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Statement of
Timothy J. Galvin, Acting Administrator
Foreign Agricultural Service
U.S. Department of Agriculture
Before the Senate Subcommittee on Agriculture,
Rural Development and Related Agencies
Mr. Chairman, members of the Subcommittee, I appreciate the
opportunity to review the work of the Foreign Agricultural
Service (FAS) and to present the President's budget request for
FAS programs for fiscal year 2000.
Low prices facing U.S. farmers and ranchers are causing considerable hardship in rural communities across the country, from producers, to bankers, to those on small town Main Street. It is a concern that occupies us each and every day at the U.S. Department of Agriculture. At FAS, we are using the tools we have available, such as our export credit guarantee, market promotion, and food aid programs, to support U.S. exports in the short run. In the long-term, our trade policy and market development efforts will be instrumental in helping restore prosperity to America’s farmers and ranchers.
Export Outlook
I would like to take a few moments to review the export performance of last year and the outlook for the future. Fiscal year 1998 marked the second straight year that exports declined. Just as the record export level of two years ago helped to drive commodity prices and farm income to record levels, the current slowdown in world agricultural trade is a key factor behind today’s lower prices.
A number of forces have contributed to this slowdown, including the global economic crisis. Currently 40 percent of the world is in a recession, mostly in Asia, the former Soviet Union, and Latin America. Unemployment in those regions is way up, the middle class has shrunk, consumer confidence is weak, and their economies are expected to remain anemic through 1999. On the positive side, interest rates in some of these countries are dropping, currencies are stabilizing, stock markets have risen from their recent lows, and some foreign investment is starting to return – all trends which, if they continue, should help to set the stage for recovery in the year 2000.
Also contributing to the slump – especially for bulk exports, such as grain – is the fact that record and near record world grain production in 1997 and 1998 has again swelled grain stocks to burdensome levels. Not only have the major exporting nations had good crops in recent years, but so too has China. China is the wild card in the world grain trading picture because of its alternating position as an importer or exporter, depending on its production. China, for example, has been exporting corn in recent months, rather than importing it. And China has not played a major role as a wheat importer for the past three years. The bottom line is that large world stocks are weighing heavily on current prices.
The other big factor is the strength of the U.S. dollar, especially when compared to the weak currencies of our competition in Canada and Australia.
Unfortunately, we estimate that exports will fall further in fiscal year 1999, to $49 billion. The forecast shows declines for virtually all markets, except for Mexico. Mexico continues to be a bright spot in the agricultural export picture, with fiscal year 1999 exports to Mexico projected at $6.7 billion, up sharply from 1998. On a commodity basis, we see mostly declines in the coming year, although in some cases – like red meat and grains – our export volume continues to do rather well. The real story is the impact of lower prices on these totals. We are actually anticipating a 4.7-million-ton overall increase in volume in 1999; however, low prices will pull down total export value. Yet, the value of exports should remain above the general level that prevailed in the early 1990's, and certainly higher than the level of a decade or more ago. However, our job at FAS is to ensure that the trend line moves up rather than down, and our efforts are focused on making that happen.
The United States is certainly not alone in feeling the impact of reduced exports. In fact, the worldwide trade slump has left few major agricultural exporters untouched. Global agricultural trade has fallen from a record $308 billion in 1997 to $280 billion in 1998 and a projected $270 billion this year. That’s a $38-billion drop in world agricultural trade in three years – a 12-percent decline.
FAS Efforts to Support Farm Income
One can only imagine how much worse the situation would be, especially for U.S. exports, if we were not making available record amounts of export credit guarantees, or backing the relief efforts of the International Monetary Fund (IMF). Our export credit guarantees have been the difference in allowing major customers such as South Korea to continue to import our products, and our export credit program could not be used if IMF financing had not been available to allow some of these countries to restructure their finances. In fiscal 1998, our export credit guarantee programs were used to facilitate the sale of over $4 billion in U.S. agricultural products. For fiscal 1999, we have already announced the availability of $4.2 billion in export credit guarantees, compared with $3.9 billion announced at this time last year. This total does not include our anticipated $1 billion program for South Korea. We are continuing our negotiations with the South Korean government over the commodity mix to be included in the package.
We also believe that our efforts to donate over 5 million metric tons of wheat are helping to stem the decline. Under the President’s Food Aid Initiative, announced in July, surplus wheat that USDA’s Commodity Credit Corporation purchased from the U.S. market is being donated abroad under the authority of section 416(b) of the Agricultural Act of 1949.
By late October of last year, we had fully allocated the 2.5 million metric tons of wheat and wheat products that were initially purchased. In December, we doubled the size of the initiative to 5 million metric tons. Wheat donations under the Food Aid Initiative comprise about half of the total commodity tonnage that the United States will provide worldwide this fiscal year under all other U.S. food aid programs. Total USDA food aid tonnage in fiscal year 1999 is expected to exceed 8 million tons.
As of January 30, 1999, country allocations under the initiative totaled around 4.8 million tons of wheat and wheat products. Of the total, 3.3 million has been allocated for government-to- government donations, including Russia (1.5 million tons), Bangladesh (600,000 tons) and Pakistan (300,000 tons), with the remaining 900,000 tons going to 16 other countries. Another 1 million tons has been allocated for donations through the World Food Program, while 427,000 tons has been allocated for distribution by private voluntary organizations (PVO’s).
Shipments have begun to some countries, and we continue to negotiate donation agreements with a number of recipient countries and PVO’s. We expect that all 5 million tons will be shipped by the end of this calendar year.
In addition to the President’s Food Aid Initiative, we are carrying out a major food aid effort in Russia. Along with the section 416(b) wheat that I mentioned earlier, our package for Russia includes 500,000 tons of corn, 300,000 tons of soybean meal, 200,000 tons of soybeans, 200,000 tons of additional wheat, 116,000 tons of rice, 120,000 tons of beef, 50,000 tons of pork, 50,000 tons of poultry, 38,500 tons of nonfat dry milk, 16,000 tons of lentils, 15,000 tons of planting seeds, 15,000 tons of vegetable oil, and 3,000 tons of salmon. The U.S. and Russian governments have established an unprecedented monitoring program to ensure that aid reaches the targeted populations throughout Russia. USDA is devoting substantial resources to monitor the delivery and distribution of the food aid, including stationing additional USDA staff in Russia to aid in this effort. USDA also has requested assistance from other U.S. government agencies to monitor the package and will, if necessary, consider sending additional staff.
In addition to these major undertakings, we also continue our export assistance efforts under other programs. For example, under the Dairy Export Incentive Program (DEIP), Secretary Glickman has authorized the availability of export bonuses up to the maximum volume and spending limits consistent with our World Trade Organization (WTO) obligations. From July through January, bonuses of nearly $80 million were awarded for exports of nearly 70,000 metric tons of U.S. nonfat dry milk, over 3,000 tons of whole milk powder and 4,000 tons of cheese.
Last May, Secretary Glickman reactivated the Export Enhancement Program (EEP) to announce a 20,210-ton allocation for frozen poultry to six Middle East countries to partly compensate U.S. poultry producers who had lost markets in Europe. To date, 1,500 tons have been sold under this initiative. He also announced an EEP initiative for barley to Algeria, Cyprus, and Norway following the shipment of heavily subsidized barley from the European Union to the U.S. market. Before this initiative expired, USDA awarded $1.2 million in bonuses for nearly 25,000 tons of U.S. barley exports.
We continue to stress the importance of market development. In 1998, we allocated $90 million to 64 U.S. trade associations, State regional groups and cooperatives for export promotion activities under the Market Access Program (MAP), and approved marketing plans of $33.5 million for 27 U.S. trade associations under the Foreign Market Development (FMD) program. In 1999, we have approved marketing plans of $33.5 million for 26 U.S. trade organizations under FMD. Just last month, we invited applications for our 1999 MAP and our fiscal 2000 FMD program.
Improving technology and the unprecedented growth of the internet have allowed us to enhance the services that we offer exporters -- both small businesses as well as large. A wide variety of trade information is available instantaneously through the FAS website at FAS staff in the United States and around the world can provide exporters with information about market potential; services that put buyers and sellers in touch with each other; help in exhibiting at one of the many FAS-sponsored food trade shows around the world; and assistance for small firms to find the resources to market their products overseas.
On the trade policy front, USDA worked successfully to open, expand, and maintain markets for U.S. agriculture. For example, our significant market access agreement with Taiwan requires that country to lift its import bans and allow access for U.S. pork, poultry and variety meats. Upon accession to the WTO, Taiwan will cut tariffs and open tariff-rate quotas on a range of agricultural products.
FAS also aggressively monitored foreign countries’ compliance with Uruguay Round Agreement commitments during the year. U.S. vigilance of WTO members’ commitments resulted in the prompt removal of a WTO-inconsistent cotton import tax by Turkey; protected U.S. market access to the Dominican Republic’s dairy market; and encouraged implementation of Ecuador’s poultry, dairy, and wheat tariff-rate quotas.
Priorities for 2000
These efforts are a continuation of the careful, persistent export market investments USDA made in the late 1980's and early 1990's -- promoting U.S. products, penetrating new markets, tearing down trade barriers. These efforts paid off handsomely in the mid-1990's. After several years of stagnant markets, global demand surged and U.S. exports exploded (up $16 billion in 2 years). Those investments are still paying off today. Even with shrinking markets, we are maintaining our share of global trade. And despite 3 straight years of declining U.S. export sales (1997, 1998, and 1999), we expect to end the current year nearly $5 billion ahead of where we were just 5 years ago.
If we want to protect the hard-won gains of American agriculture in the global marketplace in the next decade -- if we want to be ready to ride the next export wave -- we need to stay focused. We must continue to be a reliable supplier of food to our customers. We need to continue to invest in the future of export markets and the global trade opportunities they will bring to U.S. farmers and ranchers.
Strategic Planning
But as we forge ahead, it is obvious that we need to look at new ways of doing business to reduce costs, streamline programs, and tap into new technologies. At FAS, we are using the Government Performance and Results Act of 1993 (GPRA) process as a tool to refocus our thinking and review our export efforts.
We are implementing a Unified Export Strategy (UES) system so private sector and State government applicants may submit -- by paper or electronically -- a single, consolidated, and strategically coordinated proposal for our market development programs. In addition, applicants may also make programming recommendations to FAS concerning the Cochran Fellowship Program, all of our export credit guarantee programs, P.L. 480 Title I credit, and trade policy initiatives. This simpler, faster system has reduced the paperwork burden on the program applicants by 60 percent.
Our overseas offices are implementing a new strategic planning system that integrates all of the marketing, credit, and trade policy tools that we have available to maximize the market for individual agricultural products.
Our remote sensing program group uses satellites and computers to keep track of the latest developments in crop production around the world. This information gives U.S. producers the most up-to-date, accurate forecasts of their competition.
Together, these systems let us review the competition and all FAS-sponsored efforts in a given market to determine whether we have the optimal mix of programs and funding, given that market’s potential as a buyer of U.S. agricultural products. It also allows us to step back and review our efforts regionally as well as globally.
I would like to take a few moments to outline our priorities for fiscal year 2000.
Global Priorities
We must move forward with greater market reform in the next round of world trade talks, scheduled to begin late this year in Seattle. Although the Uruguay Round was a landmark agreement for agriculture – more was done to liberalize trade and bring agriculture into the General Agreement on Tariffs and Trade system than in all previous rounds combined – we have to recognize that agriculture still has a long way to go to complete its reform and be fully integrated into the world trading system.
Our goals for the upcoming WTO negotiations include:
• Eliminate export subsidies.
• Substantially cut--and where possible eliminate--tariffs on farm products.
• Tighten rules on domestic subsidies.
• Reform state trading enterprises.
• Clarify rules on technical barriers that unjustifiably restrict trade.
Regional Priorities
Russia and the New Independent States
Our top priority in this region is the implementation of the food aid agreements with Russia. This aid package has several objectives. We want to increase food supplies to vulnerable groups and regions, while making sure the food reaches its intended destination. We are also providing feed grains and oilseed products to help bolster Russia’s ailing livestock sector, and we are looking at other ways to assist agriculture. With minor exceptions, the proceeds from sales of U.S. commodities in Russia will go into the Russian Pension Fund to help meet pressing social needs.
But aid is a temporary measure – a response to Russia’s current short grain harvest and serious financial difficulties. It will help maintain food supplies and trade flows to Russia. As we look down the road, the whole world shares a common interest in the recovery of the Russian economy and its purchasing power and the resumption of its role in global commercial trade. Russia has been an important market for U.S. agriculture, especially our poultry industry, and it is in our best interests to see the Russian economy improve.
In agriculture, as in other sectors, we will continue to work with Russia through our Binational Commission. Our Agency is also responding with technical assistance. We have trained hundreds of Cochran Fellows from Russia since 1992, and are scheduled to train 50 more on topics relating to economic development, such as modern distribution and inventory control. In the entire NIS, we will train over 200 Fellows in 1999. In Ukraine, we are helping develop agricultural cooperatives in order to strengthen private sector farming and foster potential trade partners. In the Baltics, not only will we implement a large Cochran program including up to 40 participants in 1999, but will work with dairy farmers and meat producers to promote freer markets and lower trade barriers.
On the trade policy front, Russia and Ukraine are hoping to join the WTO. We will be working with both those countries on their accessions. Latvia and Kyrgystan recently acceded to the WTO.
Europe
In Europe, trade policy issues dominate our list of priorities. We will be monitoring closely the European Union’s reform of its Common Agricultural Policy (CAP). We believe that reform of the CAP is a necessary first step to further worldwide agricultural reform under the WTO. We will also be following accessions by Central and East European countries to the EU. While past EU accession of other countries, such as Spain, Greece, and Portugal, has been economically beneficial to those countries, we remain concerned that EU enlargement could limit U.S. trade potential, and we will seek assurance that our farmers will have continued access to markets in an expanded EU.
Two of our most serious issues with Europe involve enforcing WTO decisions -- on bananas and beef. Both cases raise a fundamental question: Are nations going to live by the rules-based system that we agreed to under the Uruguay Round, and which today is the foundation of our world trading system?
In both cases and in both appeals, the WTO ruled in favor of the United States. In the case of bananas, we disagree as to whether the EU has taken sufficient steps to comply with the WTO decision. But in the beef hormone case, the United States is increasingly concerned that the EU shows no visible signs of taking even the first steps to come into compliance -- to remove the ban -- and yet the May 13 deadline for compliance is fast approaching. And if we are to avoid another direct confrontation as in the banana case, then the EU must demonstrate soon that it will remove its beef import ban by May 13.
We are also concerned about the pace and ad hoc nature of the EU’s approval process for biotech products. The EU approval process for genetically modified products has broken down for largely political reasons, threatening U.S. corn exports to the EU for the second consecutive year. In addition, the EU has implemented mandatory labeling on foods containing genetically modified ingredients, but no details have been provided as to how the regulation will be implemented.
We also continue to work with the EU to complete the Veterinary Equivalency Agreement. Our progress has been slowed by EU actions on residue testing and slaughter establishment listing. We will be closely following future EU amendments to its proposed ban on specified risk materials (SRM) to avoid unnecessary trade disruption.
Other bilateral trade issues with the EU include the U.S. quota on wheat gluten imports and EU production subsidies that have caused U.S. and other canned fruit exporters to lose sales.
On a more positive note, the United States and the EU are beginning to identify issues affecting agricultural trade under the Transatlantic Economic Partnership. We are making progress toward opening negotiations on a new U.S.-EU wine accord. The duty on U.S. husked rice shipped to the EU has been lowered, compared to the system which would have been implemented upon the expiration of the cumulative recovery system in January of this year.
Americas
Our exports to the Americas, particularly to our NAFTA partners, were instrumental in helping to cushion the blow caused by Asia’s economic crisis. However, Brazil’s recent financial difficulties illustrate, once again, how interrelated the world economy is. And, although farm trade between the United States and Brazil is relatively small, their economic problems concern us because we hope the problems will not trigger a sustained recession throughout other countries in Latin America.
Experience has shown that we must continue to use our export assistance and market development programs in countries facing economic difficulties. We are encouraging U.S. exporters to remain active in these markets, and we continue to support U.S. exports through our export credit guarantee programs. These efforts help U.S. exporters maintain market share and their market presence so that when these countries recover, U.S. exporters will be positioned to recoup sales.
In addition to these activities, we continue to work on a number of trade policy initiatives. For example, we continue to implement NAFTA – a task that will not be complete for agriculture until 2008.
Our success with the U.S.-South Africa Binational commission has encouraged us to expand this approach to key markets in Latin America. In 1998, the United States launched binational consultative committees with Argentina and Chile and we are proposing to establish one with Brazil this year. USDA participation in these commissions ensures that agricultural issues are highlighted in discussions with these key trading partners.
We also are working with other countries in the hemisphere toward a Free Trade Area of the Americas (FTAA). Although several years away, such a hemispheric free trade agreement would be unprecedented in size and scope, providing access for U.S. products into more than 30 countries.
We are working on bilateral trade issues with key trading partners. With Canada for example, we are implementing a Record of Understanding and Action Plan that the two sides agreed to in December. A key component of this agreement includes steps to resolve issues involving U.S.-Canadian grain trade. Under the record of understanding, we will hold grain consultations with the Canadians quarterly. We have stepped up our monitoring of U.S. imports of Canadian wheat. We are tackling the issue of transparency of the Canadian Wheat Board as well as phytosanitary issues such as Karnal Bunt, Flag Smut and TCK. We have achieved U.S. access to the Canadian grain market, and Canada’s transportation, and port facilities.
We also have a number of outstanding issues with Canada involving livestock trade, particularly relating to Canadian exports of live cattle, beef, and hogs to the United States. The record of understanding has expanded the Northwest Cattle Project to increase access to the Canadian markets for livestock from more states.
Canada’s dairy and poultry export policies inhibit U.S. access to that market. There also are some issues involving horticultural trade that we will be working on, including potatoes, tomatoes, and mushrooms.
Our priorities with Mexico include reference pricing restrictions on a number of agricultural products such as apples, wine, and processed food; unfulfilled NAFTA commitments on improving the administration of Mexico’s tariff-rate quota for dry beans; antidumping cases against U.S. agricultural products--high fructose corn syrup; cattle, beef, and offals; and hogs; and import restrictions against Florida citrus.
The recent events of Hurricanes Georges and Mitch in the Dominican Republic and Central America show us not only how quickly developing economies can be devastated but how USDA can react rapidly to rebuild those countries’ agricultural sectors. Following Hurricane Georges, FAS developed an agricultural reconstruction program in the Dominican Republic using the proceeds derived from the local sale of commodities donated by the United States. The benefits of this model are threefold: 1) increasing the availability of food for people who lost their homes and income, 2) rebuilding a devastated agricultural sector of a neighboring country, and 3) helping the U.S. farmers by purchasing their crops. We also are involved in assessing damage in the Central American countries, and will promote and use USDA experts to help rebuild rural communities and infrastructure, implement improved conservation practices, and ensure improved food safety measures.
Training continues to be a vehicle through which we can influence and educate our southern trading partners about U.S. exports, standards, and policies. We implemented our first Cochran Fellowship Program in Brazil in FY1998, and brought together high level officials from the Ministries of Health and Agriculture to learn about different aspects of food safety. The ministers stated that our training program was one of the only opportunities they had to work together and exchange ideas on the topic of food safety. Other countries for which we will hold Cochran training programs are Mexico, Venezuela, Honduras, Nicaragua, Guatemala, Chile, Costa Rica, Panama and Colombia. Total participation level may exceed 100 persons.
Asia
Weak demand in Asia remains a factor for U.S. exporters in 1999, although the situation is improving somewhat. U.S. exporters, however, face not only reduced purchasing power in Asian nations, but also non-tariff barriers and export-oriented policies, particularly in China. We continue to make extensive use of our export credit guarantee programs in Asia and to encourage U.S. exporters to continue their market development activities to maintain U.S. market presence.
WTO accessions provide an excellent opportunity to address and resolve some trade problems. Earlier, I mentioned our agreement with Taiwan over its pending WTO accession. We will continue to monitor that agreement this year. We also will be working with China on its WTO accession.
Other bilateral issues with China include outstanding sanitary and phytosanitary issues from the 1992 U.S.-China Market Access Memorandum of Understanding. Commodities we will be focusing on include citrus, wheat, meat, plums, tobacco and restricted market access for apples.
Other bilateral issues with Taiwan include Newcastle disease restrictions affecting California poultry and Taiwan’s new meat and poultry quarantine requirements.
Japan remains our best customer and we continue to believe that Japan holds even more potential for U.S. exports, even with its sluggish economy. We have targeted several trade issues that we will be working to resolve: Japan's proposed rice tariffication; the U.S. WTO apple varietal testing case; pending U.S. applications for approval to export certain apple and two cherry varieties; quarantine concerns over U.S. exports of tomatoes and lettuce; and proposed Japanese labeling policies for products derived from biotechnology.
Other bilateral issues in this region include WTO consultations with Korea regarding its quantitative restrictions on beef imports; market access into Australia for U.S. fruits (grapes, grapefruit, stone fruits, blueberries, apples, pears, cranberries, and papaya), meat and meat products (pork and poultry), and salmon; market access into New Zealand for avocados, papayas, onions, strawberries and poultry.
We are working on the Asia-Pacific Economic Cooperation (APEC) forum that would establish free trade and investment in the region by the year 2020. If successfully negotiated, a free trade area would remove a number of serious barriers to U.S. agricultural exports. APEC countries account for four of our five top markets.
The economic crises revealed a renewed requirement for Asian countries to strengthen their agricultural sectors in order to rebuild their economic base. To that end, we will train over 120 Cochran fellows in topics as varied as commodity distribution channels, erosion control, and sanitary and phytosanitary issues. Our trainees from China alone will double this year. Yet we consider this exchange of information to be only one piece of our training efforts in that region. This year marks the 20th anniversary of the Scientific Cooperation Program in China, where exchange scientists address research activities of mutual benefit, such as improvement of wheat through biotechnology and sustainable forestry. Finally, we have implemented a cold storage project in several Asian countries to help them use existing resources to improve refrigeration techniques so that U.S. fruit and vegetable exporters can increase sales to that region.
Africa
Perhaps no continent better illustrates the challenges of achieving world food security than Africa. Countries rich in natural resources and resilient people continue to be beset by political instabilities, inconsistent food production and inadequate infrastructure.
We will soon be releasing the U.S. Action Plan on Food Security, our official response to the goal adopted at the November 1996 World Food Summit of reducing the number of undernourished people in the world by half by the year 2015.
This Action Plan was developed collaboratively with people from many sectors and organizations. The process gave us the opportunity to step back, assess what we have been doing, and work to find new, creative, and effective ways to meet ever-changing world needs.
The plan is a long-term blueprint for achieving sustainable food security both in the United States and internationally. It will help guide us as we work to achieve food security throughout the African continent and around the world. It builds on our longstanding food and developmental assistance programs, such as emergency food aid, long-term concessional sales, development and technical assistance, and research and education.
Many African nations have made great economic progress over the past decade. As a result, we have expanded the availability of export credit guarantee programs in the region. Last year, 38 African countries participated in these programs, purchasing $25 million worth of U.S. food and agricultural products. Our staff in Africa as well as here in the United States are working with importers and banks in those countries to increase their familiarity with our programs, and we hope to see additional sales in the coming years.
We have also expanded the Cochran Fellowship Program in Africa to train even greater numbers of mid- to upper-level agriculturalists. This year, we expect to train at least 25 Cochran Fellows from Sub-Saharan, East and West Africa on the trade implications and policy aspects of the work of CODEX and WTO disciplines on sanitary and phytosanitary measures and related issues such as biotechnology. Other training programs in African countries will cover agricultural issues as varied as pest analysis to livestock genetics.
Many African countries need critical development assistance in the agricultural sector that will help create markets for U.S. products. This type of assistance is not just direct food aid, but involves technical expertise that addresses threats to sustainable agriculture and economic development. FAS is collaborating with international financial institutions and the U.S. Agency for International Development to improve famine early warning systems, increase food security, implement integrated pest management practices, strengthen agricultural statistics collection, and promote community-based natural resources management. Finally, over the past 15 years, we have funded dozens of collaborative research projects at scientific institutions in eight countries in Africa that address scientific problems of mutual interest, such as non-chemical control of noxious weeds and alternative methods to recycle seafood waste for livestock feed.
The U.S.-South Africa Binational Commission is an example of a new approach that provides U.S. expertise and programs to help South Africa’s development, while at the same time providing direct benefits to the U.S. agricultural community, mainly through trade policy initiatives.
Just last month, Secretary Glickman accompanied Vice President Gore to South Africa for the sixth meeting of the Binational Commission. The Commission’s Agriculture Committee coordinates a wide variety of activities. For example, the Village Banks project established locally owned cooperative financial institutions in South Africa that provide financial services to small farm owners and entrepreneurs. There are also several conservation projects, as well as several projects to help the South African government improve the services and information they provide their citizens. From the U.S. perspective, the Committee has helped us achieve two important market access agreements – one for U.S. corn and another for U.S. beef and pork. New initiatives for the Agriculture Committee include helping South Africa set up a crop insurance system and establishing a process to reconcile food safety and biotechnology regulations that hamper trade.
Budget Request
Mr. Chairman, before reviewing our budget request for fiscal year 2000, I would like to take this opportunity to thank the Subcommittee for successfully resolving the International Cooperative Administrative Support Services (ICASS) base transfer issue last year. Providing the necessary funding for ICASS in our fiscal year 1999 appropriation provided a significant measure of relief to an already strained budget situation.
There is no question that today's budget environment requires us to prioritize our activities. Adjusted for the ICASS base transfer, the level of funding available to FAS in fiscal years 1998 and 1999 has essentially remained unchanged from fiscal year 1997. Thus, FAS has had to absorb wage and price increases, both domestic and overseas, within existing resource levels. In fiscal year 1998, this was achieved largely from overseas exchange rate gains and by controlling domestic discretionary spending. However, the situation in fiscal years 1999 and 2000 is expected to be more difficult. We are experiencing sharp increases in overseas costs largely associated with higher Foreign Service National compensation rates that are set by the Department of State.
To absorb these higher costs, we have plans in place to reduce agency employment by 50 positions as well as reduce related support costs. However, these actions alone are not likely to generate all the offsets needed. As a result, it was necessary to evaluate our overseas office configuration for additional savings. We recently completed a worldwide review to identify options to reduce costs overseas, such as downsizing or closing offices. Based on this review, we have decided to close or downsize a number of offices over the next two years, including Hamburg, Germany; Milan, Italy; Jeddah, Saudi Arabia; and Singapore.
Mr. Chairman, the fiscal year 2000 budget proposes a funding level of $114.8 million for FAS, which excludes $27.5 million for the Cooperator Program, which is proposed to be funded through the Commodity Credit Corporation (CCC). In addition to partially funding the fiscal year 2000 pay raise, the budget proposes a modest increase to support several agency initiatives including:
For fiscal year 2000, the budget includes $3.5 million for the Cochran Fellowship Program, unchanged from 1999 levels.
Responding to conference report language directing the Department to develop a plan for establishing an account to manage overseas currency fluctuations, the budget proposes the establishment of an overseas buying power maintenance account. Under this proposal, up to $2 million of the FAS annual appropriation shall remain available until expended solely to offset fluctuations in international currency exchange rates.
Export Programs
Mr. Chairman, the export promotion, food assistance and foreign market development programs administered by FAS are key to expanding global market opportunities for U.S. agricultural producers. Our program proposals provide the tools to meet these new sales opportunities.
Export Credit Guarantee Programs. The budget includes a projected overall program level of $4.5 billion for export credit guarantees in fiscal year 2000. Of the total program level, $4.2 billion will be made available under the GSM-102 program and $100 million will be made available under the GSM-103 program. For supplier credit guarantees, the budget includes an estimated program level of $145 million and an estimated program level of $45 million for facility financing guarantees.
In response to the financial crisis in Asia and elsewhere, the programming of export credit guarantees was expanded substantially in fiscal year 1998 in order to maintain access for U.S. agricultural products to those markets. Sales registrations under the guarantee programs exceeded $4 billion in 1998, an increase of 40 percent over the previous year. This higher level of programming is expected to continue in fiscal years 1999 and 2000 as well.
Foreign Market Development. Beginning in fiscal year 2000, the budget proposes that funding for the Foreign Market Development Cooperator Program be provided through CCC. Proposed legislation will be submitted in conjunction with the budget to authorize annual CCC funding of $27.5 million for the program. The proposal is consistent with the market development authorities in the CCC Charter Act and program funding for other market development activities carried out by FAS, including MAP, which is already funded through CCC. This change would consolidate the source of funding and financial management activities for these various programs. In addition, by providing CCC funding, the proposal would provide stability for future program activities and would thereby enhance long-term planning by program participants.
The budget also proposes $2.5 million in funding from CCC for a new market development activity, the Quality Samples Program. Under this initiative, samples of U.S. agricultural products will be provided to foreign importers in order to promote a better understanding and appreciation of their high quality. The Quality Samples Program will be carried out through commodity organizations and agricultural trade associations.
Market Access Program. The budget provides funding for MAP in fiscal year 2000 at the maximum authorized level of $90 million, unchanged from fiscal year 1999.
P.L. 480. For fiscal year 2000, the budget includes a total program level for all titles of P.L. 480 food assistance activities of $987 million, which is expected to provide approximately 3.2 million metric tons of commodity assistance. In a change from past years, the budget requests no specific level of funding for Title III grants; however, current authorities provide that up to 15 percent of the funds of any title of P.L. 480 may be transferred to carry out any other title. The P.L. 480 budget estimates for fiscal year 1999 have been adjusted to reflect the food assistance and associated transportation costs valued at $850 million that is being provided to the Russian Federation, which I mentioned earlier. The assistance will be provided through Title I concessional financing agreements and Food for Progress grant agreements carried out with Title I funds.
Export Enhancement Program. World supply and demand conditions have limited EEP programming in recent years, and no bonuses have been awarded to date in fiscal year 1999. For fiscal year 2000, proposed legislation will be submitted with the budget to limit EEP programming to $494 million, a reduction of $85 million from the level currently authorized by the Agricultural Trade Act of 1978. This limitation is being proposed in order to provide "PAYGO" offsets to meet the costs of a number of high priority initiatives proposed in the budget that will increase mandatory spending for agricultural programs. Although the proposal would limit the authorized level of EEP programming, the program will remain in place and the awarding of bonuses could be resumed should market conditions warrant. In addition, proposed legislation will be submitted in conjunction with the budget that will authorize the Secretary of Agriculture, in the last quarter of the fiscal year, to reallocate unobligated EEP funding for use in carrying out U.S. foreign food assistance activities, including P.L. 480 and Food for Progress programs.
Dairy Export Incentive Program. The budget assumes a DEIP program level of $99 million for fiscal year 2000, slightly below the current estimate for fiscal year 1999. As is the case with EEP, the actual fiscal year 2000 program level for DEIP will be determined by market conditions, subject to the export subsidy reduction commitments made in the Uruguay Round Agreement on Agriculture.
This concludes my statement, Mr. Chairman. I will be glad to answer any questions.
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