SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 4353 words

COMMITTEE: SENATE APPROPRIATIONS

HEADLINE: FY 2003 APPROPRIATION

TESTIMONY-BY: J.B. PENN, UNDERSECRETARY FOR

AFFILIATION: FARM AND FOREIGN AGRICULTURAL SERVICES

BODY:
Statement by J.B. Penn Under Secretary for Farm and Foreign Agricultural Services United States Department of Agriculture Before the Senate Subcommittee on Agriculture, Rural Development, and Related Agencies

March 14, 2002

Mr. Chairman and Members of the Committee, I am pleased to appear before you today to present the 2003 budget and program proposals for the Farm and Foreign Agricultural Services (FFAS) mission area of the Department of Agriculture (USDA). With me this morning are the Administrators of the three agencies within our mission area: James Little, Administrator of the Farm Service Agency; Ross Davidson, Jr., Administrator of the Risk Management Agency; and Ellen Terpstra, Administrator of the Foreign Agricultural Service. I am also accompanied by Mary Chambliss, the Department's Acting General Sales Manager, and Stephen Dewhurst, the Department's budget officer.

Statements by each of the Administrators providing details on the agencies' budget and program proposals for 2003 have already been submitted to the Committee. My statement will summarize those proposals, after which we will be pleased to respond to your questions. Mr. Chairman, last year, the Department released a report on food and agricultural policy for the 21" century -- Food and Agricultural Policy: Taking Stock for the New Century. The report assesses the current state of the American food and agricultural system and identifies the challenges and needs it will face in the new century. Based on those findings, the report sets forth a set of goals and principles that we believe should guide the development of policy, programs, and institutions that will affect the growth and vitality of the food and agricultural sector in the new century.

The programs and services of the FFAS mission area are at the heart of the Department's efforts to assist American agriculture respond to the challenges of the new century. Through the wide range of services provided by our agencies - price and income supports, farm credit assistance, risk management tools, conservation assistance, and trade expansion and export promotion programs - we provide the foundation for a broad-based safety net for our farmers and ranchers.

The 2003 budget proposals we are discussing today fully support these activities and ensure our continued efforts on behalf of America's agricultural producers. In particular, the budget supports the development of sound policies for the domestic commodity and income support, conservation, trade, and related programs in the new Farm Bill by providing an additional $73.5 billion in mandatory funding over the 2002-2011 period. It fully funds our risk management and crop insurance activities. It supports the Administration's export expansion goals by providing a program level of over $6 billion for the Department's international activities and programs. Also, it provides for the continued delivery of a large and complex set of farm and related assistance programs, while improving management and the delivery of those programs.

Farm Service Agency

The Farm Service Agency (FSA) is our frontline agency for delivering farm assistance and is the agency the majority of farmers and ranchers interact with most frequently. Producers come to FSA to participate in farm programs, including programs involving flexibility contract or other direct payments, commodity marketing assistance loans, loan deficiency payments, farm ownership and operating loans, disaster assistance, and conservation programs such as the Conservation Reserve Program (CRP). Because FSA will play a lead role in implementing provisions of the new Farm Bill, the budget places a priority on enhancing the ability of FSA to provide better service to our producers more efficiently.

Farm Program Delivery

Current conditions in the farm economy and the substantial level of assistance in new programs to be implemented will continue to reinforce the need to improve customer service efficiency in FSA and the other county-based conservation and rural development agencies. The substantial workload that FSA has faced over the past 3 or 4 years is expected to continue through 2003, as new Farm Bill programs are implemented.

The proposed 2003 program level for FSA salaries and expenses of $1.3 billion will support a ceiling of about 5,800 Federal staff years and 11,250 non-Federal county staff years, unchanged from the 2001 levels and the current estimates for 2002. At the time the budget was developed, the workload implications of the new Farm Bill were unclear. We will continue to assess the provisions of the Bill as it is developed to estimate the workload implications.

The Administration also places high priority on management initiatives and investments in technology to deliver improved, more efficient services to rural customers by continuing to streamline and modernize the field offices and Service Centers. Although we have established a high number of consolidated Service Centers and have made major strides in replacing separate agency, aging information technology systems with the Common Computing Environment and re-engineered business processes, additional steps are needed to realize the full benefits.

A key component in these efforts is the Geographic Information System (GIS) which will replace normal hard-copy paper maps and data files with an integrated digital system. The GIS will enable producers and the Service Center agencies to electronically share and process vital information on farm records, soils, and aerial photography in ways that can dramatically improve efficiency. The President's budget proposes $28 million for this GIS effort as part of the $56 million in appropriated funds under the Office of the Chief Information Officer for FSA's component of the Common Computing Environment. The Rural Development mission area and the Natural Resources Conservation Service (NRCS) will provide additional funding, as necessary, to support the modernization plan and Service Center initiative.

FSA also will work on modernizing its farm credit program servicing activities, and we will review Service Center office processes and structure to explore additional ways to provide services at lower cost.

The 2003 budget was prepared before the precise nature of a new Farm Bill was known, but it is anticipated that most of the programs FSA would be required to deliver in 2003 will be governed by the new legislation. FSA has been preparing for the challenges that a new bill could bring and is evaluating the administrative and workload issues of programmatic changes such as updating crop bases and other challenges looming for 2002, 2003, and beyond, along with opportunities for increased administrative efficiencies and streamlining.

Commodity Credit Corporation

Disaster and commodity price and income support programs administered by FSA are financed through the Commodity Credit Corporation (CCC). CCC also is the source of funding for a number of conservation programs administered by USDA, and it funds many of the export programs administered by the Foreign Agricultural Service. CCC borrows funds directly from the Treasury to finance those programs.

Changes over the last decade in commodity, disaster, and conservation programs have dramatically changed the level, mission, and variability of CCC outlays. CCC net outlays increased from $10 billion in 1998 to a record of $32 billion in 2000, and were $22.1 billion in 2001.

CCC net outlays for 2003 are currently estimated at $11.6 billion, down approximately $5.8 billion from the 2002 estimated level of $17.4 billion. These are current law baseline estimates and do not include a continuation of emergency assistance provided in supplemental appropriations acts in recent years. They also do not include program changes and new spending likely to be authorized in the Farm Bill. The budget does support increased spending for the Farm Bill at levels consistent with the 2002 Congressional Budget Resolution and, when this is taken into account, CCC net outlays in 2002 and 2003 will likely remain closer to the 2001 level.

The 2002 Agriculture Appropriations Act authorizes CCC to replenish its borrowing authority as needed from the Treasury, up to the amount of realized losses at the end of the preceding fiscal year. It is projected that, in 2002, CCC will draw about $22 billion under that authority for 2001 losses. The appropriation to reimburse CCC for net realized losses that Congress provided for 2002 was a current, indefinite appropriation. This provided CCC with the flexibility to request funds as needed from the Treasury, up to the actual losses recorded for the most recent year. Without this current, indefinite appropriation, CCC would have been unable to replenish fully its borrowing authority at the beginning of 2002, and timely assistance to producers could have been jeopardized due to insufficient borrowing authority.

Conservation Programs

Conservation program outlays will account for an estimated 10 percent of CCC expenditures in 2002. The 1996 Federal Agriculture Improvement and Reform Act authorized direct CCC funding for the CRP administered by FSA and several conservation programs administered by NRCS. It also authorized CRP through 2002 and set enrollment in the program at 36.4 million acres. The new Farm Bill is expected to substantially increase conservation program levels, including those funded by CCC.

At the end of 2003, about 34.9 million acres are projected to be enrolled in CRP. In 2001, no general signup was held but a I-year extension was offered on expiring contracts. Also, 20,000 acres were enrolled in the Farmable Wetlands Pilot Project. A 1-year extension of CRP contracts has been announced for 2002 as well. About 600,000 acres are expected to be enrolled under the continuous, non-competitive CRP sign-up in 2002. In addition, about 200,000 acres are expected in the Farmable Wetlands Pilot Project. For 2003, new Farm Bill provisions will be in effect but, for purposes of the budget presentation, continuation of existing CRP authorities is assumed, which would allow for general, as well as continuous, CRP sign-ups to continue.

Emergency Conservation Program

In order to ensure timely emergency assistance to restore farmland damaged by natural disaster, the 2003 budget requests about $49 million, reflecting the 10-year average, in appropriated funding for the Emergency Conservation Program. This will avoid the delay commonly faced in providing assistance when no advance funding is provided.

Farm Loan Programs

FSA plays an important role in the safety net available to our Nation's agricultural producers by providing a variety of direct loans and loan guarantees to farm families who would otherwise be unable to obtain the credit they need to continue their farming operations. By law, a substantial portion of the direct loan funds are reserved each year for assistance to beginning, limited resource, and socially disadvantaged farmers and ranchers. For 2003, 70 percent of direct farm ownership loans are reserved for beginning farmers and about 35 percent are made at a reduced interest rate to limited resource borrowers, who may also be beginning farmers.

The 2003 budget includes funding for about $700 million in direct loans and $3 billion in guarantees. Although these levels are down slightly from 2002 totals, they do not reflect any change in policy. The reductions are due primarily to technical re- estimates of subsidy rates for the direct loan programs that have made those programs more expensive to operate. However, we believe the proposed loan levels will be sufficient to meet demand in 2003.

The 2003 budget also maintains funding of $100 million for the Boll Weevil Eradication program and $2 million for the Indian Land Acquisition program, the same levels that were provided in 2002. For emergency disaster loans, carryover funding from 2002 is expected to provide sufficient credit in 2003 to producers whose farming operations have been damaged by natural disasters.

Risk Management Agency

The Federal crop insurance program represents one of the strongest safety net programs available to our Nation's agricultural producers. It reflects the principles set forth in the Department's report on food and agriculture in the 21" century by providing a safety net that is compatible with international trade commitments, creates products and services that are market driven, harnesses the strengths of both the public and private sectors, and reflects the diversity of the agricultural sector.

In 2001, the crop insurance program provided nearly $37 billion in protection on over 211 million acres, which is about 5 million acres more than were insured in 2000. However, the crop insurance program has seen a significant shift in business over the past two years - producers have chosen to buy-up to higher levels of coverage as a result of increased premium subsidies provided in the Agricultural Risk Protection Act of 2000 (ARPA). Although total acres insured have not increased dramatically, there has been a major shift in coverage. For example, participation at coverage levels of 75 percent or more has increased by more than 50 percent. The number of policies and acres and levels of liability and premiums all increased more than 40 percent for coverage levels of 70 percent and higher.

The 2003 budget requests an appropriation of "such sums as necessary" as mandatory spending for all costs associated with the program, except for Federal salaries and expenses. This level of funding will provide the necessary resources to meet program expenses at whatever level of coverage producers choose to purchase and can accommodate the effects on participation that might result from Farm Bill and other changes.

Our current projection of mandatory funding needs for the program reflects a modest decrease, from $2.9 billion in 2002 to $2.8 billion in 2003. This projection is based on USDA's latest estimates of planted acreage and expected market prices for the major agricultural crops, and assumes that producer participation remains essentially the same as it was in 2001.

The 2003 budget includes a proposal to cap the amount of underwriting gains the insurance companies may receive at 12.5 percent of their retained premium. This proposal is expected to reduce program costs by about $115 million annually. Since 1994, insurance companies have received over $2 billion in underwriting gains while the Federal government has paid about $1 billion in excess losses. As a group, the companies have not experienced a loss since the devastating Midwestern floods of 1993, when they posted a combined loss of $82 million. In the last 8 years, they have recovered that loss nearly 25 times over.

For salaries and expenses of the Risk Management Agency, $76 million in discretionary spending is proposed, an increase of $1.3 million above the 2002 level of $74.7 million.

Foreign Agricultural Service

Lowering trade barriers and opening new markets overseas are among the Administration's highest priorities for American agriculture. The basis for that commitment is established in our report on food and agricultural policy for the 21 s' century. As the report makes clear, trade is critical to the long-term health and prosperity of the American agricultural sector.

More than 96 percent of the world's population lives outside the United States, so it stands to reason that is where most future growth in global food consumption will occur. With agricultural production in this country far exceeding our needs and growing at a pace faster than the domestic market can absorb, it is vitally important that our farmers and ranchers have access to growing overseas markets.

The report on food and agricultural policy emphasizes that enhancing the competitiveness of U.S. agriculture in the world marketplace must be one of the primary objectives of our farm policy. It also sets forth a trade agenda for the 21' century and lays out a number of strategies for achieving that objective. One of the most important of those strategies is continuing the liberalization of global agricultural trade. America's farmers and ranchers stand to gain a great deal from further trade reform through increased access to markets overseas and a reduction in unfair competition in those markets.

The new round of multilateral trade negotiations is at the center of our trade liberalization efforts. Those negotiations received an important boost by the negotiating framework agreed to in Doha, Qatar last November. With that agreement as a foundation, the United States can now pursue our ambitious agenda for agricultural reform negotiations, including substantial reductions in tariffs and increased market access, elimination of export subsidies, reform of state trading enterprises, and tighter rules on trade-distorting domestic support. Doha was also important as both China and Taiwan were approved formally for accession to the World Trade Organization (WTO), which furthers our pursuit of open markets and opens a wide range of new marketing opportunities for our producers and exporters.

We also are pursuing trade liberalization through both regional and bilateral negotiations. These include negotiations to establish a Free Trade Area of the Americas that will encompass virtually all of the Western Hemisphere, as well as bilateral negotiations aimed at establishing free trade agreements with Chile and Singapore. Another important element of our trade agenda is monitoring and enforcement of existing trade agreements. We are working diligently to ensure that our trading partners comply fully with the terms of those agreements and do not institute technical barriers to trade that run counter to their spirit.

Another strategy laid out in the report on 215' century agriculture is ensuring we have the proper tools needed to pursue our export expansion objectives in an increasingly competitive environment. At USDA, having the appropriate tools means having effective export promotion and market development programs, as well as the necessary infrastructure to implement them.

Our budget proposals for the Department's international programs and activities for 2003 are designed to ensure that we have the necessary resources to achieve our export expansion objectives, using the statutory authorities presently available to us. We recognize that, in the case of the export activities funded through mandatory spending, the pending Farm Bill may change the level of funding that will be available for both this year and 2003. Indeed, a portion of the additional funding for the Farm Bill included in the budget estimates is available for these programs.

FAS Salaries and Expenses

The Foreign Agricultural Service (FAS) is the Department's lead agency in implementing most of our international activities and plays an absolutely crucial role in our trade expansion efforts. For 2003, the budget provides $140 million for FAS, an increase of $9.4 million above the 2002 level. Included in the FAS request is much-needed funding to support an electronic Government initiative that will upgrade the agency's information technology (IT) resources and capabilities, and modernize its business practices and operations. Over the last year, FAS has faced a series of computer-related crises that have threatened to cripple agency operations and communications. This is a particularly serious problem for an agency that has offices situated throughout the world and must work closely on a daily basis with many different agencies, such as the State Department and Office of the U.S. Trade Representative. FAS' modernization plans have been reviewed and approved by both the Department's Chief Information Officer and the Office of Management and Budget, and have been found to be consistent with USDA's longterm goals and strategies for business process and IT reform.

The budget also provides funding to develop a plan to establish a standardized information system for all U.S. foreign food aid programs that will be accessible via the Internet to administering agencies, vendors, and grantees. The system will facilitate the distribution of information on U.S. food aid activities and operations, as well as improve program administration and execution.

The FAS proposals also include increased funding of $1 million for the Cochran Fellowship Program. This is a highly successful program that has provided training and helped to establish positive linkages with many agricultural officials throughout the world. The additional funding will expand programming in a number of important areas, including biotechnology, food safety, WTO accession requirements, and the quality and marketing of U.S. high value agricultural products.

Export Promotion and Market Development Programs

Another key to having the proper trade expansion tools is to ensure adequate funding for the Department's export promotion and market development programs, which our budget proposals are designed to do. For the CCC export credit guarantee programs, the largest of our export programs, the budget includes a program level of $4.2 billion. This is an increase of $300 million above the projected 2002 level, reflecting continued very strong growth in the supplier credit guarantee program.

For the Foreign Market Development (Cooperator) Program, Market Access Program, and Quality Samples Program, the budget includes total funding of $120 million, unchanged from this year's level. Both the House and Senate versions of the Farm Bill provide increased funding for both the Cooperator Program and MAP for both 2002 and 2003. As noted earlier, a portion of the additional funding for the Farm Bill included in the budget could be allocated to these activities.

The budget also includes an estimated program level of $478 million for the Export Enhancement Program, the maximum level allowed under our WTO export subsidy reduction commitments, and $63 million for the Dairy Export Incentive Program, a slight increase over the current estimate for 2002.

Foreign Food Assistance

As the Committee is aware, the Administration has undertaken a review of U.S. foreign food assistance activities in order to reform and rationalize their implementation and to strengthen their effectiveness. Among the results of that review is the decision to reduce the number of programs through which assistance is provided and to redefine roles in order to eliminate overlap. As a result, USDA will continue to carry out government-to-government programs, while the Agency for International Development (AfD) will assume responsibility for programs carried out in cooperation with private voluntary organizations, cooperatives, and the World Food Program. Another outcome is the decision to provide a more secure and predictable foundation for our overseas food aid activities by reducing their reliance on the year-to-year availability of surplus commodities. At the same time, these activities will largely be funded through discretionary sources, subject to Congressional review and approval, and with reduced reliance on mandatory CCC funding.

The results of the Administration's review are reflected in the 2003 budget and program proposals for U.S. foreign food aid activities. For P.L. 480 food assistance, a total program level of $1.34 billion is provided, which is expected to support total commodity shipments. of 3.7 million metric tons.

This includes a program level of $160 million for Title I credit sales, which is expected to support approximately 700,000 metric tons of commodity assistance. For Title II donations, the budget provides a program level of $1.18 billion, an increase of $335 million above the 2002 enacted level. The proposed program level for Title II is expected to support 3 million metric tons of commodity assistance.

Consistent with the results of the food aid review, donations of commodities under section 416(b) authority that rely on the purchase of surplus commodities by CCC will not be continued in 2003. However, commodities that are acquired by CCC in the normal course of its domestic support operations will be available for donation through government-to-government agreements. Current CCC baseline estimates project a limited supply of surplus nonfat dry milk that could be made available for donation under section 416(b) authority in 2003.

Finally, the 2003 budget proposes a change in the funding mechanism for meeting the costs of U.S. cargo preference requirements under the foreign food assistance programs. The Administration is proposing no change in the current requirement that 75 percent of all U.S. food aid commodities be shipped on U.S. flag vessels when they are available at fair and reasonable rates. However, the budget does propose to eliminate the current arrangement under which the Maritime Administration reimburses the P. L. 480 programs or, in the case of section 416(b) and Food for Progress donations, CCC for one-third of the costs of complying with cargo preference requirements. This change will eliminate a duplicative financing system, reduce record-keeping, and lower administrative costs. It will also enhance programming objectives by eliminating uncertainty near the end of the fiscal year regarding the timing and receipt of reimbursement payments.

The 2003 budget includes $45 million in the P. L. 480 budget request to offset the elimination of Maritime Administration reimbursements, and a legislative proposal to implement the proposed change in financing will be transmitted to Congress in the near future.

This concludes my statement, Mr. Chairman. The agency administrators and I would now be pleased to answer any questions you and Members of the Committee might have.



LOAD-DATE: March 20, 2002