MISSION OF FORHGN AGRICULTURAL SERVICE,
\}S. DEPARTMENT OF AGRICULTURE
Y 4. AG 8/1:103-50
ttission of Foreign Agricultural Ser... HEARINGS
BEFORE THE
SUBCOMMITTEE ON FOREIGN
AGRICULTURE AND HUNGER
OF THE
COMMITTEE ON AGRICULTURE
AND THE
SUBCOMMITTEE ON INFORMATION, JUSTICE,
TRANSPORTATION, AND AGRICULTURE
OF THE
COMMITTEE ON
GOVERNMENT OPERATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
NOVEMBER 10 AND 16, 1^1
Serial No. 103-50 ^'^^^^^'^h-,
AUG . .
Printed for the use of the Committee on Agricultiire and the Committee on
Government Operations
U.S. GOVERNMENT PRINTING OFFICE
78-650 WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402
ISBN 0-16-044466-7
MISSION OF FOREIGN AGRICULTURAL SERVICE,
U.S. DEPARTMENT OF AGRICULTURE
4, AG 8/1; 103-50
ision of Foreign Agricultural Ser... HEARINGS
BEFORE THE
SUBCOMMITTEE ON FOREIGN
AGRICULTURE AND HUNGER
OF THE
COMMITTEE ON AGRICULTURE
AND THE
SUBCOMMITTEE ON INFORMATION, JUSTICE,
TRANSPORTATION, AND AGRICULTURE .
OF THE
COMMITTEE ON
GOVERNMENT OPERATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
NOVEMBER 10 AND 16, l^
Serial No. 103-50 "fliV/Jo^^fo^i
^'^'^^^L
Printed for the use of the Committee on Agriculture and the Committee on
Government Operations
U.S. GOVERNMENT PRINTING OFFICE
78-550 WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-044466-7
COMMITTEE ON AGRICULTURE
E (KIKA) OE
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. HILLURD, Alabama
JAY INSLEE, Washington
THOMAS J. BARLOW IH, Kentucky
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
CYNTHIA A McKINNEY, Georgia
SCOTTY BAESLER, Kentucky
KAREN L. THURMAN, Florida
SANFORD D. BISHOP, Jr., GeorgU
BENNIE G. THOMPSON, Mississippi
SAM FARR, California
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, California
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. MrrCHELL, Minority Staff Director
James A Davis, ,P>^e<< Secretary
Subcommittee on Foreign Agriculture and Hunger
TIMOTHY J. PENNY,
CHARLIE ROSE, North Carolina,
Vice Chairman
THOMAS J. BARLOW III. Kentucky
CYNTHL^ A McKINNEY, Georgia
SCOTTY BAESLER, Kentucky
CHARLES W. STENHOLM, Texas
Minnesota, Chairman
WAYNE ALLARD, Colorado
TOM LEWIS, Florida
JOHN T. DOOLITTLE, California
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
(II)
Ill
COMMITTEE ON GOVERNMENT OPERATIONS
JOHN CONYERS, JK., Michigan, Chairman
CARDISS COLLINS, Illinois
GLENTSI ENGLISH, Oklahoma
HENRY A. WAXMAN, California
MIKE SYNAR, Oklahoma
STEPHEN L. NEAL, North Carolina
TOM LANTOS, California
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
JOHN M. SPRATT, JR., South Carohna
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
KAREN L. THURMAN, Florida
BOBBY L. RUSH, Illinois
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin
DONALD M. PAYNE, New Jersey
FLOYD H. FLAKE, New York
JAMES A. HAYES, Louisiana
CRAIG A. WASHINGTON, Texas
BARBARA-ROSE COLLINS, Michigan
CORRINE BROWN, Florida
MARJORIE MARGOLIES-MEZVINSKY,
Pennsylvania
LYNN C. WOOLSEY. California
GENE GREEN, Texas
BART STUPAK, Michigan
WILLIAM F. CLINGER, JR., Pennsylvania
AL McCANDLESS, California
J. DENNIS HASTERT, Illinois
JON L. KYL, Arizona
CHRISTOPHER SHAYS, Connecticut
STEVEN SCHIFF, New Mexico
C. CHRISTOPHER COX, California
CRAIG THOMAS, Wyoming
ILEANA ROS-LEHTINEN, Florida
DICK ZIMMER. New Jereey
WILLIAM H. ZELIFF, JR., New Hampshire
JOHN M. MCHUGH, New York
STEPHEN HORN, California
DEBORAH PRYCE, Ohio
JOHN L. MICA, Florida
ROB PORTMAN. Ohio
BERNARD SANDERS, Vermont
(Independent)
Julian Epstein, Staff Director
Matthew R Fletcher, Minority Staff Director
Information, Justice, Transportation, and Agriculture Subcommittee
GARY A. CONDIT, California, Chairman
MAJOR R. OWENS, New York
KAREN L. THURMAN, Florida
LYNN C. WOOLSEY, California
BART STUPAK, Michigan
JOHN CONYERS, Jr., Michigan
CRAIG THOMAS, Wyoming
ILEANA ROS-LEHTINEN, Florida
STEPHEN HORN, California
Ex Officio
WILLIAM F. CLINGER, Jr., Pennsylvania
Edward L. Armstrong, Professional Staff Member
AURORA OGG, Clerk
Diane M. Major, Minority Professional Staff
CONTENTS
November 10, 1993
Page
Condit, Hon. Gary A., a Representative in Congress from the State of Califor-
nia, prepared statement 9
Penny, Hon. Timothy J., a Representative in Congress from the State of
Minnesota, opening statement 1
Thomas, Hon. Craig, a Representative in Congress from the State of Wyo-
ming, prepared statement 11
Witnesses
Goldthwait, Christopher E., Acting General Sales Manager and Assistant
Administrator, Export Credits, Foreign Agricultural Service, U.S. Depart-
ment of Agriculture 2
Prepared statement 69
Response to written questions 21
Johnson, Karl, president, National Pork Producers Council, on behalf of the
Export Processing Industry Coalition 35
Prepared statement 93
Krajeck, Richard, vice president, U.S. Feed Grains Council 39
Prepared statement 105
Mendelowitz, Allan I., Managing Director, International Trade, Finance, and
Competitiveness, General Government Division, U.S. General Accounting
Office 5
Prepared statement 81
Response to written questions 17
Notar, Russell C, president and chief executive officer. National Cooperative
Business Association 42
Prepared statement 112
Terhaar, Allen A., director, foreign operations. National Cotton Council of
America, and executive director. Cotton Council International 37
Prepared statement 97
November 16, 1993
Condit, Hon. Gary A., a Representative in Congress from the State of CaUfor-
nia, prepared statement 129
Penny, Hon. Timothy J., a Representative in Congress from the State of
Minnesota, opening statement 115
Witnesses
Colon, Sharon L.L., vice president, area manager. United States and Canada,
CoBank — National Bank for Cooperatives 138
Prepared statement 216
O'ConneU, Paul F., Director, Alternative Agriculttu-al Research and Commer-
ciaUzation Center, U.S. Department of Agriculture 118
Prepared statement 159
Seng, Philip M., president and chief executive officer, U.S. Meat Export
Federation 134
Prepared statement 198
Walker, Robert L., secretary, Maryland Department of Agriculture, and chair-
man, world trade committee, National Association of State Departments
of Agriculture 116
Prepared statement 153
(V)
VI
Page
Webster, Paul, president, Webster Industries, Inc., on behalf of the American
Forest & Paper Association 139
Prepared statement 219
MISSION OF FOREIGN AGRICULTURAL SERV-
ICE, U.S. DEPARTMENT OF AGRICULTURE
WEDNESDAY, NOVEMBER 10, 1993
House of Representatives; Subcommittee on For-
eign Agriculture and Hunger; Committee on Ag-
riculture; Joint with Subcommittee on Informa-
tion, Justice, Transportation, and Agriculture;
Committee on Government Operations,
Washington, DC.
The subcommittees met, pursuant to call, at 9:35 a.m., in room
1300, Longworth House Omce Building, Hon. Timothy J. Penny
(chairman of the Subcommittee on Foreign Agriculture and Hun-
ger) presiding, together with Hon. Gary A. Condit (chairman of the
Subcommittee on Information, Justice, Transportation, and Agri-
culture).
Present from the Subcommittee on Foreign Agriculture and Hun-
ger: Representatives Penny, Stenholm, and Allard.
Present from the Subcommittee on Information, Justice, Trans-
portation, and Agriculture: Representatives Condit, Thurman,
Woolsey, and Ros-Lehtinen.
Also present: Representative E (Kika) de la Garza, chairman.
Committee on Agriculture, and Representative Pat Roberts, rank-
ing minority member, Committee on Agriculture.
Staff present from the Committee on Agriculture: Gary R. Mitch-
ell, minority staff director; Jan Rovecamp, clerk; Jane Shey, Bruce
White, Anita R. Brown, and Lynn Gallagher.
Staff present from the Subcommittee on Information, Justice,
Transportation, and Agriculture: Edward L. Armstrong, profes-
sional staff member; Aurora Ogg, clerk; and Diane M. Major, mi-
nority professional staff, Committee on Government Operations.
OPENING STATEMENT OF HON. TIMOTHY J. PENNY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MIN-
NESOTA
Mr. Penny. The subcommittees will come to order.
I want to welcome the House Commxittee on Government Oper-
ations, Subcommittee on Information, Justice, Transportation, and
Agriculture, for agreeing to work with us to sponsor this joint hear-
ing to review the mission of the Foreign Agricultural Service.
With the dramatic changes in the political and economic climate
in Eastern Europe, the former Soviet Union and Asia, it is appro-
priate to examine the programs and tools available to American
farmers and processors to export their agricultural products. At the
same time, we are seeing internal changes within the U.S. Depart-
(1)
ment of Agriculture as Secretary Espy is reorganizing the Depart-
ment and combining the functions of the FAS and the Office of Co-
operation and Development.
Mr. Condit, who will join us shortly, and myself, thought that it
would be valuable to evaluate existing FAS programs and to see
what changes, if any, are needed to maintain the competitiveness
of U.S. agricultural markets as we move to the 21st century. To
help us in that effort, we have slated several -witnesses for this
morning's hearing.
I want to announce at the outset that I have been asked to tes-
tify before the Budget Committee at 10 a.m. I hope that will not
keep me away very long. But in my absence. Chairman Condit will
chair the hearing.
With that understanding, I call our first panel, Mr. Chris
Goldthwait, Acting General Sales Manager £uid Assistant Adminis-
trator for Export Credits at the Foreign Agricultural Service, and
I would ask that he be joined at the table by Allan Mendelowitz,
Director of International Trade, Finance and Competitiveness Is-
sues, with the General Cxovemment Division of the U.S. General
Accounting Office.
I would ask that you provide testimony in the order in which you
were introduced, and then we would proceed to questions.
I expect that there may be issues raised by the General Account-
ing Office that you may want to respond to, Chris, and since you
will be speaking first, we will allow some opportunity for both you
and Mr. Mendelowitz to interact on those points, in addition to any
questions that surface from subcommittee members.
So with that, Chris, welcome and thank you and your associates
for the hospitality extended to myself and my staff and Mr. Allard
and his staff last Friday as we came down to tour your division.
STATEMENT OF CHRISTOPHER E. GOLDTHWAIT, ACTING GEN-
ERAL SALES MANAGER AND ASSISTANT ADMINISTRATOR,
EXPORT CREDITS, FOREIGN AGRICULTURAL SERVICE, U.S.
DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY PHIL
MACKIE, ASSISTANT ADMINISTRATOR, COMMODITY AND
MARKETING PROGRAMS
Mr. Goldthwait. Thank you, Mr. Chairman. It is indeed a pleas-
ure to be with you this morning.
With me also this morning is Mr. Phil Mackie, our Assistant Ad-
ministrator for Commodity and Marketing Programs.
Mr. Chairman, we very much appreciated the visit you made to
FAS last week and I hope you got a little bit more indepth idea
of what we do and we look forward to receiving various suggestions
that you might formulate on the basis of that visit.
My written testimony, which I will ask with your pennission to
submit in full for the record, covers a number of issues, including
the specific questions that were in your lettei* of invitation. To sum-
marize, I will confine myself to speaking very briefly about three
areas.
First, the mission of the Foreign Agricultural Service, and the
new International Trade Service that we see emerging as we com-
bine two existing agencies within the Department of Agriculture
into a new agency. I will try to outline in a little more detail the
overall direction that — ^under the guidance of Secretary Espy,
Under Secretary Moos — ^we have been developing for our export
policy and our export programs. Then I will offer just a couple of
brief comments about the specific questions that you posed to us.
Turning to the first of those issues, I think it is important to
focus on mission for a number of reasons. You have alluded to some
of the very important changes that we see going on around us in
the world in which we are trying to do our market promotion, and
of course we have a new administration and a new Secretary of Ag-
riculture who is very much dedicated to making these programs
serve the farmers, the exporters, aind indeed contribute to the well-
being of all Americans through maintaining the reasonable food
prices that we see prevailing. So as we look at mission, we look at
a broadening as we combine two agencies into a new agency.
The export goals that we have in FAS will remain absolutely
paramount and the service that they 3deld to our producers will
guide us, as well as the services that we render to our various
other clienteles. But there will be some broadening of this mission.
There will be in the new agency equally important services to
American producers that are derived through science and techno-
logical exchginges. And I think increasingly we are seeing an envi-
ronment in which the general warmth or coldness of the agricul-
tural relationship across the board contributes to a situation or an
environment in which our exports do better or worse.
And I think that general recognition of the importance of the
overall agricultural relationship is a very important new factor that
we will be focusing on increasingly.
If I might comment very briefly about the overall direction of our
export policy, I will note that in a recent speech, the Secretary out-
lined three themes: He spoke of restoring the competitive role of
our bulk commodities. He spoke also of an increased focus not only
on the emerging democracies that we see around the world, but
also on the broader range of emerging markets that are going to
be important to us. And I will have a number of things to say about
that in a moment. And the third point I would describe in some
depth is that broader agricultural relationship that I alluded to a
moment ago.
With respect to the first of these goals, we see a situation in
which our bulk commodity exports still face some very serious ob-
stacles. We must remain competitive and we intend to with respect
to encountering subsidies that are limits our competitors put before
us. We intend to continue the pressure that we see with respect to
trade policy initiatives that will level some of those barriers, and
we intend to tackle some very specific trade distorting measures
that have been headaches on a bilateral basis for a long time.
I will note in this regard, the Secretary's success not only in the
recent visit to Japan, but also the commitment by the Chinese Min-
ister of Agriculture to try to work with us to resolve the long-stand-
ing TCK fungus issue.
Turning to emerging markets, we mean several things. We mean
new markets for new products, especially high-value products, be-
cause these products are accounting for the largest share of the
growth in world markets that we see around us today. But we also
mean a focus on the regions of the world that are the most rapidly
growing with respect to their agricultural imports. We have put a
lot of emphasis in maintaining markets in a couple of key regions,
the former Soviet Union in particular.
We need to match that with increased emphasis on the Pacific
Rim countries, on southern China, on Indonesia, on some of the
longer-term markets that are going to be developing in countries
like India, Egypt, and Nigeria where there is a growing middle
class that will be importing consumers for our commodities. We
need also to in this context reexamine our various export tools, and
I will come to that in a moment,
I mentioned already the broader agricultural relationship in a
way, I think, that redounds not only to direct the benefit to Amer-
ican agriculture through exchanges and scientific joint research,
but also the impact that has on the trade environment. Increas-
ingly, as we meet with the agricultural ministers from various
countries around the world, especially the emerging democracies
which have not had the benefit of a free market agriculture, but
also as we meet with contacts like the Minister of A^culture from
China, we, I think, are understanding more and more that our abil-
ity to cooperate across a broad range of agricultural issues is going
to be extremely helpful to creating the environment in which our
market promotion and our export tools will have the biggest effect.
Let me stop with that summary of the overall direction in which
our policy is developing, and let me mention very quickly some of
the points that I think would be helpful in responding to your spe-
cific questions.
You asked initially about the merger of our two organizations
and whether this would overstrain our resources. I think clearly
not. I think between the missions of these two organizations, we
see a synergy that is going to be very useful to us. And, indeed,
there will be some modest administrative changes as a result of
this merger.
You asked if FAS has the capability already to identify emerging
markets. The answer very clearly, I think, is yes. The challenge is
not in identifying the markets, but in knowing how best to gain
market share in them and gain the growth in agricultural exports
in those markets that we would like to see.
You talked about some of the budget constraints that we are fac-
ing like all other parts of the Federal Grovemment. I would say
that this is a time when we need more than ever to emphasize ag-
ricultural exports, to emphasize the area that is indeed the future
of the growth of agricultural income for our producers. I would be
very hard-pressed to say that any of the specific pieces of our orga-
nization are not critical to the achievement of that mission.
You asked specifically about the emerging markets that I have
already mentioned in passing. I will say that our intent is to use
every effort that we can to look at these markets, to ask ourselves
some very penetrating questions about whether the tools we have
today are the best tools for these markets and whether they are
used in the way to best exploit these markets.
I think we need to take a top-to-bottom look at various areas of
our programs. And, indeed, with a new farm bill approaching, that
is again a timely exercise. We will begin by looking indepth first
on an in-house basis but increasingly with input from our various
clientele, from our sister agencies and others, at least four of our
programs. The MPP is one where we have already made some
progress.
The export enhancement program is one where if, as I believe we
are going to be successful in achieving a resolution of the Uruguay
Round, we would need to be making some changes. GSM, the ex-
port credit guarantee program, is a major program that £dso can
benefit by a review.
Last, I would like for us to take a thorough look at the title I
program, that has operational aspects. This is our oldest program
that we are still operating more or less along the lines that it was
initiated. And it is certainly time to take a look at how that pro-
gram is working.
As I said, we will start by trying to work smarter in the spirit
of the National Performance Review and asking the people who op-
erate these programs for their thoughts on how they might be bet-
ter run. But increasingly, we will seek input from producers, from
exporters, from the other clients that we work with.
Your last question had to do with the TPCC process. Let me say
only that we intend to be fully involved in that process, we have
been fully involved in that process. And Mr. Mackie and others
have been contributing to the interagency discussions that have re-
sulted in the initial report.
Let me close, if I may, by simply pointing out an often forgotten
story, a success story. I would like to point to the great benefit that
all Americans derive from the fact that we have had relatively sta-
ble food prices in this country for four decades or more. I saw some
statistics just yesterday that indicated that in 1992 the portion of
per capita income that the average American spent on food fell to
a new low of around 11.2 percent. Certainly, the entire complex of
programs that we run that help to maintain a healthy agriculture,
that help to maintain the agricultural producers' income at a rea-
sonable level, is critical to this success.
I would contrast that with the problems we have seen in health
care and other areas, and I would say that we will work hard with
the guidance of this committee, with the guidance of our new Sec-
retary, and Under Secretary, to try to be sure that we maintain the
strength of the new ITS and our export programs so that we can
continue that success story.
Thank you.
[The prepared statement of Mr. Goldthwait appears at the con-
clusion of this hearing.]
Mr. Penny. Thank you, Chris.
Mr. Mendelowitz. Please proceed.
STATEMENT OF ALLAN I. MENDELOWITZ, MANAGING DIREC-
TOR, INTERNATIONAL TRADE, FINANCE, AND COMPETITIVE-
NESS, GENERAL GOVERNMENT DIVISION, U.S. GENERAL
ACCOUNTING OFFICE, ACCOMPANIED BY PHIL THOMAS,
ASSISTANT DIRECTOR. AGRICULTURE TRADE ISSUES, AND
KEN GRAFFAM, PROJECT MANAGER
Mr. Mendelowitz. Thank you.
With your permission, I will be happy to submit my full state-
ment for the record and make a few brief comments orally.
I am accompanied today by Phil Thomas, our AssistEint Director
for Agriculture Trade Issues, and also able staff including Ken
Graffam, who is currently heading up the work we are doing for
Chairman Rose on management issues at FAS.
My comments today are offered in the context of the current
tight budget environment, the substantial resources USDA devotes
to agricultural export programs, and the current USDA efforts to
reorganize and improve their export programs.
Grood management of these export programs is critical. However,
in the past, FAS has frequently not effectively managed its pro-
grams. For instance, as I have noted in the past, under the market
promotion program, FAS turns Grovemment funds over to not-for-
profit associations to either run market promotion programs them-
selves or pass the funds along to private for-profit companies to
spend on their own market promotion activities. FAS retains little
control over the funds provided to the private for-profit companies.
Furthermore, FAS does not obtain assurance that market devel-
opment activities would not have been undertaken without Grovem-
ment assistance. For example, we have identified potential for sub-
stitution of public for private moneys with respect to the checkoff
programs and the operation of MPP. Relatively small amounts of
producer and handler funds raised through the checkoff programs
are spent on export programs compared to the amount spent by the
Government.
This is particularly important in light of the fact that the export
and market development programs run by some of our major com-
petitors are now paid for exclusively by producer levies. For exam-
ple, CMA, the Grermain export promotion program, funds all of its
programs from producer levies. And even in France, SOPEXA, their
Market Development and Export Promotion Agency, stopped re-
ceiving Grovemment funds in 1992 and relies exclusively now on
producer-raised fiinds.
In addition, FAS has still not yet established a limit on the
length of time that a participant can receive assistance in a market
before it is expected to assume the costs of its own market pro-
motion efforts.
FAS also expends a significant amount of resources on reporting
about overseas developments that affect U.S. agriculture. Based on
an internal assessment, over a third of FAS's overseas staff re-
sources are devoted to agricultural reporting. The reports are in-
tended to support USDA programs, assist FAS in its trade policy
work, and to disseminate information to industry about foreign
competition and demand for U.S. farm products. However, much of
the reporting is put to little use either by USDA or the U.S. agri-
cultural industry.
Recently, FAS has done a major review of its reporting require-
ments and undertook some changes. There was a scaling back of
some reporting requirement and there was a shift of some report-
ing from bulk commodities to HVP's, which are becoming an in-
creasingly important share of our exports of agricultural products.
However, there is still a lot that yet can be done and more re-
search, I think, is needed to ensure that the reporting resources
are well spent.
This review of required reporting only queried FAS staff and
folks within USDA and no effort was made to query users outside
the Government who are customers for this data to ascertain: one,
how much of this material is really useful; two, how much of it is
needed, and three, are there areas where the private sector is al-
ready providing comparable data which is more current and more
useful and, therefore, duplicative Government data collection is not
needed.
Last, strategic planning is very important for the efficient man-
agement of Government resources. Under the 1990 Food Act,
USDA was required to develop a long-term agricultural trade strat-
egy to guide the implementation of Federal export programs de-
signed to promote the export of U.S. agricultural commodities. Our
review indicates that this strategy, which was delivered 15 months
late, in fact does very little to set meaningful priorities for agricul-
tural export programs and resources. And we believe that a sub-
stantial amount of additional work is needed on this long-term ag-
ricultural trade strategy to make it a useful management tool.
In September 1993, the interagency Trade Promotion Coordinat-
ing Committee in response to a mandate established in the Export
Enhancement Act of 1992, released a report on its efforts to de-
velop a govemmentwide strategic plan for export promotion pro-
grams. We are concerned with the apparent lack of substantial
USDA program involvement within this govemmentwide strategy,
particularly since USDA receives the bulk of the Federal export
promotion budget.
The plan made some substantial progress and made a number of
significant proposals for reducing overlap and duplication, and im-
proving efficiency in the operation of U.S. Government export pro-
motion programs. However, the plan did not yet complete two of
the major tasks assigned by the Enhancement Act of 1992, the first
is setting govemmentwide priorities for export promotion efforts,
and the second is the creation of a govemmentwide budget for ex-
port promotion.
The TPCC, in its report, made a firm commitment to complete
the setting of govemmentwide priorities and the govemmentwide
export promotion budget within the context of the President's 1995
budget proposal. We are concerned that to date, USDA's involve-
ment in this effort has not been sufficient.
USDA is barely mentioned in the TPCC report. Potential areas
of overlap, for example, in export financing that were dealt with in
nonagricultural programs, were not addressed with regard to
USDA programs in the TPCC effort. For example, areas of overlap
and duplication in working capital export programs between SBA
and Eximbank were dealt with explicitly in the plan. Areas of over-
lap in agricultural export finance between Eximbank and USDA
were not mentioned at all. And as yet, we haven't seen the kind
of detailed attention to agriculture's programs that have been ap-
plied to other programs within the Government.
This completes my summary comments and we will be happy to
try to respond to your questions.
[The prepared statement of Mr. Mendelowitz appears at the con-
clusion of the hearing.]
8
Mr. Penny. Thank you. We appreciate your participation in this
morning's hearing.
As I indicated earlier, I, unfortunately, will be required to leave
in just a minute to testify before the Budget Committee. Between
now and adjournment, there is a major recision and reinventing
Grovemment package that will come to a vote. And together with
Congressman Kasich, I have sort of put myself in the middle of
that debate with an alternative and more far-reaching plan of Grov-
emment restructuring and cost savings. And the Budget Commit-
tee has some mild interest in our proposal and so I have to leave
now to go there.
But I will return and in my absence, Chairman Condit will take
over and I will turn the chairmanship over to him at this point.
Mr. Condit [assuming chair]. Thank you very much.
We will try to move as quickly as we can through the hearing
this morning and I would in advance apologize to the witnesses be-
cause there is a lot of activity going on today as Mr. Penny has in-
dicated.
I will also, if Mr. Penny hasn't done so, ask unanimous consent
that all subcommittee members are able to submit opening state-
ments if they like, for the record and we will forego any state-
ments.
I have one and if any other member has one, they are welcome
to do that.
[The prepared statements of Mr. Condit and Mr. Thomas of Wyo-
ming follow:]
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Ukjor Owtm, Sew YoA * lUoking MJDority Manfan
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Bait StiBak. Mx&aaa
ONE HUNDRED THIRD CONGRESS
Congress of the United States oa2)i25.374i
House of Representatives fax (202) 229-2443
Infonnadon, Justice, Transportation, and Agriculture
Subcommittee
o> Ox
.Committee on Government Openticns
B-349-C RiybuRi Hduk Oflkc Buildiiig
Wuhiogton. DC 20515
OPENING STATEMENT
CHAIRMAN GARY A. CONDIT
November 10, 1993
Good morning. We called today's hearing as part of a continuation of this
Subcommittee's examination of U.S. agricultural exports and Mr. Penny's desire to reform
FAS programs to make them work better.
There is some good news on the export front, 1992 agriculttiral exports were up
over 12 percent to a total value of more than 42 billion dollars. Agricultural exports are
estimated to create more than one million jobs in the U.S.
The USDA estimates that every dollar received from agriculture exports generates
another dollar-and-one-half in business activity for the rest of the economy. Despite this
good news, I think this is a tiine for great caution. We are in the midst of a great debate
over the NAFTA, and agriculture has been brought back to the table in the GATT
negotiations.
Because of my concerns I intend to keep this Subcomniittee focused on what we
can do to keep the U.S. the world leader in agriculttiral exports. I know my colleagues on
' both panels are like-minded and I gready look forward to today's testimony.
Secretary Espy's reorganization plan envisions great changes for FAS. In fact, FAS
would be moved to a new Under Secretary's department and renamed under Mr. Espy's
proposal. While I am very supportive of the cost savi.^g3 proposals and management
improverjients which could be the result of this reorganization- I have some great concerns.
Hopefully, we wUl have a thoughtful discussion of the FAS reorganizpHon today which
will lead to a bipartisan and cooperative consensus on this issue.
I am also very interested in what is being done to implement the Department's long
term trade strategy. This Subcommittee unfortunately had to fight with the USDA to get
them to produce one-today will provide us with an excellent opportunity to check its
progress.
10
I abo hope to hear positive things about efforts to increase high value exports and
new agricultural technologies today. I cannot think of a better way to stimulate job growth
than to make sure that we do everything possible to add value to our raw products before
they are exported. Study after study has indicated the potential of this to rural America.
High value exports help our manufacturing, packaging and shipping industries as weU.
I would once again like to commend Mr. Penny and his staff for their efforts in
plaiuing this joint hearing. This is an example of the type of cooperation that should take
place between oversight and authorizing committees and I hope we can continue more of
these efforts next year.
11
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OPENING STATEMENT
REVIEWING THE MISSION OF THE FOREIGN AGRICULTURAL SERVICE
November 10, 1993
Room 1300 Longworth
Mr. Chairmen, thank you both for holding this hearing concerning
reorganization efforts of the USDA Foreign Agricultural Service. I look forward
hearing the testimony of the witnesses.
The USDA Is charged with an important task - how to better expand U.S.
agricultural markets abroad. There have been many efforts to enhance this effort
with the help of loan guarantees, insurance, subsidies, credit and marketing grants.
The results have been overwhelming since the United States exported $42.3 billion
of agricultural products throughout the world during the Fiscal Year 1992. The
potential to export more, however, is far greater depending upon how successful
USDA realigns its mission and re-evaiuates the products currently assisted.
Secretary Espy suggests moving the Foreign Agricultural Service to a newly
created International Trade Agency as a way to move the farm programs closer to
the products FAS Is trying to export. The new name represents exactly what USDA
Is suppose to do. But a new name alone will not move the United States beyond
$42 billion.
Reorganization efforts only scratch the surface. If we want to make our
agricultural products more competitive throughout the 21st Century, there must be
a fundamental shift In the functions of USDA. Creating a global mission Is one
thing - getting huge bureaucracies to change is another.
International trade means setting a long-term strategy. It means steering
away from micromanaging programs. And, it means assisting those commodities
until ttiey can stand on their own.
Mr. Chairmen, today's hearing will help us redefine that mission. I look
forward to hearing from our witnesses on the changes they suggest for policies,
such as the Market Promotion Program, the General Sales Manager program and
the long-term agricultural trade strategy.
12
Mr. CONDIT. I would like to begin with the questioning. Mr.
Goldthwait, what is your feeling about Mr. Mendelowitz' comment
regarding the two items where you have been somewhat deficient,
govemmentwide budget planning, and I forget what the other one
was?
Mr. Mendelowitz. Setting the govemmentwide priorities for ex-
port promotion.
Mr. CONDIT. Can you make a comment to those?
Mr. Goldthwait. I think that I have outlined in my statement
our view on what our priorities are with respect to agricultural pro-
motion. And we will be trying to work more on developing the spe-
cifics that need to go along with those views. I have talked, for ex-
ample, about the focus on the newly emerging markets, both for
high-value products and for specific regions. We have a lot of work
to do in order to effectively target those markets.
We have to meet with the importers, we have to be in contact
and working with our exporters, we have to review the program
tools that we have and determine whether or not they are, first of
all, the right tools for those markets because there are some very
different characteristics in markets like China, or like Indonesia,
vis-a-vis markets like Japan or Western Europe or Canada. And,
of course, I can't forget Mexico, where obviously we have some very
important concerns and some very great opportunities as a result
of NAFTA.
So we will be undertaking all the work that we can, as quickly
as we can, to look at whether our programs indeed do need to be
retargeted and whether or not, for example, in the upcoming farm
bill, there needs to even be some legislative changes. So we intend
to be full participants in that process.
These kinds of reviews are done on an ongoing basis but we are
going to add some new emphasis to them at this particular point,
and that will feed into our contribution to the TPCC.
Mr. CONDIT. So in short, those two points, you think that you are
dealing with those and that over a period of time, hopefully, a short
period of time, you will be up to speed in both areas; is that cor-
rect?
Mr. Goldthwait. Yes, exactly. There have been some — as the co-
chairman indicated in his opening statement, and my statement
echos it, there have been some veiy profound changes in the mar-
ket that we are looking at over the past year. And we need to make
sure that we adjust to those changes.
Mr. CONDIT. Mr. Mendelowitz, you commented in your testimony
that FAS has some shortcomings in its administration of the MPP
program. Congress worked to require some reforms to the program
this year. Do you believe this will satisfy youi concern, what we
have already done? I mean, does that make any improvement, in
your opinion, on the program?
Mr. Mendelowitz. I believe that the congressional direction pro-
vided for the program is a very important step in the right direc-
tion. This is a significant program relative to what the Federal
Government spends on export promotion, there is a lot of money
committed. And we believe it is important that the potential good
results that can be achieved through this program are achieved
13
consistently because of the design of the program rather than un-
evenly as has been the case in the past.
Mr. CONDIT. Are you suggesting possibly next year, I know Mr.
Penny and I have talked about it, next year possible additional rec-
ommendations for the MPP program?
Mr. Mendelowitz. I think that we would during this coming
year like to assess progress that is made. We are looking forward
to working with Chris and the FAS folks and seeing how far down
the road we go and then we will see if we can make some addi-
tional recommendations if they are needed.
Mr. CONDIT. Mr. Goldthwait, the FAS has experienced some fi-
nancial control problems in its programs. Commercially, the burden
of paperwork seems to be a major concern of yours. Is the answer
to give FAS less paperwork but more accountability for the finan-
cial integrity of its programs?
Mr. Goldthwait. I would say that we take the financial integ-
rity of the programs to be of absolute paramount importance. We
have over the past several years introduced a whole series of addi-
tional program controls that are designed to protect the programs.
We have introduced those as we have seen particular problems
occur. I think we had some controls in place early on to prevent
some very serious problems that could otherwise have occurred as
well. It is time now that we go through very carefully and look at
the series of program controls that we have in place, look at the
series of requirements that we place on the program participants,
see if there are ways to achieve the same thing more economically,
both in terms of our time and their time.
I want to emphasize and underscore that in that process we will
not step back from the goal of absolutely the best program integrity
that we can preserve and the absolute lowest level of program
abuse.
Mr. CONDIT. Mr. Mendelowitz, you noted that the FAS reports on
honey were of little or no use to the producers interested in export-
ing honey. With the elimination of the honey program, we need to
improve our ability to export this product. How can the FAS report
on honey be improved to be responsive to the honey producers?
Mr. Mendelowitz. The first issue that has to be addressed is the
extent to which our industry is competitive. We export relatively
small aniounts of honey, about half of it goes to the Middle East,
and I think most of the rest of it goes to Germany and Japan. I
think that the kind of reporting that would be helpful would be
that which explores the nature of those markets where our prod-
ucts are competitive and to which we can export. This would in-
volve a shift from reporting that dwells primarily on countries that
are currently exporting to the United States to include counties
which hold potential for purchasing U.S. honey exports, i.e., further
developing markets where we currently export and identifying good
prospects where we currently don't export.
Mr. CONDIT. Mr. Goldthwait, could you expand on the FAS's plan
to review its reporting requirements and do you feel these plans
will respond to the problem pointed out by GAO?
Mr. Goldthwait. We have recently completed an in-house re-
view of the reports that we currently require and we have restruc-
tured our reporting requirements from our overseas offices quite
14
considerably as a result of that review. And those changes are
being relayed to our field offices at the current time.
We have had a couple of things that we have had in mind as we
have restructured the reporting. One is to strengthen the emphasis
on the higher-value commodities, and two is to strengthen the em-
phasis on market development and market opportunities. So I
think that this very much goes in the direction of Mr. Mendelowitz'
statement, and I think we will have accomplished a great deal with
respect to that review.
I might also indicate that while there is, of course, the need to
focus on export markets, there are occasionally some special cases
where we do need information about the imports we have from par-
ticular countries. In the case of honey, I might cite the instance of
imports from China where there have been a series of problems,
trade problems that we have faced with those imports. So there are
cases where we need to continue to gather data on imported com-
modities as well as exported commodities.
Mr. CONDIT. Thank you.
To both of you, I am interested in hearing your opinions on the
report recently released by the Trade Promotion Coordinating Com-
mittee. I believe that agriculture is somewhat unique, in a unique
position in terms of export potential. I felt the report came up very
short in emphasizing agricultural. Why was that?
Mr. Mendelowitz. I think you have identified one of the major
weaknesses with the TPCC report that we also have been con-
cerned about. And our assessment, our opinion, is that USDA was
not as actively involved and engaged in the process in terms of put-
ting its commodities and its programs on the table for discussion
as were other agencies. I think the fact that USDA is almost
unmentioned in the report reflects the lack of this active involve-
ment.
Now, USDA representatives were there, participated in the inter-
agency process that worked on the plan. They actively discussed
and made helpful proposals on how to improve the programs of
other agencies. But they did not put their own programs on the
table in the same way.
Mr. CONDIT. Mr. G<)ldthwait.
Mr. GOLDTHWAIT. I will underscore what Mr. Mendelowitz said
about our participation. We were very much involved in the discus-
sions, in the process. We do have some serious questions, of course,
about some of the ways in which the TPCC decided and determined
what is and isn't a promotion program. So there were some con-
cerns there on our part.
But I think we have very much been participants and I think
that you will see increasing participation as the work of the TPCC
is carried forward. Let me ask if Mr. Mackie could add to that, be-
cause he was very directly involved in that process.
Mr. CONDIT. Would you introduce Mr. Mackie for us?
Mr. (JOLDTHWAIT. Mr. Mackie is our Assistant Administrator for
Marketing and Commodity Programs. He has been very much in-
volved in the TPCC.
Mr. Mackie. Mr. Condit, we have been working with TPCC since
it got off the ground in previous administrations, but the major ef-
fort in March of this year. I think I would respond to your question
15
as to why agricultural is not highlighted more specifically in the re-
port is that the TPCC has been focusing on coordination of pro-
grams to a major extent. I think that the difference between the
agricultural side and the industrial side is major there in the sense
that within Agriculture, we have coordination of our programs,
credit programs, and the policy programs, and promotion programs
and the information programs, are coordinated within the Depart-
ment of Agriculture. But that is not true on the industrial side,
there are many other agencies involved in it.
Mr. CONDIT. Thank you, Mr. Mackie.
Regarding reports that you mentioned from the fields, what con-
tact does FAS have with the industry to determine their particular
needs?
Mr. GOLDTHWAIT. We have contacts of a couple of kinds, rou-
tinely. First of all, we have an ongoing high level of interaction and
contact with exporters and with our market development coopera-
tors, which provides usefiil feedback on our reporting. But also
with respect to the pubhcations that we put out, we routinely sur-
veyed recipients of those publications to try to better determine
whether or not we are in fact meeting their needs. And the results
that we have received to those surveys are, I would say, by and
large, very satisfactory.
Mr. CONDIT. I have several other questions, but we have several
members here who want to ask questions and we want to move
along, so I want to ask Mr. Allard if he has any questions or com-
ments he would like to make?
Mr. Allard. Thank you very much for recognizing me. I would
like to thank the panel members for taking the time this morning
to testify before our subcommittee. Unfortunately, I am going to
have to be in and out during testimony, and there may be some
questions that I would Uke to have answered one way or the other.
I may submit those, and I hope this panel and the next panel
would be willing to respond to those in writing back to my office,
if you would, please.
To start off with, I have an issue that has been brought to me
by Congressman Combest. And apparently, there is some program
with the GSM program and the export of cotton from Texas, and
when that entry certificate is delivered and reimbursement and
whatnot, and, Mr. Groldthwait, I wonder if you would be willing to
take some time and sit down with Congressman Combest and look
into detail just exactly what their problem is with the export of cot-
ton to Mexico? I would appreciate it very much.
Mr. GOLDTHWAIT. We will certainly be glad to do that.
Mr. Allard. Thank you very much.
The other question that I have to bring up, and Chris or Mr.
Goldthwait, I will direct that toward you. Apparently, we have FAS
personnel that are assigned to some 80 overseas posts, covering
some 100 countries. What is the geographic disposition of your per-
sonnel?
How many are assigned to Europe and the Pacific Rim and Latin
America? And does the distribution of those personnel reflect the
potential for U.S. agricultural exports?
16
Mr. GOLDTHWAIT. Let me give you a very general answer, if I
may, and I will provide for you a specific listing that shows our
precise staff distribution.
The staffing patterns that we currently have, I do believe reflect
the kind of emphasis on potential that you are underscoring. In
fact, we have been through a rather lengthy process within the last
couple of years of evaluating each of our overseas posts and rank
ordering them according to chiefly market development potential,
but also some other important criteria like the reporting. And we
have made some post closings and opened some new posts, en-
larged other posts as a result of that effort.
We recently established an office within our agriculturzd affairs
unit that will continue that work on an ongoing basis so that we
can continue in our staffing decisions to reflect the best distribu-
tion. In point of fact, we are at the stage right now where if we
do increase or open a new post overseas, we must compensate for
that by closure of existing posts or downsizing. And there has been
quite a lot of that, particularly in Western Europe and one or two
other areas of mature markets in recent years.
Mr. Allard. Mr. Mendelowitz, I assume you have had an oppor-
tunity to look at the language in the Budget Reconciliation Act that
we passed in August. Aiid there was some very specific provisions
in there on the market promotion program about trjdng to address
some of the concerns in your report which was made prior to the
passage of that. Are there any additional things that you think
need to be done as far as the market promotion program or do we
need to give those recommendations and those provisions that were
in that budget reconciliation package a chance to operate before we
move further?
Mr. Mendelowitz. No, we felt those were excellent directions
and we believe that it would be appropriate to see how they work
before we make additional suggested changes.
Mr. Allard. Mr. Chairman, I do have some more questions that
I will submit to the panel. I am trying to adjust my balance of time
between here and a couple other committees. So I will submit those
in writing.
Thank you for your time.
[The information follows:]
17
ANSWERS TO QUESTIONS FOR THE RECORD
SUBMITTED BY
REPRESENTATIVE WAYNE ALLARD
SUBCOMMITTEE ON FOREIGN AGRICULTURE AND HUNGER
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
TO
GAO WITNESS ALLAN I. MENDELOWITZ
MANAGING DIRECTOR
INTERNATIONAL TRADE, FINANCE AND COMPETITIVENESS
GENERAL GOVERNMENT DIVISION
NOVEMBER 10, 1993
1.
PLEASE COMMENT ON THE RECOMMENDATION OF THE TRADE PROMOTION
COORDINATING COMMITTEE TO REQUIRE THE FEDERAL GOVERNMENT TO HAVE
A UNIFIED BUDGET FOR EXPORT PROMOTION PROGRAMS BY 1995. IN YOUR
OPINION SHOULD THIS UNIFIED BUDGET INCLUDE ALL FAS PROGRAMS, EVEN
THOSE THAT ARE NOT EXPORT PROMOTION PROGRAMS SUCH AS EEP AND THE
CREDIT GUARANTEE PROGRAMS?
Developing a unified budget for all export promotion activities
is one of the primary objectives assigned to the TPCC by the
Export Enhancement Act of 1992 (P.L. 102-429). USDA programs,
such as the Export Enhancement Program (EEP) and the General
Sales Manager (GSM) 102 and 103 credit guarantee programs, which
are both designed to increase U.S. agricultural exports, and
represent a substantial budgetary commitment, should be included
in any governmentwide export promotion plan, and unified budget.
2.
FAS ASSIGNS 80 PERSONNEL TO OVERSEAS POSTS. BASED ON YOUR
REVIEWS DOES THE GEOGRAPHICAL ASSIGNMENT COINCIDE WITH THE US
AGRICULTURAL TRADE POTENTIAL?
As of April of 1993, FAS had 104 agricultural attaches assigned
to 77 posts, in 62 countries around the globe. In addition, FAS
employs about 150 full-time foreign service national (FSN)
employees , and about the same number of contract employees
overseas. Many of the FSN employees, and about 1/3 of the
contract employees, work as professional staff at FAS posts.
With that number of overseas posts and the level of staffing, the
geographical placement generally coincides with markets having
significant potential for U.S. exports.
Nevertheless, FAS needs to re-evaluate how its overseas staff
resources are used in order to enhance their contribution to
Increasing U.S. exports. For example, over a third of FAS
18
attache time is spent on agriculture reporting. However, much of
it is of limited value. Therefore, existing attache resources
could be shifted from reporting tasks to more proactive market
development activities which could contribute more to increasing
U.S. agricultural exports.
3 ^
IN YOUR OPINION, WHAT IS THE MOST EFFICIENT AND EFFECTIVE WAY TO
INCREASE U.S. AGRICULTURAL EXPORTS? WHICH OF THE FAS PROGRAMS
WORK BEST?
The best way to increase U.S. agricultural exports is to have a
competitive agricultural sector committed to the international
market. Such an industry will be positioned to export to
promising markets and take the greatest advantage from any trade
policy initiatives that reduce foreign barriers to U.S. exports.
An agriculture program that has a market orientation at its core
— rather than a program that is production oriented -- will
enhance the international competitiveness of the U.S. agriculture
sector and support increased U.S. agricultural exports. Such a
program would be centered around the linking of agricultural
production to existing markets. This differs from the current
approach which focuses on production first, and then attempts to
find markets after the fact for surplus production.
Within the context of a market oriented agriculture program, FAS
assistance to exporters would still be needed. However, the
nature of some of the assistance might change. For example,
timely, high quality trade leads and customer focused market
intelligence would take on greater importance.
However, short of a radical change in the orientation of U.S.
agriculture programs, USDA export programs can be more effective
and efficient if they embody certain design features. These
include: 1) program elements to promote additionality, i.e.,
ensuring that government assistance results in promotional
activity that would not take place in the absence of government
funding; 2) a graduation requirement, which would phase-out
government assistance to program beneficiaries after a fixed time
period; 3) that government export assistance is provided to
competitive private sector participants, who otherwise would be
unable to start exporting because of the risk, complexity, or
difficulty in securing resources to cover start up costs; 4)
provision of monetary assistance on a success conditional basis
so that successful exporters who have benefitted from government
subventions could help finance a revolving export assistance
fund; and 5) that USDA establish a rigorous program evaluation
effort to measure program effectiveness and to help guide future
program development.
19
Independent of government programs, U.S. companies must address
the challenges of a changing and globalized agricultural trade
environment. GAO has found that U.S. companies engaged in
overseas trade often lack a strong commitment to exporting, and
many lack an export strategy altogether. Specifically, many U.S.
exporters do not conduct adequate market research, adjust
products to specific markets, establish a local presence in
overseas markets, develop an overseas promotion plan, or provide
post-trade servicing to their overseas customers.
4.
DOES FAS DO ENOUGH TO PROMOTE THE EXPORT OF HIGH VALUE
AGRICULTURAL PRODUCTS? IF NOT, WHAT SHOULD BE DONE TO CORRECT
THIS? ARE THERE ANY PROVISIONS IN THE LAWS THAT RESTRICT HIGH
VALUE EXPORTS?
In recent testimony and reports, GAO has highlighted the
importance of HVPs as the fastest growing segment of world
agricultural trade. We have also stated that the promotion of
HVP exports should be based on an overall agricultural trade
strategy, that is itself part of a governmentwide export
promotion plan. However, the USDA's Long-term-Agricultural Trade
Strategy has not proved to be a useful management tool to help
determine the USDA's efforts to promote HVPs. Furthermore, the
TPCC's governmentwide export promotion strategy has very little
in the way of discussion on how to improve USDA's export
assistance efforts.
We believe that more can be done to promote HVPs. While USDA
provides a variety of credit and subsidy programs for buyers and
sellers of U.S. agricultural commodities, and these programs are
available to exporters or HVPs, USDA has traditionally emphasized
servicing bulk commodities. While USDA introduced new programs
in the 1980s, some of which support the exporting of HVPs, as a
congressional report stated, USDA has not provided the marketing
leadership needed to help U.S. agribusiness better compete in
export markets .
USDA can do a better job of promoting HVPs exports. Central to
this effort is the recognition that support for HVPs requires a
re-orientation of FAS towards the different needs of HVP
exporters. For example, we stated in a recent report^ that
markets in Taiwan, Malaysia, and Indonesia, hold good potential
HIGH-VALUE PRODUCT EXPORTS: Good Potential Exists for More Trade
With Taiwan, Malaysia, and Indonesia (GAO/GGD-94-52, Nov. 19,
1993.)
^HIGH-VALUE PRODUCT EXPORTS.
20
for increased imports of agricultural HVPs. However, U.S. HVP
exporters believe that FAS could provide better information and
other assistance which would help them improve access to the
markets. Furthermore, we also noted that U.S. KVP producers
needed to be more committed to exporting and FAS could play an
important role in educating producers on what it takes to
successfully export.
21
QUI '.I I I ON : KAj pcTSOnriel art- assitincd lo 80 ovci-oiMi. po'^ls. covi.-i ing 100
couriLi ios. Wh.lL is the geographical fti str ibolion ol the persoiiin.'I? How many
ai f assiynod to Furope? To thf Pacific Rim couiilrio"^? To Latin Aiiicrica?
Docs the assignment of the personnel reflect the potential for U.S.
aijiicul tural exports?
ANSHFK: FAS pci sonnel are now assigned to /9 overseas posts, covering inoi e
than 130 countries. The following table shows the regional distribution.
REIjIONAL DISTRIBUIION 01 IAS PrKSONNEI OVERSEAS
RH5I0N
EUROPE
Western
Eastern
FOREIGN
ICAN
NATIONALS
44
56
35
45
9
11
TOTAL
100
80
20
ASIA
Pacifit Rim
Other
33
30
3
43
3b
8
26
G5
11
WESTERN HEMISPHERE
21
35
56
Latin America 19
Otiifi 2
AFRICA AND MIDDLE EAST 14
TOTAL FAS PERSONNEL OVERSEAS 112
32
51
3
5
20
34
154
26G
FAS overseas staffing is under continuing revi(;w. A shift has bei?n occurring
during Lhi- past decade with fewer staff numbers in Westei n Fuiope and
increasing numbers elsewhere, priinaiily in the Pacific Rim, as marketing
uppui Imii Lies and trade of U.S. agi icul Lura I goods expand in the Asian legion,
SLall increases havi- also occurred in Eastei n 1 urope to take advantage ol
Liailc opportuni Lies caused by clianqing poliLical conditions.
I)',>|!A/I A'.,/l AA
ii/x;7S3
22
SUBCOMMITTEE ON FOREIGN AGRICULTURE AMP HUNGER
Question 2
What is the process FAS will use to determine whether Russia
meets the creditworthiness recjuirements for the credit guarantee
programs? Who participates in the decision and what information
is used to make the decision?
Response
USDA follows the same procedures for all countries to determine
credit worthiness for participation in USDA's Export Credit
Guarantee Program. The Foreign Agricultural Service's (FAS)
Program Development Division (PDD) develops program allocations
for the Export Credit Guarantee Programs (GSM 102 and 103) using
input from three sources - - the Trade and Economic Division
(TEID) of FAS, the Commodity Marketing and Programs (C&MP) area
of FAS and the Financial Management Division (FMD) of the
Agricultural Stabilization and Conservation Service (ASCS) .
TEID provides classified country risk assessments, which rate a
country's ability to repay existing and future short -to medium
term debt obligations. The assessments provide reports on five
risk categories (macroeconomic environment, balance of payments
situation, liquidity, foreign debt burden, debt repayment
history) for each participating country and offer annual risk
exposure guideline recommendations.
FMD provides assessments of foreign banks . The bank assessments
determine which banks are eligible to participate in the
GSM programs and set limits for the risk exposure to CCC for each
bank. These bank limits may be waived if the foreign government
is willing to provide a Credit Guarantee Assurance (CGA) letter
to repay defaults of any eligible bank.
Top officials of PDD, TEID, C&MP, FMD and other senior officials
within FAS sit on a committee known as the Reconciliation
Committee (RC) . The RC is charged with reaching a consensus on
the appropriate level of programming for potential country
participants according to sovereign and bank risk considerations
and market development opportunities. The committee is chaired
by the Assistant Administrator of the Export Credits Program
Area. If a consensus is reached within the RC, the
recommendation is presented to an interagency committee, the
National Advisory Council on International Monetary and Financial
Policy (NAC) , which must review all GSM-102 and GSM 103
programming decisions.
23
The NAC is made up of representatives from the Treasury
Department, State Department, Commerce Department, Federal
Reserve, U.S. Trade Representative, Eximbank and A.I.D.
Following NAC review, a public einnouncement is made which
provides information on the total amount of guaranteed credit as
well as the credit lines for individual commodities. If
consensus cannot be reached in the RC, a decision memorandum is
prepared. Depending on the size of the proposed program, the
risk grade and the percentage by which the recommendation exceeds
the annual exposure guideline, the decision memo is forwarded to
various decision-making levels. In ascending order they are the
the General Sales Manager, the Administrator of FAS, the
Administrator or ASCS (who is Executive Vice President of CCC)
and the Under Secretary for International Affairs and Commodity
Programs (who is President of CCC) for their decision.
According to FAS policy, a country program is suspended as a
result of any missed interest or principal payment. Should a
country undergo a rescheduling of debt at the Paris Club, and in
the event of a bilateral agreement, USDA can consider the country
for a new program.
The United States and Russia have recently signed a bilateral
agreement which call for the payment of approximatley $450
million by December 31, 1993. Should the Russians repay this
amount, USDA could consider a new GSM program for Russia,
although it is under no obligation to announce one.
Higgiston: 720-0732
CTde lap lane KReynolds Gwhiteman
/P^
24
QUESTIONS FROM THE SUBCOMMITTEE ON FOREIGN AGRICULTURE AND HUNGER
REVIEW OF THE MISSION FOR THE FOREIGN AGRICULTURAL SERVICE
QUESTION: How does FAS determine which companies are eligible for funding
under the Market Promotion Program? There are always more applications than
money. Now with MP? reduced even further, the decisions could be even more
difficult.
ANSWER: Private companies may apply for participation in the Market
Promotion Progreun (MPP) through one of three types of programs:
1. Non-profit trade associations - administer programs for U.S.
and foreign companies;
2. Regional - administered by the four state regional trade
groups, targeting small, new-to-export, and economically disadvantaged
companies; and
3. Export Incentive Program - administered directly by FAS for
industries where no appropriate trade organization exists.
FAS determines which MPP applicants are eligible based upon criteria
published in the Federal Register including: adequacy of the strategic plan
and promotion objectives, ability to provide its own resources and staff to
conduct overseas promotions, evidence of the applicant's program management
capabilities, adequacy of the applicant's provisions for monitoring and
evaluating activities in the proposed plan, and a detailed explanation of
the prospects for success of the proposed activities. FAS reviews each
applicant's activity plan, and in turn, approves specific budgets based upon
the proposals. Additionally, based upon the provisions of the Omnibus
Budget Reconciliation Act of 1993, FAS will give priority consideration for
funding small-sized entities determined on the basis of Small Business
Administration criteria.
QUESTION: What is the process used by FAS for determining eligibility for
the Export Enhancement Program (EEP)? Who participates in the decisions and
how are countries and commodities selected for EEP?
ANSWER: FAS continually reviews proposals for country/commodity EEP
initiatives. Proposed initiatives that meet the program criteria and the
approval of the Under Secretary for International Affairs and Commodity
Programs and the TPRG are announced by USDA. (Agencies represented in the
TPRG include the Council of Economic Advisors, Department of Commerce,
Department of State, Department of the Treasury, National Security Council,
Office of Management and Budget, and Office of the U.S. Trade
Representative.) According to the criteria published in the Federal
Register on June 7, 1991, all EEP initiatives must: further the U.S. trade
policy negotiating strategy of countering competitors' subsidies and other
unfair trade practices by displacing such countries' subsidized exports in
targeted countries; demonstrate the potential to develop, expand, or
maintain markets for U.S. agricultural commodities; not have more than a
minimal effect on non-subsidizing exporters of agricultural products; and
have expected benefits which exceed the expected costs of the initiative.
25
THE ROLE OF THE DSDA IN TRADE NEGOTIATIONS
USDA has been heavily involved in trade negotiations, including NAFTA and the
Uruguay Round of multilateral trade negotiations under the General Agree.-nent on
Tariffs and Trade (GATT) . Working closely with the Office of the U.S. Trade
Representative (USTR) , USDA has taken the lead in negotiating GATT and NAFTA
agreements on agriculture. The role of the USDA has not changed under the
Clinton Administration, which has placed a high priority on reaching fair and
workable trade agreements for U.S. agriculture.
FAS/ITP/MTPAD: 11/21/93
26
QUESTION: What changes, if any, can be expected as a result of the
reccrmnendatlons of the Trade Promotion Coordinating Committee for a unified
budget for all federal government export promotion programs? Which programs
are affected by this recommendation? . .
ANSWER: The Export Enhancement Act of 1992 requires the TPCC to create a
"unified budget" for export promotion for the federal government that will
be consistent with priorities established by the TPCC export promotion
strategy. The unified budget (FY1995 target) is to be achieved through an
inter-agency resource allocation process, with key roles for the National
Economic Council, Office of Management and Budget and the TPCC.
The TPCC continues to wrestle with the definition of export promotion, to
complete an analysis of current expenditures of U.S. export promotion
efforts, and to determine the role of performance measures in the allocation
process.
There is some confusion concerning the amount of Department funding for
export promotion, particularly in relation to funding availabilities for the
rest of the Executive Branch of Government. In particular, the General
Accounting Office's January 10, 1992 report (GAO/NSIAD-92-49) is somewhat
misleading in stipulating that 80 percent of the Federal Government's export
promotion funding is spent through an agency, the Department of Agriculture,
which only represents 10 percent of U.S. exports of foods and manufactures.
In point of fact, about 80 percent of the "promotional funding" cited in
this report is not what would normally be considered promotional, but
rather, consists of food aid, price subsidies and credit assistance. The
latter, while intended to assist exports of U.S. farm products, are not
generally aimed at promoting overseas demand for U.S. farm products. USDA's
export promotion efforts are conducted primarily under the Market Promotion
Program (MPP) and the Foreign Market Development Program (FMD), which in
Fiscal Year 1993 were together funded at about $185 million. In other
words, the Department's true level of promotional funding as a percentage of
total Federal Government export promotion funding is much less than the 80
percent cited in GAO's report.
The USDA strongly supports the coordination and streamlining of export
services and programs, but this must be done in a manner which takes into
consideration domestic and international program objectives designed by
Congress. The USDA does not support the inclusion of performance measures
as the sole means to determine aggregate allocations of federal promotional
funds among competing export interests or programs. Level of funding should
be done on a sector basxs, which supports domestic economic policy, notes
the relative importance of exports to the sector, and the barriers to trade
for each sector (trade policy issues). The TPCC must define "export
promotion". In addition, no consideration is made of the mandatory, versus
discretionary funding nature of some of USDA's programs. Any consideration
of budget must be done with consideration of the unique situation of each
particular sector. The importance of export programs to Agriculture is
unique. Aspects of USDA's export programs are interlocked with domestic
programs and our trade negotiations. Until such time as the above issues
are addressed we cannot correctly gauge the impact on the USDA budget nor
affect on select programs.
27
QUESTION FROM HON. COMBEST:
ISSDE;
The Texas Cotton Association has raised a issue concerning the GSH program and
entry certificates for exports to Mexico. OSDA has stated that entry
certificates are required to assure that the coaaodity was actually exported
before disbursing federal funds. However, this does not address the Texas
Cotton Association's problem that in Mexico the entry certificate is issued only
after the connodlty has entered Mexico. Therefore, exporters lose control of
the coonodity exported before the exporter receives all the documents necessary
to receive pajnsent. If an entry certificate is never issued, the exporter runs
the risk of nonpayment although all terms of the letter of credit have been met.
QOESTION;
What advice can you give to the members of the Texas Cotton Association to
remedy this problem?
ANS9ER:
It is not a GSM-102/103 program requirement that the entry certificate be
submitted in order for the U.S. bank to pay the exporter. However, for
shipments by rail or truck, in order to file a claim on CCC, the bank must
submit to CCC a copy of the entry certificate. Thus, it is understandable that
the U.S. bank may require the certificate, or other arrangements to protect its
financial interests, before paying the exporter.
It is our understanding that the official Mexican entry "certificate
("Pedimento") can normally be obtained promptly (within a few days) If the
services of a qualified Mexican customs agent are utilized (some U.S. agents
have standing arrangements with Mexican counterparts). Ve also understand that
another technique to ensure prompt payment by the U.S. bcuik is for U.S.
exporters to provide the U.S. bank with a letter of indemnity. This letter may
be used in the event the exporter fails to provide the entry certificate at the
time a default occurs and the bank must claim on CCC.
?hile it would be inappropriate for CCC to advise exporters how they might best
deal with this question, I hope that these observations may be of Interest.
In general, I would observe that we have not had many complaints from exporters
about payment problems relating to the entry certificate Issue. If the Texas
Cotton Association has specific recommendations concerning CCC program
regulations, we would be pleased to receive them.
FAS/EC/CCCOD/Robert Slmpson/lw/720-62 11/11-29-93
cc: Goldthwalt, Vhiteman, McElvain, Hawkins, Chewning
28
Mr. CONDIT. We absolutely understand that. Thank you, Mr..Al-
lard.
Mrs. Thurman.
Mrs. Thurman. Mr. Goldthwait, in your testimony you talk about
the three areas that you are concerned about or are trying to look
at. And one of them you specifically spell out is rebuilding bulk
commodity markets. What disturbs me a little bit is that there is
not much discussion about the high-value products and like our
specialty crops, vegetables, fruits, those kinds of things which, of
course, are very important to the Florida exporters, and we have
done much of the stuff on our own.
I would like both of you to tell us what we can be doing or why
that is not being emphasized by the Depgirtment and specificsdly
because you continue to talk about NAFTA, our folks in Florida
seem to think that has a negative effect on them. So it seems like
we need to be looking for other ways to give them some opportuni-
ties in this new world.
Mr. GrOLDTHWAiT. We are, in fact, putting quite an emphasis on
the marketing of the high-value commodities, including specifically,
horticultural products. There the approach has to be a little dif-
ferent because these products have some very specific barriers that
they are encountering in most of the growth markets for them. For
example, on an almost daily basis, as you are undoubtedly aware,
we encounter trade barriers on a bilateral base, which is a number
of the future potential markets, including those in the Far East. So
we have to take a kind of a two-tiered approach.
First of all, we have to be very vigilant in combating those bar-
riers every time we encounter them. And then second, and I think
you will see this reflected in our various program allocations, we
need to put promotion resources into those effbrts as well.
I did, of course, mention the bulk commodities because that is a
very important area of our overall agricultural exports, but we are
increasingly focusing on the high-value commodities that you men-
tioned.
Mr. Mendelowitz. Our assessment of the agency's programs
overall is that USDA has rarely employed strategic marketing in
its programs. When we say "strategic marketing," what we are
talking about is a range of practices and programs that are de-
signed to identify consumer needs and preferences, develop prod-
ucts to meet those needs and preferences, and to develop distribu-
tion systems to see that the products get to market.
The emphasis of the agenQr's programs for the entire postwar pe-
riod has been primarily directed at production, i.e., improving effi-
ciency and improving output. The export programs that have been
employed have primarily been appended to this production-oriented
focus of the Department. That is, once the products are produced,
we then try to find ways of exporting them or finding markets for
them.
We believe that at the strategic thinking level what is needed is
an approach to agriculture that starts out by identifying potential
markets and then winds up with deciding what to produce and de-
liver, rather than an approach that starts out with producing the
products and then trying to find markets for them. What we think
29
should be done at the most strategic level goes to the issue that
you raised with respect to HVP's.
If you look at trade statistics — and we issued a report to Mr.
Penny earlier this year that discussed how important HVP's are in
terms of both U.S. exports and world exports — we identified that
HVP's are really the growth area for agricultural exports. They
have been for some decades a constantly rising share of world agri-
cultural trade.
As world income rises, demand for consumer-ready and other
HVP's will definitely grow. And we believe in order to make good
use of its resources, the Department needs to step back and take
a whole new approach, namely, a strategic marketing approach
which will affect both the programs to assist production and the
programs to assist exports that the Department manages.
Mrs. Thurman. Mr. Mendelowitz, I wasn't here, but it is my un-
derstanding that you reported to the subcommittee in 1992 that
there were some problems in the management of the FAS trade
shows. Have there been improvements in these areas?
Mr. Mendelowitz. My associate, Mr. Thomas, tells me there
have been some improvements but there is still opportunity for
more.
Mrs. Thurman. Mr. Goldthwait, the reason I bring this up is
that the Florida Agriculture Department started a promotional pro-
gram, have been working with the trade shows and different things
of that nature; actually, came to the legislature and received some
funds. But now, quite honestly, have no funds in the State budget
and have been doing it privately, in several different languages and
different things of that nature.
I just wonder if you have looked at that program and is there a
way maybe to possibly implement some of that, or at least put to-
gether some working groups to find out how they are doing and
what they are doing and expanding some of these trade shows so
that we can make sure that these products and commodities are
looked at?
Mr. Goldthwait. I am not familiar with the specifics of the work
that has been done by the State of Florida.
Mrs. Thurman. You need to look at it. It is really good.
Mr. Goldthwait. We will do that. The general direction of our
trade shows, I think, has been toward one of improvement, both in
terms of the effectiveness and in terms of the cost efficiency. For
example, in the past 2 or 3 years, we have gone to the point where
we are recovering instead of 40 or 50 percent of the cost of these
trade shows, 80 or 90 percent in terms of the willingness of the
participants to pay the cost and use their own money in order to
participate.
Let me ask if Mr. Mackie happens to know better than I the spe-
cifics of the Florida program and will he want to comment.
Mr Mackie. No, I do not.
Mr. Goldthwait. I apologize for that, and we will certainly look
into that and provide some feedback.
Mrs. Thurman. Well, hopefully, we will have an opportunity to
sit down and discuss this further.
Thank you.
Mr. Condit. Ms. Woolsey.
30
Ms. WOOLSEY. Thank you, Mr. Chairman. I apologize for being
late. I was just sitting here thinking that the mayor of my town,
when I was on the city council, used to call me the "late Ms. Wool-
sey." He would have been furious at my schedule around here, be-
cause I never manage to be anyplace on time. For example, right
now I should also be at the budget hearing with Representatives
Penny and Kasich keeping them on the hot seat.
I am here today because this hearing is very important. I have
reviewed the testimony and I do have some specific questions that
relate to my district
I appreciate your being here. The district I represent is the Sixth
Congressional District in California, Marin and Sonoma Counties.
We have a thriving wine and wine-grape industry. The market pro-
motion program, which is one of the FAS export promotion pro-
grams, plays a very important role in the success of the vintners
and the growers in Sonoma and Marin.
Earlier this year, Chairman Condit came out to my district and
we had a congressional hearing in Sonoma County on the USDA's
role in the wine industry and how the USDA could better play that
role. On the issue of trade, a number of the witnesses who were
either vintners or growers testified that they found the market pro-
motion program to be extremely beneficial to the wine industry.
One of the issues discussed at the hearing in my district on the
wine industry was whether a wine desk could be established at the
USDA. Many members of the wine and winegrape industry would
really like the USDA to embrace them more fully by establishing
a wine desk. However, the USDA has not responded favorably to
this idea. I would like to know what you think of establishing a
wine desk. Is this a possibility?
What do I need to do, what do they need to do and what do you
need to do to make it happen?
Mr. GOLDTHWAIT. Well, it is essentially, I believe, a question of
resources. And as wine has become an emphasis in our MPP ef-
forts, as it has become a more important U.S. export, of course we
have increased the amount of time that our analysts and our pro-
motion personnel devote to it. I can't honestly say, at this point,
that I think we will have the resources to establish a separate wine
desk simply because our folks are already very much stretched.
But we do, I am sure, in terms of the overall effort that we de-
vote, occupy the time of at least a couple of our staff. If you sum-
marize the contributions of all of them on wine, I don't think we
are at all neglecting wine.
Ms. WooLSEY. Would there be a chance that the High-Value
Product Services Division could further address the needs and con-
cerns of the vintners and growers? Grapes are one of the ten high-
est agricultural commodities in this Nation. People just don't real-
ize that. I believe the USDA needs to recognize how valuable the
wine and winegrape industry is by addressing their concerns.
Mr. GOLDTHWAIT. We will certainly do everything we can to be
in very close contact with the industry. I think we have by and
large succeeded in having a very solid contact with the wine indus-
try. We want that to continue, obviously, and if that means devot-
ing some additional time and attention, we will certainly try to do
that.
31
Ms. WOOLSEY. My other question is about the FAS agricultural
trade shows. I believe that trade shows could be very beneficial to
the wine industry. Does the FAS have any plans to do outreach to
the wine industry in order to get the industry more involved in
these trade shows?
Mr. GrOLDTHWAlT. Let me ask Mr. Mackie to comment on that.
Mr. Mackie. Ms. Woolsey, I believe that the wine industry and
specific wineries have been a participant in our trade shows. In ad-
dition, they have run specific trade shows on wine tastings them-
selves, under our programs. In terms of outreach, I think we do the
best we can on the outreach question.
For example, working through the regional associations of State
departments of agriculture over the last 2 years, we have spon-
sored and participated in approximately 35 seminars per year for
small compeinies and those who would have an interest in export-
ing. And some wine firms have been participants in those semi-
nars.
Ms. Woolsey. Some of the witnesses at my hearing, the chair-
man will remember, spoke about this issue indicating that there
needs to be additional encouragement for the wine industry to get
more involved, particularly the small, less affluent wineries. There-
fore, any help you can offer is appreciated.
Mr. GOLDTHWAIT. May I add just one word? One of the focuses
that we are trying to achieve in terms of the restructuring we are
undertaking in the market promotion program is to better serve
the small- and medium-sized companies. So we will pay very close
attention to the comments you have made in that regard this
morning.
Ms. Woolsey. Good.
Thank you very much.
Mr. CONDIT. Thank you very much, Ms. Woolsey.
There are many of us who come from California, as Ms.
Woolse^s already indicated, who are concerned about the USDA's
treatment of sort of specialty crops. We feel like we don't get a fair
shake at the Agriculture Department and I know that the Sec-
retary has committed himself to try to be helpful to that and we
appreciate your comments very much.
GAO says that USDA receives 8 percent of promotion funding
from only 20 percent of exports. Is GAO referring only to funding
of the MPP? If yes, does the USDA agree with these numbers?
Mr. Mendelowitz. The numbers that we compiled related to out-
lays during fiscal year 1991. They included all outlays associated
with assisting exports; this goes well beyond MPP funds. For 1991,
the share of the outlays that we identified and compiled that were
expended by the Agriculture Department were about 74 percent.
And in that year, agricultural exports represented about 10 percent
of U.S. exports.
Mr. CONDIT. Mr. Goldthwait.
Mr. Goldthwait. Yes, my comment would be I think the money
is being extremely well spent. If you look at our success in achiev-
ing year, after year, after year a positive trade balance in agri-
culture, I think you will see some good return on that. I would also
point out that there is very direct correlation or, I should say, a
very direct inverse correlation between our success in moving prod-
32
ucts under our agricultural export programs and outlays under do-
mestic programs.
Mr. CONDIT. Mr. Groldthwait, I am also interested in the progress
in implementing the "Long-Term Trade Strategy." This document
was over a year late in being produced. Can you give us some rea-
sons why it was a year late and maybe make some comments about
the long-term strategy?
Mr. GOLDTHWAIT. Well, the document was a very difficult one. In
point of fact, we started from about two or three different ap-
proaches with respect to completing that strategy before we found
one that really satisfied us. What resulted was a general umbrella,
a general statement of the overall theory behind our promotion ef-
forts and the overall effort in which we want to see them. It is a
document that we certainly plan to review from time to time. And,
indeed, some of the more specific things that I have said this morn-
ing about the direction in which we want to see our promotions
programs go, I think show that we have some very clear ideas
about what we want to do next and the overall direction in which
we want to see our strategic focus of all the programs proceed.
Mr. CONDIT. I think, Mr. Mendelowitz, you might want to com-
ment on this. You stated more specifics are needed in the Depart-
ment plans on "Long-Term Trade Strategy." Could you give us
some specifics on what should be contained in this document?
Mr. Mendelowitz. Well, let me give you an example from the
non-USDA programs included in the TPCC strategic plan, which I
believe highlights the way we need to go about looking at these
programs.
There was an explicit recognition in the TPCC process that there
was a problem in the delivery of the export assistance programs
that are run by the nonagriculture agencies. The Commerce De-
partment has a network of trained trade counselors in its district
offices, but no resources to provide exporters. The Eximbank has
resources in the form of loans to support exports, and credit guar-
antees to support exports, but no field structure for delivering its
programs. The Small Business Administration has a large field net-
work, a lot of resources, and programs designed to help exporters.
However, the resources and programs weren't being used much be-
cause there wasn't much direction in the agency to help exporting
and there was little training of the staff to be able to effectively de-
liver the export programs. The TPCC process confronted this defi-
ciency across the agencies directly, identified the causes of the
problem, and came up with, I think, a very creative solution that
required no increase in expenditure.
The solution was to meld the programs of three different agen-
cies and deliver them through a series of "pne-stop shops" at the
local level. Under this initiative, SBA folks in the field and Com-
merce folks in the field, will be brought together into local offices
and they will form unified teams to provide Grovemment assistance
to exporters. They will represent and provide jointly the programs
of Eximbank, Commerce, and SBA. No comparable assessment of
how to improve the programs in the farm area or the agricultural
area was either included in the LATS or in the TPCC strategy. And
it is that kind of no-holds barred, really open-minded approach that
is needed to improve the programs and to make better use of the
33
tax dollars that the American taxpayer is investing in this impor-
tant area.
Mr. CONDIT. Mr. Goldthwait, will FAS field structures be affected
by reorganization of USDA field structures? Are you taking a look
at this?
Mr. Goldthwait. The restructuring of USDA as it is currently
targeted, will not have a direct impact on our field structures. It
focuses more on the domestic field structures. However, in the
overall climate of budget constraint, we have looked very carefully
at our field resources. We have already independently done a good
bit of restructuring and a good bit of shifting of personnel into
countries where we think they will be more effective in terms of
the longer-term market development that we are trying to achieve.
So while we are not directly affected by the reorganization in
terms of our overseas offices, we are restructuring as part of an on-
going program of being sure that we have our resources where they
are going to be the most effective.
Mr. CONDIT. I am going to yield to Mrs. Thurman.
Mrs. Thurman. Mr. Goldthwait, let me pose an issue to you that
I am very interested in, and Mr. Mendelowitz, as long as I have
been here, which is only about 11 months now or whatever. One
of the things that has concerned me and I think it does all of us
when we are looking at Crovemment, has been the lack of commu-
nications between one Department within an agency to another.
Let me pose to you something that happened to the Government
Operations Committee last week when we talked with EPA and
USDA on the issue of ethyl bromide.
It has come to my attention that in some of your foreign markets
that unless you fumigate with ethyl bromide that you are not able
to take the product there. On the other hand, we are being told
that potentially we are going to have to look at the production if
they are going to actually reduce the use of ethyl bromide maybe
back down to the 1991 times.
How, then, do you as a Department and agency get this informa-
tion from your part of this of promotion and international trade, to
the people that are making the decisions on some of the other —
what they are going to use and the pesticides or some of that?
I think that is a very important issue, because one of the things
that will send mixed signals to the people that you are most trying
to help is that people are not communicating. And I think it has
been — I mean, I can't think of a GAO report or an Inspector Gen-
eral's report that I have read that this has not been one of the
major issues.
Mr. Goldthwait. I would comment in a couple of ways. First of
all, the channel of communication that currently exists is from our
agency through other agencies within the Department that deal di-
rectly with EPA and other organizations. And, in fact, we have re-
cently established a separate office within FAS to monitor the
kinds of developments and the kinds of problems that you are re-
ferring to.
But stepping back from that for a moment, I would say that this
is an area where we are going to increasingly face this kind of, if
you will, conflict between objectives. And we are going to have to
do a better job. I believe you have isolated an area where we do
34
need to make some improvements. We are going to have to do a
better job of looking at what the tradeoffs are, how we can achieve
overall objectives both with respect to our trade objectives and our
own concerns about residues and this kind of thing domestically.
I would say that I see some very positive potential in this as we
try to tackle this problem, because, again, I think one thing that
we have not done enough of is promote U.S. products, particularly
some of the fruits and vegetables that you are concerned about, as
basically safe products in countries that are increasingly concerned
themselves about the use of pesticides and this kind of thing. I
think we have the potential to make that a positive factor, whereas
too often today, it is a negative factor as you have pointed out.
Mrs. Thurman. So when you have gone through, though, looking
at this whole new reorganization chart, can you give me specifically
what you have done so that you know that you will have that
input?
Mr. GOLDTHWAIT. I can't tell you that today, off the top of my
head, but let me provide some information to your office on how we
currently envision accommodating this within the Department's re-
organization.
Mrs. Thurman. Mr. Mendelowitz, can you give me some ideas of
things that we might be able to tell them today that they may be
able to accomplish this?
And if you can't, we will talk later.
Mr. Mendelowitz. I will be happy to try to draw up a more de-
tailed response, if you would like to talk about it later. But what
you have identified is a problem which exists across the Govem-
ment, when there are programs that have a narrow focus, but have
impacts that spill over into other areas.
You can't fix those problems at the end of the process. The only
way to really address these problems in a sensible and minimally
disruptive way is to make sure that when the process starts, you
try to identify everyone who is going to be impacted, and an effort
has to be made from the very beginning to make sure that every-
one who is going to be affected is part of the process. Then, as the
process proceeds through the final stages, everyone who is going to
be impacted as a result of what happens is involved at every step
of the way. And that is absolutely critical. Because the truth is,
there is simply no way to avoid conflicts because we have programs
with goals that are in conflict.
For example, I remember the classic story about the — I don't
know if it is apocryphal or not — about the APHIS inspector who
visited an abattoir and said the place was pretty good, except there
was still some potential for bacterial growth in the floor tiles. The
abattoir had to replace the nonslip floor tile with shiny ridge-free
tile so that bacteria couldn't develop. And then, after they made
the renovations, the OSHA inspector came in and said, well, the
place was pretty good, but there was a problem with the floor.
When the tile floor gets wet it is too slippery and a worker can slip
and fall and be injured, so the abattoir needed to put in nonslip
ridged floor tiles.
I am not telling the story to poke fun at anyone, I am telling the
story to highlight the problems that arise when there are programs
with goals that are in conflict. The only way to make sure that we
35
come to conclusions in the least disruptive way is to get all the
stakeholders involved at the beginning of theprocess so that unan-
ticipated problems don't crop up at the end. Tnat is, they are dealt
with explicitly along the way.
Mrs. THURMAN. I thank both of you and I look forward to some
future conversations with you both.
Mr. CONDIT. Mr. Mendelowitz, Mr. Goldthwait, and Mr. Mackie,
we appreciate you being here this morning, and the fact that sup-
porting staffs here participated in this hearing, we appreciate that.
You have been very kind with your time and we may have some
further follow-up questions we would ask you to respond to. But
thank you very much.
We will take the next panel.
Mr. Johnson, Mr. Terhaar, Mr. Krajeck, and Mr. Notar.
If you would just remain standing, the subcommittee has a policy
of swearing all witnesses in, and since I am chairing at this par-
ticular time, we will do that.
Please raise your right hand.
[Witnesses sworn.]
Mr. CONDIT. Let the record indicate they all said yes.
Mr. Johnson is the president of National Pork Producers from
Minnesota, and we appreciate him being here today.
Actually, he is from Washington, DC; is that correct?
Mr. Johnson. No, I am from Minnesota.
Mr. CONDIT. You are from Minnesota.
We appreciate you being here, we will start off with you.
STATEMENT OF KARL JOHNSON, FRESmENT, NATIONAL
PORK PRODUCERS COUNCIL, ON BEHALF OF THE EXPORT
PROCESSING INDUSTRY COALITION
Mr. Johnson. Thank you, Mr. Chairman.
I am Karl Johnson, I am a grain farmer and currently serving
as president of the National Pork Producers Council, as you indi-
cated. I am appearing this morning on behalf of the Export Proc-
essing Industry Coalition. That is an organization comprised of the
Com Refiners Association, the Millers' National Federation, the
National Oil Seed Processors Association, and the National Pork
Producers Council.
Also, included is the industrial union department of AFL-CIO.
This group represents American industries and labor unions that
are working together to expand the U.S. share of the growing and
economically potent world market for processed and value-added
agricultural products.
Unfortunately, the U.S. pork industry is an ideal case for Con-
gress and the administration to look at on the urgent need to cre-
ate and implement an aggressive trade policy that refocuses our ef-
forts on high-value products and value-added agricultural exports.
As you may or may not know, the U.S. pork industry is a low-cost
producer across the world. Yet, we export only 2.5 percent of our
product.
We also are the second largest importer of pork in the world. You
may wonder why this happens. Well, one of the problems is that
we are not only dealing with our producer friends across in foreign
lands, but we are dealing with very aggressive foreign markets or
36
foreign governments that help to export products from these other
countries.
When you look at Denmark, the Netherlands, they are exporting
approximately 80 percent of their product. Canada is exporting 30
percent of their product. Yet, we in the United States only export
2.5 percent.
This really doesn't make much sense when you understand again
that we are the low-cost producer. As I stated before, the reason
for this is the real aggressive coordination between the producers,
exporters, and the governments in other countries.
The Export Processing Industry Coalition has some specific rec-
ommendations to refocus U.S. agricultural trade priorities and pro-
motion activities on the dynamic growth of the high-value agricul-
tural product markets. And I would like to go through these specif-
ics, if I could.
The administration must identify the urgent need to increase the
U.S. share of world trade in the processed and high-value agricul-
tural products as a key national priority and ask USDA to spear-
head a campaign to double the U.S. share of world trade in value-
added agricultural products by the year 2000.
The multiplier formulas developed by the Economic Research
Service to measure the economic benefits of various agricultural ex-
ports must be incorporated into the decisionmaking process for al-
locating USDA export resources. It is imperative that we measure,
compare, and apply the direct and indirect economic benefits of ex-
porting value-added agricultural products when making export pol-
icy decisions.
The mission statement of the new International Trade Service
Agency must reflect the realities in the global marketplace; empha-
sizing products where demand is growing and responding to the ag-
gressive growth of competing governments and facilitating exports
of these products. These activities should be extended to include
competing for the domestic market in the United States for high-
value agricultural products.
The current Commodity Division structure of FAS should be com-
plemented by the creation of a World Market Analysis Division. In
addition, an Export Coordination Division should be established to
facilitate cooperation and support among USDA and non-USDA
agencies with responsibility for trade policy and program imple-
mentation. Staff and funding for these new units could be drawn
from the Agricultural and Trade Analysis Division of ERS.
The Secretary should establish a Government/Industry Task
Force on Agricultural Trade to provide a working partnership be-
tween USDA and the private sector on export competitiveness. The
task force would identify domestic and foreign market opportuni-
ties and develop specific strategies for making U.S. products com-
petitive.
I think it is imperative that we get focused on high-value and
value-added exports when we look at U.S. agricultural trade. We
must address what is needed in the marketplace, global market
trades.
I think it was mentioned in the panel before, let's produce and
market what our consumers want, not force them to buy what we
have.
37
The other very important thing that happens with value-added
is the economic growth in rural America. We are providing jobs,
rural development. I think we must look at all these factors when
we look at agricultural exports.
Thank you very much.
[The prepared statement of Mr. Johnson appears at the conclu-
sion of the hearing.]
Mrs. Thurman [assuming chair]. Mr. Terhaar.
STATEMENT OF ALLEN A. TERHAAR, DIRECTOR, FOREIGN OP-
ERATIONS, NATIONAL COTTON COUNCIL OF AMERICA, AND
EXECUTIVE DIRECTOR, COTTON COUNCIL INTERNATIONAL
Mr. Terhaar. Excellent, thank you. Madam Chairman.
Members of the subcommittees, on behalf of the National Cotton
Council of America, I appreciate this opportunity very much to tes-
tify before you today regarding the USDA's Foreign Agricultural
Service.
I was struck when reading the TPCC report entitled, "Toward a
National Export Strategy" that U.S. agriculture and FAS already
have most of the features called for in the report. As a matter of
fact, U.S. agriculture has been doing these things, these very
things, and doing them well for many years.
It is why we have a $13 billion positive trade balance in agricul-
tural exports, while U.S. manufactured goods run a $140 billion
negative trade balance. It is why other sectors are finally trjdng to
emulate agriculture's successful methods. FAS is the original "one-
stop shop" for export market development.
Madam Chairman, in my prepared statement I made some high-
ly positive comments about FAS. I stick by those comments and
will not repeat them here.
We are, however, seriously concerned about whether FAS will re-
tain a clear sense of its mission in the future. We are also very con-
cerned whether resources under any reorganization will be devoted
to the areas of FAS that have the most impact on sales of U.S.
products overseas. That is, the people on the ground in attache of-
fices abroad, and the programs under the unique public/private sec-
tor FAS market development cooperator effort.
We are also concerned that in the spirit of reinventing Grovem-
ment, a lot of changes will be made in FAS without reaching out
to the client group that uses its services; the farmers and agri-
businesses that rely on FAS to help market their products over-
seas. In the press release on this hearing. Congressman Allard was
quoted as stating: "When FAS was established in 1953, its purpose
was to maintain and expand foreign markets for U.S. agricultural
products."
This mission statement is very consistent with the current FAS
mission statement which reads, quote: "To advance and reinforce
the efforts of the private sector to expand exports of U.S. agricul-
tural products." This is a mission statement that is clear, concise,
and very close to the original 1953 mission.
We believe the continued focus on a singular mission is in part
responsible for FAS's success over the years. It came to my atten-
tion last couple of days that there is a draft of a new mission state-
ment being considered at this moment by FAS. It reads, "To ac-
38
quire information pertaining to agricultural trade, carry out mar-
ket promotion and development activities, promotion of exports of
United States agriculture products, administration of international
food assistance programs, and programs relating to international
development, technical assistance and training."
Mr. Chairman, if this is to be the new mission of FAS, then I
think FAS has lost its mission.
I now would like to address specifically the issues raised in your
invitation to testify.
Question: Does the consolidation of OICD and FAS into the
International Trade Service improve the system?
Yes, it eliminates duplication and improves the "one-stop shop."
However, consolidation will only improve the program management
if FAS/OICD can jettison the activities that are clearly not within
the mission of enhancing U.S. agricultural exports. These types of
activities may comprise as much as 50 percent of the OICD pro-
grams.
In contrast, the main international trade service is a bad idea.
For 40 years, FAS has used its current name and has strong and
clear name recognition in the U.S. agricultural community and
overseas. A name change serves no purpose £ind is detrimental to
the mission.
Question: Does FAS have the tools and can the information be
easily transmitted?
Yes, FAS has the tools to identify new markets and products.
These tools primarily are in two forms. The network of overseas
personnel in U.S. embassies and agricultural trade offices, and
FAS's close ties with the associations and private companies who
deliver the export product.
The problem is that FAS has been squeezed on both these tools.
No, FAS is not doing a good enough job of information dissemina-
tion in today's high-tech world. I elaborate on this in my written
statement.
Question: What aspects of FAS activities are critical to agricul-
tural exports and which programs are expendable?
I would suggest the following list of key FAS activities: Primary
data and trade intelligence collection; agricultural trade policy sup-
port and advocacy; market development cooperation through the
private sector; export financing; and concessional sales programs.
We would suggest at a minimum dropping the following: The
large percentage of the commodity publications assembled in FAS
Washington; all crop fiinction forecasting not carried out by over-
seas offices; import quota monitoring; obstructive regulatory proce-
dures, to nsime a few,
Mr. Chairman, we would further suggest that the current tight-
ness in FAS budgets and regulatory environment in which the
agency and its private sector partners are working is forcing the
agency to cut back on the very foundation of its success and future
export competitiveness. And that is a cutback in personnel on
ground overseas, to be the on-the-spot eyes, ears, and proponents
of U.S. agricultural products. This trend should be reversed.
Question: Does FAS need to consider new approaches or pro-
grams to provide the flexibility and access to developing and
emerging markets?
39
In the experience of National Cotton Council, FAS has been quite
flexible. Increasingly, the flexibility is being further stifled by ex-
cessive regulation and audit burdens which drain a significant
amount of energy and responsiveness from the agency and its pri-
vate sector partners.
Mr. Chairman, while accountability is clearly necessary with the
use of public funds, it is program and not regulations that make
sales overseas.
Question: Has the long-term trade strategy been implemented
and how do agricultural export programs fit with the National Ex-
port Strategy of the TPCC?
FAS is the agency that can be held up as a 40-year successful
"one-stop shop" for national export programs for its sector. Regard-
ing the long-term trade strategy as we suggested earlier in my
comments, the Government can best serve as a purveyor of infor-
mation, a facilitator, and a market access advocate for the U.S. pri-
vate sector, not as a creator of some inflexible grand plan.
Mr. Chairman, the U.S. Grovernment and FAS are being reorga-
nized or even reinvented. In FAS's case, much of its market devel-
opment work is carried out through the market development co-
operators and the private sector participants they represent. To my
knowledge, neither the U.S. Agricultural Export Development
Council, its members or the private sector companies are actively
being consulted by the Department or the agency. If the U.S. Grov-
ernment truly desires a successful National Export Strategy, it can-
not hope to do so by leaving the private sector, for example, the
people who actually export, out in the cold.
Through public forums. Secretary Espy and his staff did an ex-
cellent job of reaching out to the constituency in searching for the
appropriate structure and programs for the Farm Service Agency;
programs designed to help farm income. We would ask that a simi-
lar outreach happen for the structure and mission of FAS; the
agency charged with fostering exports, programs that also directly
bolster farm incomes and the profitability of our agricultural sector.
For that reason, Mr, Chairman, the National Cotton Council of
America and its exporting members greatly appreciate the oppor-
tunity to testify before this committee today and have some input
into the future of FAS, the "one-stop shop" that facilitates U.S. ex-
ports of cotton, its value-added products and the abundance of our
entire agricultural sector.
I thank the chairman and members of the committees and would
be happy to answer any questions.
[The prepared statement of Mr. Terhaar appears at the conclu-
sion of the hearing.]
Mr. CONDIT [resuming chair]. Thank you very much, Mr.
Terhaar.
Next, Mr. Krajeck.
Mr. Krajeck is vice president of the U.S. Feed Grains Council.
Welcome,
STATEMENT OF RICHARD KRAJECK, VICE PRESIDENT, U.S.
FEED GRAINS COUNCIL
Mr. Krajeck, Thank you. I thank you for the opportunity for the
U.S. Feed Grains Council to present our views on the mission of
40
the Foreign Agricultural Service. The council is a private nonprofit
market development organization that represents the international
market interest of the U.S. producers of com, sorghum, barley, and
their by-products, as well as over 70 related agribusinesses.
Our mission is to build profitability for the U.S. feed grains in-
dustry through the development and servicing of export markets.
As a cooperator with FAS for over 30 years, we have enjoyed a
strong working relationship.
I am going to highlight only a few areas of our written testimony
which has been submitted.
We believe the fundamental question when examining FAS oper-
ations should be, does this program contribute to the profitability
of U.S. agriculture through the development and servicing of export
markets? FAS programs that contribute to increased profitability
should be strengthened while those that do not should be restruc-
tured or discontinued.
I would also like to comment on the name of the new organiza-
tion that has been proposed. We strongly recommend that if the
name of FAS has to be changed, and we don't believe that it should
be because of that name recognition, that any new name should
contain the word "agriculture." In the consolidation of FAS and
OICD, we believe that will strengthen the overseas mission of both
organizations.
But I would like to note that specific questions were raised ear-
lier in the meeting today about agencies operating at cross pur-
poses. I would specifically like to bring to the attention of the com-
mittees that included in any review of agricultural development
programs should be the Agency for International Development or
AID. There have been countless instances where AID agricultural
programs have been counter to U.S. agricultural interests.
Many of those programs have operated in a vacuum and have ig-
nored other Agencies' objectives of increasing agricultural exports
and eliminating trade barriers. I have cited specific examples in my
written testimony.
With regard to FAS programs, the overseas offices and the as-
sistance of the Agricultursd counselors and attaches are certainly
critical to the council and the agricultural industry. The reporting
component of FAS provides much needed worldwide supply and de-
mand information and it is this information, and related trade
leads, that help us target and develop new markets, as well as
maintain feed grain exports.
The philosophy of the cooperator program was to bring together
the resources of the private and public sector to develop markets
for U.S. agricultural products. However, for the past 5 to 8 years,
this program has become adversarial, rather than cooperative. The
change can almost be directly attributed to the General Accounting
Office audits requested by Congress.
In the 40 years of the cooperator program, there has never been
a major audit finding against a cooperator or FAS for the mis-
management of funds. However, because of the mistrust created by
the GAO audits, we are both forced to significantly increase ex-
penditures to audit the program. And the money spent on those au-
dits and increased recordkeeping mean funds are not available for
export expansion activities.
41
This runaway audit demand has stifled both program creativity
and our ability to respond to changing markets. I am not advocat-
ing that auditing be ehminated; that would be irresponsible to the
U.S. taxpayer. But the fiscal responsibility must be balanced with
the excellent record of the program and the need to increase effi-
ciency.
We need FAS to have strong internal controls that everyone un-
derstands and implements judiciously. Just that simple change
could free up staff time and resources to increase overseas pro-
gramming.
One of the most effective tools that FAS has for increasing U.S.
agricultural exports is the GSM program. But the world economy
has changed during the past decade and the GSM program is no
longer able to meet all of those challenges. This is especially true
in Russia and the Republics of the former Soviet Union. In order
to keep a U.S. presence in these markets, we need credit programs
that take into account the increased risk and uncertainty.
One action that FAS could immediately take is to return to 100-
percent principal guarantees, rather than the current 98 percent,
if this is to remain a viable commercial program. If it is decided
to take Russia and the former Republics out of the commercial
GSM programs, then we need to look at a credit program such as
direct loans, using the CCC borrowing authority.
The creditworthiness criteria also needs to be revisited. We un-
derstand the need for a review process to determine reasonable lev-
els of credits, but this must be balanced against market develop-
ment potential and policy objectives.
I also want to note the increasing attention given to value-added
products. In our rush toward change, we should not throw the baby
out with the bath water. Bulk commodities make up over 65 per-
cent of total exports. With increased competition, we are fighting
harder than ever to maintain market share, even in those markets
that have been our long-term customers. We must not abandon
bulk markets just because value-added markets are currently in
the spotlight.
It is clear that the existing FAS export promotion programs are
working. In fact, it is their success that is the focus of other Gov-
ernment agencies and industrial groups. The "National Export
Strategy" issued by the Trade Promotion Coordinating Committee
appears to be an effort to erode agriculture's share of export expan-
sion funds. Funding earmarked by Congress for agricultural export
promotion should remain under the control of the Department of
Agriculture.
In closing, I would like to reiterate that the philosophy that insti-
tuted the cooperation between the public and private sector has
been lost and replaced with audits and adversarial relationships.
The use of nonprofit organizations like the council, which brings to-
gether the diverse interests of com, sorghum, and barley growers
with agribusiness, is a sound practice that maximizes both pro-
ducer and Government funding. It is a model that deserves the at-
tention of the industrial sector in developing trade.
While we strongly support the review and restructuring of FAS
programs, it is evident that FAS cannot meet its mission of contrib-
uting to the profitability of U.S. agriculture without the necessary
42
funding. In countless markets around the world, U.S. agricultural
export programs are being out-gunned and out-funded by our com-
petitors. As an example in the former Soviet Union, the European
Community is spending around $16 million to promote feed grains
exports, while the United States has allocated less than $2 million.
Given the tremendous contribution that the export of agricultural
commodities makes to farm incomes and the general economy, we
must ensure that in any restructuring of FAS, Congress provides
the necessary funding for both FAS and its private sector partners
to do an effective job.
Thank you.
[The prepared statement of Mr. Krajeck appears at the conclu-
sion of the hearing.]
Mr. CONDIT. Thank you, Mr. Krajeck.
The next witness is Mr. Notar, president and chief executive offi-
cer of National Cooperative Business Association.
Thank you for being here, sir.
STATEMENT OF RUSSELL C. NOTAR, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL COOPERATIVE BUSINESS
ASSOCIATION
Mr. NOTAR. Thank you, Mr. Chairman.
I do want to thank the chairman and the members of the two
subcommittees for this opportunity to appear here today and share
with you the perspective and the experiences of the National Coop-
erative Business Association. We are known as NCBA, relative to
the Foreign Agricultural Service.
NCBA is a national, cross-industry membership and trade asso-
ciation, representing cooperatives. Over 100 million Americans are
involved in cooperatives and there are 45,000 cooperative busi-
nesses in the United States.
For many years, we were known as the Cooperative League of
the USA, or CLUSA. In fact, internationally, we are still known as
CLUSA in countries all over the world where NCBA promotes and
supports cooperatives through training and technical assistance
programs.
We operate overseas through our international development divi-
sion which has an annual revenue volume of about $8 million in
programs and through CBI, which is known as Cooperative Busi-
ness International, (CBI) our for-profit trading company.
We pursue international cooperative development by successfully
negotiating partnerships with the U.S. Agency for Intemationsd
Development, and other donors. Cooperatives are demonstrations of
democracy in action. But they are run as businesses, meeting an
economic need and result in improved incomes for their members.
And they are examples of sustainable development, development
that continues after a project is completed and donor funds have
been depleted.
CBI, which was established by NCBA in 1984, is an international
business company that promotes trade and investment between de-
veloping country cooperatives, and U.S. cooperatives and other
businesses. CBI has generated over $150 million in sales and has
produced 6,000 jobs in developing countries.
43
CBI has had particular success in Indonesia, India, and the Phil-
ippines. Recently, CBI established the American Cooperative En-
terprise Center, the ACE Center, in Prague to help the coopera-
tives of Eastern and Central Europe develop joint venture activi-
ties, and make a smooth transition to a free market economy.
In the last year, NCBA has opened an office in Tver, in Russia,
thanks to a section 416 monetization grant of feed wheat, the sales
of which have provided us with working capital in Russia to pro-
mote market development and food distribution systems there.
That office is manned by CBI.
We strongly support such monetization programs because we feel
they go the furthest in allowing us to create markets that will pro-
mote local development while creating new business opportunities
for American interests.
America's cooperatives are proud of what we have been able to
accomplish internationally and they have dedicated considerable
resources, both financisd and personal, to that end. But much of
what we have been able to accomplish would not have been pos-
sible without the support of the Federal Government, and particu-
larly the international programs of USD A and AID.
The Foreign Agricultural Service with its relatively new author-
ity over the Food for Progress program in section 416, has been
very helpful. We believe, however, that USDA can better assist our
international trade and development efforts by focusing in on de-
veloping markets for value-added products. We need a strong FAS
to help us market those products overseas.
Thus, NCBA supports Secretary Esp^s proposal to merge the Of-
fice of International Cooperation and Development with FAS in the
new International Trade Service Agency. We are particularly'
pleased to see this new agency grouped with the Farm Service
Agency with both units reporting to the Under Secretary for Farm
and International Trade Services, Mr. Eugene Moos.
Having the existing functions of the Agricultural Stabilization
and Conservation Service, the General Sales Manager, and the
Commodity Credit Corporation, and the Foreign Agricultural Serv-
ice all reporting to one Under Secretary, makes tremendous sense
to us. This new grouping of focused activities will facilitate coordi-
nation for overseas programs based upon American commodities.
The overseas agricultural development expertise of OICD ought
to combine well with the market-oriented approach to FAS. On the
program side, this should beef up the capabilities of USDA to uti-
lize the programs already on the books more effectively. It also pre-
sents an opportunity to update rules and regulations, to focus on
the synthesizing of work in terms of how these programs are
packaged and delivered.
This new merger should offer another opportunity for rethinking
what works and what doesn't and to put the emphasis on programs
that act as a catalyst and facilitator for American cooperatives and
farm organizations to develop markets, establish business links,
and become partners in economic development activity. Not be-
cause it is a Government program established to do good, but be-
cause it enables cooperatives and businesses to help one another
become better partners in establishing strong markets for the fu-
44
ture. Strong markets equate to more and better jobs in the United
States.
It is our hope that the new International Trade Service Agency
will provide a stronger organization structure to achieve these
ends. American cooperatives stand ready to help make USDA's
international programs achieve their development goals. NCBA
and its member cooperatives are thinking globally. We must think
globally and we welcome the support of USDA in our efforts to take
a global approach. It is no longer a question of taking advantage
of opportunities. It has become a matter of necessity if we are to
continue to sustain our leadership position in the world.
Thank you.
[The prepared statement of Mr. Notar appears at the conclusion
of the hearing.]
Mrs. Thurman [assuming chair]. Thank you.
Mr. Terhaar, I first want to say that I wish that you would
have — I have lost it, the quote that you have in here from the man-
ufacturing matters. I couldn't agree more and I think it is some-
thing that has actually been lost in a lot of the debate with agri-
culture, as to the innovation and the technology that has been ad-
vanced by agriculture.
Just as a statement, I will tell you that is one of my biggest fears
other than the issues of jobs and stuff, is with NAFTA, as it relates
to Florida agriculture, because we have certainly many things
going on in the State of Florida that I think are very innovative
and certainly passing on a lot of technology to some Third World
countries as well. And I am afraid if we lose that industry in Flor-
ida, we have lost much of this kind of stuff that you mention here.
So it is a big issue for me.
But an5rway, we have some questions that we would kind of like
to go through. And the first one is really for all of you.
As you are well aware, the FAS is in the process of undertaking
a major reorganization. I would like to know if you are satisfied
with the level of input you have had in this process. And it goes
to all of you, so whoever wants to go first. Mr. Johnson.
Mr. Johnson. I think that we have been appreciative of the
input we have been able to get in. We have a meeting set up with
Secretary Moos next week, to talk about some of the issues that we
have brought forward. We also thank you for being involved in this
process. We hope that we are being listened to and are always will-
ing to give as much help as we can with input. So yes, we have
had the opportunity and are always welcome or would always wel-
come the chance to have more opportunity.
Mrs. Thurman. OK.
Mr. Krajeck.
Mr. Krajeck. I don't think that we have been involved in the
process at all, that if we have had opportunity for comments, that
it has been after the fact, and that we would in fact welcome great-
er opportunities to understand the overall direction and to help in
determining what would benefit, not just the U.S. feed grain pro-
ducers, but all of agriculture, as FAS looks to new directions.
Mrs. Thurman. So you are not very pleased with it then?
Mr. Krajeck. No.
45
Mrs. Thurman. Can you give me some examples, maybe, of
where they have asked for your input afterwards that you might
have had a positive effect on the decisionmaking?
Mr. Krajeck. I think that it is even difficult right now to come
up with those examples. I am aware that only yesterday, I think,
that very briefly the president of our organization was called over
to USDA for some review, but I don't think in terms of any ongoing
changes that we have participated in those.
Mrs. Thurman. Mr. Notar.
Mr. NOTAR. Thank you for the question.
We have felt, particularly recently, that the FAS has really been
reaching out to NCBA and cooperatives. Under Secretary Moos, As-
sistant Secretary Brandstool, Deputy Secretary Rominger, have all
given us of their time and we have been able to talk with them fre-
quently.
We see FAS as a partner in being able to extend and talk about
the needs of cooperatives and their gloom view. And USDA and the
FAS have been very helpful in recent months to help us sort out
some of those needs. We see FAS as an information source, as a
catalyst, to help us and U.S. cooperatives with their strategic plan-
ning and strategic view. And FAS, as that information resource,
and with that accessibility, particularly recently, has been very
helpful to us.
Mrs. Thurman. So you think you have had some part in the reor-
ganization?
Mr. Notar. We feel that we have had input to it.
Mrs. Thurman. Can you point to any particulars?
Mr. Notar. We have, for example, had our programs in Indo-
nesia, which has been a very significant program, using the FAS.
Indonesia has now from a base of zero, 33,000 people working in
cooperative efforts in various t5T)es of agriculture. And FAS pro-
grams in Indonesia have helped us get started.
We are looking to extend those programs there and we have had
a very able and listening ear with the FAS as we look ahead to
those programs in Indonesia. So that is just one example.
Mrs. Thurman. OK.
Mr. Terhaar.
Mr. Terhaar. Madam Chairman, I guess you are going to get a
very mixed review. I would agree with Mr. Krajeck that we have
not had the desired input. As a matter of fact, I was involved in
that meeting yesterday that he mentioned. It was a very good
meeting with Mr. O'Meara, Mr. Vickers, and Mr. Patrice, but it
was backwards in that it was the group of private sector people
calling the meeting to provide input to a reorganization chart for
FAS that we happened to have. That is not the type of outreach
that I think is necessary if we are going to have the primary client
group. And again, I think I mentioned that is the private sector
that FAS is supposed to be assisting in exporting its products, have
input into this process of reorganization, reinventing Grovemment.
There used to be much closer ties between FAS and the private
sector, I think, through the market development cooperators,
through interaction with them and their members. That has seri-
ously decreased within the last 4 to 5 years.
Mrs. Thurman. So you would like to have a little more input?
46
Mr. Terhaar. A bunch more.
Again, Madam Chairman, the outreach that Secretary Espy and
his staff did on the Farm Service Agency, I think is something to
hold up as a goal for how all of the different agencies should be
reaching out to the people who are their client group and who use
their programs.
Mrs. Thurman. ok. Mr. Notar, do you have any specific rec-
ommendations for getting small and new export business involved
in agricultural exporting?
Mr. Notar. I guess my recommendations, Madam Chairman,
would reflect on our experience. We feel that cooperatives, and par-
ticularly starting and working at the grassroots, must work with
organizations such as USDA and the FAS in partnership. Another
example, we have started what we called in our remarks the Amer-
ican Cooperative Enterprise Center in Prague.
We have involved our members financially, 10 members of NCBA
put up funds in addition to their dues and other support to start
that office. We have been working with USDA, with the U.S. AID,
and other Grovernment organizations, the Eximbank and others, to
begin to investigate and use the research and information of the
U.S. Grovernment and our members to start programs there.
We have a biotechnical program started in Konin, Poland. We
have what we call a Pecus project which involves nutritive and feed
additive programs in Hungary, and we have what we are calling
a Coshop, an opportunity for United States cooperatives to market
their products in Prague.
I think these examples emphasize that we need that partnership.
We, American cooperatives, need the partnership with USDA and
with other governmental agencies in order to start a grassroots
market development approach wherever we are.
The two examples I have cited, point to a partnership approach.
It has had a stop and start kind of activity. But I think the real
emphasis here is that working as a partner with the U.S. Govern-
ment and our cooperative members has produced results.
Mrs. Thurman. Do any of the other witnesses like to comment
on this question?
Mr. lOlAJECK. We have been working with a number of organiza-
tions, with businesses, to help them put their products overseas. In
particular, identify preserved grains, like specialized grains that
would be high in oil or high in starch, we have identified markets
where those grains may be particularly important to a user and
have brought together the producer of those grains as well as the
users in markets such as in Japan or in Mexico.
We have done that in barley, of barley malt, malt exports to the
world have been extremely low from the United States. We have
been working with the malt industry to help them increase their
exports, and have been very successful, but also thanks to the
United States' EEP program. So that would be two examples of
where we are working to get more businesses into foreign markets.
Mrs. Thurman. Mr. Johnson.
Mr. Johnson. No, I don't have any specific examples to cite,
other than I think that when we talked about the points we made,
developing a task force between Grovernment and the private sec-
tor, to look at the opportunities that are out there, I think this task
47
force is necessary because that marketplace is changing and chsmg-
ing very rapidly. And when you look at the meat sector, there are
some multipliers that could involve with specialty products that
need their input put in.
Mrs. Thurman. Actually, I think we have a man in Florida by
the name of Leroy Baldwin who has been doing some stuff in
China with cattle on his own, as a private businessman, and has
actually gone over there to do some things — which I am very im-
pressed with.
Mr. Terhaar.
And I know that I have missed some of the testimony, so if you
have answered this in your testimony, forgive me for doing this to
you.
Mr. Terhaar. Just a quick comment on that. Cotton Council
International, which is the development, market development arm
of National Cotton Council, is redoubling its efforts on the U.S.
value-added product exports of cotton. Those are yams, fabrics, fin-
ished apparel. Within that there is, we think, some opportunity for
those specialty items such as organic cotton, for instance, or natu-
rally colored cotton. And, indeed, there is interest in specific mar-
kets overseas.
So yes, there are those opportunities, and I think we need to go
aggressively after them. And at the same time, look at those things
that are the staple of our business which is the bulk and value-
added traditional products as well.
Mrs. Thurman. Thank you.
I think I will give it back to the chairman.
Mr. CONDIT [resuming chair]. Thank you, Mrs. Thurman. We
have been cohosting this thing for a couple days, so I appreciate
Mrs. Thurman's help. And we apologize to you but we are trying
to cast votes at the same time and not inconvenience you.
Mr. Johnson, have pork producers had any luck in utilizing the
Export Enhancement Program, there was a great deal of discussion
about this a couple years ago, but I haven't heard much about it
in way of a foUowup.
Mr. Johnson. Mr. Chairman, we have struggled with the Expert
Enhancement Program for a long time and are still struggling with
it. It seems to be a problem for us to get our message through of
the value of an Export Enhsmcement Program for value-added
products. Again, we are looking at an extension right now for some
product to go to the former Soviet Union, specifically Russia, that
has been held up with some reviews.
Our problem with the reviews are that that market is going to
be filled and is being filled at this very moment, by pork from the
European Community, specifically Denmark, Holland, or the Neth-
erlands. So we have been very frustrated with our progress with
that.
Mr. CONDIT. Do you have any suggestions on how we resolve
that, or have you already made those?
Mr. Johnson. My suggestions are that we have to try to refocus
some of the thinking, I think is the best phrase, to get people to
realize that value-added exports really are something that is im-
portant to this country and important to rural America, and to get
people to refocus on that.
48
I think we have had some problems with that. I think also the
other thing is that people are slow to realize what foreign govern-
ments are doing and how heavily they are subsidizing some of their
value-added exports, specifically pork, when you look at Denmark
and the Netherlands.
Just as an aside, Denmark, pork is their largest export for the
whole country, so I think they made it a very high priority.
Mr. CONDIT. Thank you, Mr. Johnson.
Mr. Krajeck, I am concerned about the U.S. AID programs work,
at cross-purposes with us. You apparently have similar concerns.
Has your organization ever filed a formal or informal protest about
your problems? And if you have, what were the results?
Mr. Krajeck. We have never filed a formal or informal protest.
We have had discussions with AID periodically. But nothing that
has ever been substantive.
We have tried through the cooperator program to bring attention
at USDA to AID programs operating at cross-purposes, but it is
very difficult to get any progress on those issues. I don't know
where the State Department is going with the AID program. It is
clear that agriculture is going to have very little voice in trying to
stop programs that are counterproductive.
Mr. CONDIT. Can you elaborate on — is there a reason why you
didn't file a fomial or informal protest?
Mr. Krajeck. I don't know what the reason would be. I think
that we thought that it was probably not going to be productive.
Mr. CONDIT. It was just simply a matter of you wasting your
time and so you
Mr. Krajeck. That was our view of it.
Mr. CONDIT. I have a question for all of you. Were any of you in-
vited to participate in the development of the "Long-Term Trade
Strategy," and do any of you have any thoughts on the usefulness
of such a document?
Mr. Krajeck. I can answer that. We were not invited to partici-
pate, nor to comment. In fact, it has only been within the last cou-
ple of days that we have even seen the document. And while I have
reviewed it, it was very quickly.
It would seem to me that some of the points being made in the
document with regard to exports are valid. In particular, that if we
are going to have an export policy, that we have legislation that
supports that policy.
Mr. CONDIT. Mr. Terhaar.
Mr. Terhaar. No, we were not consulted on it. I have not re-
viewed the document yet. I guess my opinion on the approach is
that, again, it is good to have a strategic direction, to have a clear
sense of what the agency and its client group need to accomplish.
But, again, I think the best long-range plan for Government agency
is the compilation of those long-range strategic marketing plans of
the people who actually do the exporting. And those are the private
businesses.
Mr. CONDIT. Mr. Notar.
Mr. Notar. Thank you, Mr. Chairman.
We did respond to a survey from the Foreign Agricultural Service
and to that extent, we have had some input to the development of
the plan.
49
In hearing the testimony earlier, my feeling is that every Gov-
ernment agency ought to have a business plan or strategic plan. I
would lean to Mr. Terhaar's statement that in that partnership
that I spoke of earlier, I really believe that our cooperative mem-
bership should have their own strategic or marketing plans and
have access to information, have access to changing markets, have
access to what financing alternatives are available. And that
should be incorporated in their strategic plans as opposed to having
that information accumulated and maybe just sitting in a plan doc-
ument with the FAS or the USD A.
Mr. CONDIT. Mr. Johnson.
Mr. Johnson. No, we were not consulted. I would think that
maybe our task force that we talked about in our plan could evolve
into something like that. But as I understand, it is a philosophical
problem and I would agree with the other gentlemen that it really
should be a computation or compilation of private industry's plans,
Mr. CONDIT. Let me ask Mr. Notar; the survey that you filled
out, was that mailed to you?
Mr. Notar. I believe so, sir.
Mr. CONDIT. So I take it that the balance of the panel did not
get anything in the mail, that is why you didn't respond, or no one
phoned or an5^hing like that?
Mr. Krajeck. That is right.
Mr. CONDIT. Correct?
Mr. Terhaar, you noted that 50 percent of the OICD activities
are not within the mission of enhancing U.S. agricultursd products.
Can you give us some examples of this, please?
Mr. Terhaar. The mission as I read it, of OICD, is twofold. One
is to transfer agricultural technology and technical information and
management skills of USDA, and — sorry, I am reading from the
wrong portion there, excuse me, Mr. Chairman.
"To help USDA agencies, U.S. universities and others to enhance
U.S. agricultural competitive a^cultural competitiveness." That
half of the mission, I think, fits within what USDA is doing.
The other half of the mission is to help increase income and food
availability in developing nations by mobilizing expertise for agri-
culturally led economic growth. I do not believe that half of the
mission is within USDA or within FAS's purview, if it sticks to the
mission of helping the private sector of the U.S. export U.S. agri-
cultural products.
I notice in looking at the budget of OICD for 1992, that they had
an operating budgets of $38.8 million. Of that, only $7.2 million
was appropriated by Congress to OICD. The remainder, $28.4 mil-
lion, came primarily from the Agency for International Develop-
ment. An additional $3.1 million was expended in 1992 for develop-
ment assistance activities managed by OICD on behalf of other
countries and international organizations.
Again, if we focus on the mission as being to promote U.S. agri-
cultural product exports, I don't believe those fit well with the FAS
mission.
Mr. CONDIT. Let me correct an impression that apparently I
might have left with the survey. I have just been told the survey
that you received, Mr. Notar, was sent out by Mr. Penny. He sent
50
out over 100 of those, I believe, for his own information. And I am
sure will share that.
For all of you, I am interested in the types of subsidized competi-
tion you face in trying to reach into new and existing markets.
Do any of you have any specific examples of what you consider
unfair competition for global markets for your product?
And I have heard you allude to and mention them, but maybe
we could be brief and give me some examples.
Mr. Johnson, I know you have done that.
Mr. Johnson. Mr. Chairman, yes, we know, for instance, that
our cost of production of pork in the United States is approximately
10 cents to 12 cents less than that of Denmark. Yet, when we mar-
ket products in Japan, their product will be priced between 30 and
40 percent under ours. So in this instance, we know that is made
up by the Government's adding an export subsidy, the Danish Gov-
ernment. So that would be one case. We also know that the Cana-
dian Government, for instance, has a tripartite program, that sub-
sidizes the actual production of pork in Canada. So we are fighting
against that, and have done some work with that.
Mr. CONDIT. Mr. Krajeck.
Mr. Krajeck. A clear example for us would be the Korean mar-
ket for feed grains, which at one point was between 80 and 85 per-
cent held by the United States, is now this year running, I think,
at 8 percent. The primary loss in that market has been to Chinese
com, which has been subsidized, but the bulk of the market has
been lost to EC subsidized wheat.
We complete a report on an annual basis of markets that we lose
to unfair competition, and I would like to forward a copy of that
report to the committee so that you can see in a broad range of is-
sues where we are facing unfair competition.
Mr. CONDIT. Mr. Krajeck, we will make that part of the record,
if there is no objection to that.
Mr. Krajeck. Thank you.
[The information follows:]
u
-T U.S.
Trj Feed Grains
Council
1400 K Street, N.W. - Tel: (202) 789-0789
Suite 1200 Fax: (202) 8984)522
Washington, DC 20005 Telex: 440064 USFG Ul
Export Mark«t Promotion - Conqsetiltor Aotivity
Competitor Expenditures for Feed Grains Promotion
— The best estimates of the competitor's annual expenditure for export
promotion programs equivalent to Marlcet Promotion Program and Foreign Market
Development :
COMPETITORS INTO CHINA: EEC - over $2 million,
Australia - over $1 million, Canada - over $500,000.
COMPETITORS INTO KOREA: Australia - $85,000,
Canada - $220,000, China - $90,000, Thailand - $58,000.
COMPETITORS INTO FSU: EEC - $16 million.
COMPETITORS INTO EGYPT: EEC - $3 million, Argentina - $70,000,
Brazil $70,000, Thailand - $100,000, Canada - $20 million, India -
$70,000
COMPETITORS INTO TAIWAN: Australia - $100,000, Canada - $50,000,
South Africa - $35,000, Argentina - $0.
COMPETITORS INTO SOUTHEAST ASIA: China - $525,000, Canada -
$185,000, Australia - $1,240,000, EEC - $200,000, Argentina - $10,000.
COMPETITORS INTO TURKEY: EEC, Canada, Australia, Argentina, China,
and Sudan.
Major Taraet Markets
-- The major markets that are targeted by our competition for the promotion
of feed grains.
1) The People's Republic of China
2) Major countries in Mexico
3) Kingdom of Saudi Arabia
4) Iran
5) United Arab Emirates
6 ) Turkey
7 ) Jordan
6) Korea
9) Egypt
10) Taiwan
11) Japan
Building Markets for America's Grains
Vienna, Austria Tokyo. Japan Kuala Lumpur, Malaysia Beijing, PRC Taipei, Taiwan Caracas, Wnezuela
Cairo, Egypt Seotll, Korea Mexico City, Meuco Moscow, Russia Izmir, Turkey
52
page 2
How Competitora Affect our Ability to Compete
CHINA: In terms of the cooperator-llke programs In the EEC, Australia
and Canada, It does not affect the U.S. 'a ability to compete. They are
providing technical aaalstance just like the Council doea. One area
where they really have the advantage la In how they spend their money,
particularly on trade teams overseas. Our competitors make sure that at
least 50% of the time spent on their guests Is STRE related, with the
balance being work. It Is believed that they get more sales as a
result.
MEXICO: As far as corn and sorghum are concerned, there Is relatively
no competition. But concerning barley, the lower price of the
government-subsidized Canadian barley Inhibits our trade efforts.
KOREA: Korea la a prlce-consclous market and also a society of
relationship. The competitora' promotional activities and expenditures
have alao played a big part In determining the origin of Korea's grain
Imports.
•
EGYPT: The EC, for example, exports 130,000 mt of subsidized frozen
meat, 75,000 head of subsidized live animals, and subsidized dairy
products and feed grains to Egypt. This inhibits the growth of the
Egyptian diary, beef and poultry sectors, and consequently prohibits the
use of U.S. feed grains.
TAIWAN: Major competitors sell their graina through their grain
boarda, which often manipulate prices, making the U.S. not competitive
In that market.
Competitors Market Promotion Programs for Feed Graina
CHINA: For the cooperator-llke programs in the EEC, Australia and
Canada, all three competitors provide technical assistance In the form
of consultancies, workshops, samples, trade and technical teams to their
respective countries and lots of STRE.
MEXICO: The Canadian vnieat Board has vrorked with the Canadian
International Institute in establishing programs designed to show
foreign buyers the advantages of Canadian malt and malting barley. For
example, several international malting and brewing technology courses
have been held in Winnipeg over the years. The Wheat Board has also
worked closely with the Canadian marketers and domeatic processors so
that markets could be developed for value-added malt. Malting barley
used for export malt is priced so that domestic processors can be
competitive with other vnirld suppliers. The Wheat Board also has had
t»ro "New Crop Seminars" in Mexico and Colombia to educate Importers
about their crop quality. The Canada grains Council, the Ontario Grain
Corn Council, Agriculture Canada, the Ontario Ministry of Agriculture
and Food, and the Onteurio grain and Feed Dealers Association all have
done a lot of work in export promotion of Canadian corn. Overall, most
Canadian grain export promotion la funded by the government and the
grain la heavily subsidized for export.
TURKEY: The competitors such as the EEC, Canada, and Australia do no
have any aggreaaive grain promotion programs in Turkey. They only make
occasional trade servicing visits to follow the grain market there.
Concerning the livestock industry, only Italy seems to be very
aggressive and have a well-structured market promotion program. The
purpose of the project is to Introduce Italian Holstein dairy cattle
53
page 3
Into the Turkish market. For this project, the ministry of Foreign
Affairs of Italy made an agreement with the Government of Turkey to
provide technical assistance and to release a fund ($13 million) to buy
3,149 dairy cattle, cars, computers and other related equipment from
Italy. The project was designed to establish 222 model dairy farms and
to provide technical assistance such as feeding, management, record-
keeping and training to these model farms and the people that work on
them. The Italian government will renew this agreement in 1994 (the
previous one was from 1989-93), with a financial contribution of $12
million. These projects have been beneficial to the Council because the
increase in dairy cattle has caused an increase in feed grain demand,
and the government has allowed us to participate in the feed development
process on the model dairy farms.
POLAND: The Canadian government works mainly with upper- level Polish
officials in order to export grain into Poland. They basically are
unfamiliar with working with feed mills and/or trading companies.
Canadian specialists do assist Polish extension officers in upgrading
their educations; they also help develop technical programs in Poland.
One Canadian commodity trading company opened a subsidietry in Warsaw,
and deals not only with Canadian grains, but also buys grain from other
countries to sell to the FSU and others.
KOREA: AuBtraliai 1) Sponsor Korean Team to Australia (One team/year,
6 members, 10 days); 2) Seminar in Korea (One specialist/year to
introduce new feed stuff); 3) Trade Servicing (distribution of weekly
market news AWB Official's visits to Korea, 6-7 times/year, from
Australia fi Japan, Advertisement through livestock S poultry
periodicals. Telephone visits)
Canadai 1) Sponsor Educational Travel to Canada through Canadiim
International Grain Institute (4 persons/year, up to two weeks); 2)
Korean Team to Canada (one team/year, 10 members, 10 days); 3) Technical
6 Trade Seminar (by inviting 4 Aussie specialists on average, publishing
proceedings, providing meals, etc.); 4) Trade Servicing Canadian
Official's visits to Korea
China t 1) Trade Servicing thorough the Ceroil/Seoul Office.
Thailandt 1) Sponsor Korean Team Travel to Thailand (KCPIA team, 6
members, 1 week; KFA team, 6 members, 1 week); 2) Trade Servicing
(visits & telephone contacts)
SOUTHEAST ASIAi Canadians have conducted two promotion efforts into
SEA: 1) barley malt samples to Singapore (at a cost of approximately
$100,000) and 2) hulless barley feeding trial in Malaysia (approximately
$200,000). Canada has not yet made any sales into either of those
areas. The Canadian International Grains Institute (CIGI) just recently
began working with the Malaysian Livestock Cooperative Society on
promoting canola meal and hulless barley for feed use. They have made
trade servicing trips to Malaysia, and will be conducting feeding
demonstration trials on three pig farms in Selango. Most of the
competition into Southeast Asia, though, is based on price, not
promotion. The EEC exports malt, corn grits, corn starch and corn meal
at such a reduced price compared to the U.S. that we cannot compete with
them in the Southeast Asian markets.
Heilongqian Trading Company of China recently set up a contact office in
Kuala Lumpur to service the Malaysian customers. The office is run by
two expatriate Chinese and four or five local staff. The traders from
China also make trade servicing trips to Malaysia at least 5-6 times a
year. Each trade service trip, large amounts of money are spent on
entertaining the customers.
54
page 4
EGYPT: The EC program (Bee #2), which is the most Important, is a
government program. However, Individual EC countries such as Germany
and Denmark also have private sector programs.
TAIWAN: Australia: Annually sends barley sales teams to Taipei and
sponsors a 10-membor Taiwanese barley team to Australia (funded by the
barley boards). Canada: Annually the Canadian International Grains
Institute invites approximately 5 importers of wheat, barley, feed wheat
for a 3 week visit to Canada to participate in the "International Feed
and Oilseed Progreun" which includes a week-long short course. South
Africat Sponsors a buyers' teeun of about 10 members for 2 weeks.
JAPAN i Canada and Australia are the principal competitors, for barley
and malt. They focus their promotional efforts on influencing the
Japanese government (the Japan Food Agency) to secure market share.
Canada actively courts JFA officials to visit Canada to review
production, supply and crop quality; the Canadians pay for these annual
trips. Australia also actively promotes barley exports and will support
JFA mission visits. Also, both the Canadian and Aui^ralian embassy
utilize government agricultural officials to promote and negotiate
government-to-government wheat and barley supply agreements. It is
difficult to estimate the resources and monetary commitment used for
barley export promotion in Japan, because their efforts are targeted at
the JFA, and this information is confidential. Private traders and
barley processors are basically out of the loop, as they have no direct
role in making purchasing decisions.
For corn and sorghum, Japan's main competitors are China, TVrgentina,
South Africa, and to a lesser extent, Australia.
China and Argentina do little in the way of funding formal exjxjrt
promotion programs. They will host Japanese grain industry teams for
visits, organize meetings, and promote their products for exports,
however, the Japanese pay for the majority of the travel costs for trade
missions. The key tool employed by the PHC and Argentina is the
utilization of government grain board export pricing practices.
Competitive pricing of feed grains targeted for exports for "cash"
paying customers (Japan) by China and Argentina appear to be
"rationalized* as government grain boards offer lower export prices
relative to internal domestic prices. China uses Ceroil (a government
agency) to negotiate quarterly corn supply agreements with Japanese
trading companies; pricing practices cure private and confidential.
The n.S.'s competitors in Japan tend to use a centralized approach to
export feed grains; methods used for export promotion, grain pricing and
tendering are "closed" in comparison to U.J. marketing practices to
maximize export efforts and results.
Foreign Competitors Programs to Facilitate Exports
CHINA: In the eeirly eO's, Australia gave the Chinese 50,000 metric
tons of malting barley and provided all of the technical support to use
it. Estimated cost: $1 million. Today, they have the bulk of China's
malting barley market. While we have
no confirmation, the Aussies gave the Chinese credit to buy malting
barley this year - terms un)cnown.
In the 60 '8, the Germans built a technical center at the Beijing
Agriculture University, specializing in feed and feeding, with continued
tech support. Estimated cost: $7 million.
55
page 5
Carmany provides a grant to China every year to use in agriculturally
related projects. Annual grant: about DM20 million.
The French have an *Ag Tech Support" Bureau in China, which provides
lots of free eguipment, machinery and other gifts. While concentrating
on wheat to date as best as we can tell, we have seen their gifts in
feed related facilities. Budget unknown, but including expert staff,
office and gifts, it must be $1-2 million per year.
Everywhere we go, we see gifts of free lab equipment, supplies and
machinery from the EEC and Japan. Collectively, it would be valued in
many hundreds of thousands of dollars.
The EEC, for certain, and Japan, we suspect, aure providing soft loans
for feed and storage equipment, lab instruments, etc. We know of 2-3
feedmill lines financed with soft loans by Italy (no principal down,
first payment in 10 years 9 2-3% per year).
Assuming a loan of $1 million/mill and a commercial rate of 8%, these
three mills alone would represent a subsidy of $240,000/year over, say
five years, in rough numbers. ,
The Australians, the Canadians, and the EEC always seemed to be able to
find a cheaper price for their 2-row barley to compete against our
6-row. Because of Australia's and Ctmada's barley board system, they
have for the last two years been able to negotiate with Ceroils to offer
their 2-row below U.S. 6-row. At 750,000mt per year and a conservative
$10/mt, that comes to $7.5 million per year.
MEXICO: Canada is the only country that has a similar program to that
of the U.S. CCC (GSH-102 and 6SM-103) programs for feed grains.
FORMER SOVIET UNION: 1. The Commission of European Communities has
an office in Moscow which is responsible for allocating the market
development money contributed by the EEC to all of the CIS. Currently
the CEC is also working to create a network of offices in the Urals and
Siberia as part of its strategy for long-term technical assistance to
Russia.
THIS IS HOW THE PRCXJUAM ffORKSt Each country in the EC contributes a
specific amount of money to the Commission. The Commission,
headquartered in Brussels, allocates this money to various countries or
regions. The office in Moscow is responsible for all of the CIS
countries. It is this office which decides on the type and size of
projects in the CIS. All various countries or regions. The office in
Moscow is responsible for all of the CIS countries. It is this office
which decides on the type and size of projects in the CIS. All projects
are on a tender basis, and any European company, university or
organization can bid. Theoretically, even em American company with a
European office can bid.
NATURE OF PROJECTSt Most of the projects can be described as "technical
assistance". Just like the Council, specialist are hired who provide
training seminars, demonstrations and individual consulting.
SPECIFIC PROJECTS RELATED TO FEED GRAINS: 1) In the Moscow region, the
EC is working with a large poultry farm on improved nutrition and
management. 2) In St. Petersburg, there is a project to assist a feed
manufacturer in improving the production of mixed feed for livestock.
Some investment was also made to renovate eq<aipaient in the feedmill. 3)
In Saratov the EC is funding a study of the grain milling industry in
the region which includes that for food use in addition to feed uses.
4) In Samara, the EC will soon launch five projects focusing on
extension and Information systems. Some of these will include projects
in food distribution and wholesale marketing.
56
page 6
THE BALTIC STATES: The EC does allocate eome funds for technical
assistance to the Baltics but the level of spending is unknown to us.
NATURE OF PROJECTS: As in the case of the CIS, most of i-he projects can
be described as technical assistance.
SPECIFIC PROJECTS RELATED TO FEED GRAINS: 1) Consultants are used in the
poultry industry to asses the situation regarding feed quality, bird
health and energy saving measures in poultry houses. 2) A project is
being funded to renovate a premix mill and some vitamin premixes have
been initially donated to the
project. 3) The EC has funded a project to set up a farmers consulting
center in Lithuania. 4) Introduction of new wheat varieties in
Lithuania.
UKRAINE: Assistance from the EC and Canada is taking the form of
technical assistance to livestock industries, agricultural machinery and
crop production. The EC also has COFACS credit which it last offered to
the Ukraine in 1992. The COFACE credit was worth $100 million of which
10 million was used to purchase corn, 4 million for barley and the
balance for wheat. '
OTHER FSU/EEU: in 1991 the Dutch government announced a program to
provide leasing opportunities up to $18.9 million for projects in each
of the following countries: Albania, Armenia, Azerbaijan, Belarus,
Bulgaria, Estonia, Georgia, Kazakhstan, Kirgistan, Latvia, Lithuania,
Moldova, Ukraine, Poland, Russia, Slovakia, Tagiklstan, and
Turkmenistan. This program is funded under what the Dutch government
calls the Government Help Program for Eastern Europe. The program is
responsible for the crediting process, and an economic council provides
guarantees for these credits. These funds can be used for both
agricultural and non-ag projects.
KOREA: 1) Thai government presented a decoration of her Majesty King
Bhumibol Adulyadei to Mr. Joo Ho Kim, President of Korea Feed
Association for his efforts to mitigate trade barriers - reduce the
level of import duty. 2) EC members provide an export subsidy for the
exports of feed wheat, malt, etc. 3) It is known that the Cemadian
government assumes inland/domestic transportation costs to export raw
agricultural products. 4) China always sets the export prices of corn,
sorghum and feed wheat below thn world market prices.
EGYPT: From the EC, most of the promotion is through feed grain
subsidies, and the promotion of animal production industries which
directly or indirectly affect feed grain imports. Canada also spends
most of its promotional efforts on the animal sector. Argentina, Brazil,
India and Thailand spend their promotion efforts on team visits.
TAIWAN: 1) Australia exports some 80,000 mt of malting barley
annually to Taiwan Tobacco and Wine Monopoly Bureau on 'destination
final' terms. 2) Thailand dumps about 150-200,000 mt of tapioca pellet
annually for the local feed industry in exchange for export quotas to
the EC market. 3) Subsidized exports of about 50,000 mt of corn starch
to Taiwan annually by the EC. 4) Australian and Canadian barley boards'
price manipulation for annual sales of about 160,000 mt of barley for
feed use.
57
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64
Mr. CONDIT. Mr. Notar, do you have any examples?
Mr. NOTAR. No, sir; I don't.
I can't give you an example right now. I think the main emphasis
I would like to leave with the subcommittees, sir, is that U.S. co-
operatives are looking over the horizon and overseas, and as those
difficulties are encountered and unfair competition may arise, we
would certainly communicate that.
Mr. CONDIT. Thank you.
Mr. Terhaar.
Mr. Terhaar. Mr. Chairman, within the cotton sector, there are
a number of instances of unfair competition. We submit those in-
stances with our marketing plans to USDA every year. We also go
through the exercise that Mr. Krajeck mentioned about identifying
unfair trade practices. I believe the requirement from Congress to
prepare such a report by USDA on a trial basis was dropped in
1990. That seemed like a good way to bring these unfair trade
practices to the attention of the Congress.
In cotton, our main problems with unfair competition lie in the
Central European countries, for instance Uzbekistan, with a cen-
trally planned economy that can export cotton for whatever hard
currency makes it more valuable than worthless rubles which they
would receive by exporting to Russia.
Same thing with China, there is no real structure for costs, for
input costs and export costs. Therefore, China can afford to export
either product or raw cotton more cheaply than what a market
economy can. Similarly, the EC is directly subsidizing its cotton
production which is well above what it would be if it were at world
levels and that runs into export competition.
You see EC cotton showing up in Brazil which makes no sense
at all in terms of marketing.
Thank you.
Mr. CONDIT. Thank you very much.
Mr. Johnson, does your coalition feel there is adequate coordina-
tion between the various export programs available at FAS to
launch an all-out push to export high-value products?
Mr. Johnson. At this time, I would really want to talk to the
rest of the members of the coalition, but I would say that I think
there needs to be far more coordination from my standpoint of
what is going on, and I think that we need to emphasize that and
develop some working groups to enhance that coordination.
Mr. CONDIT. A question for all of you.
The GAO witness who testified earlier was critical of the useful-
ness of the FAS's reports. Do you agree with this assessment?
How can these reports be made more useful?
Mr. Johnson. Mr. Chairman, I wouldn't have any comment on
that because I really haven't seen those reports.
Mr. Condit. Mr. Krajeck.
Mr. Krajeck. We value the reports generally. I mean, on par-
ticularly those that obviously relate to supply and demand for feed
grains. Not all reports produced by FAS are of value to us. But
they couldn't possibly meet everybody's individual needs. We are
very satisfied with the reports that we are seeing and do not have
recommendations at this time.
Mr. Condit. Mr. Notar.
65
Mr. NOTAR. We also receive the FAS reports. We have no real
recommendations other than I think it would be very helpful, Mr.
Chairman, as the grouping and mergers of the Departments and
agencies take place, and we move forward toward possibly a one-
stop or two-stop shop, that FAS and USDA, through a series of
meetings or programs on a periodic basis, reach out regionally and
have an opportunity to get feedback such as you are getting here
today.
I think trjdng to keep that dialogue going across the country on
a periodic basis, maybe using the reports or an executive summary
of the reports as a foundation to do that, would be very helpful to
continue to get feedback and information.
Mr. CONDIT. Mr. Terhaar.
Mr. Terhaar. Mr. Chairman, I rarely agree with the GAO's find-
ings. In this case, the report that FAS's publications and reports
are of limited use to the private sector, I would have to in part
agree with. I think that where FAS is unique, is its ability to ac-
quire raw data, trade contacts overseas, on the ground where it
does the most good for us, and report that back to the private sec-
tor.
FAS Washington, instead of trying to compete with other USDA
and other agencies on analysis, needs to focus on being a pass-
through using modem electronic dissemination methods of those
excellent attache reports of the data bases that are unique to FAS,
where we do the best job of collecting data overseas of any country.
As a matter of fact, a lot of countries use our data because it is
a lot more cost effective than collecting their own. That is the
unique part.
The other unique side is that relationship with the private sector
to actually export the product, I think FAS has to focus on those
two sides and the middle part is, frankly, in today's world, of some-
what limited value to the private sector. The part about export
credits, trade policy, to the extent they need analytical support, it
is valid. Beyond that, I would not agree with.
Thank you.
Mr. CONDIT. I am going to yield to Mrs. Thurman for a final
round of questioning.
Mrs. Thurman. Mr. Notar, you were here earlier when I asked
the question about the ethyl bromide kind of thing and the coordi-
nation. And so my question is kind of a follow-up to you all.
Do you think that there is cooperation, but just as importantly,
is the small businessman being intimidated by the maze of Federal
bureaucracy and programs that are available to help get you into
that exporting business? And if they are, could you tell us where
you would like some changes to really develop a true one-stop?
Mr. Notar. That is an excellent question because I think it does
relate to particularly some of the smaller and midsize cooperatives.
I think there is an apprehension, an anxiety, about how to ap-
proach and get and accumulate information. And having that infor-
mation, either through a fax possibility or a series of regional meet-
ings once in a while, I think FAS and USDA has to reach out to
have an opportunity to get feedback and have small- and medium-
sized- cooperatives have a chance to understand that this is not the
66
maze, this is not a bureaucracy, there is a source of help, there is
a potential for information.
And if it is a chemical additive question, if it is a freight or ship-
ment question, if it is a who do you have overseas that you can
trust question, I think there has to be an additional reaching out
process, particularly to help those small- and medium-sized co-
operatives. We have tried to start that process through NCBA and
CBI as a catalyst and support organization for that.
Mrs. Thurman. Wait a minute. Tell me what those acronyms
are.
Mr. NOTAR. Pardon me. NCBA is the National Cooperative Busi-
ness Association, our membership association. And in the mid-
1980's, we put together a small trading arm called Cooperative
Business International, CBI, because we recognized that U.S. co-
operatives needed a way to access that information and to help
them with trade. And over time, and as I say, there has been some
stops and starts, it hasn't been an even process, but over time CBI
has been able to help those small- and medium-sized and now even
some of the larger cooperatives access information and access the
export market.
I can only emphasize that it is that information and dialog and
having the FAS and USDA reach out to try to help those small-
and medium-sized businesses, whether it is through SBA, the Com-
merce Department, U.S. AID, or whatever, but somehow that infor-
mation has to be made available and be made more accessible so
that those small- and medium-sized cooperatives feel that they
have a chance to look overseas.
Mrs. Thurman. Let me ask this question. Maybe you are familiar
with this, but in the aquaculture program that was done in Florida,
which has now become a big issue and a big industr>' for Florida,
we were finding that they were having problems in getting through
the system and getting started up and doing all of the kinds of
things they did environmentally and everything else because there
was a lack of coordination between the different agencies and de-
partments that would have some kind of permitting or regulation
or whatever.
Would it be helpful if maybe that, say all of these different de-
partments and agencies that would be involved in the development
had like a coordinating council of those government entities that
would be involved in that opportunity for your small businesses?
Mr. NOTAR. I guess my knee-jerk response would be probably
not. I think having the trade association, the membership associa-
tion, the State organization that might be able to help access that
one-stop shopping, I think would be probably more helpful than
necessarily having an overall council umbrella.
I think that council would probably be best served within the
USDA itself as opposed to having that overall umbrella council try
access the SBA and Commerce and Trade and so forth. I think
somehow there has to be a funneling source, but my feeling is that
having another layer, having a council probably wouldn't be the
best way.
Mrs. Thurman. Thank you.
Mr. Krajeck, as you know the GSM programs are facing difficulty
because of defaults by some major borrowers. Has this resulted in
67
the loss of sales due to restrictions or have you been able to acquire
alternative financing through the CCC or private sector?
Mr. Krajeck. I think that we have to be careful about how many
sales under GSM have defaulted because I think in the history of
the program, it has been relatively few. There is a problem right
now, as I understand it, with Russia in — ^but I think that they have
been made current again and could, in fact, have some eligibility
under the program.
Sales have been limited because of the creditworthiness stand-
ards that are a part of the program under GSM. And there is no
doubt, if you look at feed grains exports and specifically at corn,
that we have suffered greatly with Russia and the former Soviet
Union countries out of the market.
Credit certainly isn't the whole answer to that, in other words,
to restoring that market, nor are give-away programs, but I think
we need to look, and I have commented on that in my paper, that
I think that we need to look at GSM programs to see where those
limitations are and if necessary, look at new credit programs to ad-
dress these new markets which have special needs, and in some in-
stances, it may be going back to programs that we previously had
in place. I think that the GSM- 103 program may be an example
of that.
I am not real clear about all of those, but it is a program that
is no longer funded, but provided different sort of credit terms,
longer credit terms that enabled new economies to develop.
Mrs. Thurman. And the last question I have is for all of you.
Have any of you received the new report by the Trade Promotion
Coordinating Committee, and if you have, I am interested in any
comments you may have on this document.
Mr. Krajeck. We don't have it.
Mr. Terhaar. Yes, we have received that. We have read it, and
I referred extensively to that report in my written statement.
Again, I think that FAS over time and USDA have proven to be
the one-stop shop that is mentioned frequently in that report.
I think that that is why, perhaps, the USDA has not been as
forthcoming, if that is the case, I don't know, in the TPPC because
agriculture, U.S. agriculture and FAS have already been at that
level for 40 years.
I think it is the rest of the U.S. industry trying to reach that
level and then maybe once they do reach that level, you can make
the next step.
Mrs. Thurman. I just want to tell you all that I appreciate you
being here and I certainly applaud your efforts in what you are try-
ing to do. I can't think of anything that is more important in this
country than our agricultural production, so thank you.
Mr. CONDIT. I would like to thank you for participating in the
hearing this morning. This has been a joint subcommittee hearing,
although it has sort of been one-sided. It is because there is a lot
of activity, as you all know, going on in the building and Mr. Penny
has a major issue before the Budget Committee right now, and that
is why he did not participate in the latter part of this today.
But we do want to thank him for his interest in this. He has
been extremely interested in this, and has been a leader in this
area, and I want to thank him and his staff for all the work that
68
they have done in putting this joint committee hearing together, as
well as the subcommittees staffs, who worked on it as well.
Anyway, thank you very much. We appreciate you being here
and we appreciate your organizations for participating. Thank you,
this meeting is adjourned.
[Whereupon, at 11:50 a.m., the subcommittees adjourned, to re-
convene subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
69
Statement by Christopher Goldthwait
Acting General Sales Manager
Foreign Agricultural Service
Before the House Committee on Agriculture
Subcommittee on Foreign Agriculture and Hunger and
House Committee on Government Operations
Subcommittee on Information, Justice,
Transportation and Agriculture
November 10, 1993
Thank you. Chairmen Penny and Condit, for the opportunity to testify before these
subcommittees. I am more than grateful for the opportunity to appear before you at what is
undoubtedly a critical juncture for the Foreign Agricultural Service (FAS). I want first to
spend a few minutes talking about overall Department direction and policy in the
international area, and export policy specifically, and then offer some comments on the
questions posed in your letter of invitation. : :,
A Time To Review Fundamental Direction
All of the factors that make today's world vitally different from that in which we
crafted the 1990 Farm Bill are well known. A few of these affecting FAS in particular, are:
~ Dramatic changes in the former Soviet Union and Eastern Europe ~ countries that
happen to be major U.S. agricultural markets.
~ The prospect for major gains on the international trade front with the successful
passage of NAFTA and conclusion of the Uruguay Round. On this, Messrs. Chairmen, let
me offer an aside - NAFTA is absolutely vital to America's future economic growth ~ most
of what the agreement is criticized for will occur without it; passage of NAFTA offers the
prospect for progress on jobs, environment, competitive conditions, in short a level playing
field.
70
-- Creation through the reorganization process, of a new agency, the International
Trade Service (ITS).
~ The Administration's effort to reinvent, to reinvigorate government administration
with the National Performance Review (NPR) and in a context of significant budgetary
constraints.
~ The approach of a new Farm Bill.
-- And, not least, a new Administration with a new Secretary of Agriculture
dedicated to the mission of the Department to better serve all American producers and
consumers. ; - . • ■ ' . ^ -, ' .
My purpose in coming before you today is not to provide all the answers regarding
FAS's export programs, or even to provide comprehensive answers to the questions you have
specifically posed. These are issues for major reflection and discussion, for answers that are
developed together in partnership between the Administration and the Congress. My purpose
is to demonstrate to you that we in the Department have a vision to bring to the table of
where we should be going with our new International Trade Service (ITS) agency, and with
our export efforts particularly.
Mission of the International Trade Service
As you know, formation of ITS that carries out the functions of FAS and the former
OICD is part of Secretary Espy's mission-driven reorganization of the Department. We
want one agency that achieves synergy and focus by combining most of the Department's
international activities under one agency. Let me stress that the change is more than
structural ~ it seeks to be cultural as well, to inject a new entrepreneurial spirit into our
v?l
work. Change reminds us that while much is right with the way FAS and its export
activities are managed, there is, of course, a need to reassess our objectives.
The mission of our new agency is to enhance both agricultural exports and
relationships generally with key agricultural traders and food and agricultural organizations.
To the familiar goals of market intelligence and trade promotion, our personnel from the
former OICD brings the significance of the broader agricultural relationship and its overall
affect on trade and U.S. relations. And of course U.S. agriculture benefits from the many
exchanges and joint projects personnel from the former OICD will continue to manage.
Clearly, mission is fundamental for our new agency, and it comes from the idea of
who we serve. And the ITS clientele is broad indeed:
-- U.S. farmers and ranchers, first and foremost; •-£'■'.
— Exporters;
— USDA cooperators and other producer and commodity groups;
— Processors and handlers of farm products;
-Every American who benefits from reasonable food prices secured by efficient
production supported by healthy exports;
— Our foreign customers;
— International organizations, foreign governments, U.S. and international donor
agencies, universities, private voluntary organizations and others in the international
community;
Elements of an Agricultural Export Strategy
Before turning specifically to the Subcommittees' questions, let me comment briefly
72
on the elements that we are gradually developing into a comprehensive agricultural export
strategy. These are three legs of the stool from which we will reach higher levels of
exports: ■■■-•- ■■'• ■'•" _. •
1) Rebuilding bulk commodity markets; -
2) Focusing on emerging markets in addition to emerging democracies; i
3) Building broader agricultural relationships with foreign partners. . " -"^
Subject to the condition that this strategy — is still evolving under the leadership of -
Secretary Espy and Under Secretary Moos, let me offer a little elaboration, ^^j^:::::::^^-^^^ ''
1. Rebuilding bulk commodity markets. ''^ -- — "
U.S. sales of bulk commodities have not done as well over the past year or two as we
think they should have on a value/volume basis. Partly this is due to changes in import jrr^:-^
markets and subsidized competition. What can we do to regain and enlarge these markets?
Some ideas:
a) Continue to be an ample, price-competitive supplier - this relates to decisions on
commodity acreage reduction levels, commodity price support levels, and continued vigorous
use of the Export Enhancement Program and other subsidy programs.
b) Continue our pressure in international negotiations and begin planning for an era of
fairer trade and subsidies, in which American exports will be more competitive.
c) Tackle specific trade barriers. TCK is a fungus which for 25 years has limited
exports of U.S. Pacific Northwest wheat to China. Secretary Espy extracted a specific
commitment from China's agricultural minister to try to resolve it during his recent visit to
China.
73
2. Focus on emerging markets, not just emerging democracies.
By emerging markets we mean both the rapid growth in trade in high value
products, and the rapid import growth in specific countries in the Pacific Rim and elsewhere.
Over the past two years the Department has devoted considerable resources to
maintaining export levels to emerging democracies, especially to Russia. These are countries
that have been, and continue to be, important U.S. markets. They are not always, however,
the most rapidly growing markets on a short- to medium-term basis. No foreign market is
static; instead, just as countries evolve economically, they also grow through different stages
as markets for U.S. commodities.
Secretary Espy has emphasized that we must refocus our attention and effort on the broader
array of emerging markets for quicker benefits. Increased cooperative and development
efforts significantly enhance our long term market development efforts.
Where are these markets? Let me name only a few countries that have been
experiencing explosive growth - we haven't yet successfully penetrated when it comes to
agricultural trade.
China — especially the coastal regions from Shenzhen to Shanghai; Indonesia; and
other southeast Asian markets, including Thailand, Malaysia and the Philippines. Mexico ~
and here let me again stress the importance of NAFTA. Other Latin American markets
such as Chile, Argentina, Brazil and Venezuela; and longer term markets such as India,
Egypt and Nigeria. The United States has had extensive cooperative arrangements with these
countries. We will continue to build on this foundation to further the expansion of
agricultural markets.
74
Emerging markets also mean markets for high value commodities, since this is the
growth area of world trade. This trade is increasing at 9 percent yearly.
During the past decade, global trade in agricultural products expanded by 38 percent -
- fueled largely by growing exports of consumer-oriented high-value products. We believe
many of the emerging markets mentioned above, especially those in southeast Asia, will
provide great market opportunities for increasing U.S. high-value exports even more.
So what do we do to penetrate these markets? My colleagues and I will be traveling
in these markets extensively over the next several months. Having successfully developcAl
markets in Japan, Korea, Canada and Europe, we will be asking what makes this next group
of markets different? What common characteristics do they shaxe, or are they unique? What
about the strengths and weaknesses of our current export and promotion programs -.n terms
of helping the export of U.S. commodities? Are there ways in which these programs .should
be used in these markets to reduce the risks to and maximize the investments of the private
sector? Do these markets imply a significant reallocation of program resources? Do they
require a restructuring of current program applications? Legislative changes? New
programs?
Relatedly, are there ways we can form the high quality and safety of U.S. products
into an effective marketing tool, in countries even more concerned about phytosanitary
issues? I offer some more specific ideas in response to your question about emerging
markets.
3. A broader agricultural relationship.
The Secretary's trip to China and his visits with many ministers from emerging
75
democracies have made clear the important role strengthened agricultural cooperation can
play in creating a proclivity for trade with the United States and an overall favorable bilateral
relationship. This is why the merger of FAS and the functions of the former OICD into the
new ITS agency is important in strengthening our ability to support this kind of relationship.
The technical assistance, exchanges and joint scientific research personnel of the former
OICD supports direct benefits to U.S. agriculture, and strengthens the vital spirit of
cooperation with the emerging democracies. In addition, the programs of the former OICD
bring new scientific and technical knowledge to our shores and keep our research and
development efforts on the cutting edge - and helps maintain our competitive position in
world markets.
Subcommittee Questions
Having laid a groundwork of policy direction, I will answer each of the questions
posed by the subcommittees.
1. Merger of FAS and the functions of the former OICD into ITS.
- The merger does not overburden management resources; indeed we expect savings
in administrative costs.
~ It makes good sense to unite the major international efforts of the Department, to
provide greater coordination and synergism than in the past. With the addition of the
technical assistance elements of the former OICD, we will be in a better position to "package
programs" in selected markets.
76
~ The function of the former OICD brings to ITS a renewed emphasis on the
strengthening of overall bilateral and multilateral agricultural relationships ~ an increasingly
important factor.
~ On a more personal note, the cross-fertilization of FAS and the personnel of the
former OICD will enrich the employees of both organizations.
2. Does FAS identify new markets?
-Yes.
~ Identifying the growth markets isn't the hard part - knowing how to develop them
is the challenge. Our analysis indicates that countries of the Former Soviet Union (FSU),
where we are concentrating very large resources, would not return to a growth trend for
some years. While these countries are important for long-term growth, we need to also
focus on southeast Asia, Latin America and elsewhere for quicker returns.
This is an easy judgment. What we don't yet know is what changes in our various
export and promotional programs will best capitalize on the new circumstances in these
markets. The trade and investment program and agribusiness information center obtained
from the former OICD will assist in this determination.
3. Budget constraints.
~ There is no question but what American agriculture needs is more aggressive
exporting. This is the growth engine for U.S. farm income and agriculture generally.
Where else do we see growing - not saturated - markets?
— All elements in FAS support one another — I can't say at this point whether we can
77
eliminate specific export programs, or downgrade one or another function without hurting
the overall mission achievement. I think we can accomplish savings in the spirit of the NPR
by woridng more efficiently and effectively.
~ We need to work closely with you on some of these choices, sharing views where
difficult decisions £u-e required ~ especially where possible budget reductions or reallocations
affect different commodities or parts of our export trade disparately.
4. New approaches to emerging markets.
~ This is a particular goal of Secretary Espy. He has charged us with a thorough
review of how we are using our export resources.
~ We need first of all to take a close look at the factors which make these markets
different.
~ We will be working with the trade clientele that I cited above to get their input and
ideas ~ the importers in these countries, U.S. exporters, our cooperators.
~ We will examine both how our programs are structured and how they are targeted,
to be sure that we achieve the best balance between putting new resources into these while
maintaining our presence in more developed markets. I was impressed during the
Secretary's visit to Asia with how effectively our cooperators are already targeting their
resources.
- Moving for a moment beyond the emerging markets, our export tools require a
more generalized review as well because the 1995 Farm Bill will offer the best opportunity
for making major changes. Many details of our programs and policies have accumulated
piecemeal over time. In some cases we have not taken a comprehensive look at the whole
78
for some years.
The principles are clear that must guide our review: -^. ic ,
* Moving exports effectively and supporting farm income;
* Protecting program integrity and minimizing program costs;
* Making our programs as user- friendly as possible.
* Providing better service to our diverse clients.
While each of our programs needs a review in preparation for the Farm Bill, let me
lay out some priorities:
1. Market Promotion Program ~ This process began in connection with the budget
reconciliation exercise. We've made some changes in close consultation with the Congress.
We are examining further changes to improve a program that undoubtedly has been a major
success in expanding high value exports.
2. Export Enhancement Program - If we are as successful as I believe we will be
in concluding the Uruguay Round, the EEP will be scaled back and we will be focusing on
targeting, restructuring, and necessary operational modifications.
3. GSM-102/103 -- As our other major export tool, the credit guarantee programs
also are priorities. , .
4. P.L. 480, Title I Operations - As perhaps the oldest of our operational
programs, it is certainly high time to look at our commodity and freight tendering functions.
~ In the cooperator and development programs, we need to look at other changes to
improve efficiencies and insure we are working in countries where we derive the most
benefit from scarce resources.
10
79
-- Aside from the merger of FAS and the former OICD, these program reviews will
be our first formal efforts at reinventing government with respect to our export mission. The
Department will be convening small task forces to take a top-to-bottom look at these i =
programs in the coming months. We will seek input from farmers, program participants,
other agencies, and of course, the Congress.
5. The Trade Policy Coordinating Committee (TPCC) and USDA Export and
Promotion Programs.
As your invitation indicated, we had a Long-Term Agricultural Trade Strategy
(LATS) long before the TPCC was inaugurated. The strategy as developed has been a policy
umbrella under which we have operated for a number of years.
Many of the initiatives I have discussed here today derive from the evolution of our
strategy under the guidance of Secretary Espy and Under Secretary Moos. Agriculture is an
active participant in the TPCC, and in this process we are anxious to demonstrate the value
of each of the exjxjrt programs to not only increase exports, but to build and maintain a
strong agricultural economy.
American agriculture is doing its share to help the U.S. economy. Our agricultural
exports create more than half a million off- farm jobs in financing, storage, packaging,
processing, merchandising and shipment. Many of these jobs are in rural America and
therefore contribute to the Administrations's goal of enhancing rural community and
economic development. Approximately 300,000 jobs are created on the farm to produce
food for export.
At the farm level, agricultural exports provide producers with an expanded market
11
80
and, therefore, a better income. On average, the output from 30 percent of U.S. harvested
acreage is destined for export markets. These exports generate about one-fifth of fanners'
cash receipts.
In this connection, let me close on a theme Secretary Espy emphasized in the
symposium he held a few days ago with all the Department's top managers. There, he stated
that his interest in being Secretary of Agriculture stems from the fact that this Department
touches the lives of all Americans. One thing we too quickly forget is that food is the
biggest bargain in America in terms of percent of disposable income. Americans spent only
11.2 percent of their disposable income on food in 1992, down from 16 percent three
decades ago and over 20 percent in the early 1950s. Contrast that with the health care cost
crisis, and we must conclude that American agriculture is doing a good job in achieving
production efficiencies that benefit U.S. and foreign food consumers.
Messrs. Chairmen, all of the Department's programs contribute to this success story.
It is too easy to forget that the agricultural export programs are absolutely critical to
maintaining income for American producers and ensuring stable food prices for our
consumers. That is the story we need to tell. These programs have performed well, but we
intend to improve them and expand exports beyond their current levels.
12
-81
United States General Accounting Office
GAO
Testimony
Before the Subcommittee on Foreign Agriculture and Hunger,
Committee on Agriculture, and the Subcommittee on
Infomiation, Justice, Transportation and Agriculture,
Committee on Government Operations,
House of Representatives
For Release on Delivery
£xpec(ed ai
9:30 a-m.. EST
Wednesday.
November 10. 1993
U.S. DEPARTMENT OF
AGRICULTURE
Improvements Needed in
Foreign Agricultural Service
Management
Statement of Allan I. Mendelowitz, Managing Director
International Trade, Finance, and Competitiveness
General Government Division
GAO/'r-GGD-94.56
82
U.S. DEPARTMENT OF AGRICULTURE:
IMPROVEMENTS NEEDED IN ' ,^
FOREIGN AGRICULTURAL SERVICE MANAGEMENT
SUMMARY OF STATEMENT BY ALLAN I. MENDELOWITZ, MANAGING DIRECTOR
INTERNATIONAL TRADE, FINANCE, AND COMPETITIVENESS
GENERAL GOVERNMENT DIVISION
U.S. GENERAL ACCOUNTING OFFICE
The current tight budget environment and the substantial
resources devoted to agricultural export programs make good
management of these programs critical. The U.S. Department of
Agriculture's (USDA) Foreign Agricultural Service (FAS), however,
frequently has not effectively managed its programs. For
instance, under the Market Promotion Program, FAS turns
government funds over to not-for-profit associations that either
run market promotion programs themselves or pass the funds along
to private- for-profit companies to spend on their own market
promotion activities. FAS retains little control over the funds
provided to the private-for-profit companies. Furthermore, FAS
does not obtain assurance that market development activities
would not have been undertaken without government assistance;
and, FAS has not established a limit on the number of years that
a participant can receive assistance before it is expected to
assume the cost of its own market promotion.
FAS expends a significant amount of resources on reporting about
overseas developments that affect U.S. agriculture. The reports
are expected to support USDA programs, to assist FAS in its trade
policy work, and to disseminate information to Industry about
foreign competition and demand for U.S. farm products. Much of
the reporting, however, is put to little use either by USDA or
the U.S. agricultural industry.
Strategic planning is very important for the efficient management
of government resources. Under the Food, Agriculture,
Conservation, and Trade Act of 1990, USDA was required to develop
a long-term agricultural trade strategy (LATS) to guide the
implementation of federal programs designed to promote the export
of U.S. agricultural commodities. GAO's review indicates that
LATS does little to set meaningful priorities for agricultural
export programs and resources. GAO believes that additional work
will be necessary to make LATS a useful management tool.
In September 1993, the interagency Trade Promotion Coordinating
Committee (TPCC) released a report on its efforts to develop a
governmentwide strategic plan for export promotion programs. GAO
is concerned with the lack of USDA involvement within the
governmentwide strategy, particularly since USDA receives the
bulk of the federal export promotion budget.
83
Mr. Chairmen and Members of the Subcommittees:
I am pleased to be here today to testify before these
SubconuT.ittees on the operation of the Foreign Agricultural
Service (FAS) of the U.S. Department of Agriculture (USDA),
including its management of export promotion and assistance
programs, its use of resources in reporting on agricultural
developments overseas, and its strategic planning. FAS
administers a variety of programs to promote the sale of U.S.
agricultural products overseas. FAS also reports on agricultural
developments abroad, acts to reduce barriers to U.S. exports, and
conducts various market development activities.
NEED TO IMPROVE
MANAGEMENT OF PROGRAMS
FAS manages about $10 billion a year in agricultural export
programs. These programs are designed to increase U.S.
agricultural exports by maintaining and developing foreign
markets for U.S. agricultural products. These programs include
the Export Credit Guarantee programs; the Market Promotion and
Foreign Market Development (Cooperator) programs; the Export
Enhancement Program; and title I of Public Law 480.
The current tight budget environment and the substantial
resources devoted to agricultural export programs make good
management of these programs critical. In the past, we have
testified before Congress concerning the weaknesses in these
programs and have urged greater management controls. While
improvements have been made, we continue to have concerns about
management weaknesses that diminish the efficiency and
effectiveness of FAS programs. Better management of these
programs would improve the return on taxpayer funds.
84
Export Credit Guarantee Programs
GAO has reported in the past on poor management controls within
the Export Credit Guarantee programs. These programs, which
include the General Sales Manager programs (GSM) -102/103, are
aimed at increasing the willingness of U.S. banks to finance
export sales of U.S. agricultural products. Financial
institutions in the United States provide financing for
individual commodity sales to foreign buyers. Based on
legislative requirements, USDA makes a total of over $5 billion
in government loan guarantees available each year to foreign
buyers of U.S. agricultural commodities. Since the programs
began in the 1980s, USDA has paid out about $5.7 billion to banks
on loans in default, and we estimate significant future Increases
in defaults if high-risk foreign buyers continue to participate.
Past operations of the Export Credit Guarantee programs have
incurred significant losses because USDA has provided a large
amount in guarantees to high-risk countries, such as Iraq and the
successor states of the former Soviet Union. Guarantees had been
extended to such high-risk countries on the basis of market
development concerns and foreign policy considerations. Our
prior testimonies have detailed the weaknesses and difficulties
in managing these programs. FAS has traditionally had a limited
role in monitoring these programs despite significant government
exposure to large financial losses.
Market Promotion Program (MPP)
MPP was created to encourage the export of U.S. agricultural
products through funding for consumer-related promotions of high-
value generic and brand-name products. FAS turns the government
funds over to not-for-profit associations that either run market
promotion programs themselves or pass the funds along to prlvate-
for-profit companies to spend on their own market promotion
2
85
activities. FAS retains little control over the funds provided
to the private- for-profit companies. In the past, we have
identified a number of management problems in the administration
of this program, including funding "additionality" and
participant "graduation."
First, concerning funding additionality, FAS has no assurance
that MPP funds actually increase the overseas promotional
activities of participants in the program. FAS does not require
participants to demonstrate that funds under the program will be
used to increase promotional activities. The lack of such a
requirement affords participants the opportunity to substitute
government funds for promotional expenditures that they would
possibly have undertaken with their own funds. FAS has no way of
knowing the extent of this practice. In our past work, we found
some examples that suggest that this situation exists. We
believe that the participation of firms in the progreun with
significant prior export experience and with multimillion-dollar
advertising budgets suggests that the opportunity to substitute
government funds for their own exists, and greater controls are
needed over the use of these program funds to ensure increased
promotional activity.
An example of potential funding substitution may be found by
looking at the federally authorized commodities research and
promotion programs, commonly known as "check-off" programs.
Under check-off programs, designated producer organizations
collect millions of dollars from producers and growers of
agricultural commodities such as cotton, beef, and soybeans. The
bulk of check-off funds are used to promote the product in the
United States, while relatively small amounts of check-off funds
are used to promote overseas sales. Because FAS pays for
overseas market promotions for these commodities through the
Market Promotion and Cooperator programs, the producer
organizations have less need to use their own check-off funds for
3
86
overseas promotions. * ' : '.
-.*'*■"■■
Second, concerning graduation, FAS has no restrictions on the
length of time that participants can continue to receive MPP
funds. In the Food, Agriculture, Conservation, and Trade Act of
1990, Congress directed FAS to evaluate each MPP participant to
determine whether continued program assistance was necessary for
market maintenance, but FAS has not developed specific criteria
to make the required evaluations. We believe that providing for
the phaseout of government funding would make clear that these
funds are not an entitlement. Furthermore, such action could
increase the number of firms that benefit from the programs and
would give the taxpayer greater assurance that these funds are
being used to help firms enter new markets.
Program evaluations are Important to ensure that government funds
for export promotion activities are used effectively. We
recognize that the large number of variables that determine
export levels makes it extremely difficult to demonstrate a one-
to-one relationship between program- funded promotion activities
and increased exports. But additional evaluations could be done.
We found that few program evaluations were completed from fiscal
years 1986 through 1992. In general, FAS has acknowledged
weaknesses in this area and the need to conduct a greater number
of evaluations. FAS representatives cited limited staff and
travel funds as factors accounting for the small number of
program evaluations.
OVERSEAS STAFF RESOURCES BURDENED
BY HEAVY REPORTING REQUIREMENTS
Especially in a time of budgetary constraints, FAS needs to
assess how effectively It uses its resources. Our ongoing review
of FAS resource utilization indicates that FAS devotes
substantial resources to reporting on commodities abroad. FAS
4
87
estimated, based on a 1991 survey of its overseas posts, that
over one-third of its overseas staff resources were devoted to
reporting. However, much of its reporting is put to little use.
We believe that FAS can better utilize its resources by
significantly reducing such reporting, thereby allowing its
overseas attaches more time to devote to developing markets for
U.S. commodities and to engage in trade policy activities.
FAS' overseas attaches submit about 2,300 scheduled commodity
reports a year from around the world. The reports are intended
to support USDA programs and to assist FAS in its trade policy
work. In addition, the reports are used to prepare commodity
circulars that provide the U.S. agricultural industry with
information about competition and demand for U.S. farm products.
However, not all of the commodity reporting is useful to either
USDA or the U.S. agricultural industry. For example, FAS
requires comprehensive reports on honey from seven of its
overseas posts. These reports are used primarily to inform U.S.
honey producers about potential exports from foreign countries to
the United States. Nearly all the honey producers we spoke to
said they have other sources of information that they rely on to
monitor foreign competition in the U.S. market. Moreover, the
honey reports play virtually no role in increasing U.S. exports,
partly because FAS does not report on the honey situation in many
of the U.S. export markets.
FAS also spends significant resources reporting on coffee from
around the world, even though the United States exports virtually
no U.S. -grown coffee. FAS says that reporting on world coffee
production services U.S. coffee roasters and helps smooth out
prices. But the roasters we spoke to said they have limited need
for USDA's data. They rely more on their trade contacts and on
other private sources of information. Many of those involved in
coffee trade said that if USDA were to reduce its coffee
88
reporting, private reporting firms would quickly fill the gap.
FAS reports on the cotton situation in 39 countries. We found ,
that the cotton reports do serve to support USDA programs and ,.
provide data helpful to U.S. exporters. However, we also found ,
that the reports often contain far more detail than is necessary
to meet their objectives. FAS has recently introduced "truncated
reports," in which attaches provide only the basic data and a few
pages of narrative discussing major changes; 8 of its 39 cotton-
reporting posts are allowed to do truncated reports. Our
discussions with the users of the cotton reports indicate that
FAS could considerably expand the use of truncated reporting and
still adequately meet the information needs of both USDA and the
cotton industry. .
Furthermore, FAS does not make the most efficient use of the
information it collects. Despite the great advances in
Information technology that have occurred over the years, FAS
still communicates information to U.S. agriculture primarily
through written circulars. FAS makes only limited use of
electronic information technology to deliver data to industry.
Industry users told us that the data that are available
electronically are often not easily accessible or timely.
FAS has recently undertaken a major review of its reporting and
has tentatively proposed a new reporting schedule. The new
schedule cuts the reporting burden for some of its overseas posts
but increases reporting for others. In addition, it shifts some
reporting from bulk commodities to high-value products, an
increasingly important share of agricultural exports.
We believe the new schedule is a step in the right direction in
its efforts to streamline reporting requirements and make them
more useful. However, we think that FAS' reporting review did
not go far enough. The agency did not adequately evaluate the
6
89
need for each of its commodity reports; FAS did not
systematically communicate with the users of the reports in U.Si
agriculture to learn the true extent of their information needs.
U.S. agriculture has at its disposal an increasing number of
private sources of basic information on world agriculture. In a
time of budgetary constraints and increasing global competition,
FAS cannot continue to collect information that is nonessential,
rather than devote its resources to effectively carry out its
other export promotion responsibilities.
NEED TO IMPROVE
STRATEGIC PLANNING
Strategic planning is very important for the efficient management
of government resources. My final remarks will address the need
for FAS to improve its strategic planning, particularly through
its Long-term Agricultural Trade Strategy (LATS), and its
participation in the Trade Promotion Coordinating Committee's
(TPCC) governmentwide export promotion plan.
Long-Term Agricultural
Trade Strategy
Reguired under the Food, Agriculture, Conservation, and Trade Act
of 1990, LATS was intended to guide the Secretary of Agriculture
in carrying out federal programs designed to promote the export
of U.S. agricultural commodities. Among other things, the act
called for the designation of priority growth markets and the
development of country marketing plans, which set forth
strategies for these markets.
USDA submitted LATS to Congress in January 1993, about 15 months
late. FAS stresses that LATS is a guide for USDA's efforts to
promote agricultural trade. It is not Intended as a form of
managed trade that sets out export strategies for the private
90
sector. According to FAS, LATS describes general goals for
agricultural trade, the resources USDA can utilize, and the
tactics it can employ in facilitating trade.
LATS was developed largely within FAS, with little input from
elsewhere in USDA or from other federal agencies. The document
includes narrative on (1) trends in U.S. market share, (2)
prospects for sales to developed and developing countries, and
(3) USDA strategies for facilitating exports. This narrative
discusses areas such as trade policy, domestic programs, and
export programs.
In our opinion, LATS needs additional work to become a useful
management tool. Our review indicates that LATS does little to
set meaningful priorities for its programs and resources. For
example, LATS calls for "the fullest possible use of all export
assistance programs" without identifying which programs or
activities are critical or most important.
The compilation of country marketing plans was also completed in
January 1993. The compilation listed the top 15 country markets
for bulk commodities and the top 15 for consumer-oriented
products. Between three and nine priority commodities were
listed for each country, with a short discussion of ways of
maintaining or increasing U.S. exports of each commodity. The
document did not prioritize the country markets nor did it
prioritize commodities within each of these countries. In our
view, more specifics are needed on priorities and plans in order
to enhance the effective use of the U.S. export promotion dollar.
Governmentwlde Strategic Planning
for Export Promotion
In September 1993, the Trade Promotion Coordinating Committee
released a report, "Toward a National Export Strategy," on its
91
efforts to develop a governmentwide strategic plan for export
promotion programs. TPCC has representation from 19 federal
agencies, including USDA. The Export Enhancement Act of 1992
requires TPCC to produce a plan that, among other things,
establishes priorities for federal export promotion, sets out a
strategy for federal export promotion activities, and proposes a
unified budget for federal export promotion programs.
While the report included significant, positive steps to
strengthen federal export promotion efforts, key components have
yet to be developed in areas where TPCC was unable to reach
consensus, namely governmentwide priorities and a unified export
promotion budget. The report does make a firm commitment to
complete the tasks within the context of the 1995 budget.
To be successful, TPPC's effort, from here on, will require
continued, sustained, high-level administration Involvement and
support, and the active participation of the agencies with the
preponderance of the government resources devoted to export
promotion programs: the Department of Commerce, the U.S. Export-
Import Bank, the Small Business Administration, the Agency for
International Development, and USDA. We are concerned, however,
with the apparent lack of USDA Involvement In the governmentwide
strategy. USDA is hardly mentioned within the text of the TPCC
report. This absence Is particularly troubling since USDA
receives the bulk of the federal export promotion budget. It
will be very difficult for TPCC to fulfill its legislative
mandate without the full participation and support of USDA.
Mr. Chairmen and Members of the Subcommittees, this concludes my
prepared statement. I will be happy to answer any questions you
may have.
(280080)
9
92
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93
statement
of
Karl Johnson
President, National Pork Producers Council
on behalf of the
Export Processing Industry Coalition
before the
Subcommittee on Foreign Agriculture and Hunger
and the
Subcommittee on Information, Justice, Transportation and Agriculture
November 10, 1993
Mr. Chairman and Members of the Joint Subcommittee:
I am Karl Johnson, a pork producer and grain farmer from Mankato,
Minnesota and currently serving as President of the National Pork Producers
Council (NPPC). I appear at this hearing today on behalf of the Export
Processing Industry Coalition (EPIC), an organization comprised of the Com
Refiners Association, the Millers' National Federation, the National Oilseed
Processors Association, the National Pork Producers Council and the
Industrial Union Department, AFL-CIO.
The Export Processing Industry Coalition (EPIC) represents American
industries and labor unions that are committed to expanding the U.S. share
of the growing world market for processed agricultural exports.
Mr. Chairman, we commend you for holding this joint hearing on the
mission, focus and future direction of Foreign Agricultural Service (FAS) and
its role in assisting to export agricultural commodities in the year 2000.
As the members of the subcommittees are aware, the Clinton
Administration's proposal to restructure USDA would combine a number of
related services and functions, thereby reducing the number of agency
administrators. Specifically, in the area of trade reorganization, the Foreign
Agricultural Service (FAS) and the Office of International Cooperation and
Development (OICD) would be combined into an International Trade Service
Agency (ITSA).
USDA's role in trade policy development and objectives in export program
implementation is in urgent need of reorganization. The Administration's
restructuring effort provides an ideal opportunity for a thorough review of
the missions assigned to FAS and how they can be updated to reflect
realities of the modem marketplace. In particular. Department programs
and priorities need to be refocussed on improving U.S. competitiveness in
the fast-growing world market - representing more than $220 billion in
1992 - for processed and high value agricultural products.
Over the past 40 years. FAS has assumed various roles reflecting U.S. farm
94
programs and policies. These roles have included: (1) Disposal of
commodity surpluses generated by farm programs; (2) partnership with the
private sector in foreign market development and export promotion efforts;
(3) administration of export programs to achieve goals ranging from
marketplace competition to pressuring trading partners to liberalize trade
policies and practices; and. (4) reporting of domestic and foreign
agricultural trade data.
The philosophy underljong these various roles was summed up in the Long-
Term Agricultural Trade Strategy (LATS) released by USDA in January 1993:
"LATS aims at creating an environment where the natural comparative
advantages of U.S. agriculture Ccin prevail." While "there is a clear societal
consensus that government has a legitimate role in agricultural trade." that
role should be defined as "assisting rather than managing trade."
LATS does not define a middle ground where USDA could participate as a
partner with the private sector in developing export strategies to maximize
the impact of mutual efforts to expand agricultural exports. According to
USDA, "the statute (requiring LATS] contemplates a strategy for the
government, not for the private sector."
The problem with this "hands ofi' approach is that it does not recognize the
more aggressive role which governments of our competitors take in
promoting exports. The governments of the European Community (EC) and
other exporting countries have sophisticated working relationships with
their food processing industries which identify and target growth markets
for high value products through marketing strategies involving sales and
credit incentives as well as promotional activities and market access
initiatives.
From our perspective, the very future of American agriculture and rural
development are dependant on an aggressive and effective value added
export trade policy that provides the tools to allow U.S. value added and high
value products such as vegetable oil, wheat flour, com gluten meal and red
meat to compete in foreign markets. Without the implementation of an
aggressive value added agricultural product export policy — and if the status
quo is allowed to continue — the future of U.S. agriculture will continue to
belong to our competition.
In the absence of a relationship setting similar priorities established and
using aggressive marketing efforts planned and implemented jointly by
government and industry, the U.S. will continue to trail its competitors in
economically potent and fast-growing value added agricultural markets. The
results of the current approach are clearly unacceptable.
While the U.S. remains the largest world supplier of bulk commodities, this
market has remained stagnant at about $60 billion cinnually for over 10
years, and is showing signs of actual shrinkage. The U.S. share of value
added and high value product trade (including intra-EC) remains at less than
95
10%, even as sharp growth in this sector has overtaken the value of U.S.
bulk exports. Critics in the Commerce Department are pointing out that,
while USDA gets 80% of export promotion funding, agricultural trade
represents only 10% of the value of U.S. exports. While our critics
knowingly include all government humanitcirian, credit guarantee and
concessional sales initiatives in their calculations, they are tarnishing the
only sector with a positive balance of trade for the United States as they
attempt to grab the limited resources available for our efforts.
There is a pressing need for USDA's export policies to reflect the reality
that world agricultural trade is now driven by demand from global
consumers for high value products. If the U.S. is to compete effectively in
these markets in the 21st century, FAS must reorient its mission, focus,
programs, and relationship with the private sector to marketing products
consumers want to buy, rather than simply disposing of bulk commodities,
surplus commodities or commodities that U.S. producers want to grow.
The fact that high value products (HVP) now represent virtually all of the
growth in the value of world agricultural trade provides sufficient reason for
the U.S. to refocus its export policies eind programs. However, the benefits
derived from HVP exports are even more compelling. These benefits
include:
The Economic Research Service (ERS) indicates that each dollar of HVP
exports generates $1.63 in additional economic activity, compared to $1.08
for each dollar of bulk commodity exports: E>ery billion dollars in HVP
exports creates an additional 23,000 new jobs in the U.S. economy. While
current U.S. farm exports support an estimated 900,000 jobs in direct and
related industries, the much higher percentage of HVP exports by the EC
supports nearly 2.5 million jobs: Increased personal and corporate incomes
from HVP exports raises the tax base for local and state governments as well
as increasing federal revenues; exports represent additional employment of
people and additional income rather than a diversion of these resources
from other sectors of the economy: HVP exports maximize the positive
contribution agriculture makes to the U.S. balance of trade.
Mr. Chairman, the Export Processing Industry Coalition, offers the following
five specific recommendations related to the proposed restructuring of FAS
into a new International Trade Service Agency (ISTA) to refocus U.S.
agricultural trade priorities and export promotion activities on the dynamic
growth in the high value/value added agricultural export market:
1. The Administration must identify the urgent need to increase the U.S.
share of world trade in processed and high value agricultural products as
a key national priority, and ask USDA to spearhead a campaign to double
the U.S. share of world trade in processed and high value agricultural
products by the year 2000.
2. The "multiplier" formulas developed by ERS to measure the economic
96
benefits of various agricultural exports must be incorporated into the
decision-making process for allocating USDA's export resources. It is
imperative that we measure, compare and apply the direct, indirect and
induced economic benefits of exporting value added agricultural products
when making export policy decisions.
3. The mission statement of the new ITSA must reflect realities in the
global marketplace, emphasizing products where demand is growing and
responding to the aggressive role of competitor governments in
facilitating exports of these products. These activities should be
extended to include competing for domestic U.S. markets for high value
products.
4. The present commodity division structure of FAS should be
complemented by creation of a World Market Analysis Division. In
addition, an Export Coordination Division should be established to
facilitate cooperation and support among USDA and non-USDA agencies
with responsibility for trade policy and program implementation. Staff
and funding for these new units could be drawn from the Agriculture and
Trade Analysis Division of ERS.
5. The Secretary should establish a Government/Industry Task Force on
Agricultural Trade to provide a working partnership between USDA and
the private sector on export competitiveness. The Task Force would
identify domestic and foreign market opportunities and develop specific
strategies for making U.S. products competitive. We woiald suggest that
the Task Force be chaired by the Secretary's representative and its initial
term could be limited to three years.
The back row status of the United States in the value added agricultural
product sector is by no means an accident. Our competition is fierce. From
politics to policy to programs, our foreign agricultural competitors are
delivering a knockout punch to U.S. agriculture in the fight for world market
share in value added and high value agricultural exports.
Mr. Chairman, members of the joint subcommittee, the vision for tomorrow
is clear. The future of American agriculture is in producing, processing and
exporting value added and high value agricultural products. The U.S. must
revitalize its agricultural trade policies and programs, or be prepared to face
the obvious and inevitable outcome. We have staked the competition a
significant advantage. We must now move aggressively and decisively to earn
back our share of the world market. We believe that the specific
recommendations we have shared with this joint subcommittee today are
great strides in reorganizing FAS into an effective and responsive
International Trade Service Agency capable of meeting the challenges of the
21st century.
Thank you for the opportunity to testify on behalf of the Export Processing
Industry Coalition on this important matter.
97
STATEMENT OF ALLEN A TEimAAR
NATIONAL COTTON COUNCIL OF AMERICA
Mr. Chairman, members of the Committee, on behalf of the National Cotton Council
of America it is a pleasure to be able to testify before you today on the mission of the
U.S. Department of Agriculture's Foreign Agricultural Service (FAS).
Let me offer some general statements on the mission and workings of the FAS, and
then more specifically answer the five issues posed in the Committee's invitation to
testify.
In my experience, the Foreign Agricultural Service exhibits some of the characteristics
that effective government agencies should have:
• a clear purpose
• name recognition at home and abroad
• a sizeable budget
• close ties to the public and to the private sector it serves
• dedicated and experienced people
What FAS seems to lack currently is:
• clear direction
• an ability to set priorities
• the ability or latitude to capitalize on its strengths
• high morale
I was struck when reading through the report of the Trade Promotion Coordinating
Committee entitled Toward a National Export Strategy that U.S. agriculture and the
Foreign Agricultural Service already have many of the features called for in the report.
As a matter of fact, U.S. agriculture has been doing these very things, and doing them
well, for a number of years -- and that is in large part responsible for the success of
U.S. agriculture in the export arena. It is why we have a $13 billion positive trade
balance in agricultural exports while U.S. manufactured goods run a $140 billion
negative trade balance. It is why other sectors of the economy are finally trying to
emulate agriculture's success.
Toward a National Export Strategy provides 65 specific recommendations organized
under six underlying themes. Let me cover the six underlying themes from the TPCC
report and describe how FAS measures up:
The first of the six underlying themes in Toward a National Export Strategy reads
"Combine Functions: Carefully define the client groups and their needs for export
promotion services, focusing specific agencies on meeting particular customer
requirements ...". This describes FAS to a tee. Throughout its 40-year existence FAS
has had a clear client group - U.S. agriculture -- and has developed an array of export
promotion services and a great deal of experience meeting their particular customer
98
requirements at home and overseas. In fact, there have been periodic accusations that
FAS is perhaps too close to its client group ~ a seeming contradiction to the
recommendations coming from the TPCC.
Point two reads "Allocate Resources Strategically: Develop a unified export promotion
budget that will permit the US to set clearer priorities and serve US commercial
interests more efficiently". There is a lot of mention in the TPCC report of creating
"one-stop shops" that will provide all of the federal export promotion and trade
finance programs under one roof.
Mr. Chairman, I would submit that FAS is the original "one-stop shop" for the full
range of agricultural commodities and processed products. If you want statistics - FAS
has the premier database on world supply and demand of most agricultural products.
In fact, other countries often do not bother to keep their own supply and demand
information because FAS's is better than anything they could produce locally. Want
financing? - FAS has everything from a $5.5 billion per year credit guarantee program,
to 30-year low-interest loans, to food and feed assistance programs. Have problems
with price competitiveness because of unfair foreign competition? - FAS has programs
to ensure U.S. price compedtiveness (HEP, COAP, DEIP, SOAP). Need help with
contacts overseas? FAS has a network of attache and agricultural trade offices located
on the spot in more than 80 posts and covering more than 100 countries. Need trade
leads? ~ FAS has hard copy and electronic dissemination of Trade Leads and Buyer
Alerts, along with computerized delivery of an array of additional trade information.
I could go on and on with the services FAS provides all under one roofl I have seen
companies go to other U.S. government agencies to explore alternanve financing or
export promotion assistance, only to come back eventually to FAS because they could
indeed get better service and the full range of services from a single agency dealing
with products they were familiar with and interested in facilitating.
Point three reads "Involve the Private Sector: Combine resources of the private sector
and state/local governments with those of the federal government wherever possible
to expand and improve service and financing...". For all 40 years of its existence FAS
has worked hand-in-hand with the Cooperator Market Development Program; a
coalition of product-specific and national trade associations, regional export groups,
and the private producers and processors they represent for one single purpose - to
promote the exports of U.S. agricultural products. Other sectors have tried over the
decades to emulate this highly successful public\private sector cooperation for export
promotion and, to my knowledge, none has yet come even close.
Point four reads "Advocate Aggressively: Greatly expand official, high-level
government advocacy for U.S. firms seeking contracts from other governments, and
create mechanisms to level the playing field by effectively countering the advocacy
practices of other governments". Mr. Chairman, U.S. agriculture has always enjoyed
99
an outstanding reputation overseas. Because of this, the official representatives of U.S.
agriculture overseas, the FAS agricultural attaches, have always enjoyed easy access to
the highest levels of government whether in developed countries or in developing
countries. It is a level of access that most in the State Department and the Foreign
Commercial Service have often envied, and sometimes stifled. In a number of cases
where the U.S. was establishing or reestablishing diplomatic relations, it was the FAS
attaches working with the U.S. private sector that helped provide the entree for those
contacts.
Most of those agricultural attaches, backed by the FAS home office, have been
extremely strong advocates of U.S. agricultural export concerns to the local
governments or importing concerns. They have a heavy array of weapons in their
arsenal - food aid, export credits, commodity buydowns, technology transfer, and
strong ties to the U.S. industries with whom they share mutual goals. In some cases,
the rest of the U.S. government representatives abroad are strong co-advocates for U.S.
agricultural exports; but, in many cases, they are impediments or at best uninterested.
We need to ensure that FAS, working closely with USTR and the State Department and
U.S. embassies, can continue and enhance its advocacy for market access and sales.
Point five reads "Measure Performance: Develop and implement performance
measures to guide decisions and improve strategic focus". This is truthfully one that
FAS has struggled with. FAS has produced a number of success stories, as have the
Market Development Cooperators and the private companies participating in export
programs and exporting U.S. bulk or value-added products. Certainly, the overall
statistics seem to speak for themselves - $42 billion in overall agricultural exports in
1992, and a positive trade balance of $13 billion. Yet this does not seem to quiet the
detractors of the FAS-administered programs. So far as I know, it is the most audited,
increasingly most regulated and often most criticized set of programs around -- and
often the most successful.
Mr. Chairman, I would submit that the FAS inability to develop a highly-structured
"comprehensive strategic plan" for U.S. agricultural exports is in some respects the
nature of the business. While there is clearly a need for an overall set of objectives,
there is also a need for flexibility. Successful exports are ones that respond to a
highly dynamic marketplace and the needs of the customers. If there is a government
strategic plan that has ever done this, I have not yet seen it. Instead, the successful
government export assistance program is one that can respond quickly and adequately
to the ever-changing opportunities identified by the customer overseas and an agile
and competitive U.S. private sector. The best plan is the compilation of those
individual front-line company plans to export their products.
Point six reads "Reduce Export Controls: Reduce export controls and other
government-imposed obstacles to exports, consistent with US national security, foreign
policy, and health and safety interests". Agricultural exports certainly face different
100
obstacles than exports of computers, airplanes or other high technology industries,
but the agricultural sector has certainly not been immune to U.S. Government
imposed export controls. Grain and soybean embargoes in the 1970's and 1980's
come quickly to mind, and we are still sufiering the adveree consequences of those
poorly conceived actions.
To my knowledge FAS was never consulted on these decisions, and better decisions
may have been made if the people most directly monitoring that trade had been
consulted. Other than the still-tarnished reputation of the U.S. as a reliable supplier,
those episodes are history. However, those experiences would indicate that there is a
role for and a reason to consult an agency like FAS in making decisions on export
controls of any nature. These are people who know the markets, the products, and
have excellent contacts with the private sector to gather the best possible information
to bring to bear on a government decision.
FAS is an ideal type of agency we should have representing a major U.S. industry -- in
this case, U.S. agriculture. However, improvements could certainly be made. Mr.
Chairman, I now would like to address the issues raised in your invitation to testify,
elaborating on some on areas of possible improvement.
Question: Does the consolidation of Office of Cooperation and International
Development (OICD) and FAS into the International Trade Service improve pi-ogram
delivery or strain the system?
This question would best be broken into two parts: is it a good to consolidate FAS and
OICD?; and the title "International Trade Service" agency.
Yes, consolidation of FAS and OICD improves program delivery. If we think back to
the TPCC report and a "one-stop shop", OICD is a rare exception of areas within the
USDA dealing with foreign agricultural programs that do not come under one agency.
Some of OICD's programs, such as the Cochran scholarships, complement ongoing
FAS/Market Development Cooperator efforts and, in fact, rely on FAS attaches to help
identify candidates for the scholarships and often on market development cooperators
to provide training. Some, such as marketing training seminars overseas duplicate
that effort. Others, such as agricultural production training or efforts to teach other
countries how to sell their produce to the United States, openly conflict with the FAS
mission. The personnel in OICD offer an opportunity to improve FAS management of
the enormous U.S. export programs FAS is charged with. It will only improve
program management, however, if FAS/OICD can jettison the activities that are clearly
not within the mission of enhancing U.S. agricultural exports. These types of activities
may comprise as much as 50 percent of OICD programs.
101 /
In contrast, the name "International Trade Service" is a bad idea. For 40 years FAS has
used its current name and has strong and clear name recognition in the U.S.
agricultural community and overseas. It is a highly respected agency and is clearly
identified with its mission and clientele - i.e. U.S. agriculture. Consolidating OICD
under the title Foreign Agricultural Service is a sound idea.
Question: Does FAS have the tools to identify new markets and products and can the
information be easify transmitted to producers and processors?
Again, the response is in two parts. Yes, FAS has the tools to identify new markets
and products. Those tools primarily are in two forms -- the network of overseas
personnel in U.S. embassies and agricultural trade offices, and FAS's close ties with the
associations and private companies who deliver the products. A problem is that FAS
has been squeezed on both those tools. The FAS field personnel, both American and
foreign nationals, are the key link in the U.S. export chain. If one had to drop all
other elements of FAS programs, the on ground resources overseas would be the
critical ones to maintain in place. FAS has been generally responsive to moving into -
new markets and working with new products, in part because their close ties with the
U.S. exporter sector alert FAS to the new opportunities, and vice versa.
FAS is the premier original data collector overseas, and gets this data speedily to FAS
Washington. However, it is there that the system bogs down because of any number
of reasons -- interagency publication process, lack of resources, regulation hindering
more direct contact with the private sector, non-user friendly network intermediaries,
etc. It is my opinion that some of the divisions in FAS are still more geared to an era
of cold war intelligence, remote sensing and outmoded analysis and publications than
they are to the needs of modern day assistance to exporters. The priorities should be
first of all to get reliable, timely raw data and contacts information from the overseas
posts, deposit the data into reliable databases, and get the raw data immediately to the
U.S. private sector through user-friendly electronic dissemination. The private sector,
whether that is an association or private company, is better able to analyze that
information, further disseminate it to the general public and apply it to the real world
of exporting than a government agency. The key bottlenecks in this process at this
time are the requirements to hold information pending lockup and publication, and
the USDA outmoded contract services for dissemination. In this regard, I would like
to call attention to the October 26, 1993 testimony of Mr. Leslie Stroh before the
House Committee on Small Business on the TPCC report Toward a National Export
Strategv:
"Information needs to be collected, collated, edited and disseminated. For
certain types of information, the US government is the best collector. It is not
clear if the US government is the best agency for collating and/or editing it, and
problems of dissemination are substantial".
102
Mr. Stroh has a number of comments on this topic in his testimony, and his
comments are, for the most part, right on target.
Question: What aspects of FAS activities are critical to agricultural exports and which
programs are expendable? This is always a difficult question. If, as suggested by the
TPCC report, it is good to have a "one-stop shop" then it is hard to drop functions
that FAS incorporates. I would suggest the following list of key FAS activities; primary
data and trade intelligence collection; agricultural trade policy support and advocacy;
market development cooperation through the private sector; export financing and
concessional sales programs. -/ ..
I would suggest at a minimum dropping the following: a large percentage of the
commodity publications assembled in FAS Washington; most crop production
estimates and forecasting not carried out by overseas offices; import quota
monitoring; and obstructive regulatory procedures.
Mr. Chairman, I would further suggest that the current tightness in F.\S budgets and
the regulatory environment in which the agency and its private sector partners are
working is forcing the agency to cut back on the very foundation of its success and
future export competitiveness. It is forcing a cutback in the personnel on ground
overseas who are the on-the-spot eyes, ears and proponents of U.S. agricultural
products. This trend should be reversed.
Question: Does FAS need to consider new approaches or programs to provide the
flexibility and access to developing and emerging markets? In the experience of the
National Cotton Council, FAS has been quite flexible in its approaches and programs
in order to address new market opjxjitunities in developing countries and new market
economies. FAS has been able to be relatively flexible because it has an array of
programs on which to draw to meet the specific needs of a given new market or new
customer. Additional flexibility within existing programs has sometimes been
necessary, but that flexibility has normally evolved through close communication with
the private sector. If there are limits to flexibility, they usually come through statute
and are not within FAS's direct purview. Increasingly, flexibility is being further stifled
by excessive regulation and audit burdens which drain a significant amount of energy
and responsiveness from the agency and its private sector partners. In spite of this, I
would generally give FAS high marks on flexibility and openness to new approaches.
103
Question: How has the Long-Term Trade Strategy been implemented by FAS and how
do existing agricultural export programs fit within the National Export Strategy of the
TPCC? I spent a good deal of time on FAS and the National Export Strategy in my
opening remarks. FAS is the agency that can be held up as a 40-year successful, "one-
stop shop" for a national export program for its sector.
Regarding the Long-Term Trade Strategy, as I suggested earlier in my comments, the
government can best serve as a purveyor of information, a facilitator, and a market
access advocate for the U.S. private sector that wants to and needs to export. In doing
so, the government and its agencies need have modem enough technological and
personnel capabilities to support the millions of communications and transactions that
make up a competitive private market export program. The main emphasis should be
on providing information to help the private sector plan, not on developing a
government grand plan for the private sector.
Mr. Chairman, I would like to mention that the U.S. government and FAS are being
reorganized or even "reinvented". In FAS's case, much of its market development
work is carried out through the Market Development Cooperators and the private
sector participants they represent. To my knowledge, neither the U.S. Agricultural
Development Council (USAEDC), its members or the private sector companies were
consulted by the agency or those reinventing FAS. If the U.S. government truly
desires a successful National Export Strategy, it cannot hope to do so by leaving the
private sector ~ i.e. the people who actually export ~ in the cold. From what I read of
the testimony before the House Committee on Small Business, the actual export
community was minimally consulted in the National Export Strategy report
development as well. For that reason, Mr. Chairman, the National Cotton Council of
America and its exporting members greatly appreciates this opportunity to testify
before this Committee today and to have input into this process.
Mr. Chairman, I would like to conclude my remarks with a somewhat lengthy quote
from a book entitled Manufacturing Matters (Basic Books, Inc., 1987) by Stephen S.
Cohen and John Zysman, a book that was in part supported through the Office of
Technology Assessment of the U.S. Congress:
"Agriculture has by no means become an activity of the past, something easily
and perhaps advantageously sloughed off To the embarrassment of those who
view the persistent cultivation of large quantities of soy beans, tomatoes, or
corn to be incompatible with the image of a high-tech future, agriculture has
sustained, over the long term, the highest rate of productivity increase of any
sector. Total output has increased steadily, and the sector has been a vital
generator of broadly diffused wealth and technical innovation. New
104
technologies, based on microelectronics and microbiology, promise to
accelerate innovation and increase productivity in that oldest piece of the
simple and misleading slice that underlies (and undermines) this rudimentary
stages-of-development position. Hands-on technical mastery and direct control
of a substantial and internationally competitive production capacity in
agriculture is the source of a substantial quantity of high-end -- and also low-
end - industrial and service employment. Were that production to have moved
elsewhere, sooner or later, those tightly linked industrial and service jobs would
have followed".
Agriculture is a viul U.S. domestic and export industry. With solid public/private
sector cooperation in the future, it will remain so.
Mr. Chairman, I started my testimony with the premise that agricultural exports are
exceedingly important to the positive trade balance of this country, and furthermore
that in the Foreign Agricultural Service we have an agency that embodies the success
and track record that the industrial sectors are finally beginning to awaken to. Yes,
FAS needs some refinement at the edges and a refocusing on what it does best. But
most imporuntly, FAS and its programs and its panners need to be adequately funded
and unburdened from the onerous regulatory environment and constant sniping of
those who are perhajjs jealous not only of its well-financed programs but of its very
success.
Mr. Chairman, I would hof)e that the Administration and the Congress in striving to
improve the services of FAS, reaches out to the private industry and farmers. FAS can
only hope to be as effective in the next 40 years as it was in its first 40 years by clearly
structuring itself to serve its client group - the U.S. private sector that produces,
processes and exports its bulk and value-added products to the world market. A solid
public/private sector partnership is as key to the future of U.S. agricultural exports
and farm income as it was to the past.
Thank you again on behalf of the National Cotton Council of America for this
opportunity to provide this statement.
105
#^P U.S.
■T^j Feed Grains
BUl^ Council
1400 K Street, N.W. Tel: (202) 789-0789
Suite 1200 Fax: (202) 8980522
Washington, DC 20005 Telex: 440064 USFG UI
STATEMENT OF THE U.S. FEED GRAINS COnNCIL TO
THE SUBCOMMITTEE ON FOREIGN AGRICTJLTURE AND HUNGER AND
THE SUBCOMMITTEE ON INFORMATION, JUSTICE, TRANSPORTATION AND AGRICULTURE
REGARDING THE MISSION OF THE FOREIGN AGRICULTURAL SERVICE
Presented by Richard Krajeck, Vice President
November 10, 1993
Mr. Chairmen, thank you for the opportunity to present the views of the U.S. Feed
Grains Council on the mission of the Foreign Agricvilture Service (FAS). 1 am
Richard Krajeck, Vice President of the U.S. Feed Grains Council.
The U.S. Feed Grains Council is a private, non-profit market development
organization that represents the international market interest of U.S. producers
of corn, sorghum, barley and their by-products, as well as, over 70 related
agribusinesses. Our mission is to build profitability for the U.S. feed grains
industry through the development and servicing of export markets.
He appreciate and welcome the opportunity to present our thoughts on the
reorganization of the Foreign Agricultural Service. As a Cooperator with FAS for
over 30 years, we have enjoyed a strong, symbiotic working relationship with FAS.
The Cooperator program was established in 1955 and is a partnership between FAS
and the private sector with the goal of building overseas markets for U.S.
agricultural products.
Like all organizations with international programs, we find that the demands for
a greater variety of services to meet a more competitive marketplace has
seriously strained the limited resources of FAS and all international
agricultural organizations.
Mr. Chairman, you asked in your letter of invitation that we comment on some
specific areas of FAS organization. The fundamental question when examining any
aspect of the operations of the Foreign Agricultural Service should be, "Does
this program contribute to the profitability of U.S. agriculture through the
development and servicing of export markets?" FAS programs that contribute to
the increased profitability of U.S. farmers and agribusinesses should be
strengthened, while programs that do not meet this standard should be
restructured or discontinued.
Consolidation of FAS and OICD
We believe that the consolidation of FAS and the Office of Cooperation and
International Development (OICD) is a positive step that will benefit both
programs and strengthen the overseas raissions of both organizations. While the
missions of both organizations have been important and they have had their
respective roles in supporting U.S. agriculture, there have been instances where
there was duplication of effort and under rare circumstances, they have even
operated at cross purposes. We believe that bringing both organizations under
one administrator will increase the benefit to U.S. agriculture by improving the
coordination of these agencies and refocusing the efforts of OICD to concentrate
Building Markets for America's Grains
Vienna. Austria Tokyo lipan Kuala Lumpur Malaysia Beijing. PRC Taipei. Taiwan Caracas, VenezueU
Cairo, Egypl Seoul Kurea Mexico Cit>'. Mexico Moscow, Russia Izmir. Turkey
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FAS Misaion
Rlchiord Krajeck
November 10, 1993
on programe tha't are more tirade oriented. The key to the creation of any nev;
agricultural inatitutlone or a new framework for existing institutiono is to
insure that expanding agricultural exports is in the forefront of its purpose and
mission.
Using this standard, we seriously question the continuation of the Farmer to
Farmer Missions within the new organization. Although these missions have helped
promote better understanding of different agrarian cultures they have not
increased D.S. exports of agricultural commodities or contributed to farmer
profitability. In light of decreased overall funding for agriculture, this
program is no longer justified.
We feel that the name of the new organization must continue to highlight its
agricultural roots and future focus. We strongly recommend that the name be
changed to the "International Agricultural Trade Service".
In addition, while it may not be in the purview of this Committee, I would ask
that there be a far broader view taken of the government programs that need to
be examined in the context of creating the better coordination of programs
designed to benefit U.S. agricultural exports. It is critical that included in
this review are the agricultural development programs being carried out by the
Agency of International Developooent (AID) under the Department of State. The AID
program is funded at $6.2 billion per year and has been primarily a foreign aid
program that has been shaped by U.S. political and strategic interests during the
cold war. Those days are over and the mission of AID and its role in developing
agriculture must be reviewed.
There have been instances in the past where AID agricultural development programs
have been totally counter to U.S. agricultural interests. In fact., many of the
programs have seemed to operate in a vacuum and have ignored other federal
agencies' objectives of increasing agricultural exports and eliminating trade
barriers. AID programs funded by U.S. taxpayers have directly competed with U.S.
agricultural export programs. There are countless examples, but let me list just
two:
1) AID has worked with Latin American grains producers to promote the government
implementation of price bands for feed grains that have resulted in high variable
levies that have shut the United States out of these markets, AID continued to
advocate price bands even after reaching an agreement with DSTR and other federal
agencies not to do so.
2) There are many cases in which AID workers have suggested that livestock
producers, who are customers of U.S. feed grains, end livestock production and
produce grains at costs substantially above world market prices.
The U. S. Feed Grains Council believes that during this time of program review,
the mission and operation of AID definitely needs to be reviewed. We believe
funding from this program could be better directed so as not to duplicate other
agricultural programs, or worse yet, fund projects that provide direct benefits
to our competition while proving disadvantageous to the U.S. agricultural sector.
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FAS Mission
Richard Krajock
November 10. 1993
Tools to Identify New Markets
The Council is very supportive of the efforts by FAS to identify new markets for
U.S. agricultural commodities. We believe one of the strengths of the cooperator
program has been the relationship between the participants and FAS. Due to the
size and strength of the Council's overseas operations, our relationship with FAS
is certainly different from those Cooperators that are smaller and do not
maintain overseas offices and staff. In countries where the Council has offices
we are able to provide FAS with assistance in completing its mission, while in
countries were the Council does not have an office, FAS plays a critical role in
our own market developcoent activities.
The value of our relationship with FAS is that our staff is able to work with FAS
both here and abroad to develop market Information and goals, to broaden the
range of contacts that FAS would be unable to maintain on their own and to share
in the burden of U.S. company visitors and information demands. In this
relationship we all benefit. We get the image of support of the U.S. government
in countries where that makes our organization "legitimate" plus the support of
FAS personnel. We in turn provide FAS with information, contacts, and services
that help the foreign missions meet a wider variety of demands.
However, in those countries where the Council does not have offices or regular
contacts, FAS has provided an invaluable service. Two examples are:
1) In the mid-1980 's FAS helped the Council in establishing contacts and
becoming familiar with the grains and livestock markets in the Soviet Union.
Because of that initial assistance the Council is now able to operate
independently with Russia euid the republics of the Former Soviet Union.
2) When the Council began a major program in Algeria we were unaware of the
political environment that we were entering. The Agricultural Attache was able
to provide us with the diplomatic and political background necesseiry to establish
our contacts and complete the project.
Additionally, FAS identifies trade barriers to US feed grain imports and then
works through both their Washington and overseas offices to remove those
barriers. FAS and the Council have worked together on countless occasions in
preparing documentation for U.S. Trade Representative use in both bilateral and
multilateral negotiations. This is a valuable service with the goal of
eliminating trade barriers that deny or limit the importation of feed grains from
the United States. The coordination and cooperation between the Council and FAS
in the area of trade policy has increased our access to the Japanese industrial
grain markets, compensated U.S. farmers for the loss of access to the Spanish and
Portuguese markets and preserved our trading rights for com gluten feed in the
European Community.
While FAS has its own long-range planning capabilities, the Council supplements
those efforts by producing a world FEED GRAIN daaand model that projects supply
and demand for feed grains into the next decade. I am including a copy of the
1993 report with my testimony. Additionally, through our network of overseas
offices, the Council is able to identify short-term market trends and make
recommendations for programs to take advantage of these changes to both the FAS
overseas and Washington staffs.
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FAS Mission
Richard Krajeck
November 10, 1993
Programs that are Critical /Expendable
The services provided by FAS are broad and obviously designed to meet the needs
from a wide range of agricultural coaimoditiei>. Thus, any comments I would make
are limited to those activities as they relate to the Council and the Cooperator
program.
FAS overseas offices and the assistance of the Agricultural Counselors and
Attaches are certainly critical to the Council and other Cooperators. FAS
provides support in almost every country that is currently an importer of O.S.
feed grains as well as those identified as potential future markets. The reporting
component of FAS provides much needed world wide supply and demand information.
It is this information and related trade leads that help us target and develop
new and niche markets, as well as maintain a flow of feed grains into the world
marketplace.
The philosophy of the Cooperator program was to bring together the resources of
the private and public sector to develop markets for US agricultural products.
This program was started with the belief that the U.S. would benefit from
increased exports. As you well know, agricultural exports return a positive
trade balance of $18 billion/yeeLT.
However, over the past 5-8 years the program has become adversarial rather than
cooperative. The change in this attitude can be almost directly attributed to
Congressionally requested audits of the General Accounting Office (GAO) , The
audits have said that the relationship between FAS and the Cooperators is "too
friendly." Somehow, the spirit of cooperation between the private and public
sector is now seen as "dirty" and that the Cooperators are out to loot the
government .
As far as I am aware, in the nearly 40 years of the Cooperator program there has
never been an major audit finding against a Cooperator or FAS for the
mismanagement of funds. However, because of the mistrust created by GAO, we are
both forced to increase our expenditures significantly just to audit the program.
The money that is spent on audits and increased r-::ord keeping are then not
available for market development activities. For the Council, there is no doubt
that our audit component has increased by more than 3 fold in the last 6 years.
This runaway audit demand has significantly stifled both program creativity and
our ability to respond to changing market conditions. The decision-making
process in FAS regarding program audits rests within three areas whose demands
we must simultaneously try to meet: the Feed and Grain Division, Compliance and
Marketing Operations Staff (MOS) . There appears to be a lack of coordination
between these divisions which results in contradictions as rules pile on top of
rules and we are nearly paralyzed by the resulting bureaucracy.
I am not for a minute advocating that auditing be eliminated: that would
irresponsible to the U.S. taxpayer. But fiscal responsibility must be balanced
with the excellent record of the program and the need to increase efficiency.
Following are some examples of the additional burden that we have been forced to
operate under:
1) The auditing requirements limit our flexibility in adjusting our marketing
plans in terms of the time spent in each country, the number of participants in
each activity and the funds available for supervisory travel. We are forced to
maintain programs that were devised and approved by FAS in some instances 18
months prior to implementation.
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FAS Mission
Richard Krajeck
November 10, 1993
2) In the process of writing and getting approval for marketing plans, PAS and
the Council often reach agreement on exceptional circumstances that require a
different interpretation of the regulations. These negotiated agreements are
often challenged by the auditors months after the activities are completed.
As you can see from these examples, trying to comply with the rules is nearly
impossible. We have already begun the planning process for our Fiscal Year 1995
marketing plans. We must finalize those plans by June of 1994, which means
nearly 15 months before some of the activities will be implemented. There is no
way that we can anticipate every market opportunity, every change that may happen
to render a proposed project either unnecessary or the need to change it to
better address market conditions. But, vre are now into carrying out projects
which may not achieve their maximum impact because the rules prevent us from
changing it.
We need FAS to have strong internal controls that everyone understemds and
implements judiciously. Just that simple change could free up staff time and
resources to increase overseas programming. But most Ixaportantly, we need
consistency within FAS. We need to be given broad program direction that
provides for audits but encourages flexibility to meet changing market
conditions.
New Approaches/Programs
One of the most effective tools that FAS has at its disposal for increasing U.S.
agricultural exports has been the GSM program. In many emerging markets the
difference between buying from the United States or going to a competitor is the
availability of credit. Mexico is an excellent example of the benefits arising
from these programs. With the assistance of the GSM-102 program the Onited
States has been able to develop our third most important marlcet for agricultural
exports.
But the world economy has changed rapidly during the past decade and the GSM
program is no longer able to meet all the challenges in this new credit
environment. This is especially true in Russia and the republics of the Former
Soviet Union. In order to keep a U.S. presence in these markets and build toward
the day they return to being cash customers we need credit programs that take
into account the increased risk and uncertainty of these countries. One action
that FAS could immediately tcUce is to return to 100 percent principal guarantees
rather them the current 98 percent if this is to remain a commercial program.
If it is decided to take Russia and the former republics out of the commercial
GSM programs, then we need to look at a direct credit program such as direct
loans using the CCC borrowing authority.
The credit worthiness criteria also needs to be revisited. We understand the
need for a review process to assist in the determination of reasonable levels of
credit, but this must be balanced against market development potential and policy
objectives.
As countries move toward greater market liberalization we need to increase the
private sector lines of credit to countries in the transition from state trading.
This will support their privatization and trade liberalization efforts and
strengthen the market for U.S. agriculture.
110
page 6
FAS HiBBion
Richard Krajecik
November 10, 1993
In total, the GSM program has been highly succeaaful and has met the criteria of
contributing to the profitability of U.S. agriculture through the development and
Bervicing of export markets. However, as the international market changes and
countries such as Rusaia go through the transition from one form of government
or economy to another, we need to devise new GSM type programs to react to these
challenges.
Long Term Strategy
To my knowledge, the Council was not Invited to participate in the development
of USOA'8 Long-Term Agricultural Trade Strategy (XJ^TS) for export markets, nor
have we been asked to comment upon it since its release in January 1993. We are
therefore unable to comment upon how LATS has been implemented or its impact on
our programs.
However, it is clear that existing FAS export promotion programs are working.
FAS has helped us identify future markets and has increased the meurkets for U.S.
agricultural products. The partnership between the public sector and the private
sector in the form of the cooperator program is working.
In fact, it is the success of those efforts that are now the focus of other
government agencies and industrial groups. It appears that everyone wants a
piece of the funding that has supported these programs to increase their exports
without understanding the value of the private sector itself coordinating its
efforts. The National Export Strategy issued by the Trade Promotion Coordinating
Committee appears to be an effort to erode agriculture's share of the export
promotion and subsidy funds. It is important that the funding earmarked by
Congress for agricultural export promotion remain under the control of the
Department of Agriculture and not become part of a pot of funding that can be
reallocated among competing interests. It is also important that Congress
retain control of determining the relative importance of agricultural export
promotion and the need for funding.
Mr. Chairman, we have appreciated the support of FAS and the Congress for many
years, as well as the support from our members. I want to note that there is an
increasing amount of attention being given to value added products. Most graphs,
comparing the US to other countries show the US lacking in the development of
markets for those products. However, I don't think that in our rush toward
change emd something new we should "throw the baby out with the bath water". If
you look at the sales of U.S. agricultural exports, bulk commodities make up over
65% of the total exports. This is no accident. With increased competition, we
are fighting harder than ever to maintain market share, even in those markets
that have long been our customers. That does not mean that we, or FAS, should
rest on the laurels of past successes, but it does mean we can not eUsandon bulk
markets just because value added markets are currently "hot" to some analyst.
It also does not mean that we should not provide programs and encouragement to
value added exports.
Within the feed grain industry, the Council has been providing information and
opportunities for industrial processors in the international market place.
However, not every organization has the product or will to develop overseas
markets. We must we wary of using government funding to pursue every value added
idea.
Ill
page 7
FAS Mission
Richard Krajeck
November 10, 1993
In closing, I would like to again iterate that the philosophy that instituted the
cooperation between the public and private sector has been lost in these past
years and replaced with audits and adversarial relationships. The fundamentals
of using non-profit organizations like the D. S. Feed Grains Council to bring
together the interests of com, sorghum and barley growers with agribusiness is
a sound practice which maximizes both producer and government funding. It is a
model that deserves the attention of the industrial sector in developing trade.
What is also clear is that better management and targeting of funds will yield
better results, but we cannot be buried under audits when micro management by
default stymies program efficiencies. But it is folly to limit a look at
agriculture to just FAS: AID programs have to be considered in any review of
agricultural resources.
While we strongly support the review and restructuring of FAS programs it is
evident that FAS can not meet its miesion of contributing to the profitability
of D.S. agriculture through the development and servicing of export markets
without the necessary funding. In countless markets around the vnsrld, the United
States' agricultural export promotion programs are being out-gunned and out-
funded by our competitors; for example, in the Former Soviet Dnicn, the European
Community is spending around $16 million dollars to promote feed grains exports,
while the United States has allocated less than $2 million dollars in the same
market. Given the tremendous contribution that exports of agricultural
commodities make to farm incomes and the general economy, we must insure that in
any restructuring of FAS or prioritizing of programs Congress provides the
funding necessary for both FAS and its private sector partners to do im effective
job.
112
NCBfl
National Cooperative Business Association
STATEMENT OF TESTIMONY
- by
RUSSELL C. NOTAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NATIONAL COOPERATIVE BUSINESS ASSOCIATION
to the
HOUSE AGRICULTURE SUBCOMMITTEE ON FOREIGN AGRICULTURE AND HUNGER
and the
HOUSE GOVERNMENT OPERATIONS SUBCOMMITTEE ON INFORMATION,
JUSTICE AND AGRICULTURE
JOINT HEARING ON THE FOREIGN AGRICULTURE SERVICE
November 10, 1993
I want to thank the Chairmen and the members of these two
subcommittees for this opportunity to appear here today and share
with you the perspective eind the experiences of the National
Cooperative Business Association . . . NCBA . . . relative to the
Foreign Agriculture Service.
The National Cooperative Business Association (NCBA) is a
national, cross- industry membership and trade association
representing cooperatives- -over 100 million Americans and 45,000
businesses ranging in size from small consumer cooperatives to
businesses included in the Fortune 500. Founded in 1916, NCSA's
membership includes cooperative businesses in the fields of
housing, health care, finance, insurance, child care, agricultural
marketing and supply, rural utilities eind consumer goods and
services as well as state and national associations of
cooperatives.
We were knowta for many years as the Cooperative League of the
USA. In fact, we are still known as CLUSA in other covmtries
around the world, where NCBA promotes and supports cooperatives
through training and technical assistance programs.
We operate overseas through our International Development
Division, which has an annual volume of about $8 million in
programs, and through CBI, Cooperative Business International, our
for-profit, trading arm.
We pursue international cooperative development by succesfully
negotiating partnerships with the U.S. Agency for International
Development (AID) and other donors. Cooperatives are
demonstrations of democracy in action, but they are run as
businesses, meeting an economic need, and result in improved
incomes for their members as examples of sustainable development --
development that continues after the project is completed and donor
funds have been depleted.
Representing America's Cooperative Business Community
1401 New York Avenue. N.W. • Suite 1100 'Washington, D.C. 20005-2160
(202) 638-6222 • Fax (202) 638-1374
113
CBI, which was estciblished by NCSA in 1984, is ein
international business corr^jany that promotes trade auid investment
between developing country cooperatives and U.S. cooperatives and
other businesses. CBI has generated over $150 million in sales and
6,000 jobs in developing countries. CBI has had particular success
in India, Indonesia, and the Philippines.
Recently, CBI established the American Cooperative Enterprise
Center . . . the ACE Center ... in Prague to help the cooperatives of
Eastern and Central Europe develop trade and joint venture
activities, and make a smooth transition to a free market economy.
In the last year, NCBA has opened an office in Tver in Russia
thanks to a Section 416 monetization grant of feed wheat, the sales
of which have provided us with working capital in Russia to promote
market development and food distribution systems there. That
office is mauined by CBI. We strongly support such monetization
programs because we feel they go the furthest in allowing us to
create markets that will promote local development while creating
new business opportunities for American interests.
America's cooperatives are proud of what we have been able to
accomplish internationally, and they've dedicated considerable
resources, both financial cuid personal, to that end. But much of
what we have been able to accomplish would not have been possibl*
without the support of the federal government, euad particularly th«
international programs of USDA eind AID.
The Foreign Agricultural Service, with its relatively ne«
authority over the Food for Progress program and Section 416, has
been helpful. We believe, however, that USDA can better assist our
international trade cuid development efforts by focusing in on
developing markets for value-added products. We need a strong FAS
to help us market those products overseas .
Thus, NCBA supports Secretary Espy's proposal to merge the
Office of International Cooperation and Development with FAS in the
new International Trade Service Agency. We are particularly
pleased to see this new agency grouped with the Farm Service Agency
with both units reporting to the Under Secretary for Farm eind
International Trade Services, Gene Moos.
Having the existing functions of the Agricultural
Stabilization and Conservation Service (ASCS) , the General Sales
Mauiager and the ~ Commodity Credit Corporation, euid the Foreign
Agriculture Service all reporting to one Under Secretary makes
tremendous sense. This new grouping of focused activities will
facilitate coordination for overseas programs leased on American
commodities.
The overseas agricultural development expertise of OICD ought
to combine well with the market -oriented approach of FAS. On the
program side, this should beef up the capabilities of USDA to
utilize the programs already on the books more effectively. It
also presents an opportunity to update rules and regulations, to
focus on the synthesizing of work in terms of how these programs
are packaged and delivered.
This new merger should offer an opportunity for rethinking
what works cind what doesn't, eind to put the eu^hasis on programs
that act as a catalyst and facilitator for American cooperatives
and farm orgamizations to develop markets, establish business
114
links, and become partners in economic development activity. Not
because it is a government program established to "do good." But
because it eneibles cooperatives and businesses to help one another
become better partners in estcJsllshing strong markets for the
future. Strong markets equate to more and better jobs in the U.S.
It is our hope that the new International Trade Service Agency
will provide a stronger organization structure to achieve these
ends. American cooperatives stand ready to help make USDA's
international programs achieve their development goals. NCBA and
its member cooperatives are thinking globally, and we welcome the
support of USDA in our efforts to take a global approach. It is no
longer a question of taking advantage of opportunities. It has
become a matter of necessity if we are to continue to sustain our
leadership position in the world.
MISSION OF FOREIGN AGRICULTURAL SERV-
ICE, U.S. DEPARTMENT OF AGRICULTURE
TUESDAY, NOVEMBER 16, 1993
House of Representatives; Subcommittee on For-
eign Agriculture and Hunger; Committee on Ag-
riculture; Joint with Subcommittee on Informa-
tion, Justice, Transportation, and Agriculture;
Committee on Government Operations,
Washington, DC.
The subcommittees met, pursuant to call, at 9:30 a.m., in room
2247, Raybum House Office Building, Hon. Timothy J. Penny
(chairman of the Subcommittee on Foreign Agriculture and Hun-
ger) presiding, together with, Hon. Gary A. Condit (chairman of the
Subcommittee on Information, Justice, Transportation, and Agri-
culture).
Present from the Subcommittee on Foreign Agriculture and Hun-
ger: Representative Penny.
Present from the Subcommittee on Information, Justice, Trans-
portation, and Agriculture: Representatives Condit, Stupak, Thom-
as of Wyoming, and Horn.
Staff present from the Committee on Agriculture: Jan Rovecamp,
clerk; Jane Shey and Bruce White.
Staff present from the Subcommittee on Information, Justice,
Transportation, and Agriculture: Edward L. Armstrong, profes-
sional staff member; Aurora Ogg, clerk; and Diane M. Major, mi-
nority professional staff, Committee on Government Operations.
OPENING STATEMENT OF HON. TIMOTHY J. PENNY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MIN-
NESOTA
Mr. Penny. The subcommittees will come to order.
This is the second joint hearing before the Subcommittee on For-
eign Agriculture and Hunger and the Subcommittee on Informa-
tion, Justice, Transportation, and Agriculture. In addition to two
speakers representing trade associations, we will also focus on the
efforts of State departments of agriculture to gain access to over-
seas markets, the export potential of nonfood, nonfeed derived from
agricultural commodities and the important role that export credits
play in leveling the pla5dng field between the United States and
our foreign competitors.
We look forward to our witnesses this morning and I would ask
that our first two witnesses come forward at this time. The Honor-
able Bob Walker, secretary of agriculture, State of Maryland; and
Mr. Paul O'Connell, Director, Alternative Agricultural Research
(115)
116
and Commercialization Center, USDA. Two familiar faces, I am
happy to see you both once again.
Mr. Condit will be here shortly, but he has asked that I get the
hearing initiated in his absence and that will save us all some
time, so I would ask that you begin Mr. Walker, and then we will
hear from Paul.
STATEMENT OF ROBERT L. WALKER. SECRETARY, MARYLAND
DEPARTMENT OF AGRICULTURE, AND CHAIRMAN, WORLD
TRADE COMMITTEE, NATIONAL ASSOCIATION OF STATE DE-
PARTMENTS OF AGRICULTURE
Mr. Walker. Good morning. Chairman Penny. Thank you for the
chance to appear before you today to discuss the future of the For-
eign Agricultural Service as we approach the 21st century.
I want to commend you at the outset for scheduhng these hear-
ings. All too often we spend our energies on issues of the moment,
on putting out fires, and do not step back, in this case, to see the
international landscape and to assess how changes in that land-
scape affect our Federal priorities, policies, and programs.
Let me say, too, at the outset, that I have a strong interest in
the international marketing of U.S. agricultural products. Both as
Maryland's secretary of agriculture and chairman of the world
trade committee of the National Association of State Departments
of Agriculture and as a participant on various overseas missions for
the World Bank and other organizations, I have had an opportunity
to travel in this hemisphere, in Europe, Asia, and the Middle East.
Everywhere I travel, Mr. Chairman, the story is the same. U.S.
agriculture is the envy of the world. People around the globe want
what we produce. This is our strength and, in my view, it is imper-
ative that we play from this strength.
Since it was established 39 years ago, FAS has produced its full
share of economic benefits for U.S. agriculture. This has been espe-
cially true for bulk commodities. But the world is changing and
FAS must change along with it.
We are poised on an extremely exciting time. We are the leading
food producer in the world and everywhere you turn, there are
growing consumer markets eager for what we produce. We must
position ourselves to take advantage of the tremendous economic
opportunities now before us.
More and more, as each day passes, there is an increasing de-
mand for our processed food products. In fact, exports of high value
and value-added products have surpassed exports of bulk commod-
ities, a trend that will likely continue.
Three markets that are particularly significant in my opinion for
United States exports are East Asia, Mexico, and Latin America —
including the Caribbean — and the vast potential of the former So-
viet Union.
The East Asian nations have some of the most djmamic econo-
mies today with a growing middle class searching for more sophis-
ticated food products. Their life-style is changing dramatically as
well. These consumers are increasingly interested in ready-to-eat
and easy-to-prep are food products.
A similar picture of demand is clear in Mexico and Latin Amer-
ica. The approval of the NAFTA tomorrow will enhance export op-
117
portunities in Mexico and throughout the region. United States ag-
ricultural exports to Mexico and Canada already make these two
countries combined our largest agricultural export market.
A third area of major opportunity is the former Soviet Union.
This is an area of which I have considerable personal experience
and knowledge.
The potential for United States agricultural exports, particularly
value-added products to this region, is as vast as the Russian land-
scape. This market is growing despite the wrenching economic
transformation currently underway.
FAS must be ready to adapt to the changes in world agricultural
trade patterns. As more than half of the U.S. ag exports are high
value, value-added products, it is imperative that FAS develop the
marketing knowledge and expertise to assist U.S. exporters to sell
these products.
As we move closer to the next century, FAS must organize itself
to conduct more market research that impacts on the market U.S.
companies seek to penetrate. This will help companies to adapt
their products to meet the needs of the foreign consumer.
We need a value-added products division that focuses its entire
energy on consumer-oriented products. The FAS staff should be
trained especially to deal with small- and medium-sized companies.
In this regard, instead of cutting back the market promotion pro-
gram, I believe it should be expanded or at least more funds made
available to the States through our regional trade association. This
past year, some 18 small- and medium-size Maryland companies
participated in the market promotion program, many of them get-
ting into the export market for the first time. This kind of program
is especially important for those companies with excellent export
potential but lacking the resources to market the products effec-
tively overseas.
In addition, I think FAS should work more closely with the re-
gional trade associations of the State Departments of Agriculture
and coordinate more cross-regional activities to reduce duplication
and improve market access for our companies.
Moreover, FAS must employ all the latest technology at its dis-
posal. For example, FAS needs to introduce a program to allow for
wider distribution of its trade leads electronically. The trade policy
staff must be expertly trained to deal with problems relating to im-
port standards. Also, as we undertake more market research in
high-value products or value-added products, we should study the
distribution chsinnels in foreign markets. FAS must help U.S. food
manufacturers understand fully how the international market
works.
As regards the combination of OICD with FAS, I think this will
reduce administrative overhead and perhaps result in some sav-
ings. I am concerned that the development mission of OICD may
become lost in the new International Trade Service Agency and
perhaps inclusion of development somewhere in the title of that re-
organization would be appropriate.
Let me repeat, again, that this is an extremely exciting time. The
economic stakes are for us in agriculture enormous. It is in our eco-
nomic and national interests that we not let these economic oppor-
118
tunities slip by. And it is imperative that FAS be ready to aggres-
sively pursue these exciting market possibilities.
Thank you, Mr. Chairman, for giving me this opportunity to tes-
tify.
[The prepared statement of Mr. Walker appears at the conclusion
of the hearing.]
Mr. Penny. Thank you, Mr. Walker.
Mr. O'Connell, welcome.
STATEMENT OF PAUL F. O'CONNELL, DIRECTOR, ALTER-
NATIVE AGRICULTURAL RESEARCH & COMMERCIALIZATION
CENTER, U.S. DEPARTMENT OF AGRICULTURE, ACCOM-
PANIED BY JOSEPH C. ROETHELI
Mr. O'Connell. Thank you. Mr. Chairman and members of the
subcommittees, as Director of the AARC Center, I value the oppor-
tunity to discuss the activity underway in USDA's Alternative Ag
Research and Commercialization Center. And per your instruc-
tions, I will abbreviate my verbal presentation and enter my pre-
pared statement.
I envision considerable potential to expand the commercial use of
ag materials and industrial products for both domestic and export
markets. The result will be that farmers and other businesses will
generate jobs and economic activity. Much of the ag and forestry
material will be processed in rural areas because of the bulky na-
ture of the ag materials to be processed, hence providing sustain-
able rural development based on the natural and renewable re-
sources of rural communities.
Over the past 7 years, I have helped establish and administer
programs as the sustainable ag research and education program.
Regional Aquaculture Centers, the work of the Office of Ag Mate-
rials, and the AARC Center, all of which received high marks at
the grassroots level. I have seen the tremendous progress that can
be made by working cooperatively with private entrepreneurs.
I won't go into the background on why this area is so important
and why it is changing around. I would just make a few comments
along this line, though.
In the 1980's and 1990's, we discovered the disvantages of rely-
ing primarily on fossil fuels. From an environmental perspective,
all kinds of pollution, from acid rain to global warming, from smog
to ground water pollution, have been linked to using fossil fuels.
From a political perspective, rel5n[ng on distant lands for our en-
ergy needs imposes very high national security costs.
From an economic perspective, relying on imported raw materials
when local alternatives are available at competitive prices weakens
local and regional economies.
In the 1990's, we may be witnessing a historic turn around in the
fortunes of renewable materials. The comparative economics of car-
bohydrates and hydrocarbons are changing. Advances in the mate-
rials and biological sciences are reducing the cost of manufacturing
renewable materials while environmental regulations are increas-
ing the cost of hydrocarbon based products. Moreover, the growing
environmental consciousness has prompted many customers to pay
a green premium for these kinds of products.
119
In regard to the capacity situation, we have adequate — I won't go
through the first paragraph here, but we have adequate capacity
to satisfy food/fiber industrial needs. Unless we find other outlets,
we will continue to support the excess supply situation.
The United States has invested heavily in growing markets for
bulk ag commodities — the export market. The disappointing news
is that despite major efforts, exports have been declining for major
commodities. In the 1980's, the U.S. share of the world market for
com slipped to 66 percent from 77 percent, wheat fell to 32 percent
from 44 percent, and soybean exports fell to 66 percent from 78
percent. The United States has offered price discounts in excess of
30 to 40 percent in some bulk commodity markets and has pushed
hard in every forum available to liberalize ag trade in the belief
that the lower-cost U.S. commodities would eventually displace
higher-cost products produced in importing countries or subsidized
by other exporters.
The lack of success so far in the Uruguay Round and the growing
cost of the export promotion programs raise concerns about the
costs and benefits of growing the export market. While few, if any,
would suggest that we abandon negotiations and export promotion
programs, more and more observers recognize that bulk commodity
exports alone are not likely to answer our excess capacity situation.
Also, opportunities in the food area domestically are limited.
The AARC Center believes that more of our ag and forestry ma-
terials need to be converted to value-added products prior to ex-
port. Western Europe does a much better job of adding value to
their ag materials prior to export than we do in the United States.
About 30 percent of our ag exports are consumer-ready products
compared with about 70 percent in the Western European coun-
tries.
In terms of tools to identify new markets and products, the
AARC Center can be of significant help in bridging the gap be-
tween research advances and getting a commercisJ product into the
market place. I just want to expand just very briefly on this be-
cause it is very critical.
When we do our research £ind it looks promising that we will be
able to move it into commercial products, that is a very small part
of the cost. It requires about 10 times that research cost to develop
that particular technology and it takes 10 times that to get the
product on the market. So it is absolutely critical that we begin
looking at the in-between phase between the research bench and
getting the product on the market.
The AARC Center is industry led and market driven. The major-
ity of the AARC board of directors, reviewers, and applicants are
from the private sector. We have direct links with these people —
some already have products with export potential that are made
from ag commodities and others are near commercialization — ^but
few have experiences in accessing and penetrating export markets.
I just want to indicate a few examples that I have here. The
Phenix Composites' Newstone, Mr. Chairman, which I know you
are familiar with from Minnesota which is a product that I have
right here, and this is made out of soybean meal and wastepaper
and this is a project that we are supporting. They are in the proc-
ess now of building a production facility right around St. Peter,
120
Minnesota. They hope to have this ready to go just shortly after the
first of the year. I don't know if Mr. Thomas has seen it.
Mr. Penny. I don't know if Mr. Thomas has seen it. I have sev-
eral samples in my office, so any legislator that has stopped by has
seen it, but I don't think Mr. Thomas has.
Mr. Thomas of Wyoming. If it is not made in Wyoming, I
haven't.
Mr. Penny. That is soybeans and newspapers.
Mr. O'CONNELL. The next one I want to show is a project we
worked with, an individual in Washington: International Lubri-
cants. This lubricating oil is made from vegetable oil, canola,
rapeseed, or crambe. Most people indicate that oil and water don't
mix. However, when it has an emulsifier in it, it will mix, and let
me put this in this little glass of water and you can see this. This
will break up like this here and will stay like this.
You may wonder why is this so important? Well, when you are
talking about oil for a marine environment for chain saws for a
whole lot of other places where we don't want oil mucking up the
water, if you have something that breaks up like that and then you
can come by with fungi and other little critters that take care of
these things.
This is for cutting oil, this particular one right here, but the prin-
ciple can be adopted elsewhere and it is beginning to come on the
market. In Europe, now, they have to use vegetable oil in their
chain saws. Probably will be coming here.
Gridcore, this is made out of kenaf. This is for partition projects
that we got out in California. This is a corrugated material. This
is made out of grass straw. They have a tremendous problem out
in Oregon with the grass seed straw. They used to be able to bum
it. They can't any longer and because of pollution concerns and
other concerns, so we are working with the State of Oregon. And
Weyerhaeuser has developed a material made out of this. If some-
body wants to take this around, you are welcome to.
I wish I had thought of this one here. This is windshield washer
made from com alcohol. I know we have a need for that in Min-
nesota— ^windshield washer is currently made out of methanol that
is imported. This will be out in the winter in K-Mart and other
Target stores up in Minnesota. That is a small operation in St.
Louis.
This is a very interesting one. The underbelly of sheep is wool
that goes to waste and they put in a project, and we are joining
with them in producing an oil absorption pad made out of this and
it has much more absorption than others now. This material now
goes to waste. Now this will be used as an absorbent. I wasn't
aware of this market until recently.
OSHA requires that everyone who handles oil must find a way
to absorb it so the oil doesn't go into the waste stream. These are
just some of the projects that we are working on that have both do-
mestic and export potential.
I have some fact sheets on every one of these and they are over
here on the table. I would be glad to put those in the record for
all 23 projects indicating the contribution, we require 50 percent
contribution by the private sector partner, and if the project is sue-
121
cessful, they have to pay it back. After some time, we should be
able to be self-sufficient.
The above represent a few of the 577 applications of the AARC
Center has received in just over a year. The ideas are intriguing.
The entrepreneurship exists to commercialize a host of products.
The missing ingredient is adequate support to help share the risk
with private sector to undertake such ventures. We have been able
to fund less than 10 percent of the applications. A unique aspect
of the AARC program is that private sector partners are required
to pay back the Government contribution when sales reach a
prespecified level.
The program linkages, I won't go into that in any detail, except
to say it is very important that we link this kind of activity with
trade issues, environmental issues, rural development issues, com-
modity issues, and research initiatives already underway in USDA.
We are underway on doing this.
In conclusion, while some ideas for new uses have been around
since the 1930's, there has been no consistent effort to make them
commercially viable. When surpluses were high, a big push oc-
curred. When supply was more in line with demand, interest
waned. Now, consistent commitment is more evident.
For example, in 1991, nontraditional uses — such as sweeteners,
ethyl alcohol and industrial starch from com equaled com exports.
By the year 2000, industrial uses will consume an estimated 2.4
billion bushels of com — a 1-billion-bushel increase.
More than 30,000 acres of industrial rapeseed and crambe are
grown annually for lubricants, plastics, and antifoam agents. In 10
years, expect to see 300,000 acres of those crops. Biodiesel, degrad-
able starch polymers, adhesives, inks, paints, and paper products
from ag materials are other potential growth areas.
New technologies and scientific tools such as genetic engineering,
continuous-flow fermentation and chemical catal3rtic processes are
opening up entirely new markets and uses for raw agricultursd
products. As new markets develop, farmers and rural America will
become less dependent on Federal farm program payments and ad-
ditional demand for renewable based products will more fully uti-
lize our agricultural capacity and infrastructure.
That concludes my statement.
[The prepared statement of Mr. O'Connell appears at the conclu-
sion of the hearing.]
Mr. Penny. Thank you, Paul. It has been good working with you
and with Bob over these past several years. It has taken steps in
the direction of new uses for American crops.
Bob, you mentioned the need to improve the relationship be-
tween FAS and State Departments of Agriculture. In what way do
you feel we could achieve that objective?
Mr. Walker. States principally work through the regional trade
associations, of which there are four in the country. These associa-
tions in turn do most of the legwork working with FAS in programs
such as MPP and so on and trade shows and what have you.
I think to the extent that the FAS staff could periodically rotate
for a month at a time with State Departments of Agriculture work-
ing with businesses in the States that are interested in export op-
portunities that are exporting to give them some insights into the
122
process, particularly renewed export businesses that would be very
helpful.
Seminars, I know when we have seminars, and we did have one
not long ago and had an FAS staff person there with someone from
the regional trade association. We had a large turnout, more than
50 companies, and again it was very insightful for them and very
helpful.
Mr. Penny. The market promotion program as modified as part
of the reconciliation package this summer. Do you have any obser-
vations you would like to share on the recommendations taking
into account your testimony that you would like to see more than
less money devoted to MPP? How do you feel about the redirection
of that program based on those reforms?
Mr. Walker. I think I could support the — realizing again the
budget problems we have been facing in Washington and the need
to tailor the program and in light of the criticisms of the program
in the past, I think that reforms and changes were necessary to
preserve the program.
I do feel, however, that more money could hopefully be made
available to the States through the regional trade associations be-
cause the States are closer to working with the businesses that are
exporting or that are interested in exporting and can leverage
these funds with our own State resources and staff to do a better
job in helping companies export.
Mr. Penny. The changes that were made still allow MPP funds
to be allocated to these regional trade groups. Are you simply indi-
cating that my priority be placed
Mr. Walker. Yes, sir; Mr. Chairman. That is what I am doing.
I think, again, if you look at the track record of the regionals work-
ing with the States, that you will see there is an enormous return
on the investment as far as exports and increased export sales from
these regional associations. And we do have information I could
provide to your office.
Mr. Penny. Paul, you mentioned in your testimony the potential
for job creation in rural areas as we move in the direction of value-
added commodities. Is that one of the priority goals of our focus on
smaller firms that are located in rural settings?
Mr. O'Connell. Of the 23 projects we have, 18 of them would
be considered very small businesses and so that was the focus that
we had. Now, there are some technologies that require for you to
work with middle-sized or larger companies, but our focus is on the
smaller businesses.
And like I say, 18 of the ones that we funded are in that cat-
egory. The first thing that we look for, the board looks for when
it is funding a project, is that the particular technology and that
company and the business that it has and the business plan and
so forth likely would be profitable. In other words, that is the first
thing that we look at.
We have people on the board that are venture capitalists and
business people. The technology may be very real, and may look
very promising, but unless the individual or the company that is
involved has a good business plan and knows where it is going,
knows where the markets are, the product that they are talking
123
about is likely to be profitable, in a few years down the road, they
are going to be out of business.
So we put out a request for proposal and then we ask them to
develop their business plan. But before we fund the project, some-
body from the board and staff actually visits on-site to show that
this is legitimate. Job creation is very important, but before you
can have job creation, you have to have a profitable business.
Mr. Penny. You also indicated that the design of the program
and the fact that it includes payback expectation?
Mr. O'CONNELL. Right.
Mr. Penny. Could you describe in more detail how that works
and whether it is universally true that the money forwarded to the
company is paid back based on the company's performance or
whether there are exceptions to that rule.
Mr. O'CONNELL. As you are aware, we have just been in business
18 months. I have been too careful.
Mr. Penny. I understand that we don't have like experience to
gauge, but I do think it is important that we clarify what the policy
is.
Mr. O'CONNELL. We went through a long, deliberate policy in
looking at this, the board did, and also the lawyers in the Depart-
ment. We have two basic approaches.
Our No. 1 concern is to make sure whatever company we have
gone into partnership with, that they succeed. So the one approach
that we have is — we have agreed on this mutually that when they
have attained a certain level of sales, let's say $1 or $2 million,
then over the next 2 or 3 years, they require a certain percent of
their sales, they pay back to the revolving fund.
And it is not just to pay back the funds we gave them, it includes
at least 2 percent above a 10-year Federal Treasury note, so that
is a minimum. If it is a higher risk than that, we may even have
it higher than that. When it is paid back, it is more than it cost
the Government for the money. That is one approach.
The other is where we take an equity position in the company.
We actually take an equity position up front with the company and
then if it is successful down the road, we would expect to sell that
stock back to the company.
Mr. Penny. To recover the investment?
Mr. O'CONNELL. To recover the costs plus, hopefully, if they are
successful and we could get up to three, four, or five times if they
are really successful. So we have x number of stock when we go
into it. Many of the small companies have chosen that option, be-
cause then they don't have to show that on the books.
One of the experiences— I didn't anticipate this — when we first
started, we went through the review process, we selected projects
and then we require that they have 50 percent of the funds at
least.
What happened was that with those — they didn't quite have the
commitment from the other funds at that point in time. They said
you can send us a commitment letter and we did that. And what
we said was that by the time we set up our agreement, you must
have that, but we are committing to you these funds and that pro-
vided the option for these small companies to go out and get other
investors to also come to the table.
78-550 0-94-5
124
The AARC board, for example, the Newstone project out of Man-
kato, Minnesota, didn't have the $1.5 million they said they would
put into the project. They said they will commit to it but they
didn't have it. So once they found that they had gone through the
process, then we sent them a commitment letter. But when we got
to the table and negotiated it, they had to have that commitment
which they did.
So just the idea of knowing they went through a process that
said this was valid, they could then go out and get other money
and this was true in other projects too. I am just using that as an
example.
Mr. Penny. I have some other questions of both witnesses, but
I will defer to the others present here.
Mr. Thomas, do you have questions at this point?
Mr. Thomas of Wyoming. Thank you, Mr. Chairman. Just a cou-
ple.
I was not able to attend the first meeting, so I am a little behind
the curve, I suppose. Let me just comment a little bit. First of all,
clearly everyone thinks marketing of products in the foreign mar-
ket developing products is a good idea. That is not really the issue.
The issue is how do you best do it, I suppose.
The issue, it seems to me, is what is the role of the private sec-
tor. And that program has been basically in effect for some time
and those definitions sort of need to be reevaluated from time to
time, I suppose.
We have co-ops that do some of these things for farmers in the
private sector. We have exporting companies that do this in the pri-
vate sector. In my experience, my experience has been some time
back, these are the people who really have the expertise in selling
things and the role of the Cxovemment, I suppose, is a promotional,
informational one. But I think perhaps it needs to be defined from
time to time.
In general, Mr. Walker, what is the legitimate role of Govern-
ment in making a commercial sale?
Mr. Walker. Mr. Thomas, I think that first and foremost is mar-
ket information and intelligence. The role of the Gk)vemment
should be to provide market information, intelligence to companies,
to businesses, identify where market opportunities are and commu-
nicate that information in a timely way to companies through
whatever — whether it is States or regional associations or through
commodity groups and so on. I think that is extremely important.
I think it is important to have highly trained staff in FAS here
and abroad that can counsel businesses and understand how to ac-
cess markets and where the markets are.
Mr. Thomas of Wyoming. May I interrupt you just a second.
Where do you know in the Government where there are people who
counsel businesses, generally successfully.
Mr. Walker. Excuse me, I didn't understand that.
Mr. Thomas of Wyoming. Where do you know of an experience
where people in Government counsel businesses very successfully?
Mr. Walker. We do it day in and day out in the State of Mary-
land.
Mr. Thomas of Wyoming. You counsel the business how to run
their business.
125
Mr. Walker. No, we counsel them in terms of opportunities,
sales opportunities abroad, where they manufacture products that
have a need and in a certain marketplace. And it can be done, I
mean, even in Maryland. We just recently sold 15 container loads
of apples. We have Maryland wine in Japan and England.
Mr. Thomas of Wyoming. You sold that, the apple growers didn't
sell it.
Mr. Walker. We took these leads to Maryland companies. We
told them what the opportunities were and what they might have
to do to get that market and we introduced them to the buyers. We
obviously don't buy and sell, and we can't commit to anything other
than using our good offices to bring information to sellers.
Mr. Thomas of Wyoming. I am not being critical. I think this is
a question. Take your apple thing, for example. You suggested that
more of the money go to regional or State groups. Is that a little
parochial? If there are apples for sale, why should they be Mary-
land apples as opposed to somebody else's apples.
Mr. Walker. Mr. Thomas, we did not use MPP funds for that.
Mr. Thomas of Wyoming. But you do that. That is still a ques-
tion. It is little parochial. You are interested mostly, aren't you, in
Maryland products.
Mr. Walker. Obviously on the first order, I am interested in ex-
porting more products — processed food products from Maryland.
But beyond that, I do have a broader interest and I am not paro-
chial.
Mr. Thomas of Wyoming. But that comes from Maryland and
let's not
Mr. Walker. Right. But, again, each State conducts its inter-
national marketing activities differently. Each State has different
resources. We have two staff including the chief of markets who
spend a lot of time on trade missions, participating in food shows,
coming to Washington and being familiar with every single pro-
gram that is available that can help and assist companies export
their products. It is very labor intensive.
Mr. Thomas of Wyoming. I don't want to take too much time.
The question is: Should everyone pay to do this? I am not sure.
Why don't you raise your own resources in Maryland to promote
Maryland resources.
Mr. Walker. We do have resources in the State.
Mr. Thomas of Wyoming. But you want more Federal resources
as well.
Mr. Walker. The Governor of the State, the other departments
in the State devote enormous resources to promote Maryland.
Mr. Thomas of Wyoming. I thought you wanted more Federal re-
sources.
Mr. Walker. What I am asking for is the resources that are
available, for example, in the MPP, that more of those be available
to the State and your State and other States to help those busi-
nesses in your communities export their products abroad.
Mr. Thomas of Wyoming. But we do need to define it. You can
always help. We ought to spend $12 billion doing it. That would be
good, wouldn't it?
Mr. Walker. Again, I guess the budget constraints
126
Mr. Thomas of Wyoming. Sure they are. The point is, what is the
role? And I don't know the answer. And I don't mean to be argu-
mentative, but I think you have to really— objectively look at the
role of different folks as to what they are doing and how it affects
others, and that is why I am glad you are here. And it seems to
me that is the issue. The high value ones, Mr. O'Connell.
I hear a lot of complaints — not a lot of complaints, criticism of
promotion of products that are processed products. McDonald's,
large companies whose products — ^the theory we are promoting, ag-
ricultural products. But in between there is a manufacturer, and
we say, geez, they have more money then we do, why are we subsi-
dizing?
Have you heard that?
Mr. O'Connell. Yes.
Mr, Thomas of Wyoming. How do you respond.
Mr. O'Connell. First of all, most of our products are with small
companies as I indicated earlier. One of the problems we have in
agriculture that we have done a lot of research on, new uses for
ag and forestry materials. Unfortunately, not a whole lot of those
have gone to the development stage, to the market stage and got-
ten at all actually on the marketplace.
Quite frankly, there is a market failure. It used to be very simple
when you had a simple product, it goes fairly quickly to the mar-
ket. But the cost of bringing something to the market now is very
expensive. You have the testing cost, somebody buys a property,
. they have all kinds of specifications. You have to prove that the
technology works, all those kinds of things.
It takes 5 to 10 years and generally companies look at these, es-
pecially small companies, and they look at 1- or 2-year framework.
All we try to do in our program is to help bridge the gap between
research ideas and getting a product on the market.
Like I say, almost 90 percent, 85 percent of ours are with small
companies, but there are a few technologies. You have got to work
with bigger companies that get the products on the market. If you
don't do it, they won't do it.
Mr. Thomas of Wyoming. I understand.
Mr, O'Connell, In our case, we are just trying to get start-up
costs and if it is successful, we plan to get the money back.
Mr. Thomas of Wyoming. That, of course, is the classic issue be-
tween basic research and commercial use.
Mr. O'Connell. That is right.
Mr. Thomas of Wyoming. That is why around Duke University
and other places, you have a row of people who play that role. They
go from basic research to the entrepreneuriad thing. And the entre-
preneurial thing isn't your job, is it?
Mr, O'Connell. No. But we enter our project with private com-
panies. They have to put up at least 50 percent of the money.
Mr. Thomas of Wyoming. I am still seeking to define our roles
here and what we do.
Mr. O'Connell. I know. But we are just providing start-up
money is all. When we get applications, we require that it be pri-
vate companies that are putting money up front.
Mr. Thomas of Wyoming. Thank you.
Mr. Penny. Mr. Stupak,
127
Mr. Stupak. Thank you. I think your program is great. For ex-
ample, you just did one up in my district where you put up
$300,000, but the company had to put in $2 milHon. And this was
some wastewood products that we are doing up in Michigan — up in
Lake Linden — so that is a real good program.
I had supported it, but my question is, those who are not success-
ful, even though they are putting money and things like this, I
don't want to say they are not successful. I don't want to say — ap-
plications who you cannot fund because of your limited resource. I
think your testimony said you are able to do about 10 percent.
Mr. O'CONNELL. Right.
Mr. Stupak. Do you have any methods or can you direct them
to other agencies within your Department or SBA to help them get
funding?
Mr. O'CONNELL. We do and we just recently got a — there is a
Federal document that is out that covers everywhere you can get
money, and we are sending it back to them so that they know what
is available. SBA-Commerce Department has the advanced tech-
nologies program and so forth, but in this area of bridging the gap
between research results and commercialization, there is just a
hand full, really.
SBA is really a research program for primarily smaller compa-
nies. Advanced technology programs in the Commerce Department
is primarily a program for industry in the urban community. AARC
looks at it from an agricultural standpoint, There are very few
other sources.
Most States now have economic development programs — and
they are different sources. I believe in a State like Michigan, Iowa,
or Minnesota is different in that the program has been somewhat
unique.
But the economic development programs in most States, each of
those are agricultural States, are not paying much attention to ag-
ricultural opportunities. They don't look at agriculture as a good in-
vestment so far as moving new products in the marketplace. That
is what I have observed in this area over 5, 6, 7 years.
If you would have asked me if before I got involved in this area
that agriculture was a good investment, I would have said no. But
as you get involved in it and you look at the opportunities and you
look at the new technologies and the chemurgy movement and all
that sort of thing, there are opportunities out there now.
You go to the bank with that idea from Michigan. From your
State, they would have said, hell, no. You need 10 years of record.
They won't even talk to you. All we are trying to do is get that
started with some seed money that when they need to expand, they
can go to the bank. That is all we are doing.
All we are trying to do is get it started and I think — I would like
to see us help the other people out more than we have. But in all
honesty, there aren't too many sources.
Mr. Stupak. The document you are putting together with other
sources, with other possible programs, would you make sure we get
a copy of that to our office?
Mr. O'CONNELL. I am.
Mr. Stupak. Thank you. Thank you for the help in northern
Michigan.
128
Mr. Penny. Mr. Condit.
Mr. Condit. I apologize for being late. But I would like, if there
is no objection, to add a statement into the record.
[The prepared statement of Mr. Condit follows:]
129
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Infonnati(», Justice, Transpottation, and Agriculture
Subcommitte/'-
of the
Committee on Govenunent Operations
B-349-C lUybnn House OfTxc Buildillg
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OPENING STATEMENT
CHAIRMAN GARY A. CONDIT
MISSION OF THE FOREIGN AGRICULTURE SERVICE
PART II
November 16, 1993
Good morning. We called today's hearing as pan of a continuation of this
Subcommittee's exanunation of U.S. agricultural exports and Mr. Penny's desire to reform
FAS programs to make them work better. This is the second hearing of this series.
There is some good news on the export front, 1992 agricultural exports were up
over 12 percent to a total value of more Uian 42 billion dollars. Agricultural exports are
estimated to create more than one million jobs in the U.S.
The USDA estimates that every dollar received from agriculture exports generates
another doUar-and-one-half in business activity for the rest of the economy. Despite this
good news, I think this is a time for great caution. We are in the midst of a great debate
over the NAFTA, and agriculture has been brought back to the table in the GATT
negotiations.
Because of my concerns I intend to keep this Subcommittee focused on what we
can do to keep the U.S. the world leader in agricultural exports. I know my colleagues on
both panels are like-minded and I gready look for«'anl to today's testimony.
Secretary Espy's reorganization plan envisions great changes for FAS. In fact, FAS
would be moved to a new Under Secretary's department and renamed under Mr. Espy's
proposal. While I am very supportive of the cost savings proposals and management
improvements which could be the result of this reorganization-I have some great concerns.
Hopefully, we wU! have a thoughtful discussion of the FAS reorganization today which
v^ lead to a bipartisan and cooperative consensus on this issue.
130
I am also very interested in what is being done to implement the Department's long
term trade strategy. This Subcommittee unfortunately had to fight with the USDA to get
them to produce one— today will provide us vnth an excellent opportunity to check its
progress.
I also hope to hear positive things about efforts to increase high value exports and
new agricultural technologies today. I cannot think of a better way to stimulate job growth
than to make sure that we do everything possible to add value to our raw products befons
they are exported. Study after study has indicated the potential of this to rural America.
High value exports help our manufacturing, packaging and shipping industries as well.
I would once again like to commend Mr. Penny and his staff for their efforts in
planning this joint hearing. This is an example of the type of cooperation that should take
place between oversight and authorizing committees and I hope we can continue more of
these efforts next year. ' ' .
131
Mr. CONDIT. And because you have already responded to ques-
tions, I may submit some questions in writing to Mr. Walker and
Mr. O'Connell and ask them to respond to my office. And then we
can move this meeting along because I may have to leave again.
Thank you.
Mr. Penny. Thank you. As we look at the potential for nonfood,
nonfeed uses, you gave several examples of success stories here in
the United States, listed a number of companies that AARC is al-
ready involved with. You also gave an example or two of products
that have been developed overseas.
In comparison to Europeans or other nations, how does the Unit-
ed States stack up on this score?
Mr. O'Connell. I have had the opportunity over the last, oh, 5,
6, 7 years to visit Europe, both individual countries and primarily
the European Community.
And starting about 5, 6, or 7 years ago, they started getting into
finding new uses for ag and forestry materials in an industrial
area. And they are up to the point now where they are spending
five to seven times more money in this or bridging the gap between
research itself and commercialization.
These remain primarily in demonstration projects. I just want to
give one as an example. They have a biodiesel demonstration
project going on right now and over a 3- to 4-year period they are
going to be investing $30 to $40 million in that. That is one dem-
onstration project I am talking about now.
And just like in our case, they require matching funds by the pri-
vate sector. But they are doing this with different countries and
with companies and they are very serious about it. And one thing
we are trying to organize — and I think it would be very helpful to
try to organize — is a transatlantic conference next year. I think to
the extent that we can find more use, new uses for ag materials
and great diversity of markets and they can do it, it takes the pres-
sure off the whole trade situation and we are planning on having
that transatlantic conference next year.
The other player in that area, of course, is Japan and they are
more interested in the finer, natural products, anything with high
value-added sort of thing. The pharmaceuticals, this kind of an
area. They are also moving into the polymers made out of renew-
able materials. They also are spending more money than we are.
I am not as familiar with Japan as I am with Europe.
Mr. Penny. When we analyze the export market for value-added
or processed ag commodities, is that export market primarily food
items at present?
Mr. O'Connell. It is certainly all food items. The whole, as you
well know. Congressman, the reason that was set up as nonfood,
nonfeed is that we saw that as an opportunity to have met new de-
mands for the country as a whole. But the current situation, so far
as exports are concerned, are almost totally food items, food and
fiber items.
Mr. Penny. You indicated quite clearly in your testimony the
trend line on bulk commodities, the United States has seen its
share of the world trade in bulk commodities decline during the
1980's. And there is the relatively static growth in bulk commodity
demand worldwide.
132
Mr. O'CONNELL. It is going down, really. As I indicated in my
testimony that was verified by the people over in ERS, it is just
simply declining.
Mr. Penny. Tlie growth area has clearly been in value-added, the
United States has a relatively small share of the world market in
that area. Europeans, a sizable share.
Mr. O'CoNNELL. Yes.
Mr. Penny. So clearly that is a potential growth area for exports.
You have made the case this morning no one has even scratched
the surface?
Mr. O'CONNELL. Not really. I just mentioned about 10 of the
products here we are working on, and in discussions with some of
the clients, for example, we have this Lubrisol. This is this product
right here. It now is being sold I believe, Joe, where is it? Japan
and Thailand and also in Europe.
Mr. ROETHELI. They are trying to get in Europe, yes.
Mr. O'CONNELL. This is made of vegetable oil. Crambe, rapeseed.
This is a transmission fluid supplement. And it just has a whole
lot of potential. The Newstone project, I know the people in Man-
kato, Minnesota, they have talked to some people overseas. But it
is just scratched the surface. There is opportunity for some of these
new products, but it really hasn't even started yet.
Mr. Penny. Your last analysis in terms of market potential dealt
with the domestic demand and even here, a relatively level demand
graph for food items, processed food items, and so even as we look
domestically, the only potential for growth in ag products making
it on to the store shelf is the nonfood, nonfeed items.
Mr. O'CONNELL. Nonfood, nonfeed because our production capac-
ity is growing at about 2 percent and our demand is growing about
1 percent. That is what has been appearing over the last number
of years.
Mr. Penny. Have you coordinated agriculture with FAS or the
newly titled International Trade Service?
Mr. O'CONNELL. I have with some of the folks over in ERS, but
not with the Foreign Agricultural Service people to the extent that
we need to.
Mr. Penny. Certainly I would think that is a linkage that would
be important.
Mr. O'CONNELL. And we need to make it.
Mr. Penny. But virtually every item that you have been involved
with could look to a foreign market as well as domestic outlets.
Mr. O'CONNELL. Yes.
Mr. Penny. I wanted to ask Mr. Walker, specific to Maryland,
what are the products that you are presently most excited about
and focus on those that you believe have the greatest export poten-
tial?
Mr. Walker. Again, I think any of the processed food products
that are made
Mr. Penny. You mentioned poultry products.
Mr. Walker. Absolutely. We are selling 10 to 12 container loads
a month to Japan. We are going into Indonesia, Singapore, into the
Far East with poultry products, any of the processed food items
that we make in Maryland, snack foods to canned crabmeat and
clams and everything else.
133
Mr. Penny. I believe it was your testimony where you talked
about the Southeast Asians becoming — I don't know if they are con-
noisseurs, maybe more colloquially, snack food junkies. Is this real-
ly a trend that is heavily underway?
Mr. Walker. Apparently so. I think snack foods and ready-to-eat
foods, easy-to-prepare foods based on the information that is com-
ing from that region, from ag attaches and others from trade
shows, apparently there is a growing demand for such products
there. If you look at the East Asia market, in these growing com-
munities, you are talking about potentially 1 billion consumers.
Mr. Penny. You also spoke of the tremendous demand within the
former Soviet Republics for off-the-shelf sorts of food items and a
willingness to pay a premium for those sorts of products.
Mr. Walker. Yes, sir; Mr. Chairman.
Mr. Penny. What do we do to break the European monopoly in
that regard?
Mr. Walker. Again, I think we have to have a greater presence
there on the trade side with folks from FAS who are trying to iden-
tify the opportunities and channels through which these products
move. Who are the buyers and who are the markets? Where are
the markets?
If you look at the recent FAS report from the Soviet Union — the
former Soviet Union, in Moscow, there are increasing American
food products on the shelves from — I have a list of them here — from
Tysons frozen dinners to chicken pot pies and ice cream and Plant-
er's peanut butter and so on. But by and large, shelf space is domi-
nated by European products from the European Community.
Mr. Penny. Last, any examples of nonfood, nonfeed products that
are peculiar to the farm community in Maryland, in other words?
Mr. Walker. Again, I appreciate very much, Mr. O'Connell's
comments this morning. I am not familiar with any such products
from Maryland being exported abroad.
Mr. O'CONNELL. I don't think so.
Mr. Walker. I think this linkage between the research he is
doing and the products he is developing — and FAS is extremely im-
portant— it can help enhance our overseas posture in terms of
those markets.
Mr. Penny. I have concluded with my questions of this panel. I
will ask Mr. Horn in he has any questions he would like to ask.
Mr. Horn. I will pass, Mr. Chairman.
Mr. Penny. With that, we thank you for your testimony and, in
addition to Mr. Condit, there may be other members who want to
submit written questions. We would appreciate those responses.
Thank you. Bob. Thank you, Paul.
Mr. Walker. Thank you, Mr. Chairman.
Mr. Penny. Our next panel includes Mr. Philip Seng, president/
CEO, U.S. Meat Export Federation; Paul Webster, president/CEO
of Webster Industries, on behalf of the American Forest and Paper
Association; and Ms. Sharon Colon, vice president, area manager
for United States and Canada CoBank.
You are free to summarize your testimony as you wish. Your en-
tire written testimony will be included in the record.
Please proceed.
134
STATEMENT OF PHILIP M. SENG, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, U.S. MEAT EXPORT FEDERATION
Mr. Seng. Good morning. The U.S. Meat Export Federation
would first like to express its appreciation to the subcommittees for
the opportunity to express our views on the future partnership of
U.S. agriculture and the Foreign Agricultural Service in expanding
future U.S. agricultural exports.
The U.S. red meat industry and the FAS have enjoyed a produc-
tive and fruitful partnership in expanding foreign markets for red
meat over the past decades. The performance of red meat exports
in recent years bears this out. Total red meat exports worth $740
million in 1986 have exhibited explosive growth and will exceed $3
billion this year alone. USMEF's long-range plan predicts that red
meat exports can reach $8 billion — 1993 dollars — by 2001 if the
U.S. can maintain its momentum. Simply stated, red meats have
been one of the fastest growing agricultural export categories over
the past decade. Prospects for future growth are bright as trade
barriers decline, world population increases, and economic prosper-
ity— ^based on free market policies — expands to most of the world's
nations.
I would like to offer a vision of what the global marketplace may
resemble as the millennium turns. First of all, we think trade is-
sues would be subsumed by competitive issues. NAFTA, GATT, and
a host of bilateral agreements have and will have a cumulative im-
pact of lowering trade barriers and increasing access to foreign
markets. Japan is perhaps the best example where the priority of
export-led economic growth policies have slowly overridden the pro-
tectionist sentiment of an inefficient agricultural sector and result
in the lowering of trade barriers.
In just the red meat arena alone, similar marketing opening ef-
forts have been undertaken in partnership between the United
States meat industry and the United States Government in Korea,
the European Community and several other markets. GATT and
NAFTA promise to continue the process of lowering trade barriers.
Unfortunately, the U.S. has a reputation for its strength when it
comes to opening markets but weakness in marketing follow-up.
The benefit of trade agreements should be measured by the black
and white of the bottom line: Sales.
Sadly, our competitors have the edge on us when it comes to ag-
gressive marketing programs. All our major competitors outspend
the United States in terms of the ratio of market development
spending to the value of their exports. Take the European Commu-
nity, for example. Even after GATT is fully implemented by the
year 2000, Europe can still directly subsidize meat exports to the
tune of almost $1.5 billion per year. In the United States, the red
meat industry can expect less than $8 million in Government re-
sources in 1994 for export market development.
Despite what some may view as an aggressive international mar-
keting program, the U.S. red meat industry and the U.S. Govern-
ment still collectively spend less than 1 percent of its total inter-
national sales on foreign market promotion. This percentage is de-
clining as the export commitment by the Grovernment continues to
recede.
Increasing U.S. competitiveness will require long-term, strategic
planning and a more effective Grovemment/industry partnership.
Competing in the international marketplace will be the primary
challenge of the remainder of this decade and beyond. The impor-
tance of exports to the U.S. red meat industry cannot be over-
stated.
Faced with the year-on-year declines in consumption of U.S. beef,
pork, and lamb, producers are viewing the foreign markets as the
primary growth sector of total red meat demand. The implication
of this export growth on our economy are enormous. For example,
thfi U.S. pork industry employs about 765,000 people. This is more
than the total payroll of Northwest Airlines, Ford, and IBM com-
bined.
Regrettably, the bond between the U.S. Government and indus-
try and exporters seems to be weakening. Ever fearful of GAO criti-
cism, FAS seems to be paralyzed into action at just the time a more
aggressive and flexible international approach is most warranted.
Meeting the competitive challenge of the future will require fun-
damental reorientation of current FAS policies, programs, and or-
ganization. Our observations about current FAS shortcomings and
recommendations for action are as follows.
First of all, we think long-range planning is lacking. To our
knowledge, the U.S. livestock industry, representing over one-half
of total farm receipts in U.S. agriculture, was not even consulted
once on the long-term agricultural trade strategy — called LATS.
This is also the case with FAS reorganization.
In the meantime, agricultural industries independently develop
their own long-range plans. The U.S. Meat Export Federation pro-
gram has quantified and qualified opportunities in the export mar-
kets through the year 2001. However, because the Grovemment
commitment to agricultural exports is uncertain, the industry long-
range plans of which we are aware strikingly omit any mention of
a Government/industry partnership or joint action agenda in the
export marketplace.
So our recommendation would be: One, allow industries to de-
velop the strategy and tactics for their respective industries while
USDA/FAS establishes strategic direction across all commodity
groups. In this regard, establish a joint long-range planning process
between industry and the Government. Set quantifiable export tar-
gets and periodically evaluate progress to date and/or reasons for
failure to meet these targets. Review long-range plans annually to
ensure flexibility and sensitivity to changing market conditions.
Two, FAS focuses on process rather than results. USMEF's budg-
et submission for the fiscal year 1993 MPP program was in excess
of 650 pages. USMEF's overseas marketing directors are forced
every year to spend months away from their market development
work supplying minute details and excessive paperwork for MPP.
Meanwhile, our competition is out pounding the foreign pavement
in search of new customers and sales.
The annual process of preparing and reviewing MPP plans lasts
an astounding 6 months. Plans are rarely approved by the begin-
ning of the marketing year, creating marketing paralysis overseas.
This may be the worst year since USDA has yet to announce even
the application date for next year's program.
136
In contrast to developing the plan, there seems to be little em-
phasis within the USDA on measuring results. FAS sill has not de-
veloped uniform criteria for evaluation of programs and analyzing
program effectiveness. However, priorities on process rather than
results define the current orientation of FAS marketing programs.
Our recommendation would be to develop a simple, but effective,
application process for promotion resources. This could ideally be
a computer-generated marketing grid which outlines the basic tar-
gets in each market like we use at USMEF. Establish strict inter-
nal deadlines for application review and approval. In addition,
allow the submission of multiyear plans, preferably 3 to 5 years.
Annual reviews for budgeting purposes would consist of fine-tun-
ing multiyear plans according to shifting marketing conditions.
Another point: FAS resource allocation and structure shows no
overall strategic focus. Although FAS maintains an enviable global
network of agricultural field offices, the location of these offices ex-
hibits questionable strategic positioning.
FAS offices should constitute the frontline of the U.S. agricul-
tural sector overseas. Specifically, whereas individual private ex-
porting companies have relatively short-term horizons. Industry or-
ganizations— i.e., cooperators — have longer-term horizons. How-
ever, the interests of private industries are still constrained to a
relatively short — 3 to 4 years — timespan.
This is where USDA/FAS has an advantage. FAS resources
should focus its activities in the strategic markets of the future, es-
pecially those where U.S. agricultural industries have a low level
of exposure and representation and long-term commercial potential.
Organizational reform appears to be worsening. The red meat in-
dustry sees no benefits or further diluting the work of FAS by com-
bining it with OICD into the International Trade Service. In fact,
the ostensible missions of the two organizations appear to be at
cross purposes, with FAS promoting the exports of agricultural
products and OICD promoting the export of agricultural expertise.
Overseas, our customers will wonder why the word "agriculture"
was dropped from the agenc^s name.
Our recommendation is that FAS, in concert with private indus-
try, should analyze its current foreign office structure to determine
how to maximize cooperative synergies and complementarity.
Within Washington, FAS could better integrate and coordinate
its trade policy, marketing, and analysis functions. Resources and
personnel emphasis should be placed in those areas where FAS
holds an advantage over private industry, primarily trade policy
and analysis. Commodity and trade policy analysts should be
placed under one work cone. International marketing analysis
should be coordinated or combined with that conducted by the Eco-
nomic Research Service — ERS — and FAS should design a structure
whereby coordination with other USDA agencies such as APHIS,
FSIS, and FGIS is enhanced.
The last point is a lack of overall vision creates misguided work
priorities. FAS has not clearly defined its mission and responsibil-
ities to its constituents and to its employees. For example, FAS's
international orientation still seems directed toward crop reporting.
Marketing development emphasis is still placed on disposing of sur-
plus bulk commodities on world markets with concessional pro-
137
grams. Personnel hiring requirements emphasize analytical class-
room experience rather than marketing skills and private sector
training or experience. The design and administration of marketing
programs is in the hands of compliance personnel.
The bulk of the most useful reporting from FAS/field offices re-
mains intemsd and classified and thus off limits to those who could
most effectively benefit from it. The best customers for FAS crop
reports and circulars are our competition today.
Our recommendation would be, analyze the respective strengths
of industry and Government organizations and create a partnership
based on these strengths. For example, make sure analysis sup-
ports efforts in trade policy and marketing. Ideally, industry groups
and cooperators should take the lead in marketing while FAS/
USDA concentrates on analysis and improving market access.
To ensure overall coordination within the partnership, USDA
and FAS should consider stationing personnel in the home or over-
seas offices of industry cooperators. In this way, USDA can develop
a sense of accountability to its constituency while simultEineously
training its personnel in the technical and marketing nuances of
each commodity.
The function of overseas FAS staff should complement the mar-
keting programs of the industries.
In terms of program focus, there is no need to reiterate the grow-
ing importance of becoming more aggressive in promoting value-
added products. With GATT limiting the ability to subsidize bulk
commodities, greater emphasis will have to be placed on increasing
the U.S. market share in the value-added trade. Currently, the
funding of programs which dispose of surplus commodities exceeds
that of programs which build new markets for new products by ten-
fold to twentyfold. And in foreign markets, it shows.
Currently, the United States is a residual player in the growing
value-added export market. Despite the fact that it is a world lead-
er in terms of efficient production of these foods, only 10 percent
of what we export is value-added.
Lastly, success in the international marketplace will require a
service mentality to our foreign customer. I think the potential ex-
ists for retooling the current relationship between the Grovemment
and industry. Most importantly, the partners must view each an-
other as team players, not adversaries.
The object of both parties' focus should be on the existing or po-
tential foreign customers of our products. In the highly competitive
environment of the international marketplace, industry and Gov-
ernment cooperation is vital to remaining competitive and captur-
ing increasing share in the growing market.
Given the fact that these relationships are the norm for our com-
petition, and that the United States is burdened with a promotion
resource handicap, the sjnnergy of the industry/Government rela-
tionship may be the penultimate factor defining future U.S. com-
petitiveness in future agricultural trade.
Thank you very much for soliciting our views on this important
topic.
[The prepared statement of Mr. Seng appears at the conclusion
of the hearing.]
Mr. Penny. Thank you.
138
Next, Ms. Colon.
STATEMENT OF SHARON L.L. COLON, VICE PRESmENT,
AREA MANAGER, UNITED STATES AND CANADA, CoBANK—
NATIONAL BANK FOR COOPERATIVES
Ms. Colon. I will summarize my prepared remarks and ask that
the entire statement be included in the record.
Mr. Penny. Without objection.
Ms. Colon. The bank provides financial services to farmer-
owned cooperatives; rural utility systems — including electric, tele-
communication, water, and waste disposal systems; and facilitates
the export of U.S. agricultural products. Over the past 10 years,
CoBank has financed $17 billion in export sales to over 40 coun-
tries involving about 30 agricultural products. To assist the bsink's
customers, we recently opened an office in Mexico City and it is our
first one outside of the United States.
As a U.S. bank, CoBank is the single most active lender under
the USD A export credit guarantee programs. In recent years, we
have accounted for about 40 percent of all the guarantees issued
under the GSM credit guarantee programs. Because of our deep in-
volvement in agricultural export activity, we applaud the efforts of
the administration and Congress to maJce our Nation's export pro-
grams more effective.
Frankly, CoBank is not in the best position to comment on spe-
cific changes being discussed about the formal organizational struc-
ture of the USDA. However, we feel that the Foreign Agricultural
Service — or FAS — plays a key role in facilitating U.S. agricultural
export trade.
We have cited four principles which we believe, if applied prop-
erly, will ensure the successful operation of these programs from
the standpoint of all parties involved: For example, foreign pur-
chasers, financial institutions, and U.S. exporters.
The principles we believe are important are as follows: The credit
programs should continue to be the cornerstone of our export pro-
motion programs. The availability of credit has been a critical fac-
tor in helping make U.S. agricultural products competitive in world
markets.
The program should be user friendly and customer oriented. In
this regard, the administration's stated intent to make Government
more customer oriented is welcome.
We believe that the FAS staff should be knowledgeable and con-
versant about our country's export programs. In addition, that stEiff
should be in touch with developments in local markets and be posi-
tioned to help respond to new developments, such as the privatiza-
tion efforts taking place in Central Europe and other parts of the
world.
We believe there is considerable merit in continuing to maintain
separate programs intended to expand agricultural markets. While
it may be possible and even desirable to coordinate USDA pro-
grams with those of other Departments, agriculture is a unique in-
dustry with unique problems and opportunities.
We believe that FAS information and education about U.S. agri-
culture and U.S. export programs and the opportunity to trade
139
with the U.S. agricultural industry play an important role in the
success of our trade programs.
The FAS should be of more assistance in helping U.S. companies
identify opportunities and develop foreign markets for processed or
value-added products. Several years ago, for example, FAS officials
were instrumental in helping purchasers in Mexico acquire nonfat
dry milk from the United States on a commercial basis. That suc-
cess has helped open a significant market for U.S. processed dairy
products sold by private companies.
We strongly support any effort by the administration and Con-
gress to make FAS and related Federal agencies more effective.
Thank you.
[The prepared statement of Ms. Colon appears at the conclusion
of the hearing.]
Mr. Penny. Thank you for your testimony.
Mr. Webster, we will conclude with you and then we will have
several questions for the panel.
STATEMENT OF PAUL WEBSTER, PRESffiENT, WEBSTER IN-
DUSTRIES, INC., ON BEHALF OF THE AMERICAN FOREST &
PAPER ASSOCIATION
Mr. Webster. Thank you. Chairman Penny, and the other mem-
bers of the subcommittees for the opportunity to testify today.
I come today as president of Webster Lumber Company. My fam-
ily has been involved in the harvesting and sawmilling of hardwood
timber in southeastern Minnesota and across the upper Mississippi
Valley for over 90 years. My timber suppliers are farmers with
small portions of their land growing hardwoods on steep,
noncultivatable hillsides. I have several thousand of these farmer-
suppliers that depend on me to buy their timber and their timber
crop for cash.
Our industry, through a decade of experience with FAS export
programs, has demonstrated that the programs work and are not
in need of reorganization. FAS has the tools, structure, and the
system in place to identify new markets and disseminate informa-
tion. We believe that the OICD consolidation is a large and impor-
tant step and this should be completed before any other significant
changes are contemplated within the agency.
As Secretary Espy considers options for reorganization of the De-
partment of Agriculture, our industry recommends that the current
FAS structure which has worked so well in the past be enhanced
rather than changed.
Second, we have seen a proposed organizational structure or
chart which would merge the marketing functions of the product
divisions into one single division. This proposal would reduce the
effectiveness of the export program by separating marketing from
the analysis and the trade policy, in effect, downgrading the mar-
keting staff by reducing the staffs expertise in given product areas
and creating a large department of generalists. We don't need more
generalists.
We do not support the merging of all marketing staff into one di-
vision. The current structure allows for meaningful interaction
with experts on both the analysis and the marketing of individual
commodities. The effectiveness and success of the forest products
140
program are a testament to the partnership that exists between
our industry and the individuals who have worked in this division.
We strongly recommend that the subcommittees urge FAS to
stop this unnecessary reorganization and maintain and improve
the current successful structure by increasing communication and
coordination with the FAS trade policy function, which coordinates
FAS's trade policy, information gathering, analysis, and marketing
generate an export promotion program that is synergistic and un-
paralleled in effectiveness.
We urge strong support for the current overseas FAS staff. We
rely on the information and trade policy reports from these posts
and from the analysis of the domestic marketing staff. When a new
market opportunity presents itself, it is usually the overseas post
who is first to alert us in our industry. We then take that informa-
tion back to our members to devise strategies for promotion.
FAS also helps us to monitor and evaluate our gains. This analy-
sis has helped focus the export picture more clearly on value-added
gains, the most rapidly growing export sector in the wood products
industry. Any proposal for reorganization, we hope, would be dis-
cussed with the agricultural commodity groups using the program.
When Secretary Espy speaks of the need to focus on export mar-
keting activities, he is talking about how to make a good program
even better. We know we can help. We ask FAS to reach out to its
partners in export promotion for their ideas and concerns. This dia-
log needs to be initiated when the Department is in the formative
stage of its decisionmaking process.
Finally, a word about the national export strategy issued by the
Trade Promotion Coordinating Committee. The TPCC report fo-
cused on increased coordination between trade policy and market-
ing initiatives, taking advantage of trade policy created, export op-
portunities, the need for priority driven programs generated by a
rigorous methodology and the identification of programs which best
reflect each agency's comparative advantage in delivering priority
export services.
We know of no other Gk)vemment program that is as effective in
meeting the objectives set forth in the TPCC directive as the coop-
erative FAS industry export expansion program.
On behalf of our industry, I would like to thank you, Mr. Chair-
man, for your strong support of FAS programs and your commit-
ment to listen and work with us as we make these programs more
effective.
Thank you.
[The prepared statement of Mr. Webster appears at the conclu-
sion of the hearing.]
Mr. Penny. Thank you, Mr. Webster.
Mr. Horn, do you have questions of this panel.
Mr. Horn. Thank you, Mr. Chairman. Just a couple of brief
questions. I am interested in your testimony, Mr. Webster, on the
relations with FAS, and I would like to ask all of you, including
you, Mr. Webster, who has touched on it, what is the t3^ical rela-
tions you might have with FAS in the course of a month or a year
that relates to focusing on where new markets might be, in your
case, in the hardwood industry and where perhaps they should be
locating additional resources.
141
Just tell me how that dialog occurs. Is it by your national asso-
ciation or do you, as an individual entrepreneur, get into it?
Mr. Webster. As individual entrepreneurs, we are absolutely de-
pendent on our national association working through the American
Hardwood Export Council which in turn works with the FAS man-
agement promotion program. It is a solid stream.
I am a very small operator. I have no access to international
markets. To travel abroad to establish markets of any kind is prob-
ably $500 to $1,000 a day and my business can't stand that and
there are hundreds and hundreds £ind hundreds like me, we are
very small operators. But the market promotion program and
AHEC and FAS has put together this stream so that there is a
weekly flow of information mailed to us by our overseas offices that
have been established by FAS and American Hardwood Export
Council.
We read the promotional materials, materials sa3dng that we no-
ticed that certain markets are accepting different kinds of wood or
could use these kinds of wood, there are different t5T)es of cus-
tomers seeking materials from producers such as myself that don't
have contacts with American people, that they put buyers and sell-
ers together.
Mr. Horn, You found that fairly effective in your case to really
add bills overseas for you.
Mr. Webster. I think it has just been a wonderful program. The
FAS program started in 1985 on $3 billion of exports in the forest
products industry. Today it is up to $7 billion. In 1993, it is going
to be $7.5 billion and we are estimating in the year 2000, it is
going to be $12 bUlion to $15 billion if these programs stay in place
or are enhanced. We are tremendously impressed by it and, frank-
ly, the only thing additional we would like to have — and I don't
know if I can bring it up at this hearing, but I have
Mr. Horn. Don't be bashful.
Mr. Webster. All right. The new GATT round is coming up De-
cember 15. And the wood fiber industry would love to have a level
playing field, zero-zero tariffs. We would love to have a level play-
ing field. We bump into tariffs in Japan and several other countries
all the time and all that our industry asks is a level playing field.
And our industry is highly fragmented.
We are a bunch of very small operators. There are a few big pub-
lic companies, but we are primarily small operators. This market
promotion program has been wonderful for us. Every dollar that
the Government has invested has yielded $394 in return. It has
just been a wonderful program for us and we hate to see you dis-
turb anjrthing that doesn't need to be fixed and it works so well,
sir.
Mr. Horn. I thank you. Ms. Colon, do you share Mr. Webster's
enthusiasm?
Ms. Colon. Yes, I do. If I may go back to my example that I stat-
ed in the testimony regarding nonfat dry milk. Prior to 1988, Mex-
ico had always been a regular customer of the United States for
nonfat, primarily from the CCC stocks.
Back in 1987, early 1988, it became apparent that the stocks had
been so depleted that the CCC advised the Mexican buyer at that
142
time, a public sector entity called Conasupo, that it did not have
nonfat or would not have nonfat to sell in the coming year.
The message that Conasupo heard was that the United States
was out of nonfat. Since 1982, we have been involved in Mexico,
lending under the Government credit programs, and we introduced
the idea to them of utilizing these United States programs to pur-
chase nonfat on a commercial basis. We also introduced them to
FAS employees involved to get a line item in their allocation under
GSM for nonfat. That particular year, 1989, GSM registrations
were over $100 million for nonfat and CoBank financed a signifi-
cant portion of that amount.
Mr. Horn. So you are happy?
Ms. Colon. We are happy.
Mr. Horn. Anything else they could do to improve their oper-
ations?
Ms. Colon. The way we use FAS, or the way we partner with
FAS both overseas and in DC, we have eleven officers at the bank
who travel overseas, and as part of their regular calling program,
they meet with the attaches in their respective markets as well as
discuss with their Washington counterparts what types of products
are of need in those respective areas.
Mr. Horn. So there is a desk officer you deal with in Washington
as well as joined missions overseas.
Ms. Colon. Yes.
Mr. Horn. Would you say there is also weekly communication or
even more than that between your CoBank and officers of FAS?
Ms. Colon. In certain areas, it could be weekly.
Mr. Horn. And let me ask you, Mr. Seng, you do not seem to like
the way the system is working if I catch your drift. What could be
done to improve it and what type of contacts or communications do
you have with FAS on a weekly, monthly, yearly basis.
Mr. Seng. I would say, I think that FAS has been a very good
example of the private/Government partnership thus far, I would
also like to submit that you know it has been a very good example.
It is a classic example, and many other industries and groups here,
I think, in the United States look at it with a lot of envy.
I think our opinion is if something is not broke we still can work
to improve it, and I feel with FAS, there is still room for improve-
ment and that is the vein in which I am approaching this morning.
The MEF is maybe a Httle different. We have eight officers inter-
nationally. We have expertise in these offices with language and
cultural expertise.
Our people, internationally, work with FAS almost on a daily
basis. Domestically, I think we are concerned because the function
of FAS, economically, has been much more administratively ori-
ented than marketing oriented and, of course, the people we rep-
resent: The major packers and producers that are interested in
what our marketing skills are and objectives are and how we ob-
tain our goals.
So domestically we deal with FAS at two levels: One is with
dairy, livestock, and poultry. That primarily is dealing with the
compliance and admin, et cetera. That has changed. On the other
hand, we deal with the International Policy Trade Division of FAS.
143
That has been very successful. We deal with them on issues per-
taining to GATT, NAFTA, tariffication and ratification of quotas.
I think the major shift we have seen with the advent of the MPP
program and probably the earlier program is to switch from mar-
keting and reporting to now much more of an administrative com-
pliance function of the organization. Tliat is basically what we ob-
serve.
A lot of this is inspired by GAO reports, et cetera. I think, on
the other hand, the focus on long-range planning and what we are
trying to achieve has probably been missed because of this.
Mr. Horn. You feel they are filling out paper more than to jus-
tify the mission than actually going out and doing the mission.
Mr. Seng. In our proposal, the request letter for the loan was
about 250 pages last year which will probably never be read again,
and then our proposal for our plans was 650 pages which will prob-
ably never be read ag£iin except by possibly the competition.
We feel a little less emphasis in that area, do more long-range
planning and be much more marketing driven and will produce
this tremendous, onerous process we have in getting these plans
through.
Mr. Horn. Is there an annual process they use to ask industry,
both the national association that is represented plus the installer
firms or do they depend on the national associations in the indus-
try to come in with a consolidated position?
Mr. Seng. Everybody is treated equally, so whether you are a na-
tional organization or a small organization or a small cooperator,
so to speak, they have the same rules and guidelines, and they are
just as onerous for the installer people as they are for the larger
people.
Mr. Horn. I think with a smaller organization, we are trying to
keep low overhead, get the job done, that you would have a lot of
problems with not having sufficient staff to fill out a complicated
form. Whereas you might have a great idea, is there a possibility
you can pick up the telephone and get somebody on the other end
and say, have you thought about exploring this area as a new en-
deavor of the marketing and activity for American products?
Mr. Seng. It is not that easy in dealing with FAS because there
are many different levels of steps and people you deal with in order
to get your plans approved. Again, I would add, going back to your
initial question. Just in MEF-Denver we have increased the staff
by three times, the Department that has to deal with FAS in deal-
ing with plans and approval in the last 3 years.
Mr. Horn. Have you seen any pay-off in terms of products sold
as a result of all that planning.
Mr. Seng. I think we see this onerous process as necessary in
order for us to achieve and realize the export gains we have inter-
nationally. We feel with our directors overseas and our staff domes-
tically, if we could devote more time to the marketing side as op-
posed to this processing side of the paper that we deal with, it
would be more productive. We could be more productive than we
are today.
Mr. Horn. Based on the experience all of you have had with
overseas offices of FAS, do you feel they are selected for their mar-
keting skills or their coordination of paperwork skills?
144
Mr. Seng. I feel, to answer that question, I think that the people
that FAS have are very capable and very dedicated employees. I
have tremendous respect for these people. On the other hand, ev-
eryone that has basically an economics background, they have to
have a master in economics, basically to work at FAS.
I think we feel and what we propose in our presentation this
morning is that there would be a little more interface with the in-
dustry. More of a marketing background, more of appreciation and
there is an appreciation — more of an appreciation for what it takes
to produce the product. What is involved with the product, some of
these types of things we are looking at ways to improve. But as far
as the skills and dedication of people at FAS, I think they stand
alone in some areas.
Mr. Horn. Let me make one more subquestion and I want to call
on Ms. Webster to answer both of those and Ms. Colon. Do you see
them more in a reporting function of what goes on in their country
much like a typical State Department diplomatic officer or military
attache that reports to the Pentagon that are trying to keep you
apprised of developments in the sense of a critical nationalist of
what they are seeing in agriculture?
Mr. Seng. Can I qualify that answer. I see them reporting expen-
sively from FAS's standpoint. There are few services there. I think
with the MEF, again, with eight officers internationally, our people
substitute for FAS employees overseas because they are involved
with the market, meeting the buyers, working out specifications.
And they also do an extensive amount of reporting.
You take the example of Jim Parker in Tokyo which is one of the
largest posts overseas. They have a tremendous staff that does a
lot of reporting and, of course, we would do a lot just independently
because we have a position there in the market as do a lot of other
cooperators including wood products. But a lot of markets in my
testimony, I talked about a long-range strategy.
FAS plays a very vital role because those are the future markets.
FAS was in Mexico long before we were in Mexico. Now that is our
second largest market. They were in Korea long before us. That is
our third largest market. So they initially, on a long-term basis, get
things done where companies would be reluctant to go in and
spend for that long investment to get something done. That is
where FAS and the cooperators can do that. So that is a very com-
plementary role which I am trying to bring out this morning be-
tween the cooperator and FAS that should be fostered in this proc-
ess.
Mr. Horn. I think you made a good point.
Mr. Webster, you want to comment?
Mr. Webster. That was said very well. The people that we co-
operate with in FAS program that are in our offices, we have — our
own American Hardwood and Export Council has its own people
and FAS are cooperating with us. They are complementary. We
don't depend on one to do one job or the other. They complement
each other in skills, help one another to do the job and the job
again, in my perspective, has done extremely well.
I would like to make one comment to you, sir, that I didn't make
before, but I think this is probably the time to do it. One of the
things that possibly could be addressed in FAS is to get an admin-
145
istrator on board to direct the activities of this group. It at times
kind of cruises along with a good, stiff rudder in the water and give
it proper direction and focus constantly, and maybe that would be
helpful. That might be helpful on an ongoing basis, but we feel that
the quality of employee that we deal with on a day-to-day basis is
just fine. We are very pleased with them.
Mr. Horn. Ms. Colon, do you have any comment?
Ms. Colon. I think we agree in that the quality of the employees
at FAS is very high. We find, however, that the employees on the
ground in overseas markets are more market focused than the peo-
ple in Washington.
Mr. Horn. Is there a rotation education process where you serve
some time in Washington, some time overseas to get a feel for what
both sides do?
Ms. Colon. I am not sure how they rotate.
Mr. Horn. We might want to ask that of the administrators. Let
me ask you, Mr. Chairman, what are the plans of the joint sub-
committees? Are they planning to have FAS Administrators back
at all after this discussion with people in industries or is this going
to be a submission of written questions? What are the plans?
Mr. Penny. I think we are going to proceed to review this in an
informal setting, some of the recommendations that have come
from industry regarding the performance of FAS. I think, for start-
ers, that would be more productive than another committee hear-
ing and if, based on that, we have several proposals that seem to
make sense, we may proceed with a legislative document and then
go to a committee meeting to review and discuss that proposal.
Mr. Horn. Fine. I commend you and Mr. Condit for holding
these hearings. I am sorry I have to leave for another commitment.
Thank you all for coming.
Mr. Penny. Mr. Seng, I know this follows on the line of question-
ing conducted by Mr. Horn. But I am concerned about the assertion
that I can't do a multiyear plan with FAS. We heard testimony
from the Department that multiyear plans were accepted. Is there
a breakdown in communication here? Are the policies ambiguous?
What is the cause of the difference of opinion on this point?
Mr. Seng. I guess there are 2 years that we receive funding from
FAS. One would be from the FMDO project funds, as they call it,
which have been in effect for the last 3 years. That is on a year-
to-year basis. As far as the MPP program is concerned, we have
only been operating on a 1-year basis as far as this is concerned.
Mr. Penny. I think that program in particular is the program
where they have indicated that multiyear contracts are possible.
Mr. Seng. That would be news to me.
Mr. Penny. Are you asserting that in both categories, a
multiyear contract of sorts would be preferable?
Mr. Seng. Yes. My impression would be as maybe on the project
funds we can probably operate on a year-to-year basis, but on the
MPP funding, definitely a multiyear plan — 5 to 3 years — ^would be,
I think, best in our interests.
Mr. Penny. You talked about 6 months of paperwork and proc-
essing that is required of the application in order to get that re-
newal or that new contract if perhaps you are moving into a new
146
area. Is that a relatively recent development? Was there a time
years ago when the timeframe was shorter?
Mr. Seng. Well, initially under the TEAP program it would seem
to be shorter. Our fiscal year would be the Government fiscal year,
October through September, but because of the inordinate delays
we have had, we extended our fiscal year on MPP to April 1. That
is 6 months from the beginning of the fiscal year, obviously. This
year alone we will not have MPP plans for 1994 available even by
April 1.
Now in the meat area, we probably don't have as much of a prob-
lem because we don't have the seasonality of product. But in some
of the horizontal areas, this is a major factor.
Mr. Penny. You are halfway into the year before you can get as-
sistance and, by then, it is too late for most commodities.
Mr. Seng. We have found we have about 6 months in order to
react, activate, and do our activities in the way it is averaged.
Mr. Penny. Do you suggest we analyze program effectiveness, if
we don't put this on a year-to-year leash, which is one way of pro-
viding a check on the use of the funds. How better could we
Mr. Seng. I think that the participants, either the cooperators or
the cooperators in conjunction with FAS developing these plans
would come up with maybe a 3- to 5-year plan. At that point in
time, they would set very definite quantifiable goals.
Mr. Penny. Just measure against those goals rather than going
through a whole new round of paperwork.
Mr. Seng. You said you have goals and have certain activities
under those goals and breakout or markets. And every division
under FAS — I think there are nine — would have different commod-
ity groups within that. You would set up your goals depending on
how you want to break down your market. There would be certain
activities attendant to that. You could adjust those where need be.
But the idea, you are lifting your goal. For example, in meat ex-
ports, if we project 2 billion in the next 2 years, where are they
coming from? And if you haven't, you adjust your plans accordingly.
Mr. Penny. You indicated that foreign promotion on the part of
the United States represents about 1 percent of sales. Is that for-
eign promotion from Government sources?
Mr. Seng. The foreign promotion, for example, in the case of
Australia, they would spend 20 to 1 per annuaJ unit compared to
the United States, that those dollars would be primarily from the
private sector. On the other hand, Denmark, a major competitor of
ours in Japan for pork, would spend close to about $50 million in
Japan promoting Danish pork. We spend about $500,000 in Japan
promoting pork. And the source of funding from Denmark would be
Government.
To answer your question, we deal with mostly the privateer sec-
tor.
Mr. Penny. How do you feel you compare in terms of private sec-
tor investment. It is pretty clear by the record that in terms of Gov-
ernment support or Government funds complementing private
funds, that we are well behind the pace of our competitors. But
how about private sector contributions.
Mr. Seng. On the private sector as well as all the major coun-
tries, we have the lowest level of private sector expenditure as well.
147
Mr. Penny. You indicated that meat products were almost half
of the U.S. value.
Mr. Seng. Yes, gross receipts of agriculture.
Mr. Penny. And the biggest markets would be our immediate
neighbors?
Mr. Seng. The biggest markets I am saying of all gross receipts
of all agriculture
Mr. Penny. No, for processed meet.
Mr. Seng. Japan, Mexico, and Korea would be our largest export
markets.
Mr. Penny. Largest for the meat products. That is amazing. You
also testified that our marketing follow-up suffers from inherent
weaknesses. In what way?
Once we establish a presence in a market, you implied in your
testimony that we don't have a very good follow-through.
Mr. Seng. I think the record shows in most areas today we spend
about $7 million in Japan promoting meat exports. This is beef,
pork, and lamb. Australia spends about $26 million alone just pro-
moting beef. The record shows that if you go back to 1988 with
Japan, beef and citrus agreement with Japan, we have a record
internationally of opening up markets and then we don't dignify
those negotiations with the follow-up marketing programs.
My point is, when we work so assiduously to open up markets,
whether it be GATT, NAFTA, the Japanese market, whatever the
case might be, in negotiations we should have the programs, the
marketing programs attendant to those negotiations to dignify
those negotiations. What happens so often is our competition — and
our very worthy competition — comes in and of course they will sup-
plant us in those markets we have worked so hard to open up.
Mr. Penny. Mr. Webster, you talked about hardwood export mar-
ket growth. I think specifically you gave us statistics from the 1985
and 1992 timeframe.
Mr. Webster. Yes, sir.
Mr. Penny. Where is the greatest growth occurring in terms of
our export market for hardwood and other wood products.
Mr. Webster. Primarily Japan, Taiwan, and Western Europe.
Mr. Penny. Were these finished products.
Mr. Webster. These are value-added products. These are not
logs. These are plywoods, hardwood lumbers, furniture parts, di-
mension products that go into kitchen cabinets and so forth.
Mr. Penny. We have heard from a lot of other processors that we
need to be item-specific and brand-specific in our promotion efforts.
This is an industry that hasn't opened up markets in that fashion.
Is that simply because of the unique nature of the wood products
industry or do you think that generic promotion is a sufficient area
of emphasis for our country?
Mr. Webster. Well, generic promotion works for wood because
most people don't really worry about the name on a sheet of ply-
wood or the name on a 2 by 4 or the name on a shipment of hard-
wood lumber.
Our products disappear into another form once they reach their
customer. Our industry has never really promoted brand recogni-
tion with exceptions of finished products and there are some pub-
licly owned companies that promote their brand name.
148
Mr. Penny. How much of this export growth has been in finished
products which is to say famiture and other wood products?
Mr. Webster. I can't give you a specific percentage or number,
but most of it has been value-added.
Mr. Penny. In some fashion, but it wouldn't necessarily be a
cedar chest.
Mr. Webster. No. Primarily our products going overseas are not
finished products like furniture cabinets. They are pieces.
Mr. Penny. Boards cut to size.
Mr. Webster. Cut to size and/or shaped, or what have you, and
sent to a receiving country that again will make a finished product
out of it.
Mr. Penny. What we run into — ^you talked about some trade bar-
riers in Japan to American wood products. Is this a commodity that
is more encumbered with trade barriers than others or not. I am
not sure how best to ask the question except some people feel that
their particular product is restricted to a greater degree than other
items.
Do you feel that wood products are particularly difficult products
to export given the policies within Japan and other countries re-
garding import of these items.
Mr. Webster. Japan is an impossible market, almost. I say that
advisedly. The only real forest product that Japan receives from
our country in large dollar volumes are logs. And they in turn proc-
ess the logs in further form. They have tariffs that reach as high
as 20 percent on most forest products excepting logs.
And all that our industry asks, Mr. Chairman, is that we are
very efficient on a worldwide basis and we are very efficient, and
we can compete with, in my opinion, with any country in the world.
All we would like to have is zero-zero tariffs.
Mr. Penny. That is true, even for wood items that originate in
southeastern Minnesota, that we are competitive even though we
are 1,000 miles from New Orleans.
Mr. Webster. Yes, sir.
Mr. Penny. A couple of thousand miles from either coast.
Mr. Webster. On a monthly basis I am shipping to Germany,
Taiwan, Korea. Yes, sir, we are very competitive and it has nothing
to do with dollar-an-hour labor or 50-cent-an-hour labor. We are
very competitive.
Mr. Penny How about the use of GSM credits for wood product
sales on the international market?
Mr. Webster. Well, without those, we would not have been able
to get things going in Mexico, for example. They are very helpful,
but I have to honestly tell you I am working on very thin ice now,
and I can't speak to it. Would you like one of my associates to re-
spond.
Mr„ Penny. That is fine. We can get some additional information.
But I am trying to measure in terms of assistance we can provide
to the GSM credits, the market promotion, the cooperators on the
ground and the other FAS personnel on the ground in the market
development arena. Evidently, you sort of use all of the tools avail-
able for your commodities.
Mr. Webster. Yes, we use all the tools available, but we have
not used the GSM credits.
149
Mr. Penny. To any great extent. You said you did utilize them
in Mexico.
Mr, Webster. This is not the key.
Mr. Penny. You have largely been handling the financing on
your own and, to date, your assistance from FAS has been either
the kind of market analysis assistance or the market promotion
program.
Mr. Webster. That is correct. The MPP has been the big item
and the FAS side of it has been the most helpful to it.
Mr. Penny. Ms. Colon, you indicated that I think 40 percent of
U.S. GSM credits were — ^have shared — were originated through
CoBank?
Ms. Colon. Yes.
Mr. Penny. Are there any other major American financial insti-
tutions involved with GSM programs?
Ms. Colon. There are other U.S. banks involved, but not to the
extent that CoBank is.
[Additional information submitted by Ms. Colon follows:]
Not on a consistent basis and not to any meaningful extent. We estimate CoBank
and the next four most active banking participants in the GSM programs account
for more than 85 percent of the total GSM business. CoBank is the only U.S. bank
in the top five most active lenders with the GSM programs.
Mr. Penny. I mean you are 40 percent. Are there any that would
even approach 5 percent?
Ms. Colon. Not that I am aware of
Mr. Penny. The international financiers, are there three or four
that are predominant in this area?
Ms. Colon. There is one in particular.
Mr. Penny. That is.
Ms. Colon. From the Netherlands, Rabobank.
Mr. Penny. You mentioned in your testimony that the foreign
financiers don't have the same commitment to the U.S. ag economy
that a domestic financial institution might have. What do you be-
lieve the advantages are — can you document that there are finan-
cial advantages to American farmers, producers, given CoBank's in-
volvement as opposed to the involvement of some foreign financial
institution?
Ms. Colon. I don't have specific examples but believe, as a U.S.
bank, we understand better what our farmers want and we pro-
mote the export of their products under the U.S. Government pro-
grams.
[Additional information submitted by Ms. Colon follows:]
Foreign banks can't be expected to promote the sale of U.S. agriculttiral products.
They're in the business of financing trade transactions to generate a profit, and the
origin of the product is immaterial. Also, foreign banks often respond to iJie policy
direction of their governments. For example, prior to the end of the cold war French
banks had been heavily involved in financing U.S. agricultural exports to the Soviet
Union. When the French Government developed its own credit programs to assist
the FSU, French banks largely withdrew from financing U.S. exports to the FSU.
Ms. Colon. It was the GSM program, I believe, that helped get
Algeria to purchase wood products from the United States which
was good for the wood industry.
Mr. Webster. That is correct. Algeria and Egypt, both, that is
correct.
Mr. Penny. In the wood industry.
150
Ms. Colon. To a limited extent.
Mr. Penny. Are there limitations, the types of sales that
CoBank
Ms. Colon. Yes.
Mr. Penny. Do they have to be agricultural?
Ms. Colon, Under our regulations, not only do they have to be
agricultural, we can only finance those commodities that are origi-
nated from our co-ops and, unfortunately, in the way of wood, there
are not a whole lot of wood co-ops nor are there a lot of co-ops in-
volved in meat. Therefore, we are unable to finance these commod-
ities to any great extent.
Mr. Penny. It is primarily grain and dairy?
Ms. Colon. Correct. And some others — high-value products like
fruits, nuts, vegetables.
Mr. Penny. Should we put a limitation on the ability of foreign
financial institutions to participate in this program? And if so,
other than CoBank, who would benefit?
[Additional information submitted by Ms. Colon follows:]
I don't believe so. From a public standpoint, our primary interest should be to
make U.S. agricultural products as desirable as possible from the pxirchaser's stand-
point. If financing from a foreign bank helps achieve that goal, I don't think we
should object. Also, I believe there are international agreements that require the
U.S. to treat foreign and domestic banks in a similar fashion. And, of course, we
could not support 3ie idea of CoBank being discriminated against in a foreign coun-
try.
Mr. Penny. If we put a limitation, would other American finan-
cial institutions step forward or is CoBank the only firm that has
any interest in this GSM program.
Ms. Colon. I think when the program was introduced, there
were a lot of U.S. banks involved, but with certain defaults that
happened in certain countries, they have exited the program.
Mr. Penny. There were defaults, but they had significant protec-
tion on those defaults. I mean, there must be defaults to CoBank
as well. Why haven't you gotten out of the business? If others have
exited the business, why is CoBank making money?
Ms. Colon. Well, we have a funding source that is unique.
Mr. Penny. In terms of the co-op, the ability of the co-op to se-
cure lower interest financing, as compared to private institutions?
Ms. Colon. We fund ourselves by issuing bonds and discount
notes. We are not a bank of deposit.
Mr. Penny. So that allows you to stay involved in an area that
might be more financially risky for a private bank. When I say pri-
vate, not that co-ops are not private, but they are structured dif-
ferently.
Ms. Colon. Right.
Mr. Penny. What about value-added commodities? And I know
of your involvement with dairy products, but there has been tre-
mendous amounts of testimony today about the growth of value-
added exports. And I am just curious to know what share of your
loans involve bulk commodities and to what extent you are financ-
ing value-added exports and what are the trend lines? Are we see-
ing a growth in the value-added arena as time goes by?
Ms. Colon. Yes. Until the late 1980's, basically all of our financ-
ing was for bulk ag commodities. With the emphasis on high-value
products, we see an increase in the amount of dollars going to high-
lil
value products, semiprocessed as well as processed high- value
products. For example, last year we saw an explosion, if 1 can use
that word, of financing of barley malt.
Mr. Penny. It appears that you are basically structured to pro-
vide financing commodities — either bulk or processed — that are
originated by your member institutions, other co-ops.
Ms. Colon. Yes.
Mr. Penny. And the GSM credits ai-e then requested by individ-
ual member co-ops and they make an application to CoBank.
CoBank in turn applies for the GSM credit or does the member co-
op make an application in both categories to you, but also to the
Department?
Do you secure — in other words, you secure directly the GSM
credit for this sale on behalf of the member co-op that is trying to
make the sale, or does the member co-op sort of identify the market
and then work with both the GSM program and CoBank to secure
the financing.
Ms. Colon. The GSM operates on a comm.ercial basis in that the
guarantee is given to the actual exporter.
Mr. Penny. The exporter turns to CoBank for financing,
Ms. Colon. The exporter, right.
What they do is assign the guarantee that is given by the USDA
to them over to the financial institution.
Mr. Penny. Do you see an increased interest on the part of your
co-op members in doing more to develop nonfood, nonfeed uses for
the commodities they grow?
Ms. Colon. Yes. I am sure you are aware most of our coopera-
tives are in the raw or the production side of agriculture and very
few of them are on the processing side. We are seeing a trend of
co-ops going into the processing side.
[Additional information submitted by Ms. Colon follows:]
We think there is a lot of interest in this area. However, not many of our coopera-
tives have the equity capital to invest in research and development. Most of the in-
novations in this area seem to be coming from entrepreneurs or small companies
that appear to be in need of financing. CoBank intends to explore this area and de-
termine if there is a need we can meet consistent with our mission to serve agii-
culture and rural America.
Mr. Penny. And you are also a financier for those expansions or
innovations in the industry.
Ms. Colon. For example, ethanol plants.
Mr. Penny. And statistics would bear out that CoBank is financ-
ing an increasing number of ventures in that regard?
Ms. Colon. I would think so, on the domestic side.
Mr. Penny. If you have some documentation in that area, I
would appreciate seeing that. We can put that in the comm.ittee
record.
Ms. Colon. OK.
Mr. Penny. I think we have covered enough ground this morn-
ing. I want to thank the witnesses and at some point, either be-
tween now £ind Christmas or early next year, we will try to have
a roundtable discussion with some of the industry leaders, sit down
with some of the people from the Department and we can kick
around the various recommendations that have been made for im-
proving and streamlining and refocusing the FAS programs.
152
So thank you for your participation this morning and we look for-
ward to your continued help as we move to the next level.
The subcommittees stand adjourned.
[Whereupon, at 11:20 a.m., the joint subcommittees were ad-
journed, to reconvene subject to their respective Chairs.]
[Material submitted for inclusion in the record follows:]
153
Testimony
of Robert L. Waiker
Before the House Subcommittees
on Foreign Agriculture and Government Operations
November 16, 1993, 9:30 a.m.
Good morning, Chairman Penny, Chairman Condit.
Thank you for this opportunity to join in this important discussion of the factors
affecting the international competitiveness of our nation's largest employer -- agriculture.
1 want to commend both of you, Chairman Penny and Chairman Condit, for
conducting these hearings on the future mission and role of the U.S. Department of
Agriculture's Foreign Agriculture Service (FAS). All too often, we spend our energies on
issues of the moment, on putting our fires, and do not step back, in this case, to see the
international landscape and to stress how changes in that landscape affect our federal
policies and programs.
Let me say at the outset that I have a strong interest in international marketing of
U.S. agricultural products. As Maryland Secretary of Agriculture, as Chairman of the
National Association of State Departments of Agriculture's World Trade Committee and
as a psu-ticipant on various overseas missions for the World Bank and others, I have had an
opportunity to travel in this hemisphere, Europe, Asia and the Middle East. And
everywhere I travel, the story is the same. U.S. agriculture is the envy of the world.
People all around the globe want what we produce. They are looking to us for assistance
and leadership.
154
I have talked with agricultural attaches from Tokyo to Tel Aviv, from Mexico to
Moscow, from Cairo to Kaosiung. There is no question that the interest in U.S.
agriculture is intense. There is no point in being timid about this. The U.S. is still the
number one agricultural nation in the world. This is our strength. In my view, it is
imperative that we play from this strength.
Since it was established 39 years ago, FAS has produced its full share of economic
benefits for U.S. agriculture and agricultural products. This has been particularly true of
bulk agricultural commodities. But in reality, the world is changing and FAS must change
along with it.
We are poised on an extremely exciting time. We are the leading food producer in
the world and everywhere you turn there are growing consumer markets eager for what we
produce. We must position ourselves to take advantage of the tremendous economic
opportunities now before us. We cannot afford to sit back and allow the vast potential
agricultural marketplaces to slip away.
For example, there are three major growing markets in the world that want U.S.
agricultural commodities. And there are not just interested in bulk products. More and
more as each day passes there is an increased interest in our processed food. In short,
what I am saying is that value-added food products are the wave of the future. People
want the value-added food products that we produce. We would have to be short-sighted
not to take advantage of this increased demand. To neglect this chance for exporting food
products on a large scale would be a tragedy, both for our food manufacturers as well as
the people of the world.
1S5
The three growing markets that are particularly significant are in East Asia, Mexico
jand Latin America and the Caribbean, and the vast potential of Eastern Europe and the
former Soviet Union. I can assure you that there is significant opportunity out there and
if we in this country don't fill it, someone else will.
Let's look at Japan, Singapore, Indonesia and other Asian countries. In these areas
there are dynamic economics and a growing middle class that can afford more
sophisticated food products. Their lifestyle is changing dramatically. These people are
increasingly interested in ready-to-eat and easy-to-prepare food products.
According to the FAS, sales of pre-cooked take-out food in Japan alone totaled $40.9
billion in 1991, and are expected to reach $95.2 billion by the year 2000. These figures
suggest that as more and more people in the Pacific Rim countries eat on the run, U.S.
food producers should give serious consideration to this expanding market. There is a
snack food diet revolution taking place in Asia.
A similar picture of increased demand is clear in Mexico and by extension Latin
America. On a trade mission to Mexico with Maryland Governor William Donald Schaefer
this past July, I found that the Mexicans are particularly interested in our poultry and
processed food products.
156
The approval of the North American Free Trade Agreement (NAFTA) tomorrow will
enhance expanded export opportunities in Mexico and, through Mexico, to Latin America.
U.S. agricultural exports to Canada and Mexico already make these two countries ' •
combined our largest agricultural export market. ' ' ' , ■ ''
/
A third area of major opportunity is Eastern Europe and the former Soviet Union.
This is an area, of which of I have considerable personal experience and icnowledge. As a
matter of fact, I just returned from St. Petersburg and have traveled to this part of the
world on numerous missions to study their agricultural system. Let me just say that in
this region of the globe the potential for U.S. agriculture is as vast as the Russian
landscape. A population of more than 150 million in Russia is literally hungry for U.S.
food. - ■
It is also important to note that despite the wrenching economic transformation
currently under way in the Russian Federation, the market for imported high-value food
and beverage products is growing even in this part of the world. Many Russians are willing
to spend extra money to purchase imported foods and beverages, especially if they believe
that these products are of high quality.
It goes without saying that market development work in the Russian Federation is in
its infancy. Given the right preparation and an understanding of the different variables,
however, U.S. exporters could reap huge rewards. Unfortunately, products from the
European Community dominate shelf space.
157
This is where a re-vitalized FAS comes in. I cannot over-emphasize the point
enough, that as we move toward the year 2000, FAS must adapt to the changes in world
agricultural trade patterns. Already more that half of all U.S. agricultural exports are
high-value, value-added products. It is imperative that FAS develop the marketing
knowledge and expertise to assist U.S. exporters to sell these products. If not, a golden
opportunity will be lost.
As we move towards the next century, it is important that FAS organize itself to
conduct more market research that impacts on the market U.S. companies are attempting
to penetrate. This will help companies adapt their products to meet the needs of the
foreign consumer. What is required is a value-added products division that focuses its
entire energy on consumer oriented products. Under this division, I think it is essential
that FAS have a staff that is trained to deal especially with small and, medium size firms,
as well as with large companies.
Instead of cutting back, I believe that the Market Promotion Program (MPP) should
be expanded. This past year, some 18 small- and medium-sized Maryland companies
participated, many of them getting into the export market for the first time. I believe
that MPP needs a larger budget and that the number of products that qualify for MPP
matching funds should be expanded. This is particularly important for small companies
that often have innovative products with excellent export potential, but lack the resources
to market them effectively overseas.
As the head of a state department of agriculture, I also believe that FAS must
develop closer ties to the state departments of agriculture. We must work more closely
together in a coordinated effort. In the competitive international marketplace we cannot
afford duplication of effort.
158
-6-
In my view, the consolidation of the Office of Cooperation and International
Development and FAS will avoid many overlapping fiinctions and responsibilities. I think
we all agree that efficiency is of the essence. I am concerned that the proposed new
name, the International Trade Service Agency, does not reflect the important
development activities of OICD at
In addition, to facilitate this requirement for increased efficiency, FAS must employ
all of the latest technology at its disposal. For example, FAS needs to introduce a
program to allow a wider distribution of its trade leads electronically. Also, the trade
policy staff must be expertly trained to deal with problems relating to import standards.
All this has to happen while there is more market research on high value added
products and their distribution. FAS must help U.S. food manufact-jrers understand fully
how the international market works. It is truly amazing to me, and also frightening, how
many small and medium U.S. companies have little idea how to sell beyond their borders.
These are just a few of my ideas on the direction FAS must take to help U.S.
producers take advantage of the vast market potential we see all around the globe and
particularly in Asia, Latin America and in the former Soviet Union. Let me repeat again
that this is an extremely exciting time. The economic stakes are enormous. We cannot
afford to stay on the sidelines. It is in our economic interest and in our national interest
not to let this economic opportunity slip by. It is imperative that FAS be ready to
aggressively pursue these exciting market possibilities. Again, the demand is there. We
must be ready to take advantage of it.
Thank you for allowing me to testify before these distinguished committees. I would
be happy to attempt to answer any questions you may have.
-end-
159
STATEMENT OF
PAUL F. O'CONNELL
DIRECTOR
ALTERNATIVE AGRICULTURAL RESEARCH & COMMERCIALIZATION
(AARC) CENTER
BEFORE A JOINT HOUSE OF REPRESENTATIVES HEARING OF THE
SUBCOMMITTEE ON FOREIGN AGRICULTURE AND HUNGER AND THE
SUBCOMMITTEE ON INFORMATION, JUSTICE, TRANSPORTATION
AND AGRICULTURE, COMMITTEE ON GOVERNMENT OPERATIONS
November 16, 1993
Mr. Chairman and members of the Committee: As Director of the
AARC Center, I value the opportunity to discuss the activity
underway in USDA's Alternative Agricultural Research and
Commercialization (AARC) Center. I envision considerable potential
to expand the commercial use of agricultural materials (traditional
and new crops, animal byproducts, and forestry materials) in
industrial products for both domestic and export markets. The
result will be that fanners and other businesses will generate jobs
and economic activity. Much of the agricultural and forestry
material will be processed in rural areas because of the bulky
nature of the agricultural materials to be processed -- hence,
providing sustainable rural development based on the natural and
renewable resources of rural communities.
Over the past seven years, I have helped establish and
administer programs such as the Sustainable Agriculture Research
and Education (SARE) Program, the Regional Aquaculture Centers, the
work of the Office of Agricultural Materials, and the AARC Center —
all of which received high marks at the grass roots level. I have
seen the tremendous progress that can be made working cooperatively
with private entrepreneurs . My experience strongly suggests that
1
160
individual aind business entrepreneurs are the key innovators in our
economy. However, they often need assistance in transferring
promising ideas into commercial products.
BACKGROUND .
One hundred fifty years ago, most of our non-food consumer
products and industrial raw materials were derived from plant
matter in all its forms - fruits, vegetables, grains, grasses,
bushes, and trees. The rest came from animal matter, and from
inorgamic (noncarbon-based) minerals like sand, iron, and other
metal ores. Then came the discovery of fossil fuels, whose name
derives from the fact that they are the fossilized remains of
living matter. Like living matter, fossil fuels are organic
(carbon-based) materials; they are composed primarily of
hydrocarbons. But because they are dead matter, fossil fuels are
called minerals: organic minerals.
In the mid-nineteenth century, hydrocarbons began to vie for
industrial supremacy with carbohydrates from farm and forest
materials. Coal, and later to a much greater extent petroleum,
beceune the basic raw material of industry. Industrial uses of
plant and amimal matter stagnated.
Fossil fuels replaced renewable materials because they offered
definite advantages. As fuels, they contain more energy by weight
and volume, making them easier to transport and store. The liquid
nature of petroleum, and the ease of liquefying natural gas, allow
161
them to be transported cheaply over long distances via pipelines,
and to be more easily converted into by-product chemicals. By
1970, petroleum had routed carbohydrates in virtually every product
category, except for paper manufacturing. Oil accounted for 70
percent of our fuels and more than 95 percent of our organic
chemicals.
Now, just 20 years after the age of oil reached its peak, we
are beginning to see the pendulum swing back in favor of an economy
based on farm and forest materials. In the 1980s cind 1990s, we
discovered the disadvantages of relying primarily on fossil fuels.
From an environmental perspective, all kinds of pollution,
from acid rain to global warming, from smog to ground water
pollution, have been linked to using fossil fuels.
From a political perspective, relying on distant lands for our
energy needs imposes very high national security costs.
From an economic perspective, relying on iir^iorted raw
materials v.-hen local alternatives are available at competitive
prices, weakens local and regional economies.
In the 1990s, we may be witnessing a historic turn-around in
the fortunes of renewable materials. The conparative economics of
carbohydrates and hydrocarbons are changing . Advances in the
materials and biological sciences are reducing the cost of
162
manufacturing renewable materials while environmental regulations
are increasing the cost of hydrocarbon-based products. Moreover,
the growing environmental consciousness has prompted many customers
to willingly pay a "green" premium for carbohydrate-derived,
environmentally benign products. - ....•■;-
CAPACITY SITUATION
According to information presented to the New Uses Council last
month by Pat O'Brien of the USDA Economic Research Service -- the
U.S. has a well developed land base, with over 400 million acres
currently being cropped on a regular basis and another 3 0-40
million acres readily available for conversion from less intensive
uses such as pasture to intensive cropping. This resource base has
changed little over time; the land currently in use is well
developed, often at considerable capital expense, and there are few
alternative uses. Conversely, bringing new land into use beyond
the 3 0-40 million acres readily available for conversion would
generally require significant capital investment. Hence, without
a sharp and prolonged upturn or down turn in prices and returns to
warrant acreage expctnsion or abandonment, this 400 million acre
base will be used -- unless farmers are paid to idle it.
The U.S. has invested heavily in "growing" markets for bulk
agricultural commodities -- the export market. The disappointing
news is that despite major efforts, exports have been declining for
major commodities. In the 80 's, the U.S. share of the world market
for com slipped to 66 percent from 77 percent, wheat fell to
168
32 percent from 44 percent, and soybean exports fell to 66 percent
from 78 percent. The U.S. has offered price discovints in excess of
30-40 percent in some bulk coirenodity markets auid has pushed hard in
every forum avail2±)le to liberalize agricultural trade in the
belief that the lower-cost U.S. commodities would eventually
displace higher-cost products produced in in^jorting countries or
subsidized by other exporteers . The lack of success so far in the
Uruguay Round and the growing cost of export promotion programs
raise concerns about the costs and benefits of growing the export
market. While few, if any, suggest that we abandon negotiations
and export promotion efforts, more and more observers recognize
that bulk commodity exports alone are not likely to answer our
excess capacity situation.
The opportunity to expand markets for food in the U.S. are also
limited. With population growth well below 1 percent and growth in
income no longer generating net consumption increases, prospects
for expansion are limited at best. While potential exists to
expand quantity of food for low income groups, the subsidies
necessary to boost buying power are large and the farmer share of
the average consumer dollar is roughly 25 percent. Hence, the net
impact of a given dollar of food subsidy on commodity markets is
quite small.
The AARC Center believes that more of our agricultural and forestry
materials need to be converted into value added products prior to
export. Western Europe does a much better job of adding value to
164
agricultural materials prior to export than we do in the United
States. About 30 percent of our agricultural exports are consumer-
ready products compared with over 70 percent for most western
European covmtries . ~.
AARC PROGRAM ACTIVITIES
In terms of tools to identify new markets and products, the AARC
Center can be of significant help in bridging the gap between
research advances and getting a commercial product into the market
place. The AARC Center is industry led and market driven.
Majority of the AARC Board of Directors, reviewers, aind applicants
are from the private sector. We have direct links with these
people -- some already have products with export potential that are
made from agricultural commodities and others are nearing
commercialization -- but few of these have experience in accessing
cuid penetrating export markets . Examples of value-added export
opportxinities produced by AARC Center partners include:
1. Phenix Composites' Newstone made from soybeam meal and used
newsprint.
2. International Lubricants Inc ' s teleromized Ixibricating oils
made from vegetcQsle oils;
3. Gridcore's spaceboard made from kenaf or low grade wood;
4. AgrigenetiC s and International Fora Techs' lubricating and
cosmetic products produced from lesquerella oil;
5. Hobbs Bonded Fibers' oil absorbent from low-grade wool, as
well as Environmental Remediation Technology's oil absorbent
from cotton lint.
165
6. Midwest Grain's degradable plastic-like polymer;
7. Aquinas Technology's non-poisonous windshield washer fluid
2made from ethanol produced from corn;
8. Agro-Fibers' "Roll & Grow" seed mats from kenaf for use to
quickly establish lawns and gardens;
9. International Poly Chemicals' intermediate chemicals from corn
starch;
10. Biotechnology Research & Development's non-toxic biodegradable
pesticide carrier from com starch; ,
11. Weyerhaesuer Paper's cardboard boxes using grass straw;
12. Kenaf International's pulp and paper products from kenaf;
13. Leahy-Wolfe's biodegradable, nontoxic concrete form release
agent made from Canola oil;
14. Natural Fibers' pillows and comforters filled with milkweed
floss; and
15. Standboard Holding's furniture parts made from low-grade
hardwood trees .
The above represent a few of the 577 applications the AARC Center
has received in just over a year. The ideas are intriguing. The
entrepreneurship exists to commercialize a host of products. The
missing ingredient is adequate support to help share the risk with
the private sector to undertake such ventures. We have been able
to fund less than 10 percent of the applications. A unique aspect
of the AARC program is that private sector partners are required to
pay back the government contribution when sales reach a pre-
specified level.
166
PROGRAM LINKAGES
Efforts to promote old and new uses for agricultural products are
most likely to succeed if they can be linked to the trade,
environmental, rural development, commodity, and research
initiatives already underway in USDA. In most of these areas, the
link is easy to identify and clearly coirplementary . For example,
new uses can be tied directly to rural development efforts if we
are willing to emphasize local value added in our efforts to
promote feed stocks and energy from agriculture.
This same conplementary link can be forged with commodity concerns
interested in expcinded markets and diversification opportunities.
New use links to the agricultural research program also make sense;
improve technology and the bench science underlying it are critical
if new and expeinded uses are to pass the market test. On a similar
note, if we Ccui interest American industry in new and expanded uses
for farm products, chances are that we can interest industry
abroad. This suggest a natural partnership with agricultural trade
interests concern with reinforcing the U.S. 's competitive position
cind expanding sales abroad.
Without closer links to these other initiatives, the probability of
success in promoting new uses would be significantly smaller. It
will prove more difficult to generate and sustain policymaker
interest and program manager support as well as industry
involvement. Competition for limited public funds available for
use in agriculture is likely to be fierce and new use efforts could
8
167
face indifference or opposition from other agricultural interest
unless the complementary nature of new use efforts are clear.
CONCLUDING REMARKS
While some ideas for new uses have been aroiind since the 193 0s,
there has been no consistent effort to make them commercially
viable. When surpluses were high, a big push occurred. When
supply was more in line with demand, interest waned. Now,
consistent commitment is more evident. For example, in 1991,
nontraditional uses (such as sweeteners, ethyl alcohol and
industrial starch) of corn equaled corn exports. By the year 2000,
industrial uses will consume an estimated 2.4 billion bushels of
corn -- a billion bushel increase!
More than 3 0,000 acres of industrial rapeseed and crambe are grown
annually for lubricants, plastics and anti-foam agents. In 10
years, expect to see 300,000 acres of those crops. Biodiesel,
degradable starch polymers, adhesives, inks, paints, and paper
products from agricultural materials are other potential growth
areas .
New technologies and scientific tools such as genetic engineering,
continuous- flow fermentation and chemical catalytic processes are
opening entirely new markets and uses for raw agricultural
products. As new markets develop, farmers and rural America will
become less dependent on federal farm program payments and
additional demand for renewable based products will more fully
utilize our agricultural capacity and infrastructure.
168
United States
Dq)artinent of
Agiiculture
AARC
CENTER
program summary
Alternative
Agricultural
IVESEARCH and
U OMMERCIALIZATION
c
ENTER
Making It Happen
Expanding Use Of Industrial Products
from
Agricultural Materials
169
The AltoTiative Agricultural Research &,
Commercialization (AARC) Center is a
separate entity within the US Dq)artment
of Agriculture. Policy and program direc-
tion is provided by a nine-person Board of
Directors-eight of whom are non-federal-
-representing processing, financial, producer and scientific
interests. The mission of the AARC Center is to assist the
private sector in closing the gap between research results
and commercialization of industrial (non-food, non-feed)
products frwn farm and forestry materials.
The national office of the AARC Cen-
ter is located in Washington, DC. In
order to make the program more re-
sponsive to both potential and success-
ful apphcants, the Center's aaivities
are being decentralized into six re-
gional centers; the first two are established in the Upper
and Lower Great Plains. The Board envisions four others:
Northwest, Southwest, Com Belt and Southeast
Any non-food or non-feed product
derived from agricultural or forestry .
mato-ials is a candidate for AARC sap-
porL Examples of recent projects that*
have gained AARC support include the
following:
• production of ethanol from lignocellulosic materials
• production of pulp from waste straw
• kenaf-based newsprint, lawn mats, and paneling
• biodegradable lubricants from crambe and rapcseed oil
• biodiesel production and processing technology
• poly chemicals from com starch
• biodegradable films and coatings from wheat
• cosmetics and lubricaants from lesquerella
• oil adsorption pads from wool
• molded furniture parts from wood strands
• composites from recycled newsp^w and soybeans
• insulation material from milkweed floss
• slow release starch-based bio-pest control
170
Any private individual or fixm oiay apply
for assistance through the AARC pro-
gram. While most of the Center's clients
are small firms, non-profits and large
businesses have also been successful
applicants. Universities and similar insti-
tutions may be participants, but the private partner is gener-
ally in the lead for commercialization aaivities.
isfKm^i
The AARC |M"ogram can supply finan-
cial assistance at the pre-commcrciali-
zation stage of a project-that point in a
project when the costs are the greatest
and the ability to obtain lending from
traditional sources is the most difficulL
At the pre-ccMnmercialization stage, a
produa is expeaed to have an identi-
fied market However, additional work may remain before
the product enters the marketplace, e.g. prototype testing or
manufaauring, commercial runs, regulatory clearance or
market analysis. The financial assistance is in the form of a
repayable cot^rative agreement and includes a repayment
portion that recognizes the investment risk taken by Uie
AARC Center. Applicants are expected to bring at leasta 1 : 1
match when seeking funding from the AARC program. In
the initial round of projects supported by AARC financing,
AARC contributions ranged from less than $100,000 to $1
million.
:]ffiivAi%--' "•■;'.
Applications undergo evalu-
ation by three outside reviewe-s
and the AARC Center's staff
The evaluation reviews the ade-
quacy of the business plan, the
technical feasibility of the pro-
posal, the project's potential to
generate jobs in rural America,
as well as environmental and
conservation aspects. Following a successful review, an ap-
plication is referred to the AARC Center' s Board of Direaors
for fmal evaluation. Board members and staff make site
visits and in some cases require oral presentations on the
ovCTall proposal. The Board makes the final decision as to
who receives assistance and in what amount. Proprietary
information is proieaed throughout the review and evalu-
ation process and procedures are in place to avoid conflicts
of interest with reviewers or Board members. In addition, the
legislation establishing the AARC program specifically
171
exempts the Center from the provisions of the Freedom
of Information Act-offering further protection to appli-
cants.
Applications may be submitted
at any time. At least two review
sessions are held each year,
with successful applicants be-
ing announced approximately three months after the start
of the reviews.
The title to any intellectual
property developed under a
joint agreement with the AARC
Center will remain with the ap-
plicant. While federal legisla-
tion does require so-called
"march-in" rights for the gov-
ernment with regard to any in-
vention made with federal funds, the private sector firm
would have to be compensated through a UcensingA^oy-
alty arrangement, in the unlikely event that such rights
were exercised.
i
1
IftvMitifefit? II
s
Agreements include provi-
sions for repayment by suc-
cessful projects. The payback
provision is what makes the
AARC program such a novel
and innovative approach for
government. With smaller
firms, the AARC Center gen-
erally establishes an equity position with the company,
with the provision that at a later date the Center will sell
back the stock. Another approach used by the Center is to
arrange a multiple repayment scheme, with a deferred
pCTcentage rate included as recognition for the Center's
investment risk. The repayment is typically Unked to
produa sales, so thai if sales are initially slow, a firm is
not str£5)ped for cash in order to meet its obligation to the
AARC Center.
The AARC Center receives
an annual appropriation from
Congress and operates under
a revolving fund, 'lae first
agreements were signed in
1993, investing money that
172
was approprialed during FY92 and FY93. Thus far,
25 projects have received $10 million in AARC fi-
nancing. (Private seaw financing of the projects has
totaled about $25 million.) As the current AARC
Center investments become profitable and reimburse
the Center, the money will be added to the revolving
fund to help finance future projects. It is the goal of
the Board of Directors to eventually establish a fund
of several million dollars. The number of awards is
limited only by the money available in the fund atany
given time.
liif^Hiatldifi?.
For further information write or fax your request
directly to die national office:
USDA AARC Center
14th & Independence Ave., SW
Cotton Annex - 2nd Floor Mez.
Washington. D.C. 20250-0400
FAX: (202)^1-6068
Revised
September 1993
173
A ARC Center Board Of Directors
Composition of the AARC Board is specified in the
1990 FACT Act, Tide XVI, Sub. G. Current Board
members include:
1 . Martin Andreas, Chair (Senior VP, Archer Daniels
Midland), Decatur, IL
2. Jerry Caulder (President, Mycogen Corp), San Diego,
CA
3. Oleta Fitzgerald (Executive Assistant to Secretary
Espy), Washington, DC
4. John Fujii (Retired Director of Manufacturing
Technology, James River Corp.), C:amas,WA
5. Philip Gross (President, Novon Products Division
of Warner-Lambert Co.), Monis Plains, NJ
6. Ralph Hardy (President, Boyoe Thompson Institute),
Ithaca, NY
7. Roger Porter (Materials Scientist, University of
Massachusetts), Amherst, MA
8. Lee Reeve ( Reeve Cattle Co.), Garden City, KS
9. Delwin Schneider (President & CEO, QLCORP
Ventures), Pewia, BL
Paul F. O'Connell, Direaor
Josq)h C. Roetbeli, Deputy Director
AARC CENTER
Washington, DC 20250-0400
\
174
AARC
Alternative Agricultural Research & Commercialization Center
Windshield Washer Solvent
Turns 'Green'
Even a product as basic and simple to
produce as windshield washer solvent
can be transformed in ways that offer
spin-off benefits ranging from protecting
human health to improvmg the environment
and the U.S. economy.
Aquinas Technologies in St. Louis,
Missouri, already has changed the washer
solvent business by creating a new distribu-
tion network. The selling point is that
Aquinas packages its traditional methanol
solvent in bottles made from recycled plastic
and filled by Goodwill Industries, a national
not-for-profit organization providing jobs for
workers with disabilities.
Now Aquinas is taking a further step to
generate both economic and environmental
benefits. Working with the farmer- funded
National Corn Growers Association (NCG.A) ,
Aquinas plans to begin national distribution
of washer fluid containing non-toxic ethanol
made from corn grown in the U.S. The new
product will replace methanol-based solvents
that can cause blindness if swallowed-- or can
even prove fatal. Methanol is made from
petroleum, 50 percent of which is imported.
Meeting the nation's !20-million-gallon
annual demand for windshield washer
solvent would require 24 million bushels
of corn.
The Aquinas plan is being supported by
the new Alternative Agricultural Research and
Commercialization (AARC) Center, a branch
of the U.S. Department of Agriculture. As part
of its 1993 round of repayable awards to
promising new ventures, the A.\RC Center will
provide 5400,000 to the NCGA to help launch
production of the ethanol-based solvent and to
market the new product. Once sales generate
revenue, Aquinas will repay the public funds.
The consortium of Aquinas, the NCG.^ and Goodwill Industries will invest 5945,000 in the new ven-
ture. Rapid consumer acceptance is expected, based on the fact that Aquinas is well-established in the
windshield washer solvent market toda) with its current methanol product.
^C^ 7 "^ So
Hliliii
Illustraiion Dy Ei3 Coumer
National Corn Growers Association, MO
Sponsor's Contact: John R. Cannpen, (314) 275-9915
Raw Material: Corn
Product: Ethanol-Based Windshield Washer
Solvent
AARC: $400,000
Cooperators Contributions (est.): $945,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Ptmtea on recyctoa paper using soybean based ink.
175
AARC
Alternative Agricultural Research & Commercialization Center
»--• :'Bi»«*. rva*^*»*w.-*
Kansas Wheat to Feed America
in a New Way
With S 5 billion pounds of petrole-
um-based plastics produced each
year in the United States — and
22 billion pounds discarded each year, filling
up the landfills — the public demand for
alternatives is escalating.
One answer being pursued by Midwest
Grain Products of Atchison, Kansas, is to
manufacture a fully biodegradable plastic
made not from imported, non-renewable
petroleum but from domestically grown
wheat. As the \<orld's largest producer
of the gluten and starch separated from
the wheat kernel. Midwest Grain is com-
mitted to developing a new generation
of wheat-based products — plastics that
are "environmentally friendly" all the
way from growing the annually renewable
grain to disposing of the biodegradable plas-
tic product.
In support of the Midwest Grain effort,
the Alternative Agricultural Research and
Commercialization (AARC) Center, a branch
of the U.S. Department of Agriculture, is
investing S8 1 8,000 to help develop new
wheat-based industrial products. Midwest
Grain itself will invest 5850,000 in the first
step, designed to produce a competitively
priced biodegradable polymer for use in
adhesives. coatings and films. The new poly-
mer would replace petrochemical polymers.
Because wheat will remain a major food
crop, industrial uses have tended to be
ignored. Even at times of surplus, the feeling
has been that it is better to stockpile a food
crop than to develop industrial markets for a
crop that might be in short supply in the
future. Toda)-, however, persistent wheat sur-
pluses and wheat's unique properties have
triggered research into new industrial uses.
As one of the world's oldest and best-
researched crops, wheat is produced with model efficiency around the world. With new varieties and new,
genetically engineered answers to pest problems, wheat yields should continue their steady increase. As a
result, there is no doubt that enough wheat will be produced to meet whatever market demand is created
by new industrial uses developed by Midwest Grain and other companies.
Illustration Dy Ed CourrMf
Midwest Grain Products Inc., KS
Sponsor's Contact; Rangan Chinnaswamy,
(913)367-1480
Wheat
Adhesives. Films, Coatings
& Food Service
Raw Material
Product:
AARC:
Cooperators Contributions (est.):
$818,000
$850,000
USOA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnied on rccyded paper using soybean-btised ink.
176
/^TAKv^ VV° ' Alternative Agricultural Research & Commercialization Center " •.
Lesquerella: Global Rethinking
of Renewable Resources
If all goes according to business
plan, expect to see lesquerella — a
desert shrub native to the
American Southwest — transformed
into an important ingredient in everything
from high-performance specialty plastics,
industrial nylons and lubricants, to high-
priced cosmetics.
Dr. Keith Walker, director of develop-
ment for the Agrigenetics Company of San
Diego, California, says of lesquerella 's
commercial prospects: "The things that we
see which bode well for vegetable oils as
industrial products are the global rethink-
ing of the role of renewable resources and
the interest in so-called 'environmentally
friendly products.' These trends mean that a
new product may not be economically viable
now, but very soon it could become viable
due to environmental and political changes."
Agrigenetics is so upbeat about les-
querella's future that it is spearheading a
consortium designed to replace the $30 mil-
lion worth of imported castor oil with
domestically produced lesquerella oil as
quickly as possible. To support this effort,
the Alternative Agricultural Research and
Commercialization (AARC) Center, a branch
of the U.S. Department of Agriculture, is
investing S776, 1 1 0 to speed development of
lesquerella. This investment will be repaid
with interest once lesquerella oil production
is profitable.
Agrigenetics plans to invest an addition-
al 5267,000 and other partners have pledged
over S 1 million. Previous Agrigenetics
research estabhshed that lesquerella seed,
grown and processed with standard equip-
ment, produces specialty oils containing com-
mercially valuable hydroxy fatty acids. The
current project focuses on domesticating wild
lesquerella to raise its yield of both seed and high-quality oil.
Lesquerella offers environmental and economic benefits, including new products made from a
domestic, renewable resource, and an alternative crop for farmers that requires less water than traditional
crops such as cotton.
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recycled paper using soyboarib.ist^ ink
lllustraiion Dy £3 Couiner
Agrigenetics LP., CA
Sponsor's Contact: Keith Walker, (619) 453-8030
Raw Material: Lesquerella - New Crop
Product: Lubricants & Cosmetics
AARC:
Gooperators Contributions (est.):
$ 776,110
$1,267,000
177
AARC
■i :-.
Alternative Agricultural Research & Commercialization Center
■ry-j
Replacing Petroleum with
Renewable Crop Oil
Watch for it soon in your engine and
transmission oils — new, high-
performance lubricants routinely
made from renewable crop oils rather than
from imported petroleum. Once this higher-
priced alternative turns into commercial real-
ity for the ordinary motorist, the results
should mclude not only smoother-running
engines but environmental benefits ranging
from cleaner air and water to more sustain-
able farming practices.
American industry's switch from
depending on non-renewable, imported
petroleum to using renewable U.S. crop oils
to make everything from lubricants to steel-
strength plastics is already happening. This
process could be accelerated significantly if a
project championed by International
Lubricants Inc. of Seattle, Washington, is
successful.
"Bio-friendly" crop oils are in use
today thanks to environmental regulations
creating a small, but promising, market.
These liigher-cost oils are required in applica-
tions such as hydraulic fluids for use in
earth-moving equipment operating around
dams and other locations where surface- or
groundwater could be contaminated by
petroleum oils. As environmental concerns
grow, more rapidly biodegradable crop oils
are expected to be required for many other
uses.
To help ensure that competitively priced
crop-based oils are available to satisfy increas-
ing market demand, the Alternative
Agricultural Research and Commercialization
(AARC) Center, a branch of the U.S.
Department of Agriculture, is investing
S480,000 this year in an International
Lubricants project designed to turn rapeseed
oil into a major industrial feedstock.
International Lubricants itself is investing S230,000 and other partners uill invest 5260,000 as part of the
AARC-supported rapeseed project. The project's goal is to develop efficient procedures for turning rape-
seed oil into a low-molecular-vveight telomcr that would have wide applications as the raw material for
manufacturing lubricants and new industrial products such as high-strength nylon 1313.
International Lubricants Inc., WA
Sponsor's Contact: Frank L, Erjckson. (206) 762-5343
Raw Material: Rapeseed Oil or Crambe Oil -
New Crop
Product: Lubricants
AARC: $480,000
Cooperators Contributions (est.): $490,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnicdon recyclaS paper using soyOe^nOASi^ inK.
AARC
178
Alternative AgricuKural Research ft Commercialization Center
Recycled, Renewable 'Environ'
from Minnesota
Mixing used.newspapers with this
country's abundant supply of soy-
bean meal creates a versatile new
material for a wide range of uses. At the same
time, it promises to create new jobs and eco-
nomic activity in rural America.
With these economic and environmental
benefits in sight, the Alternative Agricultural
Research and Commercialization (AARC)
Center is providing public funds to support
development of the new product, "Environ,"
made by Phenix Composite Inc. of Mankato,
Minnesota. The composite material, created
mostly from waste paper and soybean meal,
combines the easy-working properties of
wood with the appearance and sales-appeal of
pohshed granite.
Environ began with a schoolgirl's
sixth-grade science fair project. Her
experiment with old newspapers and her
mom's kitchen blender wrecked the
blender, but she now shares in the patent
and owns stock in the company
Phenix Composite's next step is to
move from pilot scale to full production, to
fill a promising market in decorative pieces
and furniture in a variety of colors. To help
make that step, the AARC Center is providing
S 1 million to supplement S 1 .5 million in new
Phenix Composite investment. So far, Phenix
Composite has invested S5.2 million to devel-
op Environ. The AARC Center investment will
be repaid out of Environ sales.
To minimize transportation costs.
Environ is expected to be produced in a net-
work of small plants located throughout rural
America. The first Environ manufacturing
facility, to be located in the Mankato area, is
expected to employ 60 people. Environ
should provide a growing market for the waste
paper that represents more than 40 percent of
the materials dumped in landfills today The
market for Environ itself is expected to grow
rapidly hiitially being introduced for use in furniture and small items, it soon should be available as a
structural building material for both interior and exterior uses.
Phenix Composite Incorporated, MN
Sponsor's Contact: Rodney D. Skillman, (507) 387-4848
Raw Material: Soybean Flour & Recycled
Newsprint
Product: Granite-like Material
AARC:
Cooperators Contributions (est.):
$1,000,000
$1,500,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnniea on recycled paper using soyPean-based ink
179
AARC
Alternative Agricultural Research & Commercialization Center
Growing Grass — and New Jobs
for Rural America
7 ^'■^ ^' ^
1' ■'K^/'h3
■,'1 ^£.
-■-f—
Take 50,000 acres of kenaf (an ancient
fiber crop now grown in the southern
and western states) , add grass seed
and ingenuity.
The expected result is 46 new jobs cre-
ated in a rural community — and the envi-
ronmental benefits associated with finding
new uses for soil-protecting, renewable agri-
cultural products.
The new "Roll and Grow" grass mat
developed by Agro-Fibers Inc. of Corcoran,
California, offers an economical way to create
a new lawn — in some cases saving the con-
sumer 40 percent or more over traditional
seeding methods. The mat is entirely
biodegradable and helps fertilize the grass
seed as it grows. It also reduces the amount
of water required to start a lawn.
The combination of job creation
and environmental benefits naturally
attracted the interest of the new
Alternative Agricultural Research and
Commercialization (AARC) Center, a
branch of the U.S. Department of
Agriculture. Typical of the generally
small entrepreneurial firms picked for
this year's initial awards of S 1 0 million in
public funds, Agro-Fibers is in line to receive
an 5800,000 investment of AARC Center
money to complement the S3. 1 million
invested by Agro-Fibers Inc. In return, the
company will be combining new ideas, new
technology, and a new commercial crop in
ways designed both to generate rural jobs and
to improve the environment. In addition, if
sales of the new kenaf grass mats develop as
rapidly as planned, the taxpayers' money
should be fully repaid, with interest, witllin
two to three years.
The number of new production plants
— and the number of new jobs — will
depend on consumer demand. Early interest in the product suggests that the initial plant employing 46
people will be the first of many The company expects to carve out an estimated $50-million niche in the
multibiUion-dollar home gardening industry The greater this niche turns out to be, the greater will be the
environmental benefits from turning waste forest fibers and soil-saving kenaf, grown without chemicals,
into a high-value, commercial product.
Agro-Fibers Inc., CA
Sponsor's Contact: Gordon Fisher, (209) 992-2265
Kenaf, Wood Waste. Grass Seed
Grass & Flower Mats
Raw Material
Product:
AARC:
$ 800,000
Cooperators Contributions (est.); $3,100,000
USDA-AARC CENTER • 12th & C St. S.VV. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnt&3 0f\ fecyctea paper using soybean -based ink.
180
AARC
Alternative Agricultural Research & Commercialization Center
Farmer-Rancher Group Turns
Corn into Chemicals
Anything made from a barrel of petro-
leum, also can be made from a bushel
of corn or from farmers' other crops.
However, higher production costs have offset
the multiple environmental advantages of
using renewable, less-polluting crop oils and
chemicals in place of those produced from
imported, non-renewable petroleum.
To overcome the cost barrier, a group
of farmers and ranchers has spent eight years
developing patented new technology for
turning their corn into high-value industrial
chemicals such as propylene glycol, glycerin
and ethylene glycol — chemicals that are the
feedstocks for such products as polyester
resins and fibers, polymers, laundry deter-
gents, pharmaceuticals, cosmetics, synthetic
fats and antifreeze.
The group's Redmond, Washington,
company. International Polyol Chemicals Inc..
has demonstrated its new technology by
turning corn starch into industrial chemicals
at the pilot-plant level. The company cur-
rently processes S.OOO tons of corn starch per
year The next step is to develop a commer-
cial-scale plant designed to be competitive
with petrochemical plants by processing
100,000 tons per year.
Company officials explain that achiev-
ing commercial production levels will require
changes to bring production costs do^ATl
through a combination of increasing the
yield of chemicals per bushel, changing the
mix of chemicals produced, developing a
less-costly catalyst, and reducing investment
costs.
To help International Polyol go commer-
cial, the Alternative .Agricultural Research and
Commercialization Center, a branch of the U.S.
Department of Agriculture, is investing
5300,000 this year in support of additional
research efforts. The expected payoff for the
nation should spread far beyond Washington
state. If International Polyol succeeds in making
petrochemicals, the benefits will include cleaner
income for rural America.
Illustration by Ed Courner
International Polyol Chemicals Inc., WA
Sponsor's Contact: A. Terry Brjx, (206) 861 -6565
Raw Material: Corn
Product: Ethylene Glycol, Propylene Glycol
& Glycerin
AARC: $300,000
Cooperators Contributions (est.): $601 ,000
"chemicals from corn" commercially competitive with
air. cleaner waier. reduced oil imports and a new source of
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recyded paper using soyOean-Msed ink
181
AARC
Alternative Agricultural Research & Commercialization Center
Non-toxic, Biodegradable
Pesticide Packaging
Encapsulating pesticides in a non-toxic
coating generates many benefits —
such as protecting workers who apply
the pesticides, protecting the environment,
protecting pesticides from deterioration, and
reducing the amount of pesticide needed,
since it all reaches its intended target.
With such benefits in mind,
researchers from the U.S. Department of
Agriculture, universities and private industry
have been working together to develop effi-
cient encapsulation systems. One of the
most promising new technologies has come
from the joint efforts of USDA's Agricultural
Research Service and the Biotechnology
Research and Development Corporation
(BRDC), an Illinois company specializing
in high-risk agricultural biotechnology
research.
A key BRDC goal in the pesticides area
is to fine-tune the use of corn starch as an
encapsulation agent for both crop and bve-
stock pest-control applications. The major
challenge has been the need to dry and grind
the starch/pesticide mi.\ture to form gran-
ules or powders. Now, new techniques
developed jointly by BRDC and the
Agricultural Research Service eliminate the
drying and grinding steps by creating self-
forming granules. The result is an active
pesticide — either chemical or biological —
entrapped witliin a starch or flour matrix
formed by the granule. The granule protects
the active ingredient from deterioration due to
handling or storage and provides for con-
trolled release when the pesticide is applied.
An additional advantage of the starch-coated
product is that it adheres naturally to plant
surfaces, making it more target specific and
less likely to move into the soil or water when
applied to a crop.
BRDC and four of its shareholder companies — American Cyananiid, Dow Chemical. ECOGEN and
Pitman-Moore — are investing S475,000 in a new program designed to commercialize the encapsulation
process. The A.ltcrnative Agricultural Research and Commercialization Center, a branch of the U.S. Depart-
ment of Agriculture, is investing a repayable S500.000 to support this commercialization efibrt. Projec-
tions show that successful commercialization could create a market for 30 miUion bushels of corn per year.
iDuslraiKyi by Ed Cou/ruir
Biotechnology Research & Development Corp., IL
Sponsor's Contact: J. Michael Gould, (309) 688-1 1 88
Raw Material: Corn
Product: Starch-Encapsulated Pest Control
Formulations
AARC: $500,000
Cooperators Contributions (est.): $500,000
USOA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnied on recycled pjper ustng ^oytyeantdsed ink
AARC
182
Alternative Agricultural Research & Commercialization Center
Rodale Heads Team Testing
Compost Benefits
Not including the time donated by
commercial farmers such as Bob
Keller in Lititz. Pennsylvania, a con-
sortium headed by the non-profit Rodale
Institute is investing $553,091 in an effort to
calculate the many benefits of on-farm com-
posting — and to discover and deal with any
possible problems, such as contamination of
soils or water supplies with pesticides or
heavy metals.
Along with the Rodale Institute of
Kutztown, Pennsylvania, the research team
includes the University of Pennsylvania, the
Department of Agriculture's Agricultural
Research Service, and the Novon Company, a
division of the Warner-Lambert Company of
New Jersey. To support this .research project,
another 5200,000 is being provided by the
Alternative Agricultural Research and
Commercialization (AARC) Center, a branch
of the US. Department of Agriculture.
Among the expected payoffs from this invest-
ment of public funds:
► an added-value system for using,
rather than landfilling, munici-
pal wastes such as sewage
sludge, leaves and the
• biodegradable plastics devel-
oped by Novon;
^ an additional income source for
farmers who may be able to sell
the compost they produce, as
well as using it on their own
fields;
^ a reduction in the environmental
problems caused by improper
disposal of wastes that can pol-
lute soil and water and;
^ distribution of information about
the benefits of organic compost
ic fertilizers produced from non
^fe
illusiranoo Dy Eo Coumer
Rodale Institute/Penn State, PA
Sponsor's Contact: Rhonda Janke, (215) 683-1412
Raw Material: Corn-Starch Based Restaurant
Materials; Farm Animal Manures;
Animal Bedding Materials; &
Municipally Generated Yard Waste
Product: Compost
AARC: $ 200,000
Cooperators Contributions (est.): $ 553,091
as a soil-enriching, water-saving alternative to using synthet-
renewable natural gas.
The project is designed to develop improved systems for composting. When properly managed,
composting reduces wastes so that it is possible to process and use the compost in ways that help, rather
than harm, the environment. Using natural bacterial action to decompose wastes, composting produces
carbon dio.xide, water vapor, heat and stabilized organic matter.
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (?02) 401-4860 • Fax: (202) 401-6068
Printed on lecvclea paper using soybean-based ink
183
AARC
Alternative Agricultural Research & Commercialization Center
Nebraska Farmer Co-op Studies
'Biodieser Options
For the 300,000 Midwest farmers and
ranchers who own Ag Processing Inc.,
the world's largest soybean processing
co-op, "biodiesel" is the fuel of the future.
To make sure that crop-based, renewable,
environmentally friendly fuels achieve their
promise as quickly as possible, Ag Processing
is launching a major study to determine the
best technology for producing biofuels.
In support of this farmer-driven re-
search initiative, the Alternative Agricultural
Research and Commercialization Center, a
branch of the U.S. Department of Agriculture,
has committed $36,000 to the search.
Ag Processing's objective is to build on
its present strengths in vegetable oil refining
by expanding into biodiesel production. The
co-op, which operates eight soybean pro-
cessing plants in Arkansas, Iowa, Minnesota
and Missouri, sees major new soybean-oil
markets opening up as a result of legislation
such as the 1988 Alternative Motor Fuels
Act, the 1990 Clean Air Act and the 1992
National Energy Policy Act. Collectively, this
legislation represents a congressional deter-
mination to reduce U.S. dependence on
imported, non-renewable petroleum and
increase the use of domestically produced,
cleaner-burning, renewable fuels made from
crops such as soybeans and other oilseeds.
Ag Processing's initial goal is to identi-
fy the best procedures for turning vegetable
oils into fuel. To solve the problem of the
vegetable oils' high viscosity, which causes a
number of engine problems, four basic meth-
ods are used today:
^ dilution with petroleum diesel
fuel or a variety of solvents,
^ microemulsification with an
alcohol such as methanol or
ethanol,
^ p)Tolysis or "cracking" with heat,
^ transesterification with alcohols which results in less viscous fatty
glycerol as a marketable by-product.
Studies so far indicate that transesterification, as used commercially in Europe, or microemulsifica-
tion may be the most efficient methods. Higher cost remains the overriding obstacle to increased use of
biodiesel, but this barrier is expected to change as both oilseed yields and processing teclinology improve.
USOA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnted on recycled paper using soybean-based ink
lUustrauon Dy Ed Coumer
Ag Processing Inc., NE
Sponsor's Contact: William Lester, (402) 496-7809
Raw Material: Soybeans
Product: Study to Help Determine the Best
Available Technology for the
Production of Biodiesel
AARC:
Cooperators Contributions (est.)
$36,000
$ 9,000
esters suitable as fuel and
184
r\r\l^\J> ■■■'-''•^m^SSI-L- Alternative Agrlcultura! Research & Commercializatioh Center ." >; -
■ -III.- .1. iMf'"- " ■"'^aVt' --''■-1iniililYTrwf*""''lSi'(Wifr^ni>iiiiiiirrJlrf'r! «,-j.jiiiiiinim iYi^nni^in-.rr»i««iiiiimiii'iH-r-ii-<»i n nlrirriin tuarf-i^^iiaiA-aM
Wool — an Environmental
Answer to Oil Spills
Waste wool could turn into the treat-
ment of environmental choice for
oil spills and other nasty clean-up
problems.
Low-grade wool that currently has no
market offers a range of economic and envi-
ronmental benefits for the clean-up industry:
^ as a waste product, it's cheap;
^ it is a natural, renewable and
fully biodegradable product;
^ it's tough enough to be used
under the roughest Arctic
conditions;
^ yet it's gentle enough to swab
down oiled birds and mam-
mals; and
^ best of all. it naturally absorbs
from 10 to 30 times its weight
in oil.
As a first step in developing a range of
alternative uses for wool, five organizations
have joined forces to pool their expertise.
The members of the new "Wool
Environmental Products Consortium" are
Hobbs Bonded Fibers of Mexia, Texas;
Western Textile Products Co. of Dallas, Texas;
SnugFleece International of Pocatello, Idaho;
Te.xas Tech University of Lubbock, Texas; and
the American Wool Council, headquartered
in Englewood, Colorado.
Together, the consortium members are
investing S7 1 6,344 in their first project —
turning low-grade wool into the traditional
booms, pads, socks and other items used by
the clean-up industry to deal with spilled and
leaked Uquids. To support the project, the
Alternative Agricultural Research and Com-
mercialization Center, a branch of the U.S.
Department of Agriculture, is providing S700,00 as an investment to be repaid from sales of the new
products.
The consortium's first step will be to manufacture and test the new wool clean-up materials on a
pilot basis. Once floating oil-spill booms and other items are commercially available, the consortium
expects rapid industry acceptance based on lower purchase and disposal costs per gallon of oil absorbed
and improved performance compared wdth current clean-up products. As an added benefit, the consor-
tium expects its wool pads to be reusable after squeezing out collected oil — and eventually capable of
being broken down into polypeptides and amino acids for use as protein concentrate for animal feeds.
Illustration oy Ed Courre'
Hobbs Bonded Fibers, TX
Sponsor's Contact: Carey Hobbs, (817) 562-5998 (fax)
Raw Material:
Product:
AARC:
Waste Wool (817) 562-5351
Booms, Pads, & Socks
$700,000
(Tel)
Cooperators Contributions (est): $716,344
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recycled paper using soybean tjsed mk
AARC
185
Alternative Agricultural Research & Commercialization Center
Pacific Northwest Partnership
Weaving Straw into Paper
A partnership linking a major forest-
products company with Oregon State
University and the Oregon Department
of Agriculture could turn waste straw into a
tree-saving source for the specialty paper used
in making cardboard boxes.
Weyerhaeuser Paper Company has made
a major commitment to studying whether
straw could be one answer to the problems
created by the logging restrictions that have
cut the supply and driven up the cost of
wood chips. Currendy, wood chips pro-
vide the fiber for Weyerhaeuser's pulp
and paper plants. One major product of
these plants is the "linerboard" brown
paper used to make the corrugated sheet-
ing used in cardboard boxes.
Weyerhaeuser considers its "straw-
into-paper" project a high-risk investment
with "potentially serious impacts on the pulp-
ing process, paper-making process, box-mak-
ing, and the box customers." However,
Weyerhaeuser's forecast of substantial environ-
mental benefits if the project succeeds led the
company to earmark $209,000 to research
new technology for processing straw into
paper. Oregon State University and the
Oregon Department of Agriculture are con-
tributing S 1 50,000 to support this research.
A $350,000 investment by the Alternative
Agricultural Research and Commercialization
Center, a branch of the U.S. Department of
Agriculture, will be used to study methods for
collecting and storing straw.
Straw provides a lower-quality fiber than
wood, so the challenge is to blend the two
fibers in a way that will meet the strength and
durability requirements for cardboard ship-
ping boxes. If the project turns straw into a
major feed stock for cardboard, the economic
and environmental payoffs should include;
^ replacing wood with annually renewable straw in certain paper manufacturing processes.
^ helping ehminate the air-pollution problems caused by farmers burning waste straw,
^ turning a disposal problem into a new market for farmers' straw.
Illustration tiy Ell Coumet
Weyerhaeuser Paper Company, OR
Sponsor's Contact:
Raw Material:
Product:
AARC:
Wayne H. Nay, (503) 741-5700
Annual Ryegrass Straw
Linerboard
$350,000
Cooperators Contributions (est.): $359,000
USDA-AARC CENTER ♦ 12tti & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
PnnleiS on recycled paper usir^g soyt>enn-base<t /nk
186
AARC
Altemativ* Agricultural Research & Commercialization Center
Kenaf Revival Could Launch
Texas Newsprint Industry
One of the world's oldest fiber crops
— kenaf — could become a major
source for newspaper "newsprint"
and for fiber panels. With more than half of
the nation's newsprint imported (adding
about S3. 8 billion to the U.S. trade deficit
each year) kenaf newsprint could save both
trees and money.
Drawing on more than 20 years of
active U.S. research into kenaf production
methods and potential markets for this
annual, hot-climate crop, Kenaf Internationa]
of McAllen, Texas, plans to build a S50-mil-
lion pulp mill designed to produce 30,000
tons of newsprint per year. The first S20-
million phase of this project will produce
pulp for use in "Gridcore''''^" fiber panels
and for sale to paper mills. Phase two wall
add equipment to produce newsprint.
After repeated commercial-scale
tests, kenaf is acknowledged as a cost-
competitive source of newsprint.
Compared with wood-pulp paper, research
shows kenaf paper as stronger, whiter, less
yellowing, capable of sharper photo repro-
duction and more user-friendly due to better
ink adherence (thus requiring less ink and
resulting in less ink ruboffon readers' hands).
The proposed plant is designed to produce
newsprint from a mix of kenaf and recycled
newspapers, with the ratio varied depending
on the availability of the two components.
Kenaf International General Manager
Charles Taylor explains that kenaf newsprint
pays economic and emironmental dividends
because; "A tree-free paper that requires rela-
tively minimal chemical inputs in either field
or mill operations reduces both costs and emi
ronmental concerns. Energy consumption is
15 to 25 percent lower for kenaf than that
required to pulp southern pine. . . and the
treated waste water can be used to irrigate
nearby fiber crops."
The Alternative Agricultural Research and Commercialization Center, a branch of the U.S. Department
of Agriculture, is investing a repayable SI 00.000 this year to help Kenaf International prepare materials for
a project financing plan for presentation to potential investors and lenders. To supply the proposed
newsprint plant, the 25 Texas farmers now growing 3,000 acres of kenaf for research purposes would have
a steady market for far larger acreages of kenaf
Kenaf International Ltd., TX
Sponsor's Contact: Charles S. Taylor, (210) 687-261 9
Raw Material:
Product:
AARC:
Kenaf
Newspaper & Specialty Products
$100,000
Cooperators Contributions (est.): $100,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recycled paper using soytean-aased ink
187
AARC
AKemative Agricultural Research & Commercialization Center
Multi-State Team to Set
'Biodieser Standards
With the deadline nearing for com-
pliance with the stringent emis-
sions standards of the 1990 Clean
Air Act. "biodiesel" is gaining support as an
alternative fuel. But what is biodiesel?
That's the question the not-for-profit
American Biofuels Association seeks to
answer with a S 1 40,000 award from the
Alternative Agricultural Research and
Commercialization (AARC) Center, a branch
of the U.S. Department of Agriculrure.
Biofuels can include a wide variety of
fuels and fuel blends containing various per-
centages of petroleum diesel fuel, soybean-
derived oil, or oil obtained from other
oilseed crops and animal fats. The Biofuels
Association seeks to estabUsh standards
and clarify terminology
In the research project made possi-
ble by the AARC Investment, a standard
diesel engine will be tested with various
concentrations of soy-based biofuels.
Levels of emissions for unburned hydro-
carbons, carbon monoxide, particulate
matter and oxides of nitrogen will be
determined. In adchtion, engine durability
testing will be carried out to determine if
new engine lubricants need to be developed
for use with biodiesel.
Along with the American Biofuels
Association, research partners for this project
include the National SoyDiesel Development
Board, a trade organization committed to the
development of biodiesel fuels based on soy-
beans; and the Southwest Research Institute,
a private, ERA-approved research facility in
Texas that will conduct the actual emissions
tests with soydiesel in a Detroit Diesel 6V92
engine that is standard for city bus fleets.
Developing new fuels that make it possi
ble for today's standard diesel engines to meet
Clean Air Act emissions requirements is con-
sidered the quickest and most cost-effective
way to generate environmental gains. This
approach promises to reduce air pollution in
die nation's major cities without the major
investment that would be needed to redesign
engines. As a bonus, the switch from petrole-
um-based diesel to an increasing use of renew
non-renewable petroleum.
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnted on fecyded paper using soybean-based tnk.
American Biofuels Association
National SoyDiesel Development Board, MO
Sponsor's Contact: Earle E. Gavett, (202) 554-1025
Raw Material: Soybeans & Tallow
Product: Set Standards Jor Emissions
& Engine Performance
AARC: $140,000
Cooperators Contributions (est.): $130,000
able biodiesel fuels will reduce the nation's bill for importing
•-fn ecr\ ^\ CiA
188
AARC
Alternative Agricultural Research & Commercialization Center
Turning Waste Animal Fats into
Clean-Burning Fuel
The fat you don't want in your fast-food
hamburgers may be just what's needed
to clean up America's cities.
This potential for turning waste animal
fats into a clean "biodiesel" fuel for the
nation's bus and truck fleets has created a
partnership linking public and private research
groups. The expected result is a fuel that will
enable major urban areas like Los Angeles,
Denver, Chicago, Boston and Atlanta to meet
the increasingly stringent air-quality standards
set by the federal Clean Air Act.
To speed development of a new low-
cost alternative fuel, the non-profit Fats and
Proteins Research Foundation of Ft. Myers
Beach, Florida, has launched a cooperative
research effort. Joining the foundation in the
drive to turn fats into fuel fast are Stratco, a
private engineering company in Kansas; the
Agricultural Utilization Research Institute of
Minnesota; the National Livestock and Meat
Board; and the Alternative Agricultural
Research and Commercialization (AARC)
Center, a branch of the U.S. Department of
Agriculture. To bolster the $33,500 plus in-
kind services being provided by the other
groups, the AARC Center is investing S 1 0,000
to support the research.
The key to the project is Stratco "s propri-
etary technology focused on turning fats and
oils into clean-burning methyl ester diesel
fuel. The Fats and Proteins Research Foun-
dation, supported by the U.S. rendering indus-
try, is hopeful that Stratco 's technology can be
used to develop a commercially competitive
process for turning rendered animal by-prod-
ucts into a major feedstock for diesel fuel.
Currently "biodiesel" is a blend of soy-
bean oil and conventional petroleum-based
diesel fuel. The advantage is that biodiesel
gives off significantly lower levels of particulates, sulfur, hydrocarbons and carbon monoxide. An added
environmental bonus is that the biodiesel — whether produced from vegetable oils or from inedible animal
fjts — draws on renewable resources rather than non-renewable petroleum. Another major incentive for
the AARC Center to invest in this project is that it holds the promise of creating new jobs both in farming
communities and in the rendering industry as oil imports are reduced.
Fats & Proteins Research Foundation Inc., FL
Sponsor's Contact: Fred D. Bisplinghoff, (813) 463-4744
Raw Material: Waste Cooking Fats & Oils, Inedible
Tallow, Lard, Inedible Greases
& Poultry Fat
Product: Methyl Ester Commercialization
AARC: $10,000
Cooperators Contributions (est.): $61 ,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
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AARC
189
Alternative Agricultural Research & Commercialization Center
California Firm Commercializing
USDA Invention
The Agriculture Department's Forest
Products Laboratory dreamed up egg-
carton-liice "Spaceboard." a strong yet
lightweight molded-fiber panel made from
waste wood. Now a private licensee plans to
turn the renamed "Gridcore"'^^'" panels into
cheaper, stronger alternatives to standard
wood panels for uses ranging from stage sets
to building walls.
Gridcore Systems International of
Carlsbad. California, has carried out extensive
tests with Gridcore^'^ panels made from
kenaf. an ancient, bamboo-like plant now
bemg grown on a small scale in California,
Texas and Mississippi.
The initial aim of Gridcore 's kenaf-
based panels is to evaluate their use for stage
sets and exhibition or trade-show displays.
Longer-term, Gridcore plans to develop pan-
els for use in the building-materials industry
Several firms have agreed to evaluate the pan-
els for use in all these areas. Currently.
Gridcore is testing different raw materials,
formulations and manufacturing processes
for various construction, arts-and-crafts and
sporting-goods applications.
The Alternative Agricultural Research
and Commercialization (AARC) Center, a
branch of the U.S. Department of Agriculture,
is supporting the Gridcore research program
with a S50.000 investment. As part of the
AARC-supported program. Gridcore will focus
research specifically on the use of agricultural
and forestry fibers as the raw materials for
molded panels. E.\perimental panels also are
being made from mixed waste paper, includ-
ing old corrugated containers and newspapers,
and from recycled plastics.
Gridcore^"' panels begin as a watery
solution of fibers poured onto a molding
table. After water is vacuumed out the bottom, the resulting mat of fiber is then pressed into a sub-panel
that is ribbed on one side and smooth on the other. Two sub-panels are glued together at the ribbed sides,
resulting in a strong, lightweight, extremely versatile panel up to 4 by 9 feet in size.
Development of a kenaf-based panel interests the AARC Center, since commerciahzation would create
new demand for kenaf — a crop that the USDA has promoted for making newsprint from an annually
renewable, non-wood source.
Gridcore Systems International Corporation, CA
Sponsor's Contact: Tim Newbum, (619) 431-8494
Raw Material: Kenaf
Product: Office Dividers, Furniture & Panels
for Stage & Theater Sets
AARC:
Cooperators Contributions (est.):
$50,000
$50,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recycled paper using soybean-based ink
190
AARC
Alternative Agricultural Research & Commercialization Center
Maine-Illinois Connection
Makes Concrete Cleaner
It all started in Maine, where stringent
state and federal regulations on air and
water pollution prevented a concrete
vault manufacturer from expanding his busi-
ness. Officials ruled that pouring concrete in
the traditional way — using a petroleum-
based release agent for the forms — would
pose too great a risk to the environment.
This environmental roadblock led an
Illinois company to develop a completely
non-toxic, biodegradable release agent for
use with concrete forms. Within less than a
year, the Chicago-based Leahy-Wolf
Company researched the manufacturer's
requirements (along with state and federal
environmental regulations), developed and
patented a new release agent, and supplied
the new product made from rapeseed oil.
Result: The vault manufacturer won
permission to expand his operations, and
farmers raising industrial rapeseed found a
new market for their crop.
The next step came when Leahy- Wolf
a well-established firm making industrial
lubricants, decided to market its new envi-
ronmentally friendly release agent nationally
The Alternative Agricultural Research and
Commercialization Center, a branch of the
U.S. Department of Agriculture, is investing
$70,000 to siwport this marketing campaign
for Bio-Form® — expecting that the benefits
will include reduced pollution as petroleum-
based release agents are replaced with the new
renewable product; reduced demand for non-
renewable, imported petroleum; additional
demand for rapeseed oil; and thus new
income for farmers and more fields switched
from traditional crops to soil-protecting
rapeseed.
Traditional release agents not only are known water contaminants but also present worker-safety risks
since they can trigger skin disorders. The rapeseed-based alternative developed by Leahy-Wolf eliminates
both problems. Once the word spreads about the availability of the new product, Bio-Form® is expected
to become the new industry standard, generatmg a steady stream of environmental and economic benefits.
Iliusifation Dy Ed Coum
Leahy-Wolf Company, IL
Sponsor's Contact: Ken Leahy, (708) 455-5700
Raw Material: Rapeseed Oil
Product: Biodegradable Concrete-Release
Agent
AARC: $70,000
Cooperators Contributions (est.): $77,000
USDA-AARC CENTER • 12th & C St. S.W. • Wasfiington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recycled paper using soybean-based inh
191
AARC
Alternative Agricultural Research & Commercialization Center
c
t
Texas Angle on Low-Cost
Ethanol Production
As demand increases for
clean-burning oxygenated fuels due
to federal Clean Air Act
requirements, the ethanol
industry is back in the spotlight
Right at the center of the spot-
light sits AFEX Corporation of
Brenham, Texas, a small compa-
ny that has developed new tech-
nology to make ethanol from "Ugnocellu-
losic biomass material" — meaning such
cheap and widely available feedstocks as hay,
corn stalks and wood.
Over the past five years, AFEX has
researched the new technology at the lab
level and has tested various commercially
available equipment components in prepara-
tion for commercial-scale operations. It has
joined forces with Michigan Biotechnology
Institute (MBI) to demonstrate AFEX's bio-
mass conversion process. AFEX and MBI
forecast that the new process will cut the
cost of ethanol production sharply, com-
pared to present production methods that
use corn as the feedstock for 95 percent of
the one billion gallons of ethanol pro-
duced each year in the United States.
AFEX/MBI forecasts also show that
converting high-volume, low-value crop
residues into ethanol will result in produc-
tion facilities being located in crop-growing
rural areas, creating both a new source of jobs
and additional income for farmers. To help
make this outcome more likely, the Alternative
Agricultural Research and Commercialization
(AARC) Center, a branch of the U.S.
Department of Agriculture, is investing
$250,000 in AFEX's biomass- to-ethanol devel-
opment efforts.
The repayable AARC investment will be
used for detailed studies of ways to achieve commercial production levels most efficiently The AARC
investment will supplement $406,000 that AFEX and other parties will invest in the project.
Success with low-cost biomass-to-ethanol production should result in greatly expanded ethanol use
— and reduced imports of non-renewable petroleum. Additional benefits will flow directly to rural
America if the AFEX process turns into commercial reality; Using biomass to produce ethanol would pro-
vide farmers with new markets for perennial, soil-conserving crops grown on marginal land.
lAuslration by Ed Courn«r
AFEX Corporation, TX
Sponsor's Contact: Earnest Stuart, (51 2) 502-9080
Raw Material: Alfalfa Hay, Costal Bermuda, Straw
& Manure
Product: Fuel Ethanol
AARC:
Cooperators Contributions (est.);
$250,000
$406,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnted on mcycled p^}ef using soybean-based ink
192
AARC
Alternative Agricultural Research & Commercialization Center
Milkweed Could Spin Profits
for Nebraska Farmers
^"^
%<^
Herb Knudsen, President of Natural
Fibers Corporation, isn't the first to
try to turn the troublesome "milk-
weed" into a commercial crop. Interest in
milkweed floss as an alternative to cotton
dates back to at least 1635; 200 years later
the French produced silk-like fabrics from
wild milkweed fibers: and in World War II.
U.S. sailors went to sea with milkweed-filled
life jackets.
Today, Nebraska farmers are growing
milkweed on 160 acres to provide enough
floss for Knudsen 's company to fill "Ogallala
Down" pillows and comforters with the
super-soft and fluffy white non-allergenic
material.
Growing milkweed presents more
problems, however, than just neighboring
farmers' complaints that the weed might
spread. Milkweed's biggest problem is that it
is easy prey for pests and diseases. So yields
remain too low and uncertain to justify full-
scale commercial production. Commercial
production would offer many advantages,
such as eliminating annual planting since
milkweed is a perennial and reducing both
fertilizer and irrigation requirements com-
pared to raising corn on the same Nebraska
fields where milkweed grows best.
Milkweed's promise has sparked a con-
sortium effort to overcome the hurdles. A
group including the University of Nebraska,
North Coast Ventures, Milkweed Growers, and
various individuals is contributing
$1,050,000 to supplement the $4.2 milhon in
Natural Fibers Corporation assets. The
Alternative Agricultural Research and
Commercialization (AARC) Center, a branch
of the U.S. Department of Agriculture, is
investing $150,000 in public fimds to support
the group's program of agronomic research designed to raise milkweed yields to commercially viable levels.
Once yields are up enough to make milkweed an alternative to raising corn, researchers conclude
that the down-comforter market alone could create demand for milkweed production from more than
10,000 acres within the next 10 years.
Illustration by Ed Coi
Natural Fibers Corporation, NE
Sponsor's Contact: Herbert D Knudsen, (308) 284-8403
Raw Material: Milkweed - New Crop
Product: Comforters & Pillows
AARC:
Cooperators Contributions (est.):
$ 150,000
$1,050,000
USOA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnted on recycled paper using soybean-based mk
193
Texas Plant to Test Ethanol
Breakthrough
t
Deep in the heart of Texas
oil country, there's a project that
could sharply reduce the
need for oil while creating thou-
sands of new jobs throughout
rural America. If California-
based Arkenol Inc. is right, its
prototype plant in Texas will
convert a wide variety of woody
materials such as perennial grasses, plant
stalks and waste paper into a low-cost,
renewable source for ethanol.
To prove that its new technology
works on a commercial scale, Arkenol is
committing $4.4 miDion to modernize a
mothballed ethanol plant in Ft. Worth, Texas.
The refit will bring the plant's grain-to-
ethanol processing up to today's standards,
and add the equipment needed to convert
woody "biomass" to ethanol. Of the $44
million, $7 million represents the estimated
costs to commercially demonstrate the pro-
prietary technology to convert switchgrass,
grain sorghum stalks and other lignocellu-
losic material to ethanol.
The project's prospects for creating
rural employment and a less-polluting,
crop-derived alternative to gasoline natu-
rally attracted the interest of the Alternative
Agricultural Research and Commerciahzation
(AARC) Center a branch of the U.S.
Department of Agriculture. To supplement
Arkenol 's own $7 million commitment to
"biomass-to-ethanol," the AARC Center is
investing $ 1 million that will be repaid out of
Arkenol's future profits.
Ethanol already has become an impor-
tant octane-boosting, emissions-reducing
gasoline additive. Currently, corn is the pre-
dominant feedstock for ethanol production. Since the nation's need for ethanol is expected to increase
steadily to comply with the strict emissions standards set by the 1 990 Clean Air Act, research has focused
on developing a range of alternative sources for ethanol production. Biomass converted with the Arkenol
process (using acid to convert cellulose into sugars that are then fermented and distilled to produce
ethanol) could play an important part in meeting the need for increased ethanol production while at the
same time putting marginal croplands to productive use.
luusuaiio" Dv Ed COiffnc*
ARKENOL Inc., CA
Sponsor's Contact: Mark Carver, (714) 588-3767
Raw Material; Switchgrass or Grain Sorghum
Product: Fuel Ethanol
AARC: $1 ,000,000
Cooperators Contributions (est.): $7,000,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Printed on recycled paper using soybean based ink
194
AARC
Alternative Agricultural Research & Commercialization Center
Florida Farm Wastes Could Fill
Your Tank
t
The marvels of genetic engineering
applied to problem piles of agricultur
al waste materials could create an eco
nomical new source of ethanol.
BioEnergy International |
of Gainesville, Florida, a sub-
sidiary of Quadrex Corporation
already has patented its own
process using genetically engi-
neered bacteria to produce ethanol from
woody plant materials. The next step is to
develop a commercially viable system specif-
ically designed to produce high-quality fuel
ethanol from mixed waste paper and agri-
cultural materials, including corn stover (the
dry stalks and leaves left after the corn is
harvested). BioEnergy 's conversion technol-
ogy uses a diluted acid hydrolysis pretreat-
ment. followed by enzymatic hydrolysis to
produce ethanol.
BioEnergy plans to ultimately invest
S3 5 million in this "biomass-to-ethanol"
project to process waste paper and corn
stalks to ethanol. The project is receiving an
additional 5625,000 in outside investment,
including S 100.000 being contributed
from the revolving fund of the Alternative
Agricultural Research and Commercial-
ization (AARC) Center, a branch of the
U.S. Department of Agriculture.
The repayable AARC Center invest-
ment is earmarked for testing and validating
various aspects of the use of feedstocks com-
bining newsprint and corn stover. Part of the
AARC funded work will examine the fermen-
tation of sugars from these combined feed-
stocks. The technical challenge is converting
woody materials into sugars in a cost-effective
way The subsequent procedures for convert-
ing the sugars to ethanol are part of a well-
established process.
The company proposes to enter the current 1 -billion-gallon-per-year U.S. market for ethanol. This
market is expected to expand steadily due to the pollution-reduction requirements of the Clean Air Act. If
all goes according to plan, the first Florida plant will be operating within 4 years and will provide 63 full-
time jobs. Each plant would utilize the waste materials from SO. 000 acres of corn or from similar acreages
of wheat, straw or vegetable crops. BioEnergy forecasts show that the new technology could produce 30 to
SO billion gallons of ethanol per year from agricultural materials that are considered wastes today
BioEnergy also will sell the carbon dioxide generated as a by-product.
iLJsrranon by Ed Coufet
BioEnergy International L.C., FL
Sponsor's Contact: John F. Gerber, (904) 378-971 1
Raw Material: Biomass - Agricultural Waste
Material - & Mixed Waste Paper
Product: Fuel Ethanol
AARC: $100,000
Cooperators Contributions (est.): $150,000
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401 4860 • Fax: (202) 401-6068
Printed on recycled paper using soybean-based ink
195
AARC
Alternative Agricultural Research & Commercialization Center
Forest 'Trash' to Make
Fine Furniture
Creating high-value products from
low-quality or waste materials and
creating jobs in depressed rural
areas: These two goals combmed to pro-
duce the new "molded strandwood"
technology developed by the Michigan
Technological University's Institute of Wood
Research.
Today, Strandwood Molding Inc. of
Lake Linden, Michigan, is ready to commer-
ciahze the new technology by turning lum-
ber residues and poor-quahty or small-diam-
eter logs into precisely shaped furniture
parts. Strandwood s plan is to make use of
readily available labor and lumber in
Michigan's northwestern Upper Peninsula to
create a profitable, new industry — and a
model for what other rural areas could .
accomphsh with available resources around
the country and around the world.
Strandwood itself plans to invest S2
million in commercializing the new technol-
ogy. Along with $ I 55,770 raised from other
sources, the .alternative Agricultural
Research and Commercialization (AARC)
Center, a branch of the U.S. Department of
Agriculture, plans to support the Strandwood
project with a $300,000 investment. The
repayable AARC investment is intended to
support the development of small-scale pro-
duction equipment for use in manufacturing
strandwood parts.
One key to the potential for molded
strandwood is that the new technology can
turn low-quality wood into high-strength,
complexly curved furniture parts that elimi-
nate some of the multiple parts, joints and
fasteners which both add to the cost of furni-
ture making and create weak points in the
furniture. This new "engineered" wood prod-
uct takes advantage of low-cost, readily available materials to create finished products that offer superior
consistency compared to equivalent parts made from solid wood, plywood or plastic.
A second key is that potential markets for compression-molded strandwood stretch far beyond the
furniture industry Offering the environmental advantage of easing pressure on the nation's forests, strand-
wood could become a low-cost, high-strength alternative to ordinary lumber in products such as shipping
pallets, concrete forms, flooring and nestable containers.
Strandwood Molding Inc., Ml
Sponsor's Contact: Bruce A. Haataja, (906) 487-9768
Raw Material; Wood Strands Flaked from
Pulpwood Grade Timber
Product: Molded Strandwood Furniture Paris
AARC:
Cooperators Contributions (est.):
$ 315,000
$2,155,770
USDA-AARC CENTER • 12th & C St. S.W. • Washington, DC 20250
Telephone: (202) 401-4860 • Fax: (202) 401-6068
Pnnled on recycled paper using soybean-based ink
196
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198
^^^•''^'^A
Testimony
on behalf of the
U.S. Meat Export Federation, Inc.
regarding
The Mission of the Foreign Agricultural Service
before the
Subcommittee on Foreign Agriculture and Hunger
and the
Subcommittee on Information, Justice, Transportation and Agriculture
submitted by
Philip M. Seng
President & CEO
U.S. Meat Export Federation, Inc.
Denver, Colorado
November 16, 1993
DENVER • TOKYO • OSAKA • HAMBURG • MEXICO CITY • HONG KONG • SEOUL • TAIPEI- SINGAPORE
Cherry Creek Plaza I Suite 1000, 600 South Cherry Street, Denver, Colorado 80222-1716
Telephone: 303-399-7151. FAX: 303-321-7075
199
THE U.S. MEAT EXPORT FEDERATION WOULD LIKE TO EXPRESS ITS
APPRECIATION TO THE SUBCOMMITTEE ON FOREIGN AGRICULTURE AND
HUNGER AND THE SUBCOMMITTEE ON INFORMATION, JUSTICE,
TRANSPORTATION AND AGRICULTURE, COMMITTEE ON GOVERNMENT
OPERATION FOR THE OPPORTUNITY TO EXPRESS OUR VIEWS ON THE
FUTURE PARTNERSHIP OF U.S. AGRICULTURE AND THE FOREIGN
AGRICULTURAL SERVICE (FAS) IN EXPANDING FUTURE U.S. AGRICULTURAL
EXPORTS.
THE U.S. RED MEAT INDUSTRY AND THE FAS HAVE ENJOYED A
PRODUCTIVE AND FRUITFUL PARTNERSHIP IN EXPANDING FOREIGN
MARKETS FOR RED MEATS OVER THE PAST DECADES, AND THE
PERFORMANCE OF RED MEAT EXPORTS IN RECENT YEARS BEARS THIS OUT.
TOTAL RED MEAT EXPORTS WORTH $740 MILLION IN 1986 HAVE EXHIBITED
EXPLOSIVE GROWTH AND WILL EXCEED $3 BILLION THIS YEAR. USMEFS
LONG-RANGE PLAN PREDICTS THAT RED MEAT EXPORTS CAN REACH
$8 BILLION (1993 DOLLARS) BY 2001 IF THE U.S CAN MAINTAIN ITS
MOMENTUM. SIMPLY STATED, RED MEATS HAVE BEEN ONE OF THE
FASTEST GROWING AGRICULTURAL EXPORT CATEGORIES OVER THE LAST
DECADE. PROSPECTS FOR FURTHER GROWTH ARE BRIGHT AS TRADE
BARRIERS DECLINE, WORLD POPULATION INCREASES, AND ECONOMIC
200
PROSPERITY-BASED ON FREE MARKET POLICIES-EXPANDS TO MOST OF THE
WORLD'S NATIONS.
THE INDUSTRY/GOVERNMENT PARTNERSHIP OF THE PAST IS REPLETE WITH
SUCCESS STORIES OF EFFECTIVE COOPERATION. HOWEVER, THE
CHALLENGES OF THE FUTURE ARE SUCH THAT A THOROUGH EVALUATION
AND REFORM OF THESE PARTNERSHIPS MUST BE UNDERTAKEN IN ORDER
TO MAINTAIN THE MOMENTUM OF OUR PROGRESS IN AGRICULTURAL
EXPORTS.
I WOULD LIKE TO OFFER A VISION OF WHAT THE GLOBAL MARKETPLACE
MAY RESEMBLE AS THE MILLENNIUM TURNS AND DISCUSS THESE
SCENARIOS IN CONTEXT TO THE RELATIONSHIP THAT THE INDUSTRY AND
GOVERNMENT MUST HAVE IN ORDER TO CAPITALIZE ON THE CHANGING,
EVOLVING AGRICULTURAL MARKETPLACE.
TRADE ISSUES WILL BE SUBSUMED BY COMPETITIVE ISSUES
NAFTA, GATT, AND A HOST OF BILATERAL AGREEMENTS HAVE (AND WILL
HAVE) A CUMULATIVE IMPACT OF LOWERING TRADE BARRIERS AND
INCREASING ACCESS TO FOREIGN MARKETS. JAPAN IS PERHAPS THE BEST
EXAMPLE WHERE THE PRIORITY OF EXPORT LED ECONOMIC GROWTH
201
POLICIES HAS SLOWLY OVERRIDDEN THE PROTECTIONIST SENTIMENT OF
AN INEFHCIENT AGRICULTURAL SECTOR AND RESULTED IN THE LOWERING
OF TRADE BARRIERS. PRESSURE FROM ITS TRADING PARTNERS-MOST
IMPORTANTLY THE U.S. GOVERNMENT AND USMEF--ACTED AS A CATALYST
ON JAPANESE POLICY-MAKERS TO UNDERTAKE THE DIFFICULT POLITICAL
STEPS OF OPENING THEIR DOMESTIC FARM INDUSTRY TO FOREIGN
COMPETITION.
IN JUST THE RED MEAT ARENA ALONE, SIMILAR MARKET OPENING EFFORTS
HAVE BEEN UNDERTAKEN IN PARTNERSHIP BETWEEN THE U.S. MEAT
INDUSTRY AND THE U.S. GOVERNMENT IN KOREA, THE EUROPEAN
COMMUNITY, AND SEVERAL OTHER MARKETS. GATT AND NAFTA PROMISE
TO CONTINUE THE PROCESS OF LOWERING TRADE BARRIERS IN
AGRICULTURE AND INSTITUTIONALIZE RULES FOR FREE AND FAIR TRADE.
IN THIS PROCESS, THE U.S. RED MEAT INDUSTRY AND THE U.S.
GOVERNMENT, PRIMARILY USTR AND FAS, HAVE WORKED TOGETHER TO
ANALYZE TRADE BARRIERS AND DEFINE NEGOTIATING POSITIONS WHICH
WOULD ENSURE ACHIEVING MEANINGFUL ACCESS. EVEN UNDER GATT
AND NAFTA, THE INDUSTRY/GOVERNMENT PARTNERSHIP HAS WORKED
EFFECTIVELY TO ANALYZE MINUTE DETAILS OF THE AGREEMENTS AND
ASSESS TRADE IMPACT.
202
UNFORTUNATELY, THE U.S. HAS A REPUTATION FOR ITS STRENGTH WHEN
IT COMES TO OPENING MARKETS BUT WEAKNESS IN MARKETING FOLLOW-
UP. THE BENEFIT OF TRADE AGREEMENTS SHOULD BE MEASURED BY THE
BLACK AND WHITE OF THE "BOTTOM LINE" (I.E., SALES), AND SIMPLY PUT,
SALES IS A FUNCTION OF THE DEGREE TO WHICH THE U.S. CAN COMPETE
IN AN OPEN MARKET. SADLY, OUR COMPETITORS HAVE THE EDGE ON US
WHEN IT COMES TO AGGRESSIVE MARKETING PROGRAMS.
AT LEAST IN THE RED MEAT INDUSTRY, THE U.S. HAS A COMPETITIVE
HANDICAP IN THE GLOBAL MARKETPLACE. ACCORDING TO OUR
RESEARCH, ALL OUR MAJOR COMPETITORS OUTSPEND US IN TERMS OF THE
RATIO OF MARKET DEVELOPMENT SPENDING TO THE VALUE OF THEIR
EXPORTS. TAKE THE EUROPEAN COMMUNITY FOR EXAMPLE; EVEN AFTER
GATT IS FULLY IMPLEMENTED BY 2000, EUROPE CAN STILL DIRECTLY
SUBSIDIZE MEAT EXPORTS TO THE TUNE OF ALMOST $1.5 BILLION PER
YEAR. IN THE U.S., THE RED MEAT INDUSTRY CAN EXPECT LESS THAN
$8 MILLION IN GOVERNMENT RESOURCES IN 1994 FOR EXPORT MARKET
DEVELOPMENT. DESPITE WHAT SOME MAY VIEW AS AN AGGRESSIVE
INTERNATIONAL MARKETING PROGRAM, THE U.S. RED MEAT INDUSTRY
AND THE U.S. GOVERNMENT STILL COLLECTIVELY SPEND LESS THAN
1 PERCENT OF ITS TOTAL INTERNATIONAL SALES ON FOREIGN PROMOTION.
203
THIS PERCENTAGE IS DECLINING AS THE EXPORT COMMITMENT BY THE
GOVERNMENT DECLINES.
INCREASING U.S. COMPETITIVENESS WILL REQUIRE LONG-TERM STRATEGIC
PLANNING AND A MORE EFFECTIVE GOVERNMENT/INDUSTRY PARTNERSHIP
COMPETING IN THE INTERNATIONAL MARKETPLACE WILL BE THE PRIMARY
CHALLENGE OF THE REMAINDER OF THIS DECADE AND BEYOND. BECAUSE
RESOURCES ARE DECLINING, THE NATURE AND EFFECTIVENESS OF THE
INDUSTRY/GOVERNMENT PARTNERSHIP IS CRITICAL IF THE U.S. WANTS TO
HAVE EVEN A FIGHTING CHANCE IN THE INTERNATIONAL MARKETPLACE.
THE IMPORTANCE OF EXPORTS TO THE U.S. RED MEAT INDUSTRY CANNOT
BE OVERSTATED. FACED WITH YEAR ON YEAR DECLINES IN CONSUMPTION,
U.S. BEEF, PORK, AND LAMB PRODUCERS ARE VIEWING FOREIGN MARKETS
NOT AS RESIDUAL CUSTOMERS BUT AS THE PRIMARY GROWTH SECTOR OF
TOTAL RED MEAT DEMAND. THE IMPLICATIONS OF THIS EXPORT GROWTH
ON OUR OWN ECONOMY ARE ENORMOUS. FOR EXAMPLE, THE U.S. PORK
INDUSTRY EMPLOYS 765,000 PEOPLE-MORE THAN THE TOTAL PAYROLL OF
FORD AND IBM COMBINED.
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REGRETTABLY. THE BOND BETWEEN U.S. GOVERNMENT AND INDUSTRY IN
THE EXPORT ARENA SEEMS TO BE WEAKENING. EVER-FEARFUL OF GAO
CRITICISM, FAS SEEMS TO BE PARALYZED INTO INACTION AT JUST THE TIME
A MORE AGGRESSIVE AND FLEXIBLE INTERNATIONAL APPROACH IS MOST
WARRANTED. THE EXEMPLARY PARTNERING THAT CHARACTERIZED THE
RELATIONSHIP BETWEEN GOVERNMENT AND AGRICULTURAL INDUSTRIES
UP UNTIL SEVERAL YEARS AGO SEEMS TO BE UNRAVELLING AS
REGULATORY ISSUES COME TO DOMINATE MARKETING AND COMPETITIVE
ISSUES. RATHER THAN REFORM AND DEFEND THE LAST SIGNIFICANT
MARKETING INITL\TIVE AT ITS DISPOSAL--THE MODESTLY FUNDED MPP
PROGRAM--USDA/FAS SEEKS TO AVOID CONFRONTATION BY ADDING NEW
REGULATIONS WHICH PROMISE TO MINIMIZE ITS EFFECTIVENESS.
MEETING THE COMPETITIVE CHALLENGE OF THE FUTURE WILL REQUIRE
FUNDAMENTAL REORIENTATION OF CURRENT FAS POLICIES, PROGRAMS,
AND ORGANIZATION. OUR OBSERVATIONS ABOUT CURRENT FAS
SHORTCOMINGS, AND RECOMMENpATIONS FOR ACTION, FOLLOW:
I. LONG-RANGE PLANNING IS LACKING
TO OUR KNOWLEDGE, THE U.S. LIVESTOCK INDUSTRY, REPRESENTING
OVER ONE-HALF OF TOTAL FARM RECEIPTS, WAS NOT CONSULTED EVEN
205
ONCE ON THE LONG-TERM AGRICULTURAL TRADE STRATEGY (LATS).
SPECIFICALLY. WE UNDERSTAND THE CONCLUSIONS OF THE LATS
FOCUSED ON GOVERNMENT PRIORITIES RATHER THAN TOTAL
INDUSTRY OR SECTORAL OBJECTIVES. IN A MORE FUNDAMENTAL WAY,
THE LATS PHILOSOPHY SEEMS MISDIRECTED. IT READS "LATS AIMS AT
CREATING AN ENVIRONMENT WHERE THE NATURAL COMPARATIVE
ADVANTAGES OF U.S. AGRICULTURE CAN PREVAIL." IMPUCIT IN THIS
STATEMENT IS THE COMMODITY DRIVEN EXPORT MENTALITY THAT
CURRENTLY EXISTS IN THE AGENCY (I.E., "IF WE CAN CREATE AN
ENVIRONMENT WHERE OUR PRODUCT IS THE CHEAPEST, IT WILL SELL").
MISSING FROM THIS APPROACH IS ANY ORIENTATION TOWARD ADDING
VALUE, SELLING QUALITY, OR MEETING THE COMPETITION WITH
EFFECTIVE MARKETING STRATEGY AND TACTICS.
IN THE MEANTIME. AGRICULTURAL INDUSTRIES INDEPENDENTLY
DEVELOP THEIR OWN LONG-RANGE PLANS. THE U.S. MEAT EXPORT
FEDERATION FOR EXAMPLE HAS QUANTIHED AND QUALIFIED
OPPORTUNITIES IN THE EXPORT MARKETS THROUGH THE YEAR 2001.
ITS MARKETING GRID PRIORITIZES MARKETS AND SECTORS WITHIN
MARKETS BASED ON OPPORTUNITIES AND ALLOCATES RESOURCES
ACCORDINGLY. HOWEVER, BECAUSE THE GOVERNMENT COMMITMENT
TO AGRICULTURAL EXPORTS IS UNCERTAIN, THE INDUSTRY LONG-
206
RANGE PLANS OF WHICH WE ARE AWARE STRIKINGLY OMIT ANY
MENTION OF A GOVERNMENT INDUSTRY PARTNERSHIP OR JOINT
ACTION AGENDA IN THE EXPORT MARKETPLACE.
RECOMMENDATION ALLOW INDUSTRIES TO DEVELOP THE STRATEGY
AND TACTICS FOR THEIR RESPECTIVE INDUSTRIES WHILE USDA/FAS
ESTABLISHES STRATEGIC DIRECTION ACROSS ALL COMMODITY GROUPS.
IN THIS REGARD, ESTABLISH A JOINT LONG-RANGE PLANNING PROCESS
BETWEEN INDUSTRY AND THE GOVERNMENT (FAS). SET QUANTIFIABLE
EXPORT TARGETS AND PERIODICALLY EVALUATE PROGRESS TO DATE
AND/OR REASONS FOR FAILURE TO MEET THE TARGETS. REVIEW
LONG-RANGE PLANS ANNUALLY TO ENSURE FLEXIBILITY AND
SENSITIVITY TO CHANGING MARKET CONDITIONS.
2. FAS FOCUSES ON PROCESS RATHER THAN RESULTS
USMEFS BUDGET SUBMISSION FOR THE FY 1993 PROGRAM WAS IN
EXCESS OF 650 PAGES. MUCH OF THE CONTENTS CONSISTED OF
REDUNDANT OR USELESS INFORMATION THAT ADDED LITTLE TO THE
DOCUMENTS PURPOSE OF OUTLINING SALIENT MARKETING STRATEGY
AND TACTICS. EXCESSIVE FAS REQUESTS FOR DETAILS DEHNE THE
FOUR-MONTH PROCESS OF WRITING THE PLAN. USMEFS OVERSEAS
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207
MARKETING DIRECTORS ARE FORCED EVERY YEAR TO SPEND MONTHS
AWAY FROM THEIR MARKET DEVELOPMENT WORK SUPPLYING MINUTE
DETAILS AND EXCESSIVE PAPERWORK FOR MPP. MEANWHILE, OUR
COMPETITION IS OUT POUNDING THE FOREIGN PAVEMENT IN SEARCH
OF NEW CUSTOMERS AND SALES.
THE ANNUAL PROCESS OF PREPARING AND REVIEWING MPP PLANS
LASTS AN ASTOUNDING SIX MONTHS. PLANS ARE RARELY APPROVED BY
THE BEGINNING OF THE MARKETING YEAR, CREATING MARKETING
PARALYSIS OVERSEAS. THIS YEAR MAY BE THE WORST SINCE USDA HAS
YET TO ANNOUNCE EVEN THE APPUCATION DATE FOR NEXT YEAR'S
PROGRAM. THAT MEANS UNCERTAINTY, NOT ONLY FOR OVERSEAS
OFFICES, BUT ALSO OUR FOREIGN CUSTOMERS WHO WATCH THE
PROCESS IN DISBELIEF AND CONSTERNATION.
IN CONTRAST TO DEVELOPING THE PLAN, THERE SEEMS TO BE LITTLE
EMPHASIS WITHIN USDA ON MEASURING RESULTS. FAS STILL HAS NOT
DEVELOPED UNIFORM CRITERL\ FOR EVALUATION OF PROGRAMS AND
ANALYZING PROGRAM EFFECITVENESS. ADMITFEDLY, THIS IS A
DIFFICULT UNDERTAKING BECAUSE OF THE INHERENT PROBLEMS OF
QUANTIFYING SUCCESS WITH GENERIC MARKETING PROGRAMS.
208
HOWEVER, PRIORITIES ON PROCESS RATHER THAN RESULTS DEFINE
THE CURRENT ORIENTATION OF FAS MARKETING PROGRAMS.
RECOMMENDATION: DEVELOP A SIMPLE, BUT EFFECTIVE, APPLICATION
PROCESS FOR PROMOTION RESOURCES. THIS COULD IDEALLY BE A
COMPUTER GENERATED MARKETING GRID WHICH OUTLINES THE BASIC
TARGETS IN EACH MARKET AND DESCRIPTIONS OF THE MARKETING
TACTICS. ESTABLISH STRICT INTERNAL DEADLINES FOR APPLICATION
REVIEW AND APPROVAL. IN ADDITION, ALLOW THE SUBMISSION OF
MULTI-YEAR PLANS, PREFERABLY THREE TO FIVE YEARS. ANNUAL
REVIEWS FOR BUDGETING PURPOSES WOULD CONSIST OF "FINE TUNING"
MULTI-YEAR PLANS ACCORDING TO SHIFTING MARKET CONDITIONS.
RESOURCES PREVIOUSLY UTILIZED FOR TEDIOUS ANALYSIS OF MPP
BUDGET SUBMISSIONS CAN BE FREED TO CONCENTRATE ON THE
ANALYSIS OF RESULTS AND THE ADJUSTMENT OF PROGRAM FOCUS.
THIS "CONTINUOUS IMPROVEMENT' PROCESS SHOULD BECOME A
CORNERSTONE OF A NEW, MORE EFFICIENT AND FLEXffiLE
GOVERNMENT INDUSTRY EXPORT PARTNERSHIP.
3. FAS RESOURCE ALLOCATION AND STRUCTURE SHOWS NO OVERALL
STRATEGIC FOCUS
10
ALTHOUGH FAS MAINTAINS AN ENVIABLE GLOBAL NETWORK OF
AGRICULTURAL FIELD OFFICES, THE LOCATION OF THESE OFFICES
EXHIBITS QUESTIONABLE STRATEGIC POSITIONING WHEN VIEWED IN
THE CONTEXT OF OVERALL EXPORT INTERESTS. FAS OFHCES SHOULD
CONSTITUTE THE FRONT LINE OF THE U.S. AGRICULTURAL SECTOR
OVERSEAS. SPECIFICALLY, WHEREAS INDIVIDUAL PRIVATE EXPORTING
COMPANIES HAVE RELATIVELY SHORT-TERM HORIZONS (AS DEFINED BY
STOCKHOLDERS' INTERESTS). INDUSTRY ORGANIZATIONS (I.E.,
COOPERATORS) HAVE LONGER-TERM HORIZONS. HOWEVER, THE
INTERESTS OF INDl'STRIES ARE STILL CONSTRAINED TO A RELATIVELY
SHORT (3-4 YEARS) TIME SPAN AND THUS MOST COOPERATORS
ALLOCATE RESOURCES TO MARKETS WHERE TRADE IS ALREADY
OCCURRING IN SUBSTANTIAL VOLUMES. FOR EXAMPLE, IT IS DIFFICULT
TO JUSTIFY TO A PRODUCER ON "RURAL ROUTE ONE" THE NEED FOR AN
OFFICE IN SHANGHAI.
THIS IS WHERE USDA/FAS HAS AN ADVANTAGE. FAS RESOURCES
SHOULD FOCUS ITS ACTIVITIES IN THE STRATEGIC MARKETS OF THE
FUTURE, ESPECIALLY THOSE WHERE U.S. AGRICULTURAL INDUSTRIES
HAVE A LOW LEVEL OF EXPOSURE AND REPRESENTATION AND LONG-
TERM COMMERCIAL POTENTIAL. SPECIFICALLY, IT IS DIFFICULT TO
STRATEGICALLY JUSTIFY AN OFHCE IN COSTA RICA, PORTUGAL,
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210
ALGERIA OR EVEN LONDON WHILE THERE IS A CLEAR SHORTAGE OF
PERSONNEL AND RESOURCES IN CHINA, THE FORMER STATES OF THE
SOVIET UNION AND MEXICO. AND EVEN THOUGH JAPAN ALREADY HAS
A LARGE NUMBER OF COOPERATOR OFHCES, THE POTENTIAL FOR
FURTHER GROWTH IN IMPORTS OF ALMOST ALL AGRICULTURAL
PRODUCTS--AGAIN BECAUSE OF IMPROVING MARKET ACCESS--(EXCEPT
PERHAPS BULK COMMODITIES), IS EXCELLENT. IN THIS SENSE, JAPAN IS
STILL A DEVELOPING MARKET.
THE LACK OF PRIORITIES OVERSEAS SEEMS TO EXIST IN
FAS/WASHINGTON AS WELL. PERSONNEL WITHIN CERTAIN DIVISIONS
ARE OVERWORKED WHILE OTHERS ARE UNDERUTILIZED. FOR
EXAMPLE, WITHIN FAS, CRITICAL ANALYSIS OF GATT AND NAFTA ISSUES
HAS REMAINED ALMOST ENTIRELY IN THE DOMAIN OF THE
INTERNATIONAL TRADE POLICY DIVISION. INPUT BY THE COMMODITY
DIVISIONS, WHICH CONTAIN DOZENS OF QUALIFIED COMMODITY
ANALYSTS, HAS BEEN MINIMAL TO NON-EXISTENT. IN ADDITION,
COOPERATION BETWEEN THE ANALYSIS AND MARKETING SIDES WITHIN
THE COMMODITY DIVISIONS IS WEAK.
ORGANIZATIONAL REFORM APPEARS TO BE WORSENING. THE RED
MEAT INDUSTRY SEES NO BENEFITS OF FURTHER DILUTING THE WORK
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211
OF FAS BY COMBINING IT WITH OICD INTO THE INTERNATIONAL TRADE
SERVICE. IN FACT. THE OSTENSIBLE MISSIONS OF THE TWO
ORGANIZATIONS APPEAR TO BE AT CROSS PURPOSES, WITH FAS
PROMOTING EXPORTS OF AGRICULTURAL PRODUCTS AND OICD
PROxMOTING THE EXPORT OF AGRICULTURAL EXPERTISE. OVERSEAS,
OUR CUSTOMERS WILL WONDER WHY THE WORD "AGRICULTURE" WAS
DROPPED FROM THE AGENCY NAME.
RECOMMENDATION: FAS, IN CONCERT WITH PRIVATE INDUSTRY,
SHOULD ANALYZE ITS CURRENT FOREIGN OFFICE STRUCTURE TO
DETERMINE HOW TO MAXIMIZE COOPERATIVE SYNERGIES AND
COMPLEMENTARITY.
WITHIN WASHINGTON, FAS COULD BETTER INTEGRATE AND
COORDINATE ITS TRADE POLICY, MARKETING. AND ANALYSIS
FUNCTIONS. RESOURCE AND PERSONNEL EMPHASIS SHOULD BE PLACED
IN THOSE AREAS WHERE FAS HOLDS AN ADVANTAGE OVER PRIVATE
INDUSTRY, PRIMARILY TRADE POLICY AND ANALYSIS. COMMODITY AND
TRADE POLICY ANALYSTS SHOULD BE PLACED UNDER ONE WORK CONE.
INTERNATIONAL MARKET ANALYSIS SHOULD BE COORDINATED OR
COMBINED WITH THAT CONDUCTED BY THE ECONOMIC RESEARCH
SERVICE (ERS) AND FAS SHOULD DESIGN A STRUCTURE WHEREBY
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212
COORDINATION WITH OTHER USDA AGENCIES SUCH AS APHIS, FSIS, FGIS,
ISENHANCED.
4. A LACK OF OVERALL VISION CREATES MISGUIDED WORK PRIORITIES
INEFFECTIVE ORGANIZATION CREATES WARPED PRIORITIES AND
PROGRAMS. FAS HAS NOT CLEARLY DEFINED ITS MISSION AND
RESPONSIBILITIES TO ITS CONSTITUENTS AND TO ITS EMPLOYEES. FOR
EXAMPLE, FAS'S INTERNATIONAL ORIENTATION STILL SEEMS DIRECTED
TOWARD CROP REPORTING. MARKET DEVELOPMENT EMPHASIS IS STILL
PLACED ON DISPOSING OF SURPLUS BULK COMMODITIES ON WORLD
MARKETS WITH CONCESSIONAL PROGRAMS. PERSONNEL HIRING
REQUIREMENTS EMPHASIZE ANALYTICAL CLASSROOM EXPERIENCE
' RATHER THAN MARKETING SKILLS AND PRIVATE SECTOR TRAINING
AND EXPERIENCE. THE DESIGN AND ADMINISTRATION OF MARKETING
PROGRAMS IS IN THE HANDS OF COMPLIANCE PERSONNEL AND
ACCOUNTANT-TYPES WHO HAVE HAD MINIMAL INTERNATIONAL
EXPOSURE. THE BULK OF THE MOST USEFUL REPORTING FROM
FAS/FIELD OFFICES REMAINS INTERNAL AND CLASSIFIED AND THUS OFF-
LIMITS TO THOSE WHO COULD MOST EFFECTIVELY BENEFIT FROM IT.
THE BEST CUSTOMERS FOR FAS CROP REPORTS AND CIRCULARS ARE
OUR COMPETITION.
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213
RECOMMENDATION: ANALYZE THE RESPECTIVE STRENGTHS OF
INDUSTRY AND GOVERNMENT ORGANIZATIONS AND CREATE A
PARTNERSHIP BASED ON THESE STRENGTHS. FOR EXAMPLE, MAKE
SURE ANALYSIS SUPPORTS EFFORTS IN TRADE POLICY AND MARKETING.
IDEALLY, INDUSTRY GROUPS--COOPERATORS--SHOULD TAKE THE LEAD
IN MARKETING WHILE FAS/USDA CONCENTRATES ON ANALYSIS AND
IMPROVING MARKET ACCESS.
TO ENSURE OVERALL COORDINATION WITHIN THE PARTNERSHIP,
USDA/FAS SHOULD CONSIDER STATIONING PERSONNEL IN THE HOME
OR OVERSEAS OFFICES OF INDUSTRY COOPERATORS. IN THIS WAY,
USDA CAN DEVELOP A SENSE OF ACCOUNTABILITY TO ITS
CONSTITUENCY WHILE SIMULTANEOUSLY TRAINING ITS PERSONNEL IN
THE TECHNICAL AND MARKETING NUANCES OF EACH COMMODITY
SECTOR. AS INDUSTRY EXPERTS. THESE PERSONS CAN THEN ASSIST THE
USDA IN THE DIFFICULT DECISION OF ALLOCATING SCARCE
GOVERNMENT RESOURCES TO DIFFERENT COMMODITY GROUPS AND
DIFFERENT FOREIGN MARKETS.
THE FUNCTION OF OVERSEAS FAS STAFF SHOULD COMPLEMENT THE
MARKETING PROGRAMS OF INDUSTRIES. IN NEW MARKETS WHERE
INDUSTRIES DO NOT HAVE REPRESENTATION, FAS PERSONNEL BECOME
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214
SALES REPRESENTATIVES FOR ALL INDUSTRIES. IN MORE DEVELOPED
MARKETS, ATTACHES AND TRADE OFRCERS SHOULD FOCUS ON
OPPORTUNITIES OUTSIDE THOSE COVERED BY INDUSTRY GROUPS. (A
GOOD EXAMPLE OF SUCCESS IN THIS AREA IS THE TOKYO ATO'S
EMPHASIS ON DEVELOPING A U.S PRESENCE IN THE RAPIDLY GROWING
FROZEN AND MICROWAVEABLE FOOD MARKET.) THE CURRENT UTANY
OF AGRICULTURAL REPORTING SHOULD BE THOROUGHLY EVALUATED
BY U.S. INDUSTRY TO DETERMINE THE EXTENT TO WHICH EXPORTERS
BELIEVE IT IS HELPFUL IN PROMOTING EXPORTS.
IN TERMS OF PROGRAM FOCUS, THERE IS NO NEED TO REITERATE THE
GROWING IMPORTANCE OF BECOMING MORE AGGRESSIVE IN
PROMOTING VALUE-ADDED PRODUCTS: WITH GATT LIMITING THE
ABILITY TO SUBSIDIZE BULK COMMODITIES, GREATER EMPHASIS WILL
HAVE TO BE PLACED ON INCREASING U.S. MARKET SHARE IN THE
VALUE-ADDED TRADE. CURRENTLY, THE FUNDING OF PROGRAMS
WHICH DISPOSE OF SURPLUS COMMODITIES EXCEEDS THAT OF
PROGRAMS WHICH BUILD NEW MARKETS FOR NEW PRODUCTS BY TEN
TO TWENTY FOLD. AND IN FOREIGN MARKETS, IT SHOWS. CURRENTLY,
THE U.S. IS A RESIDUAL PLAYER IN THE GROWING VALUE-ADDED
EXPORT MARKET, DESPITE THE FACT THAT IT IS A WORLD LEADER IN
TERMS OF EFFICIENT PRODUCTION OF THESE FOODS.
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215
SUCCESS IN THE INTERNATIONAL MARKETPLACE WILL REQUIRE A SERVICE
MENTALITY TO OUR FOREIGN CUSTOMERS
THE POTENTIAL EXISTS FOR RE-TOOLING THE CURRENT RELATIONSHIP
BETWEEN GOVERNMENT AND INDUSTRY. MOST IMPORTANTLY, THE
PARTNERS MUST VIEW EACH OTHER AS TEAM-MEMBERS, NOT
ADVERSARIES. THE OBJECT OF BOTH PARTIES' FOCUS SHOULD BE THE
EXISTING OR POTENTIAL FOREIGN CUSTOMERS OF OUR PRODUCTS. IN THE
HIGHLY COMPETITIVE ENVIRONMENT OF THE INTERNATIONAL
MARKETPLACE, INDUSTRY AND GOVERNMENT COOPERATION IS VITAL TO
REMAINING COMPETITIVE AND CAPTURING INCREASING SHARE IN THE
GROWING MARKET. GIVEN THE FACT THAT THESE RELATIONSHIPS ARE
THE NORM FOR OUR COMPETITION, AND THAT THE U.S. IS BURDENED WITH
A PROMOTION RESOURCE HANDICAP, THE SYNERGY OF THE
INDUSTRY/GOVERNMENT RELATIONSHIP MAY BE THE PENULTIMATE
FACTOR DEFINING FUTURE U.S COMPETITIVENESS IN FUTURE
AGRICULTURAL TRADE.
THANK YOU FOR SOLICITING OUR VIEWS ON THIS IMPORTANT TOPIC.
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216
STATEMENT BY SHARON LX. C50L0N
Mr, Chairman and members of the commincc, my name is Sharon Colon. I am a vice
president with CoBank- -National Bank for Cooperatives with responsibility for the bank's
relationships with North American agricultural exporters.
CoBank is part of the Farm Credit System. The bank provides financial services to
farmer-owned cooperatives; rural utility systems-including electric, telecommunication,
water, and waste disposal systems; and to facilitate the export of U.S. agricultural products.
Over the past ten years, CoBank has fmanced $17 billion in export sales to over 40 countries
and involving about 30 agricultund products. To assist the bank's customers, we recently
opened an office in Mexico City--our first outside of the U.S.
CoBank is the single most active lender participating in the £>epanmeQt of Agiiculture's
export loan guarantee programs. In recent years, we have accounted for about 40 percent of
all the guarantees issued under the GSM loan guarantee programs. With the exception of
CoBank. most agricultural expon fmancing for U.S. products is provided by foreign banks
with little or no long-term commitment to U.S. agriculture and litUe or no interest in the
long-term health of our nation's farm economy.
Because of our deep involvement in agricultural expon activity, we applaud the efforts of the
administration and Congress to make our nation's export programs more effective.
Frankly, CoBank is not in tiie best position to comment on specific changes being discussed
about tiie formal organizational structure of the government's export programs. However,
we believe certain principles»if applied properly-will ensure the successful operation of
these programs from the stand point of foreign purchasers and other parties. These
principles are as follows.
• Credit programs should continue to be the cornerstone of our expon promotion
programs. The availability of credit has been a critical factor in helping make U.S.
agricultural products competitive in world markets.
• The Department of Agriculture's expon program! should be viewed as a partnership
arrangement between nnners, exponers, shippers, lenders and foreign purchasers. In
this reganl, the administruiion's stated intent to make government more customer
oriented is welcome.
• Any reorganization or consolidation of U.S.D.A. programs should take into account
the need for departmental sta£f in foreign countries to be knowledgeable and
conversant about our country's expon programs. In addiUon, that staff should be in
touch with developments in local markets and be positioned to help respond to new
developments-such as the privatization efforts taking place in Central Europe.
• We believe there is considerable merit in continuing to maintain separate pro-ams
intended to expand agricultural markets. While it may be possible and even desirable
to coordinate U.S.D.A. programs with those of otiier departments, agriculture is a
unique industry with unique problems and opportunities. Further, agriculture's most
significant opportunities are mostly in developing countries which may be of lesser
interest to other domestic industries.
EOjc/PB/264
217
Statement By Sharon Colon -2-
FAS mformation and education about U.S. agriculture and U.S. exports, and the opponunity
to trade with the U.S- agricultural industry, play an iniportant role in the success of our trade
programs. The U.S.D.A.. through the CCC, the FAS and other departments and agencies,
has done a good job but could u.se more support.
Trade associations and representative groups along with private enterprises need to utilize
and support these efforts. Wc have found the cooperation and support of these various
organizations to be helpful to us in promoting the sales of our customers. We believe it
would be beneficial if there was a broader understanding of the commodity information, the
existence of various buyers and sellers, and the financing and assistance programs available.
FAS clearly could expand its role in this area.
As mdicated, CoBank believes the most important and effective export financing programs
to date have been the CCC's GSM-102 and 103 pro-ams. Some distorted and unwarranted
criticism has been directed toward the programs m recent months; however, they have
generally been effective and positive in furthering trade. Rather than considering
significandy different approaches, CoBank believes that the GSM programs need some
improvements, refinements, expanded use and support
Program changes that would facilitate commercial transactions on a competitive basis are
understood and well-received by foreign banks and buyers, and can be handled with minimal
expense and acceptable risk to the U.S. guvermuent and the exporting and banking
communities.
For example, we believe a better balance could be achieved between tlie market
development, trade enhancement, and foreign policy issues on one hand and
"creditworthiness" issues and other requirements on the other hand. In this regard, we would
encourage the development of a "partnership" between commercial lenders and the U.S.D.A.
in estabUshing "creditwonhiness guidelines" for prospective buyers or importing countries,
giving consideration for utilizing the expertise and exj>^ence of lenders in this area.
In recent years, many of CoBank's customers have sought new business opportunities
throi]gh joint ventures and partnerships in foreign countries and In the U.S. Such strategic
alliances are common for many businesses ai^ essential for farmer-owned cooperatives
seeking to enter new markets or create new sources of profits for farmers by adding value to
agriculniral commodities. The FAS could be of assistance in helping U.S. companies
identify opportunities and develop foreign markets for processed or value-added products.
Several years ago, for example, FAS officials were instrumental in helping purchaser.*! in
Mexico acquire nonfat dry milk from the U.S. That success helped open a very significant
market for U.S. processed dairy products.
It is estimated that each $1 in U.S. agricultural expons generates an additional $1.40 in
related economic activity. Each $1 billion in agriculturaJ expons is estimated to create
21,900 jobs. The correlation between exports and farm income is graphically displayed in
the attachment to my testimony.
The future of rural America will be largely dependent on the maintenance and expansion of
export markets, the development of new markets in foreign countries, and on the ability of
farmers to capture profits that can be realized be adding value to their product after it leaves
the farm gate. For those reasons wc will strongly suppon any efforts by the administration
and Congress to make the Foreign Agricultural Service and related federal agencies more
effective.
Mr. Chairman and members of the committee, I appreciate Uie opportunity to appear here
today. I would be pleased to respond to any questions.
(Attachment follows:)
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219
TESTIMOKY OF
PAUL V£BST£R
FIi£SID£NT
WEBSTER LUMBER COMPANY
Thank you very much, Chaiinnan Fenny and Chairman Condit, for
the opportunity to testify today on the future direction of the
U.S. Department of Agriculture's Foreign Agricultural Service
(FAS) and the several programs it currently manages. I am
testifying on behalf of the American Forest & Paper Association
and the entire U.S. solid wood industry, which includes more than
twenty trade associations and their 7,500 member companies who
benefit from the various groups of services offered by the FAS
program (see Attachment A) .
The American Forest & Paper Association (AFPA) , of which my
company is a member, represents approximately 550 member
companies and related trade associations which grow, harvest, and
process wood and wood fiber, manufacture pulp, paper and
paperboard products from both virgin and recovered fiber, and
produce solid wood products. As a single national association,
AFPA represents a vital national industry which accounts for over
7 percent of the total U.S. manufacturing output.
The industry employs some 1.4 million people, and ranks
among the top 10 manufacturing employers in 46 states, with an
annual labor cost of about $46 billion. The forest and paper
products industry generates sales of $200 billion annually. As a
significant exporter to global markets, with exports of $17
billion in 1992, the industry makes an important contribution to
the U.S. balance of payments.
220
I am a long-standing member of the AFPA, and also an active
member of the American Hardwood Export Council (AHEC) . Both of
these groups currently manage significant export promotion
programs funded through the FAS. I also come to you today as the
President of Webster Lumber Company. My family has been involved
in the harvesting and sawmilling of hardwood timber in
Southeastern Minnesota and across the upper Mississippi valley
for over ninety years. My timber suppliers are farmers with
small portions of their land growing hardwoods on steep, non-
cultivatable hillsides. I have several thousand of these
farmer/suppliers who depend on me to buy their timber crop for
cash. ■ , .:'..y • : . _v ;., ■ ' .; ^^i.' r ,' - i:-, :
FAS MISSION;
,.■:., ■-.■/ :•.. :■;:;. ..T ' ' u;'- - ' ■■ ;:- ' --.^ .;•
The FAS mandate is to encourage the expansion of exports of
U.S. food and fiber products. FAS maintains a global network of
agricultural officers as well as a Washington based staff to
achieve this mandate by analyzing and disseminating information
on world agricultural and trade, by representing the agricultural
trade policy interests in multilateral and bilateral forums and
by administering overseas market promotion activities.
We continue to feel that this is the correct focus for the
FAS, and any changes considered as a part of a reorganization or
budget cutback should keep this central mission in mind. Those
2
221
functions currently being performed by FAS that do not directly
support this mission are the ones that could be submitted for
further scrutiny. Our industry's decade of experience with FAS
export programs has demonstrated that the programs work, and are
not in need of reorganization. Three key points need emphasis in
order to insure that FAS moves ahead to fulfill its mandate from
a position of strength. They are:
1. PARTNERSHIP BETWEEN INDUSTRY AND GOVERNMENT;
Our experience with the FAS program has been successful
first and foremost because of our partnership with the FAS staff
in Washington and at the posts overseas. This partnership allows
the public and private sectors to specialize and perform the
tasks each is most effective in performing. This close working
relationship is what makes the FAS program unique and has allowed
our industry to learn and grow into new markets around the world.
The analytical, marketing, trade policy and logistical support we
receive on a regular basis from FAS has been invaluable to our
industry, which is primarily composed of small to medium sized
companies. We rely on the information and trade policy reports
from the posts and from the analysis of the domestic marketing
staff when formulating and carrying out our plans each year.
When a new market opportunity presents itself, it is often the
overseas post who is the first to alert us. We can then take
222
that information back to our industry to devise a strategy for
promotion.
FAS also helps us to monitor and evaluate our gains. We are
working closely with the analysis staff in the Forest Products
Division to better track value-added exports and exports of wood
products by species. This analysis has helped focus the export
picture more clearly on value-added gains, the most rapidly
growing export sector in the wood products industry.
The management methodology adopted by FAS is a sophisticated
tool for ensuring that U.S. government funds are spent wisely,
and is constantly updated to incorporate congressional and GAO
recommendations and requests, as evidenced by: 1) FAS conducts
careful analysis of market opportunities and incorporates them
into long-term agricultural strategies for market promotion
activities, and 2) FAS requires both activity plan and full
program evaluations to identify successes, failures, and areas of
improvement for U.S. industry to do a better job of marketing its
products overseas.
These changes and others, along with greatly enhanced FAS
oversight, have led FAS to become more involved in their review
of funding applications and annual marketing plans to ensure
value for money. They should be commended for their work in
223
improving programs which help maintain and support U.S.
agricultural exports worldwide.
2. COOPERATOR MARKETING PROGRAMS;
When we speak of cooperator marketing programs we are
referring to the Foreign Market Development (FMD) and the Market
Promotion Program (MPP) . The current mix of FAS Washington
staff, overseas posts, U.S. industry funding, and FMD & MPP funds
should, at the very least, be strengthened. Why? Because they
work.
Furthermore, these are not giveaway programs. The industry
devotes enormous resources, energy, and time to the program. FAS
marketing programs are also cost effective: during the program's
past seven years, for every $1.00 of FAS funds spent, total U.S.
wood products exports increased by $394.
The forest products industry export programs do not benefit
individual companies directly, but rather create demand overseas
through generic promotion. This indirectly helps companies,
especially small ones like mine, that would otherwise not
participate in export markets. Let me give two examples.
The U.S. hardwood sector exemplifies the success of FAS
export initiatives. Exports of hardwoods increased from $500
224
million in 1985 to $1.9 billion in 1992. The strong and growing
export market fueled by the FAS generic promotion programs have
helped keep the hardwood industry in business through tough
domestic recessionary' trends. Many small hardwood companies
would have had to shut down had it not been for the recent
significant growth in our export markets. The percentage of
production of many of these companies that have been devoted to
exports, has increased by sometimes over 50% and has been a major
factor in helping them survive economic hard times.
Georgia Pacific Corporation (G-P) provides an example of a
large company that dramatically changed its marketing strategy
because of the effectiveness of the FAS program. In the early
eighties, wood products exports were not a high priority for the
company. Recently, however, G-P demonstrated a strong commitment
to exporting when it allocated significant company resources to
international marketing including new offices in Europe, Latin
America, and Asia. G-P's vice president for marketing and
international said that G-P's decision to commit sxibstantial
company resources was based in large part upon the proven
effectiveness of FAS generic marketing programs in developing
markets for value added wood. products. He said that successes of
the FAS programs gave G-P the evidence needed to push forward on
their own.
225
The partnership with FAS remains a vital part of the
industry's export strategy. Not only must we maintain the gains
of the late 1980 's, but we have yet to reach our full estimated
export potential of $8 to $12 billion annually by the end of the
decade. . . ,
Onerous trade barriers coupled with the lack of foreign
knowledge about U.S. solid wood products have constrained growth.
In response, the U.S. industry has developed an interlocking
strategy for creating additional markets for processed, value-
added wood products. Market development activities such as those
conducted under the MPP and Foreign Market Development Program
are a key component of an integrated strategy that combines
market development, trade policy, and export financing - all
supported by an integrated commodity specific information
gathering and analysis function.
Market development activities maintain and expand markets
and provide the high visibility necessary to invigorate trade
negotiations; trade policy opens markets by reducing trade
barriers; and export financing helps fuel exports to take
advantage of the demand generated by market development and the
market access gained through trade negotiations. The fact is,
U.S. government efforts to eliminate trade barriers have a much
greater chance of success if supported by a positive and highly
visible promotion program such as those conducted under FAS.
226
3. EXPORT CREDIT PROGRAMS;
In addition to the market promotion programs, the wood
products industry has used the credits provided under the Export
Credit Guarantee Program (GSM-102) to initiate sales to new
markets. As an illustration, the GSM credits have been useful in
introducing U.S. wood products in the North Africa region as well
as in Mexico. The U.S. wood products industry has worked with
the Forest Products Division of FAS to determine those markets
eligible for credits that were also target markets for our
promotional campaigns. The coordinated efforts of the industry
and government have paid dividends for U.S. exporters in sales
into new markets. There has been some concern however, about the
ability of the wood products industry to fully access the
benefits of the program. These concerns are highlighted in
Attachment B submitted for the record by the Southern Forest
Products Association, a forest industry cooperator and member of
AFPA.
CHANGES IN FAS;
The forest products industry commends Secretary Espy and
these committees' efforts to make the USDA more efficient and
responsive to its constituents. Success in some areas has
already been achieved with more thorough evaluations and program
8
227
audits, ensuring cooperator responsibility in the expenditure of
tax payer dollars. As Secretary Espy considers his options for
reorganization of the Department of Agriculture, our industry
recommends that the current structure which has worked so well in
the past not be dismantled. We would urge that it in fact, be
strengthened, so that the mandate of FAS is more easily achieved.
PROPOSED CONSOLIDATION OF OICD WITHIW FAS AND FAS REORGANIZATIOK;
We believe that FAS has the basic organizational structure
in place and the tools to achieve its mandate of increasing
exports of food and fiber products. This has been ably
demonstrated. We think that the OICD consolidation is a large
and important step and that this should be completed before any
other significant changes are made within the agency.
We also understand, however, that FAS is facing severe
budgetary restraints and is even considering reducing staff and
offices overseas to meet these proposed budgetary requirements.
When well coordinated FAS's (1) trade policy, (2) information
gathering and analysis, and (3) marketing activities generate an
export promotion program that is synergistic and unparalleled in
effectiveness and we therefore respectfully question the current
proposal to modify or change this basic structure.
228
Secretary Espy has indicated a strong interest in increased
attention to foreign market development and we are aware that
changes in FAS are being considered in response to this. We ask
that the Department reach out to FAS ' s partners in export
promotion for their ideas and concerns, just as Secretary Espy
did to the farm community in reorganizing other parts of USDA.
This dialogue needs to be initiated when the Department is early
in the formative stage of its decision making process.
We have recently seen a proposed organizational chart which
merges the marketing function currently held by product division
into one single division covering all product groups. This
proposal would reduce the effectiveness of the export expansion
program by separating the marketing function from the supportive
and integral information and trade policy activities.
It would in effect, down grade the marketing staff function by
reducing the staff's expertise in given product areas and
creating a large department of general ists. This new proposal
would maintain the commodity divisions only on the analysis side.
We would strongly urge that this reorganization be
reconsidered and the current, successful structure be maintained
but improved by increasing communication and coordination with
the trade policy function. The interaction of the market
specialists with information analysts by product group has
enhanced FAS's ability to interact with the cooperators in their
10
229
marketing programs and has also provided consistent, useful
feedback and suggestions in the marketplace.
A proposal for reorganization on such a large scale should
be discussed with the Department's constituents, the agricultural
commodity groups using the progreun. I'm sure we all have some
constructive ideas as to how the FAS progreun can be improved -
how it can better serve our mutual mandate of export expansion.
When Secretary Espy speaks about the need to focus upon export
marketing activities, he is talking about how to make a good
program even better - we think we can help.
We would not support the merging of all marketing staff into
one division. The current structure allows for meaningful
interaction on a daily basis with experts on both the analysis
and marketing of individual commodities. We in the forest
products industry are very fortunate to have our own commodity
division, the Forest Products Division. The effectiveness and
success of our program are a testament to the partnership between
our industry and the individuals who have worked in this
division.
RELATIONSHIP BETWEEW FAS PROGRAMS AKD THE TRADE PROMOTION
COORDINATING COMMITTEE;
11
230
The Trade Promotion Coordinating Committee report focused on
new priorities, improved coordination, the elimination of
overlap, increased coordination between trade policy and
marketing initiatives, the taking advantage of trade policy
created export opportunities, the need for priority driven
programs generated by a rigorous methodology, the identification
of the best industry program which reflect each agency's
comparative advantage in delivering priority export services.
We know of no other government program that is as effective
in meeting the objectives set forth in the TPPC Report as the
cooperative FAS/industry export expansion program. Our
experience in Japan is an excellent, documented example of this
statement.
The expanding opportunities for U.S. wood product exports
in japan provides an especially clear example of what can be
accomplished when market development activities and trade policy
initiatives are coordinated and targeted at a common objective.
What is especially noteworthy of this example is the mutual
dependence of these fundamental functions of FAS.
In Japan today, there are 81 large wood-frame buildings
under construction or soon to be constructed by the private
sector. Additionally, there are nine publicly funded wood-frame
structures for U.S. wood product exports. Without the
12
231
coordinated FAS market development and trade policy activities,
these 90 structures would not exist. The Ministry of
Construction of Japan predicts that the number and size of these
types of buildings will increase at a faster rate than other
types of construction.
In 1990, the United States and Japan concluded an Agreement
with the objectives of increasing market access and wood
utilization. This Agreement was a culmination of the 1985 MOSS
negotiations, which USDA chaired and the 1990 Super 301
negotiations chaired by USTR but in which USDA played a key role
(USDA has responsibility for the implementation of the
Agreement) . The primary obstacle to gaining the objective of
increased wood utilization was Japan's restrictive building code
which severely restricted wood construction. Japan's
justification for these restrictions was concerns about the
safety of wood-frame construction.
The significant progress achieved by the Agreement in
permitting increased wood utilization was primarily the result of
five years of technical educational activities focused on the
performance of modern wood-frame structures in resisting
earthquake forces and fire spread. These activities were carried
out under the TEA program and continued under the MPP program.
The target audience for these activities included architects,
engineers, public housing officials and building code
13
232
specialists. One of the key elements was the construction of a
demonstration project featuring fire spread and earthquake
resistant engineering. The progress achieved in the 1990
negotiations, which resulted in the revision of the building code
to permit large wood-frame buildings, would not have been
possible without the consensus - so important in Japan, of key
technical and code officials of the safety of wood-frame
construction. Since the signing of the Agreement, the industry's
FAS market development activities have focused on taking
advantage of the export opportunities created.
This example makes clear the essential relationship between
market development activities and trade policy initiatives. It
also demonstrates that when these activities are coordinated and
targeted at a common objective the results are greater than could
be achieved separately.
DO THE PROGRAMS WORK?
Our U.S. forest products industry message to this committee
is simple and very straightforward — the FAS programs work and
have accomplished a great deal, . •
o FAS programs are revenue earners for our country.
Employment gains from exports have brought an estimated
$345 million in increased annual Federal tax revenues
14
233
from our wood industry alone, more than the cost of the
entire MPP and FMD program.
The FAS programs have helped create 103,000 jobs:
37,000 direct industry jobs, and another 66,000
indirect jobs.
The FAS/industry partnership has helped hundreds of
small mills such as nine, especially in the South,
Northeast and Middle West, stay in business.
The broad based market promotion programs have helped
every sector of the wood products industry promote the
full range of U.S. value added wood products.
Since 1985, FAS has helped wood products exporters
achieve remarkable growth, with exports more than
doubling from $3 to $6.7 billion.
These programs have been a tremendous help to our
industry in establishing the foundations for
significant future export gains.
Cooperation to administer the FAS program has united
our industry and made it an effective international
competitor, creating enthusiasm and a level of
commitment to export never seen before.
The FAS programs have helped this industry make a major
contribution to the correction of the U.S. trade
deficit and have helped the U.S. go from a net importer
of wood products to a net exporter.
15
234
The FAS programs have changed traditional overseas buying
habits, helped overcome foreign trade barriers, and laid the
foundation for future export gains in new markets for U.S. wood
products in a broad range of end uses. They have united our
industry to work together in a single export program, which in
itself is a very unique achievement.
Why has all this happened? Simple because the programs
work. They are cost effective. They incorporate a sophisticated
management system which includes strategic planning and program
evaluation.
The FAS programs are a model of how the best talents of
government and the private sector can work together to
effectively compete in the international environment. These
programs should not only be supported, but expanded and
duplicated in other areas of government. It is unfortunate that
they have obviously been misunderstood and on that basis received
undue criticism and negative press which threatens to not only
tarnish their image, but also to undo their effectiveness.
On behalf of our industry I would like to thank you, Mr.
Chairmen, and your fellow committee members, for your strong
support of FAS programs and, through these hearings, your
commitment to listen and work with us to make these programs
effective. We would urge the Secretary of Agricultural and his
16
235
staff to mirror your efforts to listen to all sides of the issues
involved and to consider the needs of the cooperators when
implementing major departmental changes. We are ready and
willing to participate in this process but would truly like to be
consulted on any agency changes so that we can provide you with
our input. ,,,
(Attachments follow:)
17
236
Attachment A
LIST OF WOOD PRODUCTS IKDUSTRY COMPAKIES AND
ASSOCIATIOKS WHICH SUPPORT
FOREIGN AGRICULTURAL SERVICE (FAS) PROGRAMS
Associations representing the wood products industry with a
combined representation of over 7,500 companies with operations
in all 50 states support FAS programs:
Association Support
American Forest & Paper Association
American Hardwood Export Council
American Ins. of Timber Construction
American Plywood Assn.
American Walnut Manufacturers Assn.
Appalachian Hardwood Manufacturers
Fine Hardwood Veneer Assn.
Hardwood Manufacturers Assn.
Hardwood Plywood Manufacturers Assn.
Lake States Lumber Assn.
National Dimension Manufacturers Assn.
National Hardwood Lumber Assn.
National Wood, Window and Door Assn.
Northeastern Forest Resource Alliance
Northeastern Loggers' Assn.
Penn-York Lumbenr.an ' s Club
Southern Forest Products Assn.
Southeastern Lumber Manuf. Assn.
Walnut Council
Western Wood Products Assn.
Wood Moulding & Millwork Producers Assn.
KiimViAT of Me"'>>«»T-g
550
80
427
53
13
169
34
115
163
200
120
1200
141
4
2343
261
198
510
650
225
110
TOTAL
7566
Partial List of Company Support
Abenaki Timber Corp.
Anderson-Tully Co.
Augusta Logging Exporters, Inc.
Averitt Lumber Co.
Baillie Lumber Co., Inc.
Blaney Hardwoods
Boise-Cascade
Bradford Forsst Products
Cardinal Trading, Ltd.
Cedar Shake i Shingle Bureau
Coastal Lumber
Cole Hardwood Inc.
W.Springfield
NH
Memphis
TN
Staunton
VA
Clarksville
TN
Hamburg
NY
Barlow
OH
Boise
ID
Bradford
PA
Portland
OR
Bellevue
WA
Weldon
NC
Logansport
IN
237
Contact Lumber
David R. Webb Co., Inc.
Emerson Phares Lumber Co.
Fitzpatrick & Weller, Inc.
Freeman Corp. , The
Friedman Hardwoods
Georgia-Pacific
Germain Timber Co.
Gutchess International Inc.
Hanafee Bros. Sawmill Co. Inc.
Hancock Lumber
Hoosier Timber
Interforest Corp.
International Paper
International Veneer Co. Inc.
J.M. Jones Lbr. Co. Inc.
J.W. Jones Lumber Co.
Kitchen Brothers Mfg. Co.
Louisiana Pacific
Matson Wood Products
Michigan-California Lumber
Midwest Lumber & Dimension Inc.
Monadnock Forest Products, Inc.
Monticello Hardwood, Inc.
Neff Lumber Mills, Inc.
Nicolet Hardwoods
Norstam Veneers Inc.
Northland Forest Products
North Pacific International
North Pacific Lumber Co.
O'Shea Lumber Co.
Owens Forest Products
PFS Corp.
P.W. Plumly
Pierson-Hollowell Co.
Plum Creek Timber Co.
Pope & Talbot
Prime Lumber Co.
R.C. Services
Rajala Companies
Schmid Lumber Co. Inc.
Shannon Lumber International
Snavely Forest Products Inc.
South-Central Timber Development
Stimson Lumber
T & S Hardwoods
Taylor Lumber, Inc.
Taylor-Ramsey Corp.
TECO
Tex-0-Cal Hardwoods, Inc.
Timber Products Co.
Tradewest Hardwood Co.
Tradewinds International, Inc.
USA Woods International
Portland
OR
Edinburgh
IN
Elkin
WV
Ellicottville
NY
Winchester
KY
Columbus
OH
Atlanta
GA
Pittsburgh
PA
Cortland
NY
Troy
TN
Casco
ME
Indianapolis
IN
Durham, Ontario
New York
NY
South Hill
VA
Natchez
MS
Elizabeth City
NC
Hazlehurst
MS
Portland
OR
Brookeville
PA
Camino
CA
Floyd Knobs
IN
Jaffrey
NH
Monticello
MS
Broadway
VA
Laona
WI
Mauckport
IN
Kingston
NH
Portland
OR
Portland
OR
Glen Rock
PA
Duluth
MN
Madison
WI
Winchester
VA
Lawrenceburg
IN
Seattle
WA
Portland
OR
Thomasville
NC
Philadelphia
PA
Deer River
MN
Indianapolis
IN
Memphis
TN
Pittsburgh
PA
Anchorage
AL
Portland
OR
Milledgeville
GA
McDermott
OH
Lynchburg
VA
Madison
WI
Temple
TX
Med ford
OR
Long Beach
CA
Savannah
GA
Memphis
TN
238
W.M. Cramer Lumber Co.
Walter H. Weaber Sons Inc.
Webb Export Corp.
Webster Industries Inc.
Weyerhaueser
Whitson Lumber Co.
Willamette Industries Inc.
World Wood Co.
Hickory
NC
Lebanon
PA
Edinburgh
IN
Bangor
WI
Tacoma
WA
Nashville
TN
Albany
OR
Cove City
NC
239
SOUTHERN
rOREST PRODUCTS
ASSOCIATION' PC fcc^oilTX <i-.rer.lc.:„..hre -0:^-1 7X Teep-o'e 5^-«-i-i3-'"t6-( F.'nX 50i-''-i-b61i
GSM CREDIT PROGRAMS
Member companies of the Southern Forest Products Association have used the credits provided
under GSM- 102 to open new markets and expand existing market share. The GSM credits
have been useful in gaining a foothold in North Africa as well as in Mexico, and have allowed
U.S. exporters to initiate significant new sales into these markets. Although coordinated
efforts of the industry and government have paid dividends for U.S. exporters, SFPA believes
even greater dividends could have been achieved.
The U.S. wood products industry has long sought to extend the credit terms for U.S. wood
products under the GSM- 102 program from the current 720-day, or 2-year, limit to the
three-year terms offered for other agricultural products. But, agencies outside of USDA have
refused to allow FAS to extend the credit terms for wood products. These agencies have cited
the OECD Bern Agreement as the basis for this denial, despite the fact that the U.S.
government is not a signatory to the agreement. Furthermore, the Bern Agreement has also
been used as the basis for denying the U.S. wood products industry access to the GSM-103
program. Wood products have only been sold under the P.L. 480 program in one case, and
that was to Jamaica after Hurricane Gilbert.
SFPA believes that ever since 1988 the Administration has been in violation of the will of
Congress. Congress, in the Omnibus Trade and Competitiveness Act of 1988, redefined the
term "agricultural products" to include wood and processed wood products in the definition
for Short-Term Export Credit Guarantees and the Intermediate-Term Export Credit section
(Sec. 4402). Furthermore, Congress specifically directed in Section 4404 that 'The Secretary
of Agriculture shall actively use Depanmeru of Agriculture concessional programs and export
credit guarantee programs to promote the export of wood and processed wood products."
BOSTON PUBLIC LIBRARY
^^^ 3 9999 05018 545 i
SFPA Comments
Page 2
FAS domestic staff have worked diligently on behalf of the U.S. wood products industry to
put wood products on an equal footing with the other agricultural commodities under the GSM
and P.L. 480 program, but have been stymied at every turn. The U.S. wood products
industry has become a net exporter of wood products rather than a net importer, thereby
helping the balance of trade. Also, wood products expom helped to keep many people
employed during this past recessionary and slow recovery period. SFPA believes greater
export levels could have been achieved if wood products were allowed access to the GSM-103
and P.L. 480 programs.
Therefore, to enhance the ability of the U.S. wood products industry to expand exports, SFPA
requests that the following changes be made in the GSM and P.L. 480 programs:
1 . Extend the credit terms for U.S. wood products under the GSM-102 program to three
(3) years.
2. Include U.S. wood products as an eligible commodity to be sold under the GSM-103
program. Furthermore, direct FAS to actively plan and use the credits for framing
lumber and panel products sold to Mexican companies for wood frame constructed
houses. ■ ■ ,
3. Include U.S. wood products as an eligible commodity to be sold under the P.L. 480
program. Furthermore, direct FAS to actively plan and use the credits for framing
lumber and panel products sold to Mexico for wood frame constructed houses.
241
PAUL DUDLEY WEBSTER
Box U7
Cryital Bty, Minnesota
/J'^Y/^.- h-p'r/^' C
Birth Date
Children
Education
Webstar Induatrles
Wabtter Wood Prcaerving Company
Bangor, Wl
Bangor Equipment Company
Crystal Bay. MN
Hardwood Equipment Company
Bangor, Wl
Wabtter Truck S Caatcr Company
Watertown, SD
CPI - d/b/a
Caveman Lumber Company
Merlin, OR
- July 23. 1930 In Mlnnaapolla. Mlnnatota
• Elltabath - 32
Rabecce • 28
• B.A. K B.S. - Macalaatar College - ISStt
Fulbrlght Scholarahlp Award Winner - 195S
Harvard Bualneaa School - 1972 % 1973
• Prialdent ( Chief Executive Officer
Hardwood Lumber
Railroad Ties
Furniture Dlmenaton S Kitchen
Cabinet Perts
Mlllwork % Interior Paneling K
Flooring
Pallets. Crates. Boxes
- Managing Partner
Pressure Treating of Hardwood Cross TU
• President
Equipment Rentel % Air Charter
• General Partner
Equipment Rental
• President
Industrial Wheels t Casters
Meterlel Hendling Trucks (nonpewercd)
- Treesurer S Co*ewner
Remanufaeturing of Green Douglas Fir
Profeaslonal and Trade Aaaoclatlena
1. National Oak Flooring Manufacturing Association. Memphis, TN • Past
Director S Officer
2. Maple Flooring Manufacturera Association. Oahkosh, Wl - Past Director
y
242
Psul Dudley W«b«ter
•9«
Prefaaclonsl and Tr«d« At«oei»Honi (eent'*^)
3. National Hardwood Lumbar Aasedatlen. Mamphls, TN - Past President S
Diraetor
4. Northwestern Hardwood Lumbsrnten'a Aasoeistlon^ Minnaapells. MN •> Past
President 8 Director
5. The Railway Tie Association, Gulf Shores, AL - Past President S Director
S. Timber Products Manufeeturars • Spokane. WA - Past President 6 Director
7. Americen Wood-Preservers' Asseeietlon, Washington. DC - Past Director
8. Americen Wood Preservere Institute. Washington. DC > Past Director
B. Western European Institute of Wood Impregnation - Brussels. Belgium •
Director 6 Member of Committee 13 • Wood Cross Ties
10. World Business Council - Member
11. Minnesote Esseutlves' Orgenlsetlen - Member
12. Netional Lumber Exporters Aesoelstion • Director
Clubs
1
Woodhlll Club - Weyzeta, Minnesota
Minneapolis Club • MInneepolls. Minnesote
Lafeyette Club • MInnetonke Beach. Minnesote
Skylight Club • Minneapolis. Minnesote
Washington Athletic Club - Seattle. Weshlngton
Seattle Tennis Club • Seattle, Washington
Useless Bay Country Club - Freeland. Washington
Spaclel Interests
1. Minnesots Stete Trspshooting Association - Pest Secretery/Treesurer
2. Northwest Skeet Shooting Association - Pest President S Director
3. Twin City Hopkins Gun Club - Past President S Director
U. Active Pilot - lO plus yesrs • Multi-engine, instrument. Commercial and
Float Plane Rating
5. Foundation for North Americen Wild Sheep • Life Member
6. Came Coin - Member
7. The Grand Slem Club - 3 Grend Slams - Life Member
8. Boone S Crockett Club - Executive Committee
9. Been* S Crockett Foundation • Director
10. Internetional Sheep Hunters Asseclstlon - Life Member end Director
11. Artzone Desert Bighorn Sheep Society • Supporter
12. NRA - Supporter
13. Wildlife Legislative Fund • Supporter
1U. Wildlife Conservetlon Fund - Supporter
15. World Wildlife Fund - SusUiner
o
ISBN 0-16-044466-7
9 780160"444661
90000
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