiting water as a dust
control method would neither increase
the risk of elevator dust explosions nor
have a significant economic impact on
elevators that currently use water.
Proponents for applying water to
grain suggest that the problem is merely
the lack of enforcement of current FDA
restrictions on applying any substance
for the purpose of increasing weight.
They have recommended that a
licensing/ permit program be established
to allow firms to continue to use water,
with certain restrictions. FGIS has
considered this recommendation, as
well as several other alternatives (e.g.,
require water weight to be deducted
from grain weight, limit the rate of water
application, and restrict water
applications to certain locations/
conditions) and determined that any
program for controlling or restricting
water usage would be very difficult and
expensive to administer. Testing and
approving water application systems/
equipment, controlling grain elevator
inventories, monitoring the amount of
water applied and the location of
application, and prosecuting suspected
violators would require a significant
staff commitment and, even then, would
be ineffective in preventing all abuses.
Also, establishing any program that
sanctions the use of water may create a
perception of abuse that jeopardizes the
reputation of all U.S. grain and
undermines the grain industry's
commitment to ensuring quality through
good handling and storage practices.
FCIS believes that banning the use of
water reflects current market needs and
would have a positive economic impact,
on the U.S. grain indusfy. FurLhermore,
most of those that are ctirrently applying
water to grain are not small entities as
defined in the Regulatory Flexibility Act
(5 U.S.C 601 et seq.). Therefore, this
proposed action should have little or no
impact on small businesses.
Comment, including data and views
on this analysis and suggestions
regarding any less burdensome or more
efficient alternative that would
accomplish the purposes described in
this proposal, are solicited from
interested parties.
Proposed Action
FCIS proposes to revise:
1. Section 800.61(b) to prohibit the
addition of water to grain.
2. Section 800.61(d)(4) to exclude
water as a dust suppressant.
3. Section 800.88(d) to eliminate the
provision for adding water to export
grain.
4. Section 800.96(c)(2) to eliminate
the provision for adding water to export
grain.
List of Subjects in 7 CFR Part 800
Administrative practice and
procedure. Grain, Export
For reasons set out in the preamble,
7 UhK pert 800 is proposed to be
amended as follows:
PART 80O— GENERAL REGULATIONS
1. The authority citation for part 800
continues to read as follows:
Authority: Pub. U 94-582, 90 StaL 2867,
as amended. (7 U.S.C 71 rt se<j).
2. Section 800.61 is amended to add
a new paragraph (b)(3) to read as
follows:
74-910 0-94-2
12
Federal Register / Vol. 58, No. 148 / Wednosday, August 4. 1993 / Proposed Rules 41441
S S00.S1 Prohibited grdn handling
practice*.
(b)* • •
(3) Add water to grain for purposes
other than milling, malting, or similar
processing operations.
3. Section 800.61(d)(4) is revised to
read as follows: ^
}800.61 Prohibited grain handling
pradicaa.
be shown when the additive Is a
fumigant applied for tbe purpose of
insect control.
(d)' • •
(4) Dust suppressants. Grain may be
treated with an additive, other than
water, to suppress dust during handling.
Elevators, other grain handlers, and
their agents are responsible for the
proper use and application of dust
suppressants. Sections 800.88 and
800.96 include additional requirements
for grain that is officially inspected and
weighed.
4. Section 800.88(d) is revised to read
as follows:
{t00.6S Lou of Mantlty.
(d) Additives' If additives are applied
during loading to outbound, including
export, grain after sampling or during
unloading to inbound grain before
sampling for the purpose of insect or
fungi control, dust suppression, or
identification, the inspection certificate
shall show a statement showing the type
and purpose of the additive application,
except that no statement is required to
be shown when the additive is a
fumigant applied for the purpose of
insect control.
5. Section 800.96(c)(2) is revised to
read as follows:
1800.96 Weighing procaduraa.
(c)' • •
(2) Additives' If additives are applied
during loading to outbound. Including
export, grain after weighing or during
unloading to inbound grain before
weighing for the purpose of Insect or
fungi control, dust suppression, or
identification, the weight certificate
shall show the actual weight of the grain
after the application of the additive for
inbound grain or the actual weight of
the grain prior to the application of the
additive for outbound or export grain
and a statement showing the type and
purpose of the additive application,
except that no statement Is required to
Dated: July 27, 1993.
0. R-GilUant,
Acting Adrninistwtor
IFR Doc. 93-18300 FUed &-3-93: 8:45 ami
ajLuNO cooe )4io-eN-y
* Qeviton. other lundjen of gnln, and their
ageotl tn r«spoosible for the tdditlve'i proper
OMge utd tppUcation. ComplUnca wtth thU
section does oot excuse comptiaDCe with applicable
Federal, Suie. and local lawa.
13
Mr. Johnson. Would you care to elaborate a bit on the water
issue?
Mr. Galliart. Mr. Chairman, you are right, it does appear in the
Federal Register today.
Many months ago — perhaps it is years now — we started receiving
comments from the domestic industry and also from our customers
abroad, expressing concern over the potential for quality degrada-
tion due to adding water. There continues to be major concern
about that. This is one of the reasons that we prepared this pro-
posal to completely prohibit the addition of water to grain for dust
suppression.
We have allowed quite a long comment period on the proposal be-
cause there are differences of opinion with regard to adding water
to grain. The domestic market, in general, believes that this is not
the thing to do, particularly because there is always a possibility
of enhancing the weight.
So it is now out for comment. We will look at what direction we
will go once comments have come in and then we will get ready to
move into a final rulemaking.
Mr. Johnson. At this point, at least your initial view is that an
outright prohibition on the use of water is preferable to efforts to
regulate and police the use of water for dust control or to market
grain on a dry weight basis?
Mr. Galliart. Yes.
Mr. Johnson. The recently completed General Accounting Office
report on the FGIS brought up several issues that I would like to
go over with you. One is the ongoing debate of whether or not ex-
port inspections should be turned back over to the private official
inspection agencies. For those of us who weren't around or involved
in grain issues in the 1970's, could you give me a brief overview
of why the Congress took the action it did to have FGIS become
the official inspection agency for all grain exports? And how do you
respond to those who would say that you are not as cost competi-
tive as the private agencies in providing inspection services?
Mr. Galll^it. A bit of history with regard to the Federal Grain
Inspection Service first, if I may. Before we became an agency, we
were a division of a larger agency — as some refer to us, "the old
grain division." Our job at that time was to supervise the official
agencies, which were made up of States and private entrepreneurs.
Many of these agencies had been in existence since 1916 and our
job at that time was to simply supervise their work.
In the mid-1970's when reports of fraudulent sampling in inspec-
tion and handling practices caused concern and erosion of con-
fidence in U.S. agricultural grain products, Congress requested a
GAO investigation into the allegations of misconduct. GAO re-
ported a number of serious problems within the national inspection
system which included intentional misgrading of grain, short
weights, and loading unfit carriers.
I think, Mr. Chairman, at that time, we had seven or eight in-
vestigative committees looking into this matter, so it was well ex-
plored. In response to the GAO report and other information. Con-
gress established the Federal Grain Inspection Service as an agen-
cy. We were to administer a national inspection and weighing sys-
14
tern, and set policies and procedures to promote uniform inspection
and weighing services.
As a result of this, they revised the U.S. Grain Standards Act in
1976. Here are FGIS' basic responsibilities:
We were to be a semi-independent agency within the Department
of Agriculture to provide for original inspection of grain at export;
to provide Federal oversight of grain weighing operations; to tight-
en supervision of those activities that continued to be performed by
private and State agencies under Federal supervision; and to im-
prove Federal grain standardization efforts.
It was quite an effort, because we were a unit with about 350
people, and we were not doing the original inspection work. We cer-
tainly were not doing weighing. It became a massive chore, to per-
form the new responsibilities.
As far as competitive cost is concerned, we think that we can
provide the service as reasonably as the States or the private sec-
tor.
As far as the States are concerned, the GAO report did indicate
that they could do it for less per bushel; but if you analyze a bit
further, you find that the GAO report did not include some of the
special services that we do provide.
We also recognize that in many instances the States provide for
inbound inspection and we do not. The States use the same staff
for the export work and the inbound inspection work. That allows
them to utilize their staff very efficiently. As a result, they can do
it for somewhat less. In the final analysis, we think we are about
on par as far as cost is concerned with regard to States.
As far as the private sector is concerned, there is no question
that the private sector can provide the service for less money. How-
ever, with the kind of oversight that we would need to develop, we
doubt seriously the private sector could do it for less. When you
think about it, the heaviest activity is in the gulf. Approximately
70 percent of the grain that is exported out of this country goes out
of the gulf area. It is a very sophisticated, complicated, and very
well-organized system. And in order for us to be assured that integ-
rity is maintained with regard to inspection certificates that are is-
sued, we would need a very competent and, quite frankly, rather
large supervision staff. That would be costly.
Mr. Johnson. Mr. Galliart, the 1990 farm bill directed you to
evaluate the economic impact on producers and on the grain trade
if you were to tighten up grain cleanliness standards. I understand
that the FGIS is in the process of tightening the limits of foreign
material that can be in No. 1 and No. 2 soybeans.
I read an article in the Soybean Digest where a major Dutch oil
buyer said we try to stay away from United States soybeans. He
noted that from 1986 to 1990 the United States share of soybean
imports into Europe decreased from 73 to 48 percent and said, "the
decrease is dramatic, and the only reason is quality. Foreign mate-
rial is our major concern."
And he also noted that South American beans are better quality
beans than the United States. Then a Japanese oilseed processor
association made a similar comment in the press, sa3dng that Unit-
ed States soybeans are inferior to Brazilian soybeans in protein
and oil; and the level of foreign material is lower, at 1 percent, as
15
opposed to the United States at 2 percent. With these kinds of com-
ments being made, I would think that the entire soybean industry,
farmers included, would want to lower the foreign material limits
in soybeans; and I would be interested in what FGIS is doing and
if there are any arguments for not lowering the foreign materials
standards.
Mr. Galliart. Mr. Chairman, we are looking at lowering the for-
eign material limits. The reason we haven't done as much on it to
date is that we are waiting for the ERS report on what the eco-
nomic impact will be.
Mr. Johnson. What is the timing of the report? When do you an-
ticipate that that will be released?
Mr. Galliart. We had hoped that it would be the end of this
year. I am not sure now.
Mr. Johnson. One last question from me. In your view is it fea-
sible to inspect com at the export terminal for aflatoxin; is that a
problem, that it is necessary for FGIS to inspect every export ship-
ment? In other words, could FGIS implement a spot-checking when
it feels a problem exists?
Mr. Galliart. We think it is necessary. The risk of finding
aflatoxin at that point is great. Actually, before we were mandated
to provide this service, the industry, for the most part, had nearly
all the shipments examined for aflatoxin.
Mr. Johnson. I will jdeld to the gentleman from Colorado, Mr.
Allard, for any questions that you might have.
Mr. Allard. I think you have covered all the questions I was
going to ask, so I will yield back the balance of my time.
Mr. Johnson. The gentleman from Oregon, Mr. Smith.
Mr. Smith of Oregon. No questions, Mr. Chairman.
Mr. Johnson. I have one additional question.
Previous authorizations have given FGIS the ability to invest in
interest bearing accounts. Could you give the subcommittees a brief
overview of how you have proceeded with that and how that has
gone?
Mr. Galliart. I will let our chief budget officer respond to that
question, Mr. Chairman.
Mr. Soderstrom. Mr. Chairman, basically we started that in
1984, reauthorization process. In effect, it has gone quite well. We
have invested in T-bills all this time which are of minimal cost as
far as the investment process is concerned. We accumulate the in-
terest back into the agency's revolving fund, which helps reduce
our costs. So, in a nutshell, it has gone extremely well.
Mr. Johnson. Roughly how much do you have invested at any
given time?
Mr. Soderstrom. $6 or $7 million. The reserve is $10 million
and we keep enough liquidity on board, $2 million, $3 million at
one time and invest the rest in T-bills, which we do almost monthly
or quarterly.
Mr. Johnson. I thank the panel. Unless there are additional
questions — Mr. Allard.
Mr. Allard. Thank you, Mr. Chairman. I would like to follow up
on the budget question.
16
The interest that is earned from these accounts, does it go back
to this fund to help pay for the inspection services? Does it go to
the general fund or is it a nonappropriated item?
Mr. SODERSTROM. The interest earned goes back to the revolving
fund to help defray the cost for the service. It does not go to the
general fund. It is a nonappropriated fund.
Mr. Johnson. I want to thank Mr. Galliart, Mr. Orr, and Mr.
Soderstrom for your participation. It is very helpful, and we will be
sharing this with the rest of the committee and the staff.
I will call the second panel, which is comprised of Mr. Paul S.
Weller, Jr., executive director of the American Association of Grain
Inspection and Weighing Agencies of Washington DC; Mr. James
Buchanan, vice president, Illinois Cereal Mills, Inc., Paris, Illinois,
and chairman of the National Grain and Feed Association's Grain
and Feed Safety, Quality, Grades and Weights Committee, also of
Washington, DC, and Mr. Dave — I believe he is accompanied by
Mr. Tom O'Connor — and David C. Lyons, vice president, govern-
ment relations of Louis Dreyfus Corporation, Washington, DC, who
appears on behalf of the National Grain Trade Council, North
Ainerican Export Grain Association, and the Terminal Elevator
Grain Merchants Association.
If you gentlemen would please come forward.
It has been called to my attention that the gentleman from Kan-
sas, Mr. Glickman, has some questions that he would like to have
submitted to FGIS for insertion in the hearing record; and I will
be submitting those questions to FGIS, and with your cooperation,
we would anticipate a response. Unless there is any objection, I
will have those questions and responses submitted to the record for
the committee.
[The material follows:]
17
Questions by Mr. Glickman
Submitted to FGIS for Insertion in the Hearing Record
On July 1, 1993, the Wall Street Journal came out with a stoiy about certain
grain companies spraying massive amounts of water on grain supposedly for dust
control. According to the story:
The water spray, as powerful as a bathroom shower at full blast, is
controlled so precisely that the soybeans absorb the water without
changing appearance. By the time an ocean-^oing vessel has been
filled with them, the beans will be 177.5 metnc tons heavier. That
means $37,000 worth of what the soybean buyers gets is added water.
1. Do you think this problem poses a serious threat to the integrity of our
grain? Do you thank this problem could affect buyers' decisions on
whether to buy U.S. grain?
Yes. The indiscriminate appliqation of water to grain is potentially a very
serious threat to the integrity of U.S. grain. Elevators that add water to
grain may gain an unfair market advantage. If the practice is not stopped,
competitive pressures will force more gram handlers to consider applying water
to their grain.
The practice of adding water to grain has already affected the export market
More and more foreign buyers are stipulating in export contracts that water
cannot be applied to their grairL Since the vast majority of U.S. exporters
are not currently adding water, this stipulation has not yet affected U.S.
grain sales. But, should the practice become commonplace, there is every
mdication that U.S. grain would be placed at a competitive disadvantage.
2. How extensive is this practice in the U.S.? Have certain grain companies
taken a stand against adding water and, if so, do they have other
economically viable alternatives for controlluig dust?
FGIS does not have firm data as to the total number of grain elevators that are
presently using water. It is believed that the munber of users is relatively
small.
Many major grain companies and industry groups, including the National Grain
and Feed Association, have voiced strong opposition to the practice of adding
water to grain.
There are several alternative dust control methods available and in use
throughout the industry. Most elevators, including those that currently use
water, already have pneumatic dust collection systems installed. Pneumatic
dust collection systems are not only an economically viable alternative, but
may also improve the quality of grain by removing harmful impurities. In
addition, many elevators that use water also have oil-based dust suppression
systems in place. Oil-based systems, while not as inexpensive to operate as
water-based systems, are much more effective.
18
Congressman GUckman
3. It is my imderstanding that our government is investigating certain
companies which it thinks are violating the law. Could you tell me v>rhich
provision of the law they might be violating? Is the law clear or murky
on this issue?
The USDA's Office of the Inspector General and the U.S. Justice Department
currently are investigating several incidents involving water usage. It is n^
understanding that both the Food, Drug, and Cosmetic Act and the United States
Grain Standards Act, and perhaps other statutes, may be involved. I cannot
comment directly on whether the laws involved are clear on this issue since the
investigation is ongoing.
4. Has FGIS come out with a regulation to thwart the addition of water to
grain?
Earlier this year, FGIS amended sections 800.88 and 800.96 of the regulations
under the USGSA to require a statement on official export inspection and weight
certificates whenever water is applied to export grain at export port locations
(58 FR 3211). The puipose of this action was to ensure that foreign buyers of
U.S. grain are informed when additives have been applied to grain exported from
export port locations. This action did not address non-export grain.
During and since development of the regulations requiring a statement on export
grain certificates, numerous grain industry groups, including exporters,
miporters, millers, processors, and producers, have voiced their growing
concern about the effect that the application of water has upon aJl U.S. grain,
whether or not such grain is exported from the U.S. or even offered for
official inspection and weighing services.
In response to these concerns, on August 4, 1993, FGIS proposed (58 FR 41439)
prohibiting the application of water to grain except for processing purposes.
Tlie prohibition would apply to all grain handlers, not just those receiving
official inspection and weighing services under the Umted States Grain
Standards Act.
Tlie public comment period on the proposed rule closes November 29, 1993.
19
CoDgressman GUcbnan
5. I am thinkmg about adding an amendment to the Chairman's bill to
prohibit the addition of water to grain for du5t control. Would FGIS
support this amendment and woiUd it give you more teeth than you now have
to punish offenders?
FGIS' current thinking on this issue is that prohibiting the use of water
reflects current market needs and would have a positive economic impact on the
U.S. grain industry.
However, we recognize that there are many divergent views regarding this
issue. To ensure that all affected groups have an opportunity to comment on
this important issue, FGIS published a proposed rule in the August 4, 1993,
Federal Register that provides an extended comment period ofl20 days. This
docket, which proposes to prohibit the application of water to ^ain, invites
commenters to recommend alternatives to prohibition. We believe that all
comments and recommendations should be carefully studied before, any final
action is taken.
20
Mr. Johnson. We will proceed with Mr. Weller first, go through
all of the testimony and then come back for questions from the
members of the subcommittees; and in that way, I think we will
expedite things and retain some continuity.
Mr. Weller, welcome, and please feel free to summarize your tes-
timony or to deliver it in any way that you are comfortable. The
full written statements of all of you will be received for the record
by the subcommittees.
STATEMENTT OF PAUL S. WELLER, JR., EXECUTIVE DIRECTOR,
AMERICAN ASSOCIATION OF GRAIN INSPECTION AND
WEIGHING AGENCIES
Mr. Weller. Thank you, Mr. Chairman. I appreciate the oppor-
tunity, and my constituency appreciates the opportunity to appear
before the subcommittees.
We appear here on behalf of the Nation's official grain inspection
agencies, and I am Paul Weller, executive director of the American
Association of Grain Inspection and Weighing Agencies. The pri-
vate and State agencies of our association comprise the bulk of the
Nation's official grain inspection system. Our national trade asso-
ciation was founded some 50 years ago as a professional association
serving agencies that inspect, weigh, and grade the Nation's grain;
and our members are located throughout the major grain-producing
regions of the United States.
Nearly 2 years ago, our association reported that the official
grain inspection system was in trouble, and since that time,
through congressional efforts and the cooperation of the U.S. Gen-
eral Accounting Office, the Federal Government has taken a closer
look at this ailing system and the Federal agency that supervises
and regulates it. We want to thank Congress and GAO for making
this study possible, and thank you for allowing us to present our
current thoughts on this system and its operation.
As your subcommittee studies the reauthorization of the Federal
Grain Inspection Service, we hope that you will evaluate the GAO
report on the official grain inspection system. Since we were a part
of that report, we would like to present our organization's observa-
tions and recommendations.
First of all, our association supports the reauthorization of the
Federal Grain Inspection Service. We feel strongly that there is an
important role for a Federal regulatory and supervisory agency in
the operation of the official grain inspection system. We do, how-
ever, have some recommendations for your consideration.
On the budget, the fiscal year 1994 budget — and although this
may not be as relevant today as it was several months ago — there
has been a proposal by the administration to shift money from ap-
propriations to industry-paid user fees, and these dollars would be
used to fund standardization activities. We feel that because these
are standardization activities affecting and benefiting the general
public that they should remain, from appropriated funds.
We are also told by our customers, the grain trade, that raising
user fees would be detrimental and would continue to possibly de-
crease the use of the official system. We sincerely believe that that
would be a severe financial burden on all of us in the official sys-
tem. So we oppose additional user fees.
21
We feel that a combination of additional revenues and further
FGIS cost-cutting is a better solution, and it is our belief that addi-
tional revenue can be earned by FGIS, and we also believe that fur-
ther cost-cutting would be possible.
We feel, for example, that FGIS-generated data should be made
available to the using industry and using public through licensing
annual fees, royalties or other revenue-producing techniques. As
you know, these data are paid for currently by the official system,
and then it is made available to the entire industry; and we feel
that everyone using it should pay for it, and that is one way to gen-
erate some revenues.
We see a need to reduce the FGIS role in their official system.
We think that it should be a regulatory and supervisory agency.
We think that it should provide national standards and procedures.
We think that it should protect the integrity of the Nation's grain
inspection system.
We do not think that a Federal agency with taxpayer funding
should be providing services that can be provided at lower cost by
the private sector, and that includes our designated State grain in-
spection agencies.
We have been assured by GAO privately and personally that
FGIS is certainly capable of providing proper supervision of the pri-
vate agencies and protecting the public interest. Accordingly, we
believe that it is time to return export inspections to the private
and State sectors. So we would recommend, as GAO has indicated
to us, that at least two pilot programs be established in the near
future possibly on the west and gulf coasts to evaluate the cost and
feasibility of returning export inspections to the private and State
agencies.
It continues to be our belief that services currently provided by
FGIS field offices could be provided at a cost savings by a central
laboratory located at or near the existing FGIS facilities in Kansas
City. We believe that savings would result from more efficient utili-
zation of staff and equipment resources. We also think that it
would provide greater accuracy and increased uniformity of inspec-
tion results through our national inspection system.
We further believe that cost savings could be realized by allowing
existing agencies to perform services under the Agricultural Mar-
keting Act. FGIS reports that it is currently running a deficit of
$703,000 for the first half of this current fiscal year for performing
services under the AMA.
Many of our official agencies are staffed and equipped to perform
these services. GAO's attorneys have indicated that such services
can be legally open to our agencies through proper bidding proce-
dures. We ask that our agencies be permitted the opportunity to
bid on this new source of business that evidently has been costing
FGIS money. It would, we think, increase our revenues and levels
of efficiency in the private sector.
Finally, it is our belief that there would be further cost savings
if official agencies' redesignation cycle would follow that of FGIS it-
self. If you redesignate and reauthorize FGIS every 5 years, we feel
that the agency should be likewise. FGIS reports that they cur-
rently spend about $450,000 dollars a year on triennial review and
redesignation of official agencies. Funds could be saved, we believe,
22
and disruption of our agencies reduced by lengthening this cycle to
the same 5-year cycle as FGIS itself.
It has been brought to our attention through the GAO report
that there is a wide disparity in fee schedules between neighboring
official grain inspection agencies. Some of these differences, we be-
lieve, are due to lack of flexibility in the FGIS fee approval process.
We were unable, for example, to tailor our fees to the needs of our
individual customers, and in addition, our agencies suffer costly
downtime at low-volume inspection points and must factor this par-
ticular downtime into the fee schedules and it results, of course, in
higher unit costs.
Industry marketing practices, coupled with readily available
third-party inspections, have created keen competition for grain in-
spection dollars. We agree with GAO that the cost of official inspec-
tion is not the primary reason for the decline in official inspection
volume. Consolidation of the grain industry, a desire for in-house
quality control, and reductions in grain stocks under USDA pro-
grams are primarily responsible for the reduction of inspection vol-
ume.
We are concerned that such industry trends require a more ag-
gressive and flexible official inspection system with added empha-
sis on customers' costs and services. We feel right now that we are
hamstrung on providing this flexibility, and we ask that the prior-
ities of FGIS be likewise to allow us this flexibility.
It is our association's recommendation at this time that FGIS
make no changes in their current policy of official agency territory.
I understand maybe the Senate will be addressing that issue in
their bill of opening up these official territories. We believe that
adequate competition is there in the marketplace from such exter-
nal sources as unofficial inspection agencies, in-house quality con-
trol personnel, and the option of having all these services per-
formed at destination.
Finally, there has been some effort within FGIS to reduce or
eliminate its official grain industry advisory committee meetings.
As Mr. Galliart testified earlier this afternoon, there has been a re-
duction in these advisory committee meetings. This forum has been
invaluable to bringing all of the segments of our industry together
to advise and critique FGIS plans and programs. We ask this com-
mittee, the subcommittees and the Congress to request and prop-
erly fund, if necessary, the FGIS advisory committee process so
that the meetings can be held at least semiannually.
In conclusion, the Nation's grain industry has indicated to GAO
the need for a credible and viable official inspection system, and we
of the official grain inspection agencies are dedicated to providing
the most credible and efficient service possible, but we need the
flexibility to respond to the marketplace. It is our belief that by
providing official agencies with additional business opportunities
under the auspices of a more flexible FGIS, that we can work to-
gether to serve the industry needs in a much better and more effec-
tive manner.
Thank you again for the opportunity to be here.
[The prepared statement of Mr. Weller appears at the conclusion
of the hearing.]
Mr. Johnson. Thank you, Mr. Weller.
23
Once again we have the decision to make here about whether to
go with further testimony or whether to break right now, vote and
come back immediately. I think generally it works best, I think, to
go ahead and break and vote rather than to break up questions to
a particular witness or break up the testimony of a particular wit-
ness.
I think that we would be better off to recess, come back very
quickly; and we will proceed on with testimony from Mr. Bu-
chanan.
So we are in recess momentarily.
[Recess taken.]
Mr. Penny [assuming chair]. Mr. Buchanan, if you want to get
your testimony in the record while we are waiting to find out if
there is another vote.
STATEMENT OF JAMES B. BUCHANAN, VICE PRESIDENT, ILLI-
NOIS CEREAL MILLS, INC., AND CHAIRMAN, GRAIN AND
FEED SAFETY, QUALITY, GRADES, AND WEIGHTS COMMIT-
TEE, NATIONAL GRAIN AND FEED ASSOCIATION, ACCOM-
PANIED BY THOMAS O'CONNOR, ADMINISTRATOR, GRAIN
QUALITY WORKSHOP
Mr. Buchanan. Thank you, Mr. Chairman.
Good afternoon. My name is James Buchanan. I am vice presi-
dent, grain, for Illinois Cereal Mills, located in Paris, Illinois. My
company is a dry corn miller and operates 12 full service country
elevators. I am also serving as chairman of the National Grain and
Feed Association's Grain and Feed Safety, Quality, Grades, and
Weights Committee. I am here on behalf of NGFA today. My com-
mittee is charged with monitoring changes in, and developing
NGFA policies related to, the official inspection system.
With me this afternoon is Tom O'Connor, who is with the staff
of the National Grain and Feed Association. Mr. O'Connor admin-
isters the Grain Quality Workshop and assists me in fulfilling my
committee responsibilities.
Mr. O'Connor has over 19 years experience in our industry and
has extensive operational and marketing experience at grain ele-
vators and processing plants.
The NGFA is an association of more than 1,000 grain, feed, and
processing firms comprising 5,000 facilities that store, handle, mer-
chandise, mill, process, and export more than two-thirds of all U.S.
grains and oilseeds utilized in domestic and export markets. NGFA
is unique in that its members represent a broad spectrum of com-
mercial users of the official Grain Inspection and Weighing System,
including country elevators, terminal elevators, exporters, process-
ing firms, and feed mills.
We appreciate this opportunity to present our views on the reau-
thorization of the Federal Grain Inspection Service. The future di-
rection, structure, and cost of the system is vitally important to our
members and deserves careful consideration.
Recently, the U.S. General Accounting Office completed its study
on the official inspection and weighing system which sounded an
alarm bell for future viability of the official system in the interior
market. It also confirms what our industry has known for some
time: The use of the official system in the interior is declining be-
24
cause of its high cost, inflexible service, consoHdation within the in-
dustry, and the increasing acceptance of unofficial grades by the
marketplace.
Furthermore, our members are concerned about the future cost
of the official inspection system not only in the interior markets
but also in export markets. Although we note that H.R. 2689 does
not contain authority to charge user fees for USDA FGIS standard-
ization activities, however, we have been told by key Members of
Congress that budgetary pressures will eventually force Congress
to eliminate appropriated funds for FGIS standardization activities.
However, raising inspection fees will only serve to further erode the
already declining usage of the official system, unfairly burden ex-
porters with a tax on exports and are likely to be passed back to
producers.
Frankly, we believe the current system needs reform. Cost is a
serious problem and this situation is only likely to get worse unless
we are willing to take bold action in the near future.
Under guidance provided by NGFA leadership, my committee
met recently to determine how to preserve the integrity and viabil-
ity of the official system while ensuring that service can be pro-
vided in a cost-effective manner. I am proud to note that committee
members are representative of the broad national spectrum of
NGFA membership including country elevators, terminal elevators,
export elevators, processing plants, and feed mills. After lengthy
discussion, we endorse the following recommendations:
A. Congress should mandate that FGIS develop a plan to stream-
line the agency within 6 months of reauthorization with completion
of the streamlining objectives within 18 months of reauthorization.
The plan must include:
One, eliminating all facets of standardization activities not nec-
essary for the maintenance of accurate and consistent grades. This
should include a plan to shift FGIS research and development ac-
tivities to another Grovemment entity, consolidation of quality con-
trol and testing branch activities and board of appeals and review
activities with a significant reduction in allocating staff years, the
charging of fees for outside training and demonstration and fees for
certifying new inspection equipment.
Two, exploring new ways to introduce a market-oriented ap-
proach to offering official services. For example. Congress should
mandate a pilot program requiring FGIS to open up selected inte-
rior official territories to competitive bidding for services. The sole
criteria for qualification should be whether the applicant agency
and its personnel are qualified to inspect and weigh grain under
the U.S. Grain Standards Act. New fee structures should be ex-
plored that will reflect the actual cost of providing a service to
users. Congress should also mandate that FGIS explore the option
of allowing designated official agencies to perform official inspec-
tions at export locations, consistent with affordability, service and
the maintenance of integrity of the official inspection system.
Three, implementing cost-cutting actions. These actions should
include reducing administrative and supervisory costs to no more
than 25 percent of the costs of inspection and weighing activities,
down from the current legislated ceiling of 40 percent. We believe
the FGIS Administrator should possibly be a career official with
25
the elimination of the Deputy Administrator's position. Addition-
ally, the cost of benefits of making FGIS a division of the Agricul-
tural Marketing Service should be explored.
Furthermore, FGIS should evaluate closure of additional field of-
fices where operating costs grossly exceed revenues. If the direct
users in the region served by such field offices are willing to incur
the additional cost of maybe containing these offices, they should
be given the opportunity. Other cost-reduction considerations
should include the costs and benefits of eliminating General Serv-
ices Administration cost allocations.
We also support providing a one-time offer of credit for service
to employees who were hired as part of the creation of FGIS in
order to expedite early retirement as a means to reduce staff
B. Congress should eliminate the requirement that all grain
standards be reviewed every 5 years. In our view, U.S. grain stand-
ards should be reviewed only when a clear market need exists.
Time is short and swift actions are needed. If FGIS adopts the
NGFA-recommended changes in standardization activities, annual
costs should be reduced from the current $7 million to $5 million
or less.
Importantly, with cost savings generated from other rec-
ommended changes, as well as permitting competition in interior
markets, there is potential to significantly reduce overall cost of the
official system to the marketplace.
In previous testimony, we supported a 1-year reauthorization for
FGIS because of the uncertainty of user fees and the needed
downsizing and reform of the agency. We are now willing to sup-
port a multiyear reauthorization, but only with the understanding
that FGIS will begin immediately to streamline the agency and
complete work within 18 months.
We agree with the provision in H.R. 2689 to eliminate the FGIS
advisory committee. As currently structured and organized, it is
duplicative. Input on FGIS activities, priorities, structure, and rule-
making is provided by active participation by voluntary industry,
producer, and other organizations. Also the Grain Quality Work-
shop, which has met regularly since 1985, provides the consensus
views of a broad spectrum of producer, industry and other groups.
Furthermore, elimination of the advisory committee would save the
Government money and save administrative FGIS staff time now
spent in preparation for meetings.
In closing, if this restructuring of FGIS is unsuccessful in con-
trolling the cost of official grain inspection and weighing, industry
and Government may have little choice but to shift even further in
the direction of a self-regulated or privatized system as a means of
controlling costs to stay competitive in world markets.
Mr. Chairman, this concludes my formal remarks. I would be
happy to respond to questions from the subcommittees.
[The prepared statement of Mr. Buchanan appears at the conclu-
sion of the hearing.]
Mr. Penny. Thank you.
Mr. Lyons.
26
STATEMENT OF DAVID C. LYONS, VICE PRESIDENT, GOVERN-
MENT RELATIONS, LOUIS DREYFUS CORP., ON BEHALF OF
THE NATIONAL GRAIN TRADE COUNCIL, NORTH AMERICAN
EXPORT GRAIN ASSOCIATION, AND TERMINAL ELEVATOR
GRAIN MERCHANTS ASSOCIATION
Mr. Lyons. I appreciate being able to come and appear before
you. I am representing North American Export Grain Association,
National Grain Trade Council, and the Terminal Elevator Grain
Merchants Association, all trade associations representing the
grain trade.
The nature of the official inspection system has changed a lot
since it was begun in 1916 by the passage of the Grain Standards
Act, and FGIS, of course, came into existence in 1976, and we know
some of the history of that.
The Grain Standards Act provides for mandatory inspection at
export points, either done directly by FGIS or by delegated State
agencies, and of course it provides for voluntary inspection at inte-
rior points done by so-called designated agencies, either of private
enterprises or State agencies.
The FGIS activities, particularly in recent years, have been
largely funded by user fees. In fiscal year 1992, about $28 million
of the $40 million were user fees, or about 72 percent.
Our associations support this legislation which reauthorizes
FGIS for the next 5 years. It is important that it be done quickly.
Our associations have always supported a national inspection
system, and it is important that we have a third party inspection
system that everyone can rely upon. Our export customers have
confidence in the system and it is very important to us. We don't
think inspections need to be mandated at domestic points, though.
We have several concerns and recommendations we would like to
share with you, very briefly. Since the agency is funded by user
fees, the cost of FGIS operations is extremely important to the
grain trade. The cost of inspections in our industry is a major oper-
ating expense that we have. We are mandated to use the official
inspection system and we are in a very competitive industry.
We are an industry that has been consolidating over the last few
years. Those firms that have survived have cut costs, and the in-
spection fees, the services, have not gone down in costs. In fact, we
believe that FGIS fees are higher than they probably should be and
higher than they would be if they were done by private enterprise.
Mr. Penny. Mr. Lyons, could you pause before you get to your
one, two, three key recommendations?
Mr. Lyons. Sure.
Mr. Penny. I think I am cutting you off at the point just ahead
of those three.
Unfortunately, this is a 5-minute vote, and if I don't leave now
I won't make this vote. Probably Mr. Johnson will be back before
I will to pick up at that point.
Thank you for your cooperation. We will stand in recess.
[Recess taken.]
Mr. Johnson. We will call the subcommittees back to order.
Mr. Penny indicated that he was coming over to take over the
subcommittees while I was tied up on the floor, but apparently the
27
gentleman was waylaid and I regret the votes have disrupted
things.
Mr. Lyons, I believe that you were testifying or were in the proc-
ess, and if you would be so kind as to continue your testimony.
Mr. Lyons. Thank you. Let me finish up very quickly.
We have three recommendations or suggestions that we would
like to present. Several of these have come from the Grain Quality
Workshop process.
The first one is that we think that FGIS, the Federal Grain In-
spection Service, should develop some kind of a 5-year plan that
would look at streamlining the agency, and basically look at how
to make the agency competitive without jeopardizing the quality of
inspection services. We think that is very important and we think
that can be done and should be done.
Second, we think that Congress in this reauthorization ought to
provide FGIS with the flexibility to improve their efficiency in
order to try to lower costs. We have some specific ideas. There may
be others. It has been mentioned that they should have the ability
to enter into contracts in an easier way for acquiring and providing
services. Allow for early retirement for some of their employees and
to revise the work rules.
I always hear about the inflexibility of work rules from our one
export elevator superintendent. There are probably several other
things, but all have to do with improving the flexibility of what the
agency can or cannot do.
Probably most importantly, we think that FGIS ought to — and
FGIS is not unique in this respect, but I am sure there are a lot
of Government agencies that should do this — ^they should step back
a bit and focus on what their real core mission is and then decide
what are those things that are lower in priority. Those are really
the three very general suggestions that we have.
A comment or two about the standardization activities.
The Republican administrations, and now this administration,
have wanted to move these activities toward user fees, and the
problem — our objection to user fees, and it has been stated earlier,
is that standards facilitate the trade of grain, the buying and sell-
ing of grain, and, really, benefit all segments of the grain industry,
I think you could even argue that consumers get the benefits of
that.
So user fees work best where you can directly determine that
that particular user is getting the benefit of that service. So we
think that standardization activities should still remain appro-
priated funds, and we are very happy that the Appropriations Com-
mittee agreed to do that.
Thanks very much for asking us to appear.
[The prepared statement of Mr. Lyons appears at the conclusion
of the hearing.]
Mr. Johnson. Well, thank you for your testimony.
Mr. Weller, I was wondering what your comments would be rel-
ative to the GAO's comment about the impact in the decline of the
number of official inspections, other than the obvious impact on the
business of your members?
74-910 0-94-3
28
Are there other issues that the subcommittees should be con-
cerned about that have resulted in this decline in the number of
inspections?
Mr. Weller. Mr. Chairman, one of the activities that we have
had in our minds for some time is that we have about 4.2 million
dollars' worth of user fees, private user fees, money in this trust
fund at FGIS, and we would like to see a very small portion of that
be used to educate the using public out there on the official system,
the merits of the official system.
If all of us agree that we should improve our grain quality and
services to our foreign as well as domestic customers, we need to
enhance the official system. We think the official system has major
problems. Part of it is the fact that it is not being utilized well, and
we think part of that is a marketing effort, and our agencies feel
that some of these funds that we have put into user fees ultimately
ought to be used to market this system.
So that would be an idea that we would certainly put forth and
ask your support for.
Mr. Johnson. Mr. Buchanan, I wonder if you would comment on
your views on the water and dust issue, from your perspective,
whether you think the FGIS is proceeding on the right track with
their proposed regs or do you think there are other ways that this
ought to be revised or looked at?
Mr. Buchanan. I want to compliment FGIS for coming out with
the regulation and the calling for a comment period. We, NGFA,
quite a while ago encouraged, asked, requested that FGIS come out
with this and get the comment period started so that it could be
resolved.
The water issue, of using water as a dust control, is probably
separate from the quality issue. Water, no question that it down-
grades quality, and you cannot add water to every step that the
grain goes through the marketing system. So I think it is going to
be very helpful to FGIS, to everybody involved, the grain handling
industry, to get this issue behind us.
Mr. Johnson. Are you comfortable there are alternative dust
handling measures that can be taken that are cost efficient?
Mr. Buchanan. Yes, there are alternative dust control measures
that are used. The issue is old. Are less efficient operations — are
they worth spending the money to upgrade them with better dust
control facilities?
Mr, Johnson, Mr. Lyons, the testimony here among everybody
has been that H.R. 2689 does not continue the FGIS advisory com-
mittee, and some have talked about the grain quality working
group that has been established by the industry and producer
groups. I wonder if you would give us some assessment between
being very important to really being not very important. Your feel-
ing on the retention of the advisory committee and whether you
think the working group provides sufficient dialog between users
and beneficiaries of the agency.
Mr. Lyons. I think it is not very important to retain the specific
FGIS advisory group. I think the Grain Quality Workshop's rep-
resentatives, the grain organizations — the producer groups, is how
I should say it — and the trade should serve the same function as
whatever a FGIS advisory group should do, and it is funded by the
29
users. It is funded by the different members of the grain quality
working group.
Mr. Johnson. Mr. Buchanan, would you hold a similar view?
Mr. Buchanan. Very definitely. My experience with the Grain
Quality Workshop is it represents a much broader cross-section of
producers and end users than the FGIS advisory committee, and
the members of the Grain Quality Workshop have worked very
hard to study issues and come up with recommendations that bene-
fit the entire segment of the industry, all the way from the produc-
ers to the end users, and is a very effective organization.
Mr. Johnson. Mr. Weller.
Mr. Weller. Mr. Chairman, we came out in our statement say-
ing we would like to have the advisory committee, FGIS advisory
committee, continued and enhanced. We would not disagree that
there is a need probably for only one advisory committee. What we
would caution is that if that tips to the Grain Quality Workshop,
that the Grain Quality Workshop be open to all interested groups
that have a role to play in the industry and not be a closed indus-
try group. That is all we would ask.
Mr. Johnson. The gentleman from Oregon, Mr. Smith, any ques-
tions?
Mr. Smith of Oregon. Thank you, Mr. Chairman.
Mr. Weller, tell me how you again would want to privatize FGIS.
Mr. Weller. How we would want to privatize it?
Mr. Smith of Oregon. Yes.
Mr. Weller. We feel that the inspections, Congressman, would
best be handled by the private sector, either the States or the pri-
vate agencies. We do domestic inspections, as you know, but the ex-
port inspections are still done by the Federal Government, and so
what we would do is to move back to have all inspections done by
the private sector under the direct supervision and control of the
Federal Government, FGIS.
Mr. Smith of Oregon. There has been a 10-percent reduction in
inspection, I guess volume, of commodities. Has there been a simi-
lar reduction in the employment of FGIS that you know of?
Mr. Weller. I am not aware of that, if you are asking me — I
think I would have to defer to the
Mr. Smith of Oregon. I am asking the wrong people. I am trjdng
to get a handle on whether you think there are too many employ-
ees doing too little.
Mr. Weller. I am not aware that they have reduced their em-
ployees to that extent. I know there have been reductions in the
agency.
Mr. Smith of Oregon. If we moved inspection to private contrac-
tors for exports, would that save money, in your opinion?
Mr. Weller. We think we could do it for less money. In the case
of the State of Washington, your neighbor, the State of Washington
is doing export inspections now and have told us that they are
doing them for a lesser cost than the FGIS equivalent; Federal
Government.
I can't comment on the additional supervisory personnel that
would be necessary, as Mr. Galliart testified, but we think we can
do the inspections cheaper than they can do it because we have
more flexibility in our hiring in our part-time contract help.
30
Also, if you give us more volume, we think we can become much
more efficient in our own operations.
Mr. Smith of Oregon. What are the reasons for keeping it under
Federal Government control? Are there complications that arise for
inspections in exporters, in private deals?
Mr. Weller. My assumption. Congressman, is there were ex-
cesses in violations of law that were done and that brought, that
gave rise to FGIS in the beginning, and from the private sector.
This now has been addressed.
GAO says that FGIS has told them, at least, that they can prop-
erly supervise and make sure that these violations do not happen
again, and we think it is time now to turn it back over to the pri-
vate sector.
Mr. Smith of Oregon. And you made a recommendation, I be-
lieve, on the reauthorization that we establish, what, a study
group?
Mr. Weller. Yes, sir, we made a recommendation that there be
two pilot projects, one on the gulf and one on the west coast. Gulf
of Mexico and one on the west coast.
GAO indicated to us they felt this was feasible at this time, and,
indeed, that was their private recommendation to us. I don't know
if they made that public, but they certainly made it to us privately,
and we feel that a pilot project ought to be entertained and to see
if indeed we could do it in the private sector.
Mr. Smith of Oregon. Any of you other gentlemen have a com-
ment on this discussion?
Mr. Buchanan, Yes, sir. I would just like to add that the mem-
bers of my committee feel that the export inspection offices need
the flexibility in staffing that the interior inspection, designated in-
spection agencies now have and are passing that cost savings on
to the users and it flows down to the producers.
Mr. Smith of Oregon. Anybody else? No? Thank you.
Thank you, Mr. Chairman.
Mr. Johnson. Mr. Ewing, any questions you might have?
Mr. Ewing. Mr. Chairman, I want to apologize for not being here
more today, during the hearing, particularly when I have a con-
stituent on the panel. I always want to be sure people go home and
say he was there working hard.
Well, we have been working hard, as you all know, and so I have
not had the privilege of hearing the testimony that was made
today, but, Mr. Buchanan, I am pleased to have you here, and I
understand one of our major concerns is that we reduce the cost
of grain inspection. You may have covered this or you may want
to make some other comments.
Mr. Buchanan. Yes. As we pointed out, as the cost of grain in-
spections go up in the interior, more and more people opt to go to
alternatives and the system is used less and less, and that much
more of the burden is passed on to the export segment where you
have mandatory inspections.
Mr. Ewing. I hope that the panel has brought with it many ideas
that will help us if we implement them and consider them to cut
these costs.
Mr. Buchanan. Very definitely. The GAO study has to be ana-
lyzed and a lot of their recommendations looked at if we are going
31
to have and maintain the third party inspection system that we
now enjoy.
Mr. EwiNG. Thank you very much. And thank you for taking
time to be here.
Mr. Buchanan. Thank you.
Mr. Johnson. Any additional questions? Mr. Pomeroy, the gen-
tleman from North Dakota, has requested that a prepared state-
ment from the National Farmers Union, be placed in the record.
I want to thank this panel for your participation and cooperation
with the subcommittees. We conclude this testimony, and your tes-
timony has been very helpful. We will be working with all inter-
ested groups during the August recess to refine the pending legisla-
tion. I think it is important that we go forward in an expeditious
fashion here.
When Congress reconvenes after the August recess, I look for-
ward to your continuing participation and input and cooperation,
and I am confident that by the time the late summer or fall is over
that we will have made some significant progress.
Thank you again for your participation.
Mr. Smith, you have a statement?
Mr. Smith of Oregon. For the record.
Mr. Johnson. Yes, without objection, it is received into the
record, and with that, this joint hearing is adjourned.
[Whereupon, at 4 p.m., the subcommittees were adjourned, to re-
convene, subject to the call of the respective Chairs.]
[Material submitted for inclusion in the record follows:]
32
Statement of
David R. Galliart
Acting Administrator
Federal Grain Inspection Service
U.S. Department of Agriculture
before the
Subcommittees on General Farm Commodities
and Foreign Agriculture and Hunger
of the House Committee on Agriculture,
United States House of Representatives
August 4, 1993
Mr. Chairman and Members of the Subcommittee:
We appreciate the opportunity to discuss HR 2689, which reauthorizes the
Federal Grain Inspection Service (FGIS). I am David Galliart, Acting
Administrator of FGIS.
The Administration supports HR 2689, with the technical correction identified
below.
Reauthorization
On September 30, 1993, Public Law 100-518, which authorized FGIS to collect
fees to cover administrative and supervisory costs, will expire. This
provision was last extended by Congress in 1988. HR 2689 reauthorizes the
provisions of the statute to continue the Agency's programs through September
30, 1998.
33
We recommend a technical change on page two, line two, to reference "September
30, 1998" instead of "September 30, 1988."
HR 2689 includes a change to current authority. This change would allow
appropriated funds to be used to supplement fees for the testing of equipment
in the event of a shortfall in collections. Such a shortfall is a very rare
circumstance. Since this policy currently applies to all other fee-based
activities, this amendment would allow for the consistent treatment of all
fee-bzised activities and would have not direct effect on funding or service
delivery.
Mission
FGIS was created by Congress in 1976 under the United States Grain Standards
Act (hereafter, the Act). The Agency was charged with managing the national
grain inspection system, which initially was established in 1916, and with
instituting a national grain weighing program.
• 34
The mission of FGIS is to facilitate the marketing of grain, oilseeds, pulses,
rice, and related commodities by:
• Establishing and maintaining official U.S. standards for grain (barley,
canola, com, flaxseed, oats, rye, sorghum, soybeans, sunflower seed,
triticale, wheat, and mixed grain); pulses (beans, peas, and lentils); and
rice.
• Inspecting and weighing nearly all grain and related products for export
markets and, upon request, for domestic trade, and
• Supervising the official grain inspection and weighing system. The
official system is a network of FGIS field offices, and State and private
agencies that are authorized by FGIS to provide official grain inspection
and weighing services. There are some 2,900 inspectors in the official
system. About 480 are FGIS employees; the remainder are personnel of
private agencies, and delegated or designated State agencies.
Under the Act, almost all grain exported from the United States must be
officially weighed and inspected, unless it is exported by train or truck to
Canada or Mexico. Essentially, FGIS is responsible for inspecting and weighing
grain for the purpose of certifying that grain exported from the United States
meets contract specifications.
35
In addition, all corn exported from the United States must be tested for
aflatoxin prior to shipment, unless the contract stipulates that testing is not
required. These mandatory official inspection and weighing services are
provided by FGIS on a fee basis at 54 export elevators, and by 8 delegated
States at an additional 21 export elevators.
Domestic inspection and weighing services are provided by 72 designated
agencies that employ personnel licensed by FGIS to provide such services. The
official inspection and weighing of U.S. grain in domestic commerce are
performed upon request on a fee basis.
Outlook
The United States has the most sophisticated and reliable grain marketing
system in the world. We strongly believe the official grain inspection system
plays, and will continue to play, an essential role in that marketing system.
74-910 0-94-4
36
The official inspection system provides U.S. agriculture with two critically
important services-standardization and impartial service. The standardization
process promotes fair and efficient trade. This includes grading standards
which reflect a consensus of the market and serve as a common language for
merchandizing. It also includes standard testing procedures that promote
uniform application of the grading standards. The impartiality of the official
inspection system ensures that everyone in the market has the opportunity to
receive a fair and unbiased assessment of the quality and quantity of the grain
they are buying or selling.
In the domestic market, the official inspection and weighing system promotes
fair marketing practices and minimizes costly disruption. Without an official
inspection system providing an option to everyone in the market to obtain a
standardized, impartial inspection, and an avenue for authoritative resolution,
market competition could be severely disrupted.
The United States has built a worldwide reputation on the integrity of the
official quality and weight certificates. Buyers and sellers alike have come
to rely on these certificates.
37
Although exporters are required by the Act to have all exported grain
officially inspected, they are not required to use official certificates and
grades as a basis of trade. But, the marketplace has chosen to do so. The
certificates issued by FGIS are the accepted, worldwide language for trading
grain.
For many years, FGIS has educated international importers, millers, traders,
and trade teams about the integrity of our export certificates and the role
FGIS plays as an independent third-party entity. In the past 5 years, trade
teams from such countries as Japan, Russia, and the People's Republic of China
visited FGIS offices to study the U.S. inspection system. All of these teams
were favorably impressed with the quality control provided by FGIS, and many
have asked FGIS to train their inspectors. For example, Egypt and Guatemala
have changed their inspection systems to reflect our procedures. This
demonstrates the faith and trust they place in the U.S. inspection system and
the certificates issued under it.
We recognize that the national inspection system must be efficient, cost
effective, responsive, and productive. Under FGIS leadership and with industry
support, we continue to explore new and innovative ways to respond to changing
market conditions with improved service delivery, and new procedures and
programs, such as Official Commercial Inspection Service. This service
provides the official agencies with the flexibility to tailor official services
for domestic trade to meet the needs of their applicants.
38
User Fees
Since in 1976, FGIS has been funded by user fees for its weighing and
inspection activities. The Agency has developed and applied numerous
cost-effective operating procedures, from more efficient employee scheduling
and cross-utilization of personnel to tighter space management and improved
inspection procedures. These management actions have allowed us to serve high
volume, as well as low volume, export locations, and to oversee the operations
of official State and private inspection agencies. In 1987, the FGIS export
inspection and weighing programs cost the grain industry an average of 24 cents
per metric ton. In 1992, this cost was only 22 cents per metric ton, despite
inflation and salary increases.
Our reliance on user fees means that changes in the volume of grain exported
from the United States results in changes in our revenues. The past five years
have been characterized by a decline in exports. Between fiscal years 1989 to
1991 alone, U.S. agricultural exports dropped from 117.1 to 97.1 million metric
tons (MMT). In 1992, exports increased slightly to 105.7 MMT.
39
Concurrently, the number of official inspections performed decreased from 2.8
million in fiscal year 1988 to 2.4 million in 1992, and user-fee revenue
declined by $5.5 million (from $34.5 to 29.0 million).
Economic conditions clearly dictated the need for an efficient and
cost-effective national system. In response, the Agency has taken efficiencies
which have reduced user-fee funded obligations by $5.5 million (from $34.8 to
$29.3 million). For example, administrative functions were consolidated; field
offices closed; furloughs and reductions in force implemented; monies spent on
travel, training, and equipment purchases have been strictly limited; and
staffing levels trimmed from 975 in 1982 to 752 in 1990 to 646 today. Fee
increases have been very limited throughout these years. These stringent cost
controls continue into fiscal year 1993. We operate like a business, and we
design our operations to meet the demands for our services.
Conclusion
The official grain inspection system plays, and will continue to play, a
critical role in the successful marketing of U.S. grain, both in domestic and
international markets.
40
FGIS and our partners in the official inspection system continue to offer
accurate and unbiased inspection and weighing services to buyers and sellers of
U.S. grain. Our standardization activities remain the backbone of the U.S.
grain marketing system by helping ensure fair and efficient trade. The U.S.
grain standards, developed and maintained by FGIS, are the common merchandizing
language of the United States and many of our export markets.
Throughout the years, our record shows that FGIS has responded to the financial
and program challenges presented by the competitive market. Approval of HR
2689 will allow us to continue to meet future challenges.
Mr. Chairman, this concludes my statement. I will be glad to respond to any
questions you or other members of the committee may have.
Thank you.
(Attachment follows:)
41
United Slates
Department of
Agriculture
Federal Grain
Inspection
Service
Annual Report to
Congress, 1992
""■%?-
42
Authority
The United States Grain Standards Act, as amended, requires the Administrator of the USDA Federal Grain Inspection
Service to submit to the Senate and House Committees on Agriculture on December 1 of each year a report on the
effectiveness of the official inspection and weighing system for the prior fiscal year, and to develop recommendations for
legislative changes to accomplish the objectives of the Act.
The Act also requires the Administrator to submit a summary of valid complaints received from foreign purchasers and
prospective purchasers of U.S. grain and of their resolution by the US Department of Agriculture during the prior fiscal
year That summary is included as part of this Aimual Report.
Mission
The mission of the Federal Grain Inspection Service is to facilitate the marketing of grain, oilseeds, pulses, rice, and related
conunodities by establishing descriptive standards and terms; accurately and consistently certifying quality; providing for
uniform official inspection and weighing; carrying out assigned regulatory and service responsibilities; and providing the
framework for commodity quality improvement incentives to both domestic and foreign buyers.
43
/^S\ United Slates
Ifi A m Department o(
Agriculture
Federal Grain
Inspection
Service
P.O. Box 96454
Washington, DC
20090-6454
December 1, 1992
Honorable E (Kika) de la Garza
Chairman, Committee on Agriculture
House of Representatives
Washington, DC 20515
Honorable Patrick J. Leahy
Chairman, Committee on Agriculture,
Nutrition, and Forestry
United States Senate
Washington, DC 20510
Dear Mr. Chairmen:
In compliance with the United States Grain Standards Act, as amended, the Federal Grain Inspection
Service (FGIS) is submitting its fiscal year 1992 Annual Report to Congress. This report summarizes the
Agency's responsibilities, accomplishments, program activities, and financial status.
During fiscal year 1992, FGIS continued efforts to improve the national grain inspection and weighing
system. The Agency's key accomplishments included;
* providing needed information by implementing new services, such as the official commercial
inspection service;
* addressing the needs of domestic and international customers of U.S. grain by proposing that a
statement appear on official certificates when additives, except fumigant applied for insect control,
are applied to export grain, at export locations;
* enhancing the safety of the Nation's food supply by undertaking a pesticide residue testing program,
and seeking new means of identifying mycotoxins other than afiatoxin;
* studying the quality of U.S. grain from export to destination by participating in collaborative studies
with international cooperators;
* establishing U.S. Standards for Canola, the first new grain standard developed under the U.S. Grain
Standards Act since 1984, to facilitate the marketing of an increasingly popular oilseed; and
* ensuring compliance with the U.S. Grain Standards Act and the Agricultural Marketing Act of 1946.
Th« FeMfal GriJn tnspaajwi S«fvic«
IS an t^fno/ of th«
Untad Slates Oapanmeni ot Agncultura
44
Honorable E (Kika) de la Garza
Honorable Patrick J. Leahy
FGIS' operating revenues from fees during fiscal year 1992 were $28.96 million, with obligations of
$29.25 million, yielding a negative net operating margin of $290,000. Agency obligations decreased
nearly $1.2 million from fiscal year 1991 levels, revenues decreased by $138,000, compared to the
previous year.
The total revenues included interest of $188,948 on investments held in reserve. The revolving fund
closed the fiscal year with an unobligated balance of $9.4 million in the trust account.
Administrative and supervision costs represented 20 percent of total program costs, which is below the
statutory limit of 40 percent. Appropriated obligations of approximately $1 1.2 million, plus revolving
fund obligations of $29.2 million totalled $40.4 million, $400,000 under fiscal year 1991 total program
obligations. The fee-supported activities ended fiscal year 1992 at 72 percent of the total obligations.
The FGIS Advisory Committee continues to provide valuable advice to the Administrator regarding the ■
implementation of the U.S. Grain Standards Act. During fiscal year 1992, the group met three times to
address issues affecting the grain industry and the Agency.
FGIS remains committed to quality and to ensuring that the official grain inspection and weighing system
remains second to none.
Sincerely,
John C. Foltz
Administrator
45
Contents
Letter from the Administrator i
Outlook 1993: Issues and Concerns I
Functions and Responsibilities 2
Oversight Responsibilities
Services by State and Agency Type
U.S. Agricultural Exports
Number of Inspections Performed
Under the U.S. Grain Standards Act
Volume of U.S. Grain Inspected for Export by Port Locations
Organizational Structxire 10
Organizational Chart
Permanent Full Time Employees
Employment History
Performance of Weighing and Inspection Services
Activities and Accomplishments
Inspection and Weighing 16
Inspection Program Data
Weighing Program Data
Research and Development 20
Standards and Procedures 23
Compliance Activities 24
Overview of Compliance Activities
International Relations 27
Importers ' Complaints: 3- Year Summary
Summary of Complaints Reported by Importers. FY 1992
Briefings with Visiting Trade and Governmental Teams. FY 1992
Activities Involving International Travel
Grain Dust Explosion Information 32
Summary of Grain Dust Explosions
Reported Grain Dust Explosion Data
Budget Information 33
Italics denote graphics.
46
The mention of firm names or trade products does not
imply that they are endorsed or recommended by the
U.S. Department of Agriculture over other firms or
similar products.
December 1992
Outlook 1993
47
Grain Cleaning Study
In June 1990, the Federal Grain Inspection Service (FGIS) commissioned the USDA
Economic Research Service to conduct a 3-year study to determine the costs and benefits of
marketing cleaner com, barley, sorghum, soybeans, and wheat. The study, which cost
approximately $924,000, is part of FGIS' ongoing effort to evaluate how grain standards and
inspection procedures, especially as related to grain quality, should interact with the
marketplace. The study also is a basis for implementing the requirements of Section 2005 of
the Grain Quality Incentives Act of 1990 (7 U.S.C. 71 eJ seq. as amended by Title 20 Public
Law No. 101-624).
The study is designed to (1) identify and quantify the benefits and costs of cleaning grain, by
geographic area and cleaning method, (2) determine appropriate limits for deanlmess factors
based on economic benefits and costs to the grain industry, (3) assess the need to establish
new, or revise current, factors relating to grain cleanliness, (4) determine economic losses
due to the lack of cleanliness of government stocks, and (5) develop a database on the costs
and benefits of improving the cleanliness of grain.
FGIS should receive reports on the benefits and costs of marketing cleaner wheat, com, and
soybeans during fiscal year 1993. Reports on sorghum and barley are expected in late fiscal
year 1993 or early in fiscal year 1994. Upon receipt of these reports, FGIS will review the
findings and determine if action is needed to amend or revise the grain cleanliness standards.
Reauthorization
Public Law 100-518. enacted October 24, 1988, extended FGIS programs through the end of
fiscal year 1993 FGIS has recommended legislation to reauthorize the sunset provisions of
the statute to continue the Agency's programs through September 30, 1998
Wheat Classincalion
FGIS, the Agricultural Research Service (ARS), the Agricultural Marketing Service (AMS),
and the industry-sponsored Wheat Classification Working Group (WCWG) continue to
develop an objective wheat classification system The new system will be based on
objective single kernel hardness tests, rather than subjective visual inspections that determine
kernel color and morphology.
Through a coopeiative agreement with ARS, a single kernel hardness tester (SKHT) suitable
for commercial production and sale was developed Prototype instruments were delivered to
FGIS in August 1992 for evaluation.
In 1993, FGIS will evaluate single kernel hardness reproducibility and repeatability under
field conditions. During the study, FGIS will collect 500 market samples from various wheat
classes over a 10-week penod. Five FGIS field offices will be equipped with SKHT
prototypes and will conduct analyses of the samples. Data generated will be used to assess
the "real world" performance of the prototype instruments and their ability to objectively
determine wheat class. AMS will provide statistical support. The WCWG will review the
data when the study is completed.
In the 1991 Annual Report to Congress, FGIS anticipated a 1-year market adjustment period,
and implementation of an objective classification for hard and soft wheat in 1994
Unexpectedly slow progress in evaluating the SKHT, and insufTicieni market sample
hardness data prompted FGIS to delay the implementation schedule by 1 year.
Consequently, allowing for a I -year market adjustment period, an objective wheat
classification system will not be implemented before 1995.
(The complete report Is held in the committee files.)
1
48
STATEMENT OF
AMERICAN ASSOCIATION OF GRAIN
INSPECTION & WEIGHING AGENCIES
BEFORE THE
SUB-COMMITTEE ON GENERAL FARM COMMODITIES
AND FOREIGN AGRICULTURE & HUNGER
U.S. HOUSE OF REPRESENTATIVES
WEDNESDAY, AUGUST 4, 1993
Mr. Chairman, I appreciate the opportunity to present this statement before your sub-
committee on behalf of the nation's official grain inspection agencies. My name is Paul
S. Weller, Jr., Executive Director of the American Association of Grain Inspection and
Weighing Agencies.
I represent AAGIWA, whose private and state agencies comprise the bulk of the
nation's official grain inspection system. Our national trade association was founded
nearly a half century ago, as a professional association serving agencies that
inspect, weigh, and grade the nation's grain. Its member agencies are located
throughout the major grain-producing regions of the U.S. Our members adhere to the
75-year old U.S. Grain Standards Act, which mandates a national, uniform grain
grading program.
Nearly two years ago, we reported that the official grain inspection system was in
trouble. Since that time, through Congressional efforts and the cooperation of the U.S.
General Accounting Office, the federal government has taken a closer look at this
ailing system and the federal agency that supervises and regulates it. We want to
thank the Congress and GAG for making this study possible, and thank you for
allowing us to present our current thoughts on the system and its operation.
As your sub-committee studies the re-authorization of the Federal Grain Inspection
Service, we hope that you will evaluate the GAG report on the official grain inspection
system. Since we were a part of that report, we would like to present our
organization's observations and recommendations.
AAGIWA supports the re-authorization of the Federal Grain Inspection Service. There
is an important role for a federal regulatory and supervisory agency in the operation of
an official grain inspection system. We do, however, have recommendations for its
administration.
49
FGIS FY94 Budget
USDA's initial FGIS FY94 budget called for a shift of $7 million from appropriations to
industry-paid user fees. These dollars would be used to fund standardization activities.
The development of reference standards, maintaining equipment calibrations,
measuring intermarket differences, and the review of national industry standards
benefits everyone from consumers to producers. We feel that appropriated funds
should continue to be used for activities that benefit such a wide array of public
programs. And we sincerely believe that placing this added financial burden on a
small segment of the grain industry will ultimately be counter-productive, and will add
to the further decline in use of our official system. We oppose additional user fees.
We feel that a combination of additional revenues and further FGIS cost-cutting is a
better solution. It is our belief that additional revenue can be earned by FGIS by
licensing or otherwise charging for the use of its standards data. Although the official
system has been expected to pay for developing these standards and procedures,
many other groups receive the data without cost. FGIS-generated data should be
made available through licensing, annual fees, royalties, or other revenue-producing
techniques.
Reduction of FGIS Role
We feel that FGIS' major role should be that of a regulatory and supervisory agency,
providing national standards and procedures, and protecting the integrity of the
nation's grain inspection system. We do not think that a federal agency with taxpayer
funding should be providing services that can be provided at like or lower costs by the
private sector and/or the delegated/designated state grain inspection agencies.
We have been assured by the General Accounting Office that FGIS is capable of
providing proper supervision of private agencies, and in protecting the public interest.
Accordingly, we believe that it is time to return export inspections to the private and
state sector. We recommend that at least two pilot programs be established in the near
future on the West and Gulf coasts, to evaluate the cost and feasibility of private/state
agencies performing export grain inspection services.
50
It continues to be our belief that services currently provided by FGIS field offices could
be provided at a cost savings by a central laboratory located near existing FGIS
facilities at Kansas City. The savings would result from more efficient utilization of staff
and equipment resources. It should also provide greater accuracy and increased
uniformity of inspection results throughout the national inspection system.
Mr. Chairman, we believe that still further cost savings would be realized by allowing
existing agencies to perform services under the Agricultural Marketing Act. FGIS
reports that it is currently running a deficit of $703,000 for the first half of this current
fiscal year for performing services under the AMA. Many of our official agencies are
staffed and equipped to perform these added sen^ices. GAO's attorneys have
indicated that such services can be legally opened to us through proper bidding
procedures. We ask that our agencies be permitted the opportunity to bid on this new
source of business -- that has been costing FGIS money, but which could increase our
revenues and levels of efficiency.
Finally, it is our belief that there would be further cost savings if official agencies' re-
designation cycle would follow that of FGIS itself. In other words, we recommend that
re-designations be increased from every three years to either four or five years. FGIS
reports that they currently spend $450,000 annually on triennial review and re-
designation of official agencies. Funds could be saved, and disruption of our agencies
reduced, by lengthening this cycle to the same five-year cycle as FGIS itself.
Agency Efficiency and Service
It has been brought to our attention through the GAO report that there is a wide
disparity in fee schedules between neighboring official grain inspection agencies.
Some of these differences are due to the lack of flexibility in the FGIS fee approval
process. We are unable to tailor our fees to the needs of our individual customers. In
addition, our agencies suffer costly down-time at low volume inspection points, and
must factor this into their fee schedules. This results in higher unit costs, and higher
fees.
Industry marketing practices, coupled with readily available third party inspections,
have created keen competition for grain inspection dollars. We agree with the GAO
51
-4-
report that the cost of official inspections is not the primary reason for the decline in
official inspection volume. Consolidation of the grain industry, a desire for in-house
quality control, and reductions in grain stocks under USDA programs are primarily
responsible for the reduction of inspection volumes. Such industry trends require a
more aggressive and flexible official inspection system, with added emphasis on
customers' costs and service. Our agencies are dedicated to these changes. We ask
that the priorities of FGIS be likewise.
It is our association's recommendation at this time, that FGIS make no changes in its
policy of official agency territories. We further believe that there is adequate
competition in the market place from such external sources as unofficial inspection
agencies, in-house quality control personnel, and the option of having these services
performed at destination.
Finally, there has been some effort within FGIS to reduce or eliminate its official grain
industry advisory committee meetings. This fonjm has been invaluable in bringing all
segments of the industry together to advise and critique FGIS plans and programs. We
strongly request that the FGIS Advisory Committee be retained, and that funding be
made available to support at least semi-annual meetings.
Conclusion
Mr. Chairman, the nation's grain industry has indicated to GAO the need for a credible
and viable official inspection system. We of the official grain inspection agencies are
dedicated to providing the most credible and efficient service. But we need the
flexibility to respond to the market place. It is our belief that by providing official
agencies with additional business opportunities - under the auspices of a more
flexible FGIS - that we can work together to serve the industry needs.
Thank you again for this opportunity to present our comments on this important grain
industry matter.
52
National Grain and Feed Association
Statement of the National Grain and Feed Association
Before the
Subcommittees on General Farm Commodities and
Foreign Agriculture and Hunger
U.S. House of Representatives
August 4, 1993
The National Grain and Feed Association appreciates the opportunity to submit this
statement concerning legislation, H.R. 2689, to reauthorize the Federal Grain Inspection Service
(FGIS) to collect fees to cover administrative and supervisory costs through September 30, 1998.
The future direction, structure and cost of the system is vitally important to our memben and
deserves careful consideration.
The National Grain and Feed Association has a long history of leadership in the nation's
grain inspection and weighing system. The need for uniform grades was one of the driving
forces that led to the NGFA's creation in 1896. More recentiy, the NGFA played a major role
in advising Congress during the transition of the inspection and weighing activities of the Federal
Grain Inspection Service (FGIS) from appropriated funds to user fees.
Ours is the national nonprofit trade association of 1,100 grain, feed and processing firms
comprising 5,000 facilities that store, handle, merchandise, mill, process and export more than
two-thirds of all U.S. grains and oilseeds utilized in domestic and export markets. The NGFA
is unique because it is the only organization whose members represent a broad spectrum of
commercial users of the official grain inspection and weighing system. Our broad membership
includes exporters, terminal operators, country elevators, processing firms and feed mills. Our
membership also consists of 37 affiliated State and Regional Grain and Feed Associations whose
members include more than 10,000 grain, feed and processing facilities nationwide.
The NGFA also manages a system of widely used Trade Rules and Arbitration services
that are important components in maintaining integrity, standardization and efTiciency in the
commercial U.S. grain marketing system.
1201 New York Avenue, N.W., Suite 830 • Washington, D.C., 200
53
There have been several significant changes to the U.S. Grain Standards Act since its
enactment in 1916. But seldom has there been the confluence of major issues concerning the
future of the official grain inspection and weighing system that there is today.
Truly, the official grain inspection and weighing system stands at a major crossroads.
The recent General Accounting Office (GAO) study on the official inspection and weighing
system has sounded the alarm bell on the future viability of the official system in the interior
market. And there is serious apprehension in the grain industry over whether FGIS and its
official designated and delegated agencies can continue to survive and provide the quality of
official services required in a cost effective fashion if current trends continue.
The NGFA believes that these developments make it incumbent upon Congress, the users
of the official system who pay the vast majority of FGIS' budget, and other beneficiaries of the
U.S. grain standards to undertake a serious reassessment of the mission and structure of FGIS
and the entire official inspection and weighing system. In the grain marketplace of the 1990's,
what should FGIS' mission be and what can we afford? Are there better ways to control the
costs and improve the strurture and efficiency of the official system — both at export and in the
interior market? Is the decline in the use of official services cause for concern by govenmient
or the marketplace and, if so, what can be done to reverse it?
Earlier this year, the NGFA surveyed the members of its Grain and Feed Safety, Quality,
Grades and Weights Committee to obtain their views on FGIS reauthorization and the current
status of the official grain inspection and weighing system. Several of the findings are
noteworthy:
— Industry considers the cost of the official system to be excessive.
— There is little industry support for funding most of what FGIS currently considers
to be its standardization activities.
— There is a strong belief that the entire mailceting chain - from producer to
processor/end user to consumer - benefits from FGIS' activities to maintain a
standardized system of grading.
— There is a widely held view that the integrity of the official system must be
maintained.
— There is a strong belief that the increase in the use of unofficial grades and in-
house grades is considered a positive development.
These Industry concerns are also reflected in the GAO's recent study, entitled "Grain
Inspection: Industry Views on the Decline in Official Inspections and Inspection Costs. " The
GAO report provides a very useful review of the major issues surrounding the current state of
the official inspection system. It confirms what our industry has known for some time: The use
54
of the official system is declining because of its high costs, consolidation within the industry,
and the increasing acceptance of unofficial grades (either in-house grades or the use of unofficial
agencies) by the maricet. As an aside, we were pleased to note that the report stated that neither
industry nor FGIS believes that the integrity of the official system has been impaired because
of the decline in the use of official services in the interior market.
Besides viability, another area of deep industry concern is related to the future cost of
the official system. Specifically, the continuing controversy over the extent and strength of
Congressional commitment to continue to provide fiinds to support FGIS Standardization
Activities raises our desire to see quick and decisive action taken to reduce agency costs in this
area. Although we believe that Congress acted wisely in rejecting the Administration's proposal
to shift the $7 million represented by FGIS Standardization Activities from appropriated to user
fees this year, we think the on-going budget crisis will continue to place pressure on Congress
to shift the cost of government programs to the private sector.
All of these issues are intertwined and must be considered as part of a total package, not
treated separately. Obtaining well-reasoned, objective answers to these and other issues will
require serious study by Congress and by all who use and benefit from the U.S. grain standards
and the official inspection and weighing system. NGFA has carefully considered these questions
in committee discussions over the past several months and respectftilly submits these comments
and recommendations for Congressional consideration.
User Fees for FGIS Standardization Activities
As the GAO indicated in its report, user fees already fund approximately 72 percent of
FGIS's budget. But that only accounts for direct fees paid by users to FGIS. When one
considers the additional user fees paid by the industry to FGIS- delegated and designated official
agencies, user fees actually fund approximately 84 percent of the total cost of maintaining the
official grain inspection system. (See accompanying pie chart on page 4.)
The NGFA' s Board of Directors has adopted a policy by which our Association evaluates •
user fees for government services. (See appendix.) The NGFA believes that shifting the full
cost of current FGIS Standardization Activities to the users of the official system would cause
an even more serious erosion in the use of the official system in the interior and further damage
our ability to be competitive in export markets.
Standardization Activities: Who B^ieflts and Who Should Pay?
As noted previously, the NGFA believes that the principal objective of FGIS
standardization should be to ensure an accurate, consistent system for objectively evaluating
grains and oilseeds. Seen in this light, the primary impact of FGIS standardization as it applies
to the fungible grain maikeq>lace is to malre it more cost-efficient. When market efficiency is
improved in a competitive market setting, gains largely are passed through to the final consumer
(taxpayer) in the form of lower prices. (A competitive marketplace ensures that no single
55
Who Pays for the Official
Inspection System?
Appropriated
Funds
(16%)
Fiscal Year 1993
Total Industry-Paid Fees $57.3 million
• Direct Inspection and Weighing Fees Paid to FGIS: $19.2 million
• Fees Paid to Designated Official Agencies: $29.4 million
• Other Industry-Paid Fees: $ 8.7 million
Appropriated Funds: $11.2 million
Grand Total: $68.5 million
*Source GAO Report
56
market participant has the market power to capture pure economic benefits and withhold them
from the ultimate consumer.) Further, since the United States confronts a single price in
international trade, U.S. farmers also reap benefits from FGIS Standardization Activities since
lower costs of handling and marketing grain mean that the derived farm gate price will be
greater than it would be in a less efficient market.
Consimiers benefit. Farmers benefit. But how much do grain handlers benefit? In all
likelihood, less than either the consumer or the producer. As noted previously, a competitive
market prevents an individual merchant from capturing much of the benefits of economic
efficiency - the comprtitive market spreads the benefits throughout the marketing system. In
addition, it is unclear whether the grain merchant/handler really has interest in all activities
associated with FGIS Standardization Activities. For example, the merchant that both buys and
sells the commodity must be concerned about the consistency of the grading system - grades
must be repeatable for both the buy- and sell-side of a completed transaction. There is less
focus on potential grading bias, as long as that bias consistently exists throughout the
marketplace. In contrast, the producer (who wants to be paid on the basis of true value) and the
end-user (who wants to purchase on the basis of accurate valuations) receive dual benefits of
standardization activities through a high level of consistency aod a high degree of accuracy.
But determining the distribution of benefits from standardization is even more
complicated. Consider the fact that 25 to 30 percent of U.S. com never enters commercial
market channels, but is fed to livestock or directed to industrial uses. Much of that com
probably is never graded unofficially, much less officiallv. Producers of those bushels certainly
receive less benefit from a high degree of standardization than the grower whose grain is moved
to major markets and subjected ~ sometimes repeatedly - to grading.
From the processor's vantage point, grain standards ensure an efficient maiketing system
(and therefore the lowest possible delivered price), as well as greater reliability in the accuracy
of the description of purchased grain. Further, many processors are increasing their use of
special tests that are outside the scope of the grain standards (such as starch analysis, protein
analysis, oil content, etc.), and therefore may rely less on official grading as the most accurate
determinant of value.
Given the very broad distribution of the benefits from standardization, and the fact that
consumers (and thus taxpayers) probably receive the greatest benefits in the form of lower food
prices, we believe that bulk of the costs of FGIS standardization fiinctions should be financed
through government-appropriated funds. Impwrtantly, this view is not only held by our industry
but by producers and others. At its June 24/25, 1993 meeting, the Grain Quality Woricshop
adopted the following resolution:
"Nearly all aspects of FGIS Standardization Activities are truly "public goods" and,
therefore, it is inappropriate to transfer the cost of these activities to inspection fees.
However, FGIS should be authorized to recover costs from those activities that have
direct individual benefits. "
57
The Grain Quality Workshop is a broad consortium of groups representing producers,
handlers, exporters, processors and other end users. Leading academic researchers and
government officials also attend these meetings as advisors and experts on certain issues.
Although we realize that the legislation before us today does not contain language either
proposing or setting the stage for latter imposition of user fees on industry to pay for FGIS
Standardization Activities, we recognize that there will be continued pressure to shift these costs
to the private sector. We believe that Congress should clearly state its desire that user fees
should Dfit be used as a mechanism for haphazardly shifting the cost of government to the private
sector, with littie or no consideration of whether the service is really necessary, who the true
beneficiary is, or whether government efficiency can be improved to reduce total costs. Finally,
we think that Congress should take this opportunity to determine whetiier costs can be reduced
and consider ending selected programs, if appropriate.
What Standardization Activities Should be Covered by User Fees?
Currentiy, FGIS Standardization Activities consist of: 1) compiling and evaluating data
to develop and to update grading and weighing standards; 2) developing or evaluating new
methodology for determining grain quality and quantity; 3) providing reference standards for
official grading methods; 4) reviewing official results through the use of a quality control and
weight monitoring program; 5) conducting training and demonstration projects for such "outside"
groups as farmers and smdents; 5) collecting information on foreign complaints; 6) testing for
pesticide residues; and many other areas.
The rather far-flung nature of FGIS' current standardization activities raises a legitimate
question about which activities should continue, considering the need to reduce government
costs. It is the NGFA's view that the principal objective of standardization should be to provide
consistent, reliable and up-to-date standards that facilitate the orderly mariceting of grain.
Clearly, current FGIS Standardization Activities go well beyond this objective. NGFA's Grain
and Feed Safety, Quality, Grades and Weights Committee has studied FGIS Standardization
Activities and offers the following guidelines in defining a more narrow scope of standardization
activities:
A. FGIS should maintain standards, approve inspection equipment, maintain uniform
application of grain standards and provide for official inspection and weighing at
export and interior locations.
B. FGIS should only review official grade standards on an "as-needed" basis and
only maintain those standards that have universal application.
C. FGIS should approve inspection equipment. This activity should be restricted to
the development of performance standards, approval of prototypes and the check
testing of official equipment.
58
D. FGIS should continue to train and monitor the peifonnance of official inspection
personnel. FGIS should also maintain the integrity of inspection and weighing
equipment. (The committee supports current FGIS compliance activities,
although changing some aspects of the designated agency program may be
warranted.)
For other activities now being pursued by the agency under the broad umbrella of its
standardization activities, we recommend the following actions:
A. Congress should consider the benefits of consolidating FGIS research activities
now taking place at the FGIS Technical Center, Kansas City, Mo. with another
USDA entity engaged in similar research activities, such as to the Agricultural
Research Service (ARS) Grain Mariceting Research Laboratory (USGMRL),
Manhattan, Kan. USGMRL is engaged in research similar to the type being
performed by FGIS Technical Center. For example, USGMRL rqwrts in its
1992 progress report that it has done work on equipment designed to measure
grain quality characteristics-such as Near-Infrared Reflectance (NIRR) and
Transmittance (NIRT) technology; digital image analysis; grain handling sensors
and measurement technology; and automation of characterization data for
hardness, moisture, size and weight. According to its 1992 progress report,
USGMRL has been engaged in developing the technology needed to implement
a "Total Quality Grain Marketing System. " There would seem enough similarity
of efforts that consolidation of functions could yield a synergistic effect while
streamlining administrative and research positions. According to information
provided to the committee, shifting R&D activities to another agency with similar
responsibilities could save FGIS between $687,000 and $1,101,000.
B. Congress should consider consolidating the activities of the Quality Control and
Testing Branch (QCTB) and the Board of Appeals and Review (BAR) with die
objective of reducing these activities to a the few essential functions necessary to
maintaining maricet efficiency. According to recent information provided to the
committee, these two activities consume approximately 47 staff years or
$2,193,789. After reviewing these combined activities, the committee thought
FGIS should be able to consolidate both functions, which could result in the
elimination of up to 27 staff years and savings up to $1,260,262.
With these changes in R&D, QCTB and BAR, the committee believes that FGIS could
save a minimum of $2 million in the cost of conducting Research and Development, Quality
Control and Testing activities and Board of Appeals and Review fimctions. There may be other
savings in field and headquarters staff as a result of taking these streamlining actions.
For other activities now being pursued by the agency under the broad umbrella of its
standardization activities, the NGFA believes FGIS should reassess their value and viability.
If they merit continuation, FGIS should establish separate fees to direct beneficiaries to fiiUy
59
fund these services. For example, FGIS - as part of its standardization activities - should be
charged with reviewing the specifications and perfonnance of grain-testing equipment. Privately
developed equipment should be submitted to FGIS for statistical performance evaluation and
approval. And the agency, in turn, should evaluate the new equipment on the basis of
established performance criteria. But rather than assessing user fees on the grain industry, the
agency should pass the costs for conducting such equipment performance testing on to the
commercial manufacturers who stand to benefit through sales of such equipment in the
marketplace. If new equipment has potential commercial viability, private enterprise should —
and will — incur the investment, development and testing costs associated with bringing such
equipment to the maricetplace.
This concept is already well established in other agencies of the federal government. For
example, FDA makes no direct analysis of new drugs or chemicals developed for the market.
Instead, it obtains and reviews the integrity and efficacy of industry-submitted data. We submit
that FGIS should function in a similar manner, thereby saving considerable costs.
As another example, if FGIS believes that educational activities have value, the agency
should also make those activities self-funding through separate user fees assessed on those who
receive the service. This could be achieved through registration fees for grading schools or
through some other means. Frankly, many of these educational activities are already being
performed by land-grant universities for producers and industry groups.
FGIS Relations with Delegated States/Designated Agencies
for Interior Markets
FGIS is authorized under the U.S. Grain Standards Act to grant to a state or private
agency an exclusive territory in which that entity is authorized to provide official inspection and
weighing services. Two principal reasons have been cited by the agency for granting these
exclusive territories: 1) a concern that official services be provided to all locations within a
territory that might request it (which is a precondition for obtaining FGIS delegation or
designation as an official agency); and 2) the concern that users of official services, if offered
more than one service, might "shop" for grades more attractive to their business.
But the current FGIS policy of granting geographical franchises for inspection and
weighing services has had several negative results:
— Wide Variation in Fees: For one, the GAO report referenced previously in this
statement found wide variations in fees charged by official agencies in adjacent
territories (e.g., truck inspection fees varied firom 0.7 to 2.2 cents per bushel),
despite the requirement that FGIS determine the "reasonableness" of fees by
comparing fees assessed in adjacent areas for similar services. GAO's findings
appear to indicate that fees charged by FGIS- delegated and designated official
agencies do not conform to the definition of "reasonable," as required by law.
60
In addition, with the exception of the new "commercial official" service, there is
no latitude for individual users of official services in the interior market to
negotiate fees. Some interior users of official services also report that they
receive poor or unresponsive service from their official agency. This likely is a
direct result of the FGIS policy of granting exclusive geographic franchises to one
designated agency.
— Limited Competition: GAO also reported that "... competition for charters has
been limited."' The report stated that designated agencies paid FGIS $1.5
million in user fees and charged their customers an additional $28 million (not
counting travel and other miscellaneous charges) in fees for official services.
These findings raise serious questions concerning the fee approval system and the
method used to stimulate competition for providing official services in a specific
geographic area.
— Lack of Awareness About "Commercial Official" Alternative: The GAO also
found, somewhat surprisingly, that many industry members were unfamiliar with
the new "commercial official" inspection program, which was designed
specifically to provide FGIS- delegated and designated agencies with greater
flexibility in competing, on a price basis, with unofficial grades.
FGIS should reevaluate its method for approving the fee schedule submitted by designated
agencies. The U.S. Grain Standards Act requires that an agency designated by the FGIS
Administrator to perform official services in a certain location "will not charge official
inspection fees which are discriminatory or unreasonable. " Yet, as was mentioned in the GAO
repoit, wide disparities in fees were found even for agencies located in adjacent territories.
There was also no apparent correlation between fees and size of the agency or other competitive
factors. Clearly, agency costs should not be the sole factor in determining fees as that will only
guarantee high agency costs. The fallacy of this method of rate setting was long ago discovered
by officials engaged in overseeing the fee schedules of utilities and other natural monopolies.
On a related matter, the NGFA questions whether "grade shopping" really would be a
legitimate concern if FGIS is doing an adequate job of supervising the inspection and weighing
results issued by its official agencies, a function already paid for by industry user fees. If
official agencies truly were made accountable for inaccuracies of inspections, there would be an
incentive to be accurate, regardless of who paid for the service. However, there is a lingering
concern within the industry that, without proper supervision, "grade shopping" may undermine
the credibility of the official system. On balance, when considering the potential benefits of
optimum service at affordable prices, we believe we should work for a competitive system where
' GRAIN INSPECTION: Industry Views on the Decline in Official Inspections and
Inspection Costs. U.S. General Accounting Office, GAO/FRY-93-147, p.41, (April 1993).
61
the risks of "grade shopping" can be minimized, consistent with the needs of the market, by
utilizing the existing compliance system.
We believe the time has come for FGIS to reevaluate the rationale for granting exclusive
service agreements for territories in light of marketplace trends, and the guidelines under which
official agencies must offer service. For example, if a system could be developed that would
permit active competition among firms providing official services, FGIS review of agency fee
structures would be unnecessary. And, as a general rule, competition is much preferable to
price controls over agency fees.
There are other advantages of competition. Increased competition could enhance the
responsiveness of agencies to those who obtain official services. Areas not located in close
proximity to central markets could receive adequate service if there were sufficient applicants
for providing official services. All of these issues need to be explored fully and frankly so that
our official inspection system remains a credible, service oriented and cost effective way to
facilitate the ortierly and efficient marketing of U.S. grain.
Official Inspections at Export
The U.S. Grain Standards Act requires that all U.S. export grain, where the quality is
described using a U.S. grade standard, must be officially inspected. Currentiy, about 82.8%
of official export grain inspections are performed by FGIS personnel. The remaining official
inspections are performed by delegated state agencies.
Over the past several years, the cost of performing official inspections has become an
increasing source of frustration for exporters. Although the GAO found that FGIS fees to grade
and weigh export grain averaged an estimated .47 cents per bushel (states averaged .41 cents per
bushel, 13% less), this only represents part of the cost incurred by exporters. Another factor
in the cost of performing official inspections which is not reflected in this figure is the loss in
efficiency due to government woric rules. In our opinion, this factor, which is not revealed in
official fee schedules, is a very real part of the true cost of performing official inspections at
export. We believe it is time for FGIS to explore other ways of providing cost effective official
inspection services at export locations.
Since its creation in 1976, FGIS has developed increasingly sophisticated monitoring and
compliance mechanisms to oversee inspection and weighing at export elevators. Furthermore,
FGIS, in our view, should provide primarily a supervisory function and secondarily a work
function. Therefore, we think it is time for FGIS to maximize the use of that technology to
reduce the significant cost incurred by U.S. exporters in paying for a multitude of FGIS
persoimel involved in performing on-site official inspection and weighing.
Furthermore and consistent with our recommendation that FGIS explore ways to
introduce competition into the domestic official system, the NGFA believes the benefits and
10
62
costs of contracting with designated agencies to provide official services at export locations
should be seriously evaluated. The feasibility of a competitive fee structure should be an
integral part of this evaluation. When exploring this option, FGIS should determine whether
there should be exclusive territories at export locations or whether official services at export
points should be subject to continuous competition (as we suggested for interior official grades).
If it is found that it is feasible to allow designated or delegated agencies to perform
official services at export points, FGIS should be required to develop a definition of export
supervision that ensures affordability and provides adequate assurance of legal compliance. One
possibility would be to assign one full-time FGIS employee on site at export facilities during all
phases of loading.
FGIS Administrative Costs
The U.S. Grain Standards Act limits FGIS administrative and supervisory costs for
performing official inspection and weighing to 40% of the costs of such services. When
legislation originally created FGIS as a separate agency, this percentage was set at 35 % . It was
later raised in the early 1980' s to its current levels.
Since that time, the private sector has undergone a significant restructuring to improve
efficiency and reduce costs in order to remain competitive in both domestic and export markets.
One aspect of this transformation has been a significant reduction in administrative costs.
However painful, this action was necessary to maintain U.S. intematiotud competitiveness. It
also had the salutary benefit of reducing internal bureaucratic roadblocks that hindered flexibility
and ability to quickly meet new customer needs.
We agree with President Clinton and Vice President Gore that it is now time to "re-
invent" government. The government must join the private sector in its quest for vigorous
economic growth by taking actions to lift the excessive regulatory cost burden. It must have the
courage to challenge old thinking and vested interest groups so that it can better serve the
interests of the entire United States. One way it can meet this objective is to take actions that
will reduce the cost of providing government services. The private sector has led the way in
this effort and we believe our country is now reaping the benefits of a more competitive and
responsive business conmiunity. It is now time for government to heed the lessons from the
private sector and reorganize itself with the objective of providing cost effective service with no
loss in efficiency. Therefore, we recommend that Congress mandate that FGIS reduce
administrative and supervisory costs to no more than 25 % of official grading and weighing costs.
Conclusion
The NGFA believes that this is a watershed period for the official inspection and
weighing system. The use of the official system is declining and costs are a problem. Users
are raising basic questions about the structure and mission of the present system.
11
63
Clearly, it is time to evaluate all options carefully and systematically. Unfortunately, that
process has only just begun. In our testimony before the Senate Subcommittee on Agricultural
Research, Conservation, Forestry and General Legislation (Chairman Senator Tom Daschle, D-
SD) on May 13, 1993, we urged Congress to consider the merits of a one year reauthorization
because of the uncertainty of user fees and the needed downsizing and refonn of the agency.
However, we are willing to consider the 5-year reauthorization contained in H.R.2689 provided
the following actions are taken:
— Congress mandate that FGIS develop a plan to streamline the agency
consistent with the following recommendations within 6 months of
reauthorization with completion of the reorganization objectives to be within
18 months of reauthorizaton.
1. Eliminate all facets of standardization activities not necessary for the
maintenance of accurate and consistent grades. This should include
a plan to shift R&D to another government entity as articulated above, a
consolidation of QCTB and BAR activities with a commensurate reduction
in allotted staff years (we suggest 20 staff years as a goal), the charging
of fees for outside training and demonstrations and fees for certifying new
inspection equipment;
2. Explore new ways to introduce a market-oriented approach for
offering official services. For example, Congress should mandate the
agency to open up selected interior official territories to competitive
bidding for services on a one-year pilot program basis. The sole criteria
for qualification should be whether the applicant agency and its personnel
are qualified to inspect and weigh grain under the U.S. Grain Standards
Act. New fee structures also could be explored that wUl reflect the
competitive market cost of providing service to users. FGIS also should
explore the option of allowing designated official agencies to perform
official inspections at export locations, consistent with affordability,
service and the maintenance of integrity of the official inspection program;
3. Implement cost-cutting actions. These actions should include reducing
administrative and supervisory costs to no more than 25 % of the costs of
inspection and weighing activities. Congress should consider amending
legislation to permit appointing a career official to the Administrator's
position with the elimination of the deputy administrator's position.
Additionally, the costs and benefits of making FGIS a division of the
Agricultural Marketing Service (AMS) should be explored. Furthermore,
FGIS should evaluate closure of additional field offices where operating
costs grossly exceed revenues. If direct users in the region served by such
field offices are willing to incur the additional costs of maintaining the
field office, they should be given the opportunity to pay the added costs.
12
64
Other cost-reduction considerations should include the costs and benefits
of getting out from under General Service Administration cost allocations.
We also support providing a one-time offer of credit for service to
employees who were hired as part of the creation of FGIS in order to
expedite early retirement as a means to reduce staff.
— Congress should ellmiiiate the requironent that all grain standards be
reviewed every five years. In our view, the U.S. grain standards should be
reviewed only when a clear market need exists.
The NGFA agrees with the provision in H.R.2689 to eliminate the FGIS Advisory
Committee. Given the ongoing nature of the Grain Quality Workshops as well as the active
participation of voluntary industry, producer and other organizations in FGIS rulemaking
activities, we think the Advisory Committee has become duplicative. Its elimination would save
the government money and would save administrative FGIS staff time now spent in pr^aration
for meetings.
As we mentioned earlier, we are encouraged that Congress has provided funds to support
current FGIS Standardization Activities. However, we have been told by key members of
Congress charged with appropriating responsibilities that this situation is likely to face increased
scrutiny in future years as Congress and the Administration seek ways to reduce the federal
budget deficit. Unfortunately, as unfair as it may be, we fear that agricultural producers and
our industry will be an easy target for future user fees. That is why FGIS must act immediately
to reduce its costs. Regardless of who pays the bills, the message from the American people is
clear — we can no longer afford as much government and must take actions now to reduce
government cost. Time is short and swift actions are needed. If FGIS adopts NGFA-
recommended changes in its standardization activities, aimual costs should be reduced from the
current $7 million to $5 million or less. With cost savings geneiated from other recommended
changes, as well as permitting competition in interior markets, there is potential to significantiy
reduce overall cost to the industry even if Congress subsequentiy decides to mandate users fees
to pay for standardization costs. If that occurs, we reiterate that because of the wide disMbution
of benefits of standardization, it is wholly inappropriate to assess increased fees only on direct
users of the grading system, even after necessary cuts are made.
Ultimately, if this restructuring of FGIS is unsuccessful in controlling the costs of official
grain inspection and weighing, the industry and government may have litde choice but to shift
even further in the direction of a self-regulated or privatized system as a means of controlling
costs to stay competitive in world markets.
13
65
Appendix
National Grain and Feed Association Policy
on Government User Fees
The Board of Directors of the National Grain and Feed Association has adopted the
following policy regarding user fees for government services:
User fees; Where government programs benefit a specific segment of industry
or the public, user fees may be an acceptable revenue source. However, user
fees should not be implemented as a means of shifting the cost of government
to the private sector, with no evaluation of whether continuation of such
government services is necessary or whether government efficiency can be
improved to reduce total costs. Before implementing user fees, a careful
evaluation should be made to: 1) assess whether costs can be reduced; 2)
measure total benefits and the distribution of benefits; and 3) consider ending
programs if appropriate. When large increases are proposed, they should be
phased in over a period of years to permit adjustment.
Any user fee imposed should not be excessive, only commensurate with
the actual level of benefits realized. Excessive fees will force an under
utilization of the service being provided and create distortions in the economy
that serve to reduce overall economic efficiency and unfairly favor one
industry over others. Therefore, the government should avoid the temptations
to impose fees on a particular business or consumer sector simply because that
segment can be conveniendy assessed (rather than assessing fees according to
direct realized benefits). If the government believes that a particular business
sector is the only beneficiary of a government program or service, the
government should first address the question of why government should even
be involved. To the extent that the government can shift programs and
services to entities in the private sector, there is a greater likelihood that a
competitive marketplace will control costs and maintain operating efficiency
that will benefit the entire economy.
(Attachment follows:)
14
66
GqW
Grain Quality Workshops
'^.■,'i.'>(;;ri-, Expmnns. End /,?•.■. tP.d Aimit^ma
Statement of the Grain Quality Workshop
Before the
Subcommittees on General Farm Commodities and
Foreign Agriculture and Hunger
U.S. House of Representatives
August 4, 1993
The Grain Quality Woricshop, which has a keen interest in the future cost and viability
of the official grain inspection system, respectfully requests that the following information be
made part of the official record of the Subcommittee's hearing on legislation to reauthorize the
Federal Grain Inspection Service, H.R.2689.
The Grain Quality Workshop is a consortium of representatives from more than 20
oi^anizations that have met periodically since December 1985 to consider and address grain
quality issues. Participants (see attached list) in the Grain Quality Workshop include producers;
grain elevator operators; exporters; domestic processors; millers and other domestic users; land
grant universities; and domestic grain inspection agencies. Federal government agencies with
an interest in grain quality issues participate in an advisory role but not as voting members.
At its June 24/25, 1993 meeting, the Grain Quality Workshop passed the following
resolutions:
"FGIS should be reauthorized. In concert with this reauthorization, FGIS should develop
a 5-year strategic plan within the first year, which is acceptable to the Senate and House
Agriculture Committees, which deals with the issues of standardization activity funding
and inspection fees and fully addresses both improved operating cost efficiency and cost
recovery mechanisms."
"FGIS should be authorized to conduct pilot programs to increase efficiency, flexibility
and speed and to reduce cost of service. "
1201 New York Av-., N.W.. Siiiu^ H.^il, Vv'.tsb,!!^u,j,, IhV.., 20005, (202) 289-0S73
67
"FGIS management must be given the ability to streamline the agency and improve its
operating efficiency. The tools needed to do this may include such things as enhanced
contract authority, early retirement provisions and the revision of work rules which
hinder the adoption of cost efficient inspection technologies. "
"FGIS should be granted authority to offer special services on a fee basis to meet market
needs."
"The FGIS Administrator should utilize his authority to expand the use of contracts
entered into with persons and private companies to carry out certain services if such
contracts will reduce costs."
"Nearly all aspects of FGIS general standardization activities are truly a "public good,"
and therefore, it is iiuppropriate to transfer the cost of these activities to inspection fees.
However, FGIS should be authorized to recover costs from those activities that have
direct individual benefits."
If you would like to discuss this information, please feel free to contact Chairman of the Grain
Quality Workshop Richard McWard, (314) 872-3030 or Tom O'Connor, National Grain and
Feed Association, (202) 289-0873.
68
ORAIN QUALITY WORKSHOP
A. FULL MEMBERSHIP
PRODUCERS
American Farm Bureau Federation
225 Touhy Avenue
Park Ridge, IL 60668
• David Miller
• Steve Oman
• Warren Schildroth
American Soybean Association
540 Maiyville Centre Drive, Suite 400
St. Louis, MO 63141
• Ann Rehme
National Association of Wheat Growers
415 2nd Street, NE, Suite 300
Washington, DC 20002
• Bruce Knight
• Reggi Wycoff
National Barley Growers Association
415 38th Street, NW
Fargo, ND 58103-1113
• Brian Aanstad
National Com Growers Association
RR 1, Box 33
Gait, LSl 50101
• Ron Swanson
National Grain Sorghum Producers Association
P.O. Box 530
Abemathy, TX 79311-0530
• Ralph Olson
National Wheat Improvement Committee
806 N. 2nd Street
Berthoud, CO 80513
• Rob Bnins
U.S. Feed Grains Council
1400 K Street, NW, Suite 1200
Washington, DC 20005
• Gary McKinney
U.S. Wheat Association
1620 I Street, NW, Suite 801
Washington, DC 20006
• Jim Frahra
• Winston Wilson
HANDLERS
Grain Elevator & Processing Society
301 Fourth Avenue S., Suite 365
P.O. Box 15026, Commerce Station
Minneapolis, MN 55415-0026
• Dave Krejci
National Council of Farmer Cooperatives
50 F Street, NW, Suite 900
Washington, DC 20001
• Terry Ban-
National Grain and Feed Association
1201 New York Avenue, NW, Suite 830
Washington, DC 20005
• Arvid Hawk
• Jon Jacobson
• Robert C. Smigelski
National Grain Trade Council
1300 L Street, NW, Suite 925
Washington, DC 20005
• Robert R. Petersen
EXPORTERS
North American Export Grain Association
1300 L Street, NW, Suite 900
Washington, DC 20005
• Steve McCoy
69
B.
ASSOCIATE MEMBER
American Association of Grain
Inspection and Weighing Agencies
1629 K Street. NW, Suite 1100
Wasiungton, DC 20006
• Kevin Rea
American Bakers Association
nil 14th Street, NW, Suite 300
Washington, DC 20005
• Rella Dwyer
International Grain Program
Department of Grain Science and Industry
Kansas State University
ScheUenberger Hall
Manhattan, KS 66506-22201
• Dr. Charles W. Deyoe
O ARDC
1680 Madison Avenue
Wooster, OH 44691
• Dr. Dave Schmidt
Wheat Quality Council
P.O. Box 966
Peirre, SD 57501-0966
• Ben Handcock
OTHER
American Com Millers Federation
600 Maryland Ave., SW, #305 West
Washington, DC 20024
• Betsy Faga
American Feed Industry Association
1501 WUson Blvd., Suite 1100
Arlington, VA 22209
• Oakley M. Ray
American Seed Trade Association
601 13th Street, NW
Washington, DC 20005
• Dave Lambert
Association of Operative Millers
5001 CoUege Blvd., Suite 104
Leawood, KS 66211
• Harvey L. McCray
Com Refiners Association, Inc.
1100 Connecticut Avenue, NW
Washington, DC 20036
• Terry L. Claassen
Millers National Federation
600 Maryland Ave., SW, #305 West
Washington, DC 20034
• Jim Bair
National Oilseed Processors Association
1255 23rd Street, NW
Washington, DC 20024
• Sheldon J. Hauck
U.S. Canola Association
1150 Connecticut Ave., NW, Suite 507
Washington, DC 20036
* John Gordley
k
70
Statement of
David C. Lyons
Representing the
National Grain Trade Council
North American Export Grain Association
Terminal Elevator Grain Merchants Association
before the Subcommittees on
General Farm Commodities and
Foreign Agriculture and Hunger
Committee on Agriculture
United States House of Representatives
on H.R. 2689
A bill to reauthorize the Federal Grain Inspection Service
August 4, 1993
71
Mr. Chairman and Members of the Subcommittees:
We appreciate this opportunity to present our views on H.R. 2689, a bill to reauthorize the
Federal Grain Inspection Service (FGIS). I am David C. Lyons, vice president of Louis Dreyfus
Corporation, which is headquartered in Wilton, Connecticut. I am testifying today on behalf of
the National Grain Trade Council, North American Export Grain Association (NAEGA), and
Terminal Elevator Grain Merchants Association (TEGMA).
In our testimony, we wall provide some background on FGIS, discuss H.R. 2689, and present
some ideas for the Subcommittees to consider.
Background
The nature of the official grain inspection system has evolved considerably since the U.S. Grain
Standards Act was adopted by Congress in 1916. FGIS was created in 1976 and assumed the
responsibilities previously held by the Grain Division of USDA's Agricultural Marketing Service.
The mission of FGIS, as set forth in the Agency's 1992 Annual Report to Congress, is:
... to facilitate the marketing of grain, oilseeds, pulses, rice, and related
commodities by establishing descriptive standards and terms; accurately and
consistently certifying quality; providing for uniform official inspection and
weighing; carrying out assigned regulatory and service responsibilities; and
providing the framework for commodity quaUty improvement incentives to both
domestic and foreign buyers.
The Grain Standards Act provides that official inspection is mandatory at export and voluntary
at domestic points. At export locations, FGIS either performs the service directly or delegates its
authority to state-operated agencies. At domestic locations, official services are provided by
designated agencies which are either state agencies or privately owned companies. FGIS
supervises the services provided by these delegated or designated agencies.
To cany out its responsibilities, FGIS had 625 full time permanent employees in fiscal 1992.
The agency is organized into four primary divisions: Field Management Division, Quality
Assurance and Research Division; Resources Management Division; and Compliance Division.
FGIS activities are largely funded by user fees. In 1992, the industry paid $28 million or 72
percent of FGIS' expenses which totaled roughly $40 miUion; appropriated funds made up the
balance. Users have long paid for the cost of actual inspection and weighing services, as well as
related supervision and overhead expenses. The agency's compliance and standardization
activities are the only expense categories funded through appropriated monies.
H.R. 2689
We support the legislation before the Subcommittees, H.R. 2689. The bill is straightforward -
other than not renewing the Agency's advisory committee, H.R. 2689 would generally extend
FGIS' current authority for an additional five years. The bill would also allow FGIS to collect
I
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Lyons Statement
August 4, 1993
Page 2
fees for the testing of equipment used for official services. We support that provision as well
and feel there may be other areas where FGIS could recoup its costs from direct beneficiaries.
The Grain Trade Council, NAEGA, and TEGMA support a strong national inspection system.
The grain industry must be able to rely without question on an objective, third-party to
determine and document the quahty of grain. Millions of bushels of grain change hands based
on the short-hand terms made possible by the grain standards.
Export customers have confidence in the integrity of the inspection process and rely on
certificates issued by FGIS. Mandatory inspections are not needed at interior locations, but the
national inspection system is available for those who want to verify the quality of grain in a
transaction.
Concerns and Recommendations
There are several concerns and recommendations we would like to present for your
consideration as the Subcommittees consider H.R. 2689. Many of our concerns relate to the
steadily increasing nature of FGIS fees. Since the agency is largely funded by user fees, the cost
of FGIS operations is of direct interest to the grain industry.
While we support a national inspection system, it must be efficient and cost-effective. The grain
industry has contracted at an accelerated pace over the last 10 years. The number of firms
engaged in the industry has shrunk and the survivors have cut costs dramatically to remain
competitive. Despite this envirorunent, the fees for inspection and weighing services have
continued to increase.
The combination of industry consolidation and fee levels has caused a decline in the amount of
grain officially inspected at domestic locations where users have a choice of whether to use the
service. Export facilities are required to use official services and the cost of official services is a
major operating expense for these companies. Plainly said, we believe that FGIS fees are too
high and higher than they would be if the same services were provided by private sector
inspection services.
We offer the following suggestions, several of which are taken from the recommendations of the
broad-based Grain Quality Workshops.
1. FGIS should develop a 5-year strategic plan that addresses how FGIS can
streamline its operations to keep fees in line without jeopardizing the integrity of
the system.
2. Congress should provide FGIS with the flexibility to improve the agency's
operating efficiency. The tools to do this may include such items as: enhance
contract authority; early retirement provisions; revision of work rules that hinder
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Lyons Statement
August 4, 1993
Page 3
the adoption of cost-effective inspection technologies; and the ability to offer
special services on a fee basis to meet market needs.
3. Narrow the focus of FGIS. Re-examine the mission of FGIS and emphasize the
agency's core function as an objective third party that accurately and consistently
measures grain quahty.
The FGIS mission has expanded over the last several years, especially in the area
of grain quality improvement. There is always a temptation to ask FGIS to study
a particular issue or evaluate a potential change in standards.
An example is the number of studies undertaken to evaluate U.S. grain quahty
and the feasibiUty of revising U.S. grain or oilseed standards. These activities
have cost American taxpayers large sums of money and have had no discemable
affect on U.S. exports or compeririveness. Perhaps in the future when such
additional proposals are made, they should be accompanied by proposals for how
the effort will be funded, not unlike Congress' mandate for "pay as you go."
Apart from fees, we want to emphasize the importance of an inspection service that provides
accurate and consistent inspection results. Instances where the same lot of grain receives a
different grade upon desrinarion than was the case at origin can be a major headache for grain
merchants. FGIS must continue its efforts to minimize intermarket grade differences and strive
to provide consistent, uniform inspections for all users.
Standardization Activities
Over the last several years, RepubUcan and Democratic Administrations have proposed shifting
the cost of FGIS standardization activities to user fees. We, and many other agricultural groups,
have consistently opposed this step. Congress, too, has resisted this step and recognized that
grain standards facilitate orderly marketing of grain and as such the standardization activities
benefit everyone in the marketing chain.
Standardization activities include such diverse, but extremely important support functions as
equipment evaluation, calibration and maintenance; quality assurance; grain standards reviews
and revisions; and the portion of the Board of Appeals and Review associated with the Quahty
Assurance program. Most FGIS standardization services are not directly traceable to any easily
identifiable user group.
We applaud Congress' decision in the fiscal 1994 appropriations bill to continue appropriated
funding for FGIS' standardization activities.
Mr. Chairman, we thank you for the opportunity to testify. We hope that our comments are
constructive. We look forward to working with you legislation to reauthorize the Federal Grain
Inspection Service.
74
TESTIMONY BY THE NATIONAL FARMERS UNION
Mr. Chairman, my name is Leland Swenson. I am president of the
National Farmers Union. On behalf of the 250,000 members of NFU,
I would like to thank you for the opportunity to comment on the
operations of the U.S. Department of Agriculture's Federal Grain
Inspection Service (FGIS) .
In March of 1993, at the National Farmers Union's 91st Annual
Convention in Sioux Falls, South Dakota, NFU delegates adopted
the following policy statement relating to FGIS:
"We reaffirm our position for high standards in grain inspection
and support the weighting system as authorized under the original
Federal Grain Inspection Act.
"To protect and improve our reputation as exporters of American
farm commodities, we support legislation which would prohibit and
penalize exporters adding foreign material to any commodity for
overseas shipment. Export customers should pay for shipments on
a clean grain basis, just as farmers are paid on a clean grain
basis.
"To enforce this provision, grain inspection personnel should be
provided to spot check United States grain at foreign ports to
determine whether it is of the same kind, class, quantity and
condition that was certified upon shipment.
"We continue to oppose the imposition of user fees for the
inspection and grading of agricultural commodities. Federal
inspection and grading of such commodities is in the public
interest and should not be charged to the producer.
"We oppose the use of "house graders' for establishing federal
grades, and we call for an investigation into the effects of this
practice on farm prices."
With the above statement as a guideline, I offer the following
comments, observations and concerns:
FGIS should be commended for the part it has played in helping to
provide buyers of American agricultural products with
commodities that meet the standards agreed to at the time of the
order. Complaints from our trading partners have decreased, and
that helps enhance the American reputation as a supplier of high
quality grain. This is in the best interest of every American
farmer.
But while great strides have been made. National Farmers Union
feels that more could be done. We believe that farmers do their
utmost to deliver the finest grain possible to the elevator.
We continue to hear about the addition of moisture and other
matter which can lower the quality of grain which exceeds
specifications. We believe that shippers should try as hard as
farmers do to provide their customers with the best quality
products possible. To do less is an insult to American farmers
75
and to America itself.
If FGIS is to continue to be the policeman of United States grain
shipments, it has to remain strong and independent for the
following reasons:
1) The inspection, grading and quality reporting of U.S. food
and feed transactions in interstate and international commerce is
in the best interest of all U.S. taxpayers and consumers. The
credibility of FGIS is best maintained and enhanced through
appropriated funds rather than through user fees.
2) While the checks or payments for user fees may be provided to
FGIS by grain buyers, grain companies, or exporters, those fee
costs will either be passed back to farmers through lower prices
or passed on to foreign buyers through higher prices. Either
way, the U.S. grain economy or U.S. grain competitiveness is
weakened.
3) The credibility of the U.S. grain marketing system in
international trade is best served through a federal inspection
system. Privatizing federal export inspections will cause the
U.S. to lose credibility with foreign buyers. Our major export
competitors use federal inspection systems, high quality and
tight standards to enhance their export positions. The U.S.
should not weaken its export inspection system by turning it over
to private companies.
4) Premiums paid by foreign buyers or domestic buyers for higher
quality grains and oilseeds should be passed back through the
domestic marketing chain from the domestic processor or exporter
to the country elevator and on to the farmer.
5) FGIS standardization activities are in the public interest
and serve as a tool for both enhancing the quality of food and
feed movement in interstate and international commerce and
improving the competitiveness of the U.S. grain industry
worldwide. Creating competition among inspection agencies for
the purpose of lowering inspection costs may result in loss in
the quality and credibility of inspections and make the U.S. less
competitive in the world market, because foreign buyers are more
quality- and service-conscious. Just lowering U.S. grain prices
does not make the U.S. more competitive in the world export
market. The lowest-cost inspection system may ultimately decrease
the value of U.S. grain and oilseed exports, thereby diminishing
the balance of trade to the U.S. economy.
While we agree that, FGIS must be scrutinized like any other
agency to make sure that it is operating as efficiently as
possible, efficiency must not come at the expense of
effectiveness. That would be a disservice to farmers and could
lead to the same abuses of the past. Those abuses are still
remembered by some of our customers.
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BOSTON PUBLIC LIBRARY
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We understand that fewer inspections have been made in recent
years tor many reasons, not the least of which is the continued
trend toward vertical integration in the path grains must follow
from the field to the family cupboard, wherever that cupboard
might be. We are concerned that trends toward fewer inspections
and the trend toward "house graders" will allow for backsliding
in grain inspection quality. FGIS must remain strong to prevent
that from happening.
Lastly, we strongly oppose the imposition of user fees for grain
inspection services. These fees will simply increase the cost of
marketing grain at every level where they are required. Any and
all cost increases are ALWAYS borne by the farmer. The grain
trade will not pay the user fees by benevolence. The family
farmer will pay them by lower prices for his grain.
Of all agricultural producers, grain farmers already have the
smallest share of the retail price of groceries on a percentage
basis, and the gap is widening more quickly than for any other
commodity. ANYTHING that lowers the price a farmer is paid for
his grain is but another nail in a coffin that is already nearly
shut.
Thank you for the opportunity to share with you the views of
National Farmers Union.
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ISBN 0-16-043430-0
9 780160"434303
90000
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