Testimony of the Grain Inspection, Packers and Stockyards Administration before the House Committee on Agriculture March 22, 2000

Good morning, I appreciate the opportunity to be here today to discuss the reauthorization of the United States Grain Standards Act.

While most Americans are familiar with USDA's "choice" grade for beef, few outside the industry are familiar with the U.S. grades for grain and oilseeds. Even those who rely on the grades and standards every day may not understand the full breadth of activities undertaken by the Grain Inspection, Packers and Stockyards Administration's (GIPSA) Federal Grain Inspection Service (FGIS) to ensure reliable application of the standards.

Every day buyers and sellers worldwide use the U.S. grades and official inspection system to market grain and oilseeds. Even as new, more sophisticated buyers demand specific quality attributes to better meet their processing needs, the sales contracts use grades as the fundamental starting point to describe quality.

GIPSA develops the U.S. standards for grain, which entails standardizing testing methodologies to apply the grades and standards and providing an impartial inspection and weighing system consisting of Federal, State, and private laboratories. These activities facilitate the marketing of grains and oilseeds from farm to domestic processor or on to exporters and destinations around the world. Last year alone, the official inspection system conducted nearly 2 million inspections on 228 million metric tons of grain.

The official USDA inspection and weighing system has earned worldwide recognition as being highly reliable and impartial. World markets, whether a private buyer in Japan or government purchasers in China, look for FGIS' name because an official certificate means buyers can confidently expect to receive the quality and quantity of grain for which they paid. The integrity of the system is unquestioned.

As developing countries strive to establish their markets, they look to us to learn how to do it right. This international recognition did not just happen. We have earned it over many years, thanks to the hard work and professionalism of the people who make up the official U.S. grain inspection system. Maintaining the confidence of our international buyers is important not only to those who export grain, but also to all those who produce and market U.S. grain.

This is especially true today, with the changes occurring in American agriculture and global trade. Increased international trade, industry consolidation, and technological advances are influencing how American agriculture operates and, in turn, how we operate. Our grain program is striving not only to improve efficiency and productivity of the government inspection programs but to enable the industry to improve its efficiency and productivity so that it remains highly competitive in today's global market.

Reauthorization

On September 30, 2000, several provisions of the U.S. Grain Standards Act will expire; specifically, the following sections of the Act will sunset: FGIS' authority to collect and invest user fees from official agencies for supervising their performance of official inspection services; FGIS' authority to collect fees to perform original weighing services and to collect user fees from official agencies for supervising their performance of official weighing services; the 40% cap on administrative and supervisory costs; and authority for the Grain Inspection Advisory Committee.

We believe it is in the best interest of American agriculture that these provisions are reauthorized. Consequently, GIPSA is asking Congress to extend and reauthorize these provisions of the Act.

In addition, GIPSA is asking for several new legislative authorities. First, GIPSA wants legislative authority to allow more than one official agency to operate in a single geographic area, on a case-by-case basis. The current law allows only one agency per designated area. We want to capture the benefits of market competition and still maintain the highest level of accuracy and integrity. Further, we want each official provider to service all customers, whether a remote small business or a large multi-national, high volume operation. This amendment will enable us to more effectively facilitate the marketing of grain without jeopardizing the integrity of the system.

GIPSA also is requesting legislative authority to prohibit adding bleach, vanilla, cinnamon, and other similar substances to grain to disguise its quality. If GIPSA finds someone adding a substance to mask and misrepresent the grain's true quality, and if the action results in the false issuance of an official inspection certificate, it is a violation of Section 13(a)(3) of the Act, and penalties apply. In reality, adding these substances rarely results in the issuance of a false certificate either because the grain is not officially inspected or because GIPSA detected the additive and graded the grain sample grade. Prohibiting the additive altogether will enhance the integrity of the national grain marketing system.

We also are asking for legislative authority to eliminate the procedural requirement to base export inspections on samples obtained after final elevation of the grain. Obtaining samples after elevation is appropriate, and still will be used for many factors. However, grains and oilseeds with new value enhanced traits require more complicated and time-consuming analysis or identity preservation processes. Conducting certain analyses prior to final elevation will enable the industry to expedite marketing and will improve the testing capabilities of the official inspection system.

We also are asking for legislative authority to eliminate mandatory annual testing of all official equipment. Annual testing simply is not necessary or appropriate for some types of equipment.

Finally, we are asking to retain authority for our 15-member advisory committee. This committee, representing a cross-section of the industry, including small farmers, processors, handlers, and exporters, advises GIPSA on effective and equitable enforcement of the Act.

I'd now like to provide an overview of GIPSA's grain program and highlight the important role it plays in facilitating the marketing of America's grain.

GIPSA administers the United States Grain Standards Act, under which the Agency establishes the official grading standards for grain, develops standard testing methods to measure grain quality and quantity, and provides for the impartial application of the grades and standards through a unique network of Federal, State and private inspection agencies. The Act also requires the mandatory inspection and weighing of export grain, with few exceptions, and provides for the voluntary inspection and weighing of grain moving in domestic commerce. Services under the Act are performed on a fee basis for both export and domestic grain shipments.

As I mentioned earlier, the U.S. standards and our inspection and weighing system are recognized worldwide as highly reliable. This is best reflected in the number of complaints received from foreign buyers, which has declined 32 percent, from 70 in 1993 to 47 in 1999. For each of the past 7 years, complaints have represented less than 1 percent of the total volume of grain exported from the United States.

The recent U.S./China wheat agreement, which represents the beginning of a great opportunity for American agriculture, relies on GIPSA's TCK (Tilletia controversa Kuhn) testing program. In cooperation with the USDA Agricultural Research Service, we developed an accurate and reliable testing method that both U.S. and Chinese interests embraced.

We also work with various agencies, non-profit market development groups, and industry representatives to educate prospective buyers and to resolve grain quality or quantity concerns. We assist other countries in the development of their own grain standards and inspection systems. These efforts promote greater harmony between U.S. and international standards, and foster a better understanding of the U.S. grain marketing system, the official U.S. grain standards, and the national inspection system. In FY 1999, GIPSA representatives met with 89 trade teams from 50 countries. This effort reduces the risk of new barriers in today's open and freer global marketplace, enhances purchasers' confidence in U.S. grain, and facilitates the export of U.S. agricultural products.

Our grain inspection program is comprised of 555 full-time, permanent employees and 74 part-time, intermittent, or other employees located at 2 headquarters units, 13 field offices, 2 Federal/State offices, and 6 suboffices. FGIS has headquarters units in Washington, DC, and Kansas City, MO. Field offices are located in Stuttgart, AR; Sacramento, CA; Moscow, ID; Cedar Rapids, IA; Wichita, KS; New Orleans, LA; Baltimore, MD; Minneapolis, MN; Kansas City, MO; Grand Forks, ND; Portland, OR; League City, TX; Toledo, OH; and Olympia, WA. FGIS personnel also are located in eastern Canada to provide inspection of U.S. grain at Canadian ports.

Mandatory inspection and weighing services are provided by GIPSA on a fee basis at 37 export elevators. Under a cooperative agreement with GIPSA, the Canadian Grain Commission provides official services, with GIPSA oversight, at 6 locations in Canada exporting U.S. grain. Eight delegated States provide official services at an additional 19 export elevators under GIPSA oversight. Voluntary inspection and weighing of U.S. grain in domestic commerce are provided by a fee basis by 59 GIPSA-designated agencies.

Technological advances and global trade have altered and will continue to reshape the agricultural landscape and to influence the job we have to do at GIPSA. Our grain inspection program must keep pace with the changing needs of the grain industry, especially in terms of inspection timeliness and the capability to measure new diverse quality attributes. Today's grain market handles a greater diversity of grain quality than ever before and must do so efficiently and productively for American agriculture to remain competitive in the global market. Next-day inspection services that met the markets needs just a few years ago now must be provided in minutes if unit trains, barges, and vessels are to be loaded efficiently. The market must also have the capability to accurately and rapidly measure the quality of grain so that the marketplace starting with farmers have the ability to assess the true value of the grain.

At previous reauthorization hearings, the last being in 1993, industry representatives articulated the international and national importance of the U.S. grain standards and inspection system. This was generally followed with a cry for improved program efficiencies on the part of GIPSA (formerly FGIS) to reduce operating expenses. While you may very well hear similar testimony today, I believe you also will hear support for the work we have underway and the improvements we have made over the past few years.

Efficiency is of tantamount importance in both our agency operations and to our customers. We have implemented operational and structural changes to improve the efficiency and productivity, not only of service delivery, but, more importantly, to the actual handling and marketing of grain. We began a quality management journey in 1994. We overhauled our strategic planning process and our approach to service delivery. We stopped doing business the same old way and began listening to our customers. We took it upon ourselves to reengineer, streamline, and improve.

Structurally, GIPSA has, over the years, realigned to optimize its staffing levels and organization. Since 1994, the grain program reduced staffing levels by 8 percent and streamlined its field structure from 31 to 21 offices, thereby allowing for more flexible staff utilization and more consistent policy implementation. Our Commodity Testing Laboratory, formerly in Beltsville, Maryland, was merged into our Technical Center in Kansas City, Missouri. The Technical Center is now a model of how streamlining and cross-functional teams can result in cost efficiencies and a sharpened customer service focus.

We reengineered our quality assurance program, already known worldwide for ensuring consistent and accurate inspection and weighing results. By automating to a PC-driven system and decentralizing the process to the local level, our reengineered quality assurance program provides for proactive problem solving and immediate quality control feedback on the front line. We're doing the job right the first time and spending less time and money to correct mistakes.

To integrate our export inspection process with the export industry's technological advances, GIPSA automated the export inspection statistical shiploading plan, also known as the Cu-Sum Plan. The new system improves the accuracy and timeliness of our services and allows direct data sharing with our export grain customers, thereby eliminating manual data entry and reducing administrative costs both for GIPSA and our customers.

We also are automating our oversight of export scale and material handling systems. These systems significantly improve our oversight capability and, at the same time, reduce our operating costs. As a result of this initiative, we can now recreate the entire loading of an export vessel. By that, I mean every gate opening, scale draft, shipping bin discharge and nearly every other activity occurring during the loading of a vessel can be recreated. If there are any questions about the accuracy of an inspection or weight certificate, we have the data to investigate and verify results.

To further improve the efficiency and productivity of U.S. grain handling, GIPSA established a public/private partnership to automate inspection processes. The goal of this project is to provide as close to real time quality information as possible during the loading of a vessel. The system will provide moisture, dockage, foreign material, test weight, and protein results every 4 to 5 minutes. This information will be electronically provided to the customer. This effort will reduce the agency's operating costs and improved the speed, productivity, and efficiency of export operations - essential factors in today's competitive global market. A prototype system is being installed at an export elevator in Destrehan, Louisiana. These are only some of the ways that GIPSA is seeking to enhance the efficiency of our operations. Future technological advances and customer needs will drive even further improvements.

It's been gratifying to see how our efforts are paying off for our customers, both in terms of their bottom lines and in greater customer satisfaction. GIPSA's service delivery costs decreased from $0.27 per metric ton in fiscal year 1994 to $0.22 per metric ton in fiscal year 1999, saving American agriculture over $5 million in fiscal year 1999 alone. These savings in inspection service costs pale in comparison to the savings achieved by the industry thorough improved productivity. GIPSA is proud to be a partner with the industry in realizing that productivity enhancement. Last year, at a single cooperative in Iowa, GIPSA implemented a new, on-site rapid inspection program that saved the customer more than $250,000 per year.

Meeting our customers needs doesn't stop with efficiency enhancements. It also means we must be ready to meet new and emerging market needs in many areas.

Hard White wheat is an emerging class of wheat with significant potential to expand export markets and better meet the needs of our domestic mills. To help the market realize the potential of this new wheat class, GIPSA has worked closely with producers, breeders, and technical experts to reach a consensus regarding a definition of acceptable color for Hard White wheat. Establishing the standardized color line allows breeders to better target their lines for development. It also provides a definition that all members of the market agree upon and accept, thereby minimizing buyer uncertainty and facilitating greater use of Hard White wheat in breads, pasta, and other products. GIPSA's work in this area paves the way for increased production and more market use of Hard White wheat in the upcoming years.

While we have a long standing and respected program for measuring the quantity of protein in wheat, there is a growing need to measure the quality of protein in wheat. The capability to measure protein quality quickly and accurately would provide processors and foreign buyers with a mechanism to better determine the wheat's value for processing. This, in turn, may provide producers with a mechanism to receive premium pay for premium quality wheat. Since there is no market consensus on how to measure wheat protein quality, GIPSA has initiated research to establish a protein quality reference standard and a rapid and accurate means to apply the standard. We are working with the Agricultural Research Service and with various industry representatives to achieve this goal. GIPSA's efforts have won the support and praise of the U.S. Wheat Associates, the National Association of Wheat Growers, academia, and others in the milling industry.

Measuring oil content in corn is yet another action GIPSA has taken to meet emerging market needs. High-oil corn, primarily used by livestock feeders to enhance weight gain, is one of the fastest growing value-enhanced grains produced in the United States.

High-oil corn provides producers a price premium based on the analytical results of the oil content. GIPSA implemented a corn oil test using near-infrared technology in 1998, in response to clear market indications that official analysis would facilitate the marketing of this product. In today's market, the primary contractor of high oil corn production recognizes the GIPSA corn oil calibration and testing service as the basis upon which to resolve any questions between the farmer and grain elevator concerning the oil content of the corn. The implementation of the GIPSA calibration introduces an opportunity for impartial analysis to assure producers receive the premiums they deserve.

Perhaps the most recognizable and challenging new market needs are those created by biotechnology. Biotechnology is diversifying grain and oilseed quality, and has the potential to create new market opportunities for America's producers, small and large, as end users seek suppliers of unique quality attributes. While GIPSA, under the United States Grain Standards Act (USGSA), has no authority to approve or release biotech crops, we do have responsibility to facilitate the fair and orderly marketing of grain and grain products, many of which will be bioengineered. To this end, GIPSA will continue to assess the market's needs; meet those needs by providing the standardized testing technology that measures new and enhanced value products; and provide that information to all in the U.S. grain marketing system, from producer to end user.

As we discussed earlier, GIPSA is responsible for establishing the official U.S. standards for grain under the U.S. Grain Standards Act. These standards are used every day by sellers and buyers to communicate the type and quality of cereals, pulses, and legumes bought and sold. Biotechnology is affecting this program in two fundamental ways:

(1) increased market demand for conventional crops has created a need for standardization of reliable testing methodologies to distinguish bioengineered from conventional crops; and (2) an anticipated increase of new value-enhanced traits, whether produced by conventional or non-conventional means, will create an expanded need for standardized testing methodologies to measure the enhanced quality attributes. Without standardized testing methodologies and an agreed-upon means to communicate the results, market risk will increase and the true value of future crops will be less transparent.

To meet the market's need for impartial, professional verification of biotechnology testing technologies, GIPSA plans to establish a biotech reference laboratory at its Technical Center in Kansas City, MO. The laboratory will begin the process of evaluating and verifying analytical procedures used to detect and quantify biotechnology traits in grains and oilseeds, and establish sampling procedures for use in testing genetically enhanced grains and oilseeds.

The reference laboratory will meet a market need to ensure reliability of biotech crop detection methods and to facilitate information exchange, which, in turn, will decrease transaction costs and increase overall market efficiency. The lab is scheduled to be operational in the late summer of 2000.

GIPSA also plans to increase its ability to measure enhanced quality attributes, whether produced by biotechnology or traditional breeding methods. Analytical tests required to assure the presence or specific content of a value trait are essential to ensure the supplier, including small farmer, receives the financial benefits derived from producing grain with value-added traits.

Conclusion

GIPSA is an integral part of America's grain handling infrastructure -- a superior infrastructure of storage facilities, rail lines, and waterways that makes American agriculture preeminently successful in the global marketplace. We recognize our role and will continue to provide all members of the U.S. grain handling system with the innovative, high-quality official inspection services they need to efficiently and effectively meet the challenges of a changing marketing environment.

I appreciate the opportunity to address the Committee and I will be happy to respond to your questions.


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