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Statement of
Lon Hatamiya, Administrator
Foreign Agricultural Service
U.S. Department of Agriculture
Before the House Subcommittee on Agriculture,
Rural Development, Food and Drug Administration
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 fiscal year 1999.

Although I have been administrator of FAS for a short time, I am familiar with the Agency and its accomplishments, both through my work as administrator of the Agricultural Marketing Service and through work on my family's farm in California. During my four years as AMS administrator, FAS and AMS worked together on a regular basis, particularly in our efforts to implement the North American Free Trade Agreement (NAFTA). As a farmer from the No. 1 exporting state, I can fully appreciate the role of FAS in assisting agricultural exporters and the increasing importance that exports will play in the future for American farmers.

AGRICULTURAL EXPORTS REACH SECOND HIGHEST LEVEL EVER

In fiscal year 1997, U.S. agricultural exports reached $57.3 billion, the second highest level on record. Last year also marked the third consecutive year that exports topped $50 billion.

Exports of intermediate products (such as soybean meal and planting seeds) set a record at $12.3 billion. Consumer-oriented products also reached a record level of $20.8 billion, with poultry and fresh fruit leading the way. Exports of bulk products were down 16 percent because reduced wheat, corn, and cotton sales offset record soybean and tobacco sales.

Four of 1997's top 10 markets for U.S. agricultural exports rose to new highs. Records were set to both U.S. neighbors, Canada and Mexico. Together, our NAFTA partners accounted for $11.7 billion in U.S. exports this past year, 20 percent of our total agricultural exports worldwide and greater than our sales to Japan. Records were also set to Hong Kong and Russia. However, we also experienced declines in other top markets with value declines to three key Asian markets--Japan, Taiwan, South Korea--ranging from 10 to 12 percent.

The Latin American market continues to grow in importance for U.S. agriculture. U.S. exports to Latin America reached $10 billion in 1997, exceeding the total for all of Western Europe.

As usual, agriculture made a healthy contribution to the U.S. merchandise trade balance in fiscal 1997. The agricultural trade surplus (exports minus imports) ended the year at $21.5 billion. With this latest figure, agriculture has now registered trade surpluses in each of the last 37 years.

More so than agricultural products, U.S. wood and fishery products faced a mixed trade picture in fiscal 1997. It was good news for wood product exports, which reached a record $7.5 billion--up 5 percent from the previous year. Edible fish and seafood products did not fare as well. Export value slipped 6 percent to $2.7 billion. Weak world salmon prices, a shortage of U.S. crab and crabmeat, increased competition, and sluggish demand all contributed to this drop.

Combined U.S. exports of agricultural, wood, and fish products in 1997 were $67.4 billion. This was down 3 percent from 1996's record-breaking $69.8 billion, but well above earlier levels. In fiscal 1990, agricultural, wood, and fish exports totaled only $49.4 billion.

For fiscal 1998, our December estimate forecast U.S. exports at $58.5 billion. With imports projected at $38.0 billion, the December estimates set the agricultural trade surplus at $20.5 billion this year.

Mr. Chairman, one of USDA's primary goals is to expand economic and trade opportunities for agricultural producers and other rural residents. The modest annual growth projected in domestic demand for U.S. agricultural products makes the export market one of the most viable sources of increases in U.S. farm income.

FAS MISSION, ACCOMPLISHMENTS AND FUTURE CHALLENGES

Before I present our budget request, I would like to briefly share my thoughts on our mission highlighted in our 5-year strategic plan, and briefly review the strategies we will use to successfully accomplish our goals. My staff at FAS has created a highly focused strategic plan to guide us in accomplishing our mission and turning future challenges into opportunities for U.S. agriculture. As stated in our strategic plan, FAS' mission is to serve U.S. agriculture's international interests by expanding export opportunities for U.S. agricultural, fish, and forest products and promoting world food security.

FAS identified two goals and a number of strategies in its strategic and annual performance plans that I believe will help us help American agriculture tap into export opportunities. The first goal is to expand export opportunities. We will accomplish this goal by:

Our second goal is to promote world food security, which we will accomplish by:

Through these aggressive strategies, we are helping our farmers and ranchers meet the competitive challenges both now and in the future. FAS conducts a wide range of programs and activities to successfully implement these strategies, as we work to achieve our mission and goals. Some accomplishments in 1997 include:

Trade policy accomplishments. In 1997, the United States won a major victory in the first case brought to the World Trade Organization (WTO) under the new Sanitary and Phytosanitary (SPS) Agreement. In August, the WTO upheld the claims of the United States and Canada that the European Union's (EU) import ban on meat from hormone-treated animals was inconsistent with the EU's commitments under the WTO SPS Agreement. The decision was affirmed just last month by the WTO's Appellate Body. This ban, initiated in 1989, stopped over $100 million in U.S. beef exports annually. We are ready to work with EU officials toward resuming normal trade as soon as possible.

Other accomplishments included the first commercial shipment of U.S. tomatoes to Japan, the lifting of Egypt's ban on imported poultry, gaining market access for sweet cherries in Mexico, preserving the market for U.S. petfood exports to Switzerland, implementing a project to expedite shipments of live cattle from Montana and Washington to Canada, and working with Chile to re-open its market to U.S. wheat.

Enforcing Trade Agreements. FAS aggressively monitored foreign countries' compliance with Uruguay Round Agreement commitments during 1997, the second year of the agreement's implementation. FAS efforts helped safeguard negotiated trade benefits, including working with Costa Rica to open its poultry tariff rate quotas, which had been delayed by domestic legal challenges. That action set a precedent for other countries to implement their agreement commitments. FAS efforts also resulted in the Philippines taking major steps to fully open its market for U.S. pork and poultry exports. FAS work contributed to the opening of formal dispute settlement proceedings by the U.S. government that will challenge the EU's cheese export subsidies and Canada's milk price pooling scheme--practices that may constrain U.S. dairy exports. We have used the NAFTA committee process to gain new access for sweet cherries and address restrictions that would have impeded exports for grain, livestock, fruit and milk to Mexico.

Expanding and Improving Export Assistance Programs. Export programs and services were refined and expanded to meet changing demands of the international marketplace and keep pace with the competition. In 1997, funding offered under the Foreign Market Development Program (FMD) for the first time was provided to export organizations through a competitive process. Under the 1997 Market Access Program (MAP), 84 percent of the brand promotion funds assisted small-sized companies and cooperatives. Funding has been cut significantly for large companies and will be eliminated entirely in the 1998 allocation process.

In 1997, U.S. exporters reported the first sales under the Supplier Credit Guarantee Program. In addition, a new Facilities Credit Guarantee Program was launched. The program provides payment guarantees to help finance exports of U.S. goods and services for agricultural facilities in emerging markets.

Through a variety of training experiences throughout the United States, the Cochran Fellowship Program provided 707 participants from 45 countries exposure to U.S. economic policies, business practices and products. New programs were initiated in Kenya, Namibia and Brazil. In Ukraine, USDA, through the Commercial Agriculture Development Project, provided technical assistance and training to develop a system of grades and standards to facilitate domestic and international commerce.

Reaching Out to New Exporters. FAS continued its outreach efforts to educate American farmers and exporters about foreign sales opportunities. In 1997, efforts continued to target cooperatives and small, disadvantaged, and minority firms. New partnerships were formed with vocational agriculture teachers, 4-H and FFA representatives to inform more of the public, particularly young farmers, of the dynamics of agricultural exports and the need to get more producers and companies exporting. In addition, FAS has worked with the FFA and United Negro College Fund to organize an international intern program providing interested students an opportunity to gain international experience by working in select FAS overseas offices.

Providing Scientific and Policy Leadership on Biotechnology. In 1997, FAS and other USDA agencies took a leadership role to ensure that farmers and consumers around the world have access to approved products resulting from biotechnology. FAS worked tirelessly in EU countries to convince policy makers of the need for food safety decisions to be based on sound science. Two biotech products were cleared for importation by most European countries. FAS worked with Egyptian officials to continue to keep the Egyptian market open to approved agricultural biotechnology products. USDA worked to assure Brazilian officials of the safety of approved biotechnology products, and Brazilian officials approved the importation of 1.5 million metric tons of soybeans, including those derived from biotechnology. The establishment of the U.S.- Indonesia Food and Agricultural Forum insured continued dialog among senior public and private sector officials of both countries on issues related to food safety, genetically engineered products and trade. This is envisioned as a model to engage the leadership of other countries in a continuing discussion of these important issues. The United States also is a key proponent of a biotech initiative under the Asian Pacific Economic Cooperation (APEC) forum. We are sponsoring educational workshops aimed at harmonizing regulatory approaches to biotech products among APEC members.

Working to Ensure Food Security Around the World. In 1997, USDA worked vigorously to continue the momentum created by the 1996 World Food Summit. At the Summit, 186 countries adopted a Plan of Action that endorses trade liberalization, free markets, private sector initiative, sustainable development, and self-reliance rather than self-sufficiency. USDA is coordinating U.S. follow-up by the government, which emphasizes strengthening the U.S. contribution to alleviating hunger and malnutrition at home and abroad. Central to that effort is the development of a U.S. Action Plan on Food Security to serve as a blueprint for future U.S. policies and programs. The plan is being developed in full collaboration with non-government organizations, the private sector and academia. Intended to be not just a government plan, but one for the country as a whole, its completion will hopefully also be an incentive for other countries to meet their commitments made at the Summit.

Promoting Scientific Cooperation. USDA scientific cooperation with foreign countries continues to pay off in practical ways for U.S. agriculture. USDA uses science to help solve critical problems such as trade barriers and phytosanitary issues, food safety, and exotic diseases and pests. Postharvest technology scientists have worked with Malaysian counterparts to develop quarantine treatments to hasten the elimination of trade barriers to commodities susceptible to fruit fly. A Chinese team visited the United States to exchange information on viral diseases of animals, laying the groundwork for the exportation of U.S. Shorthorn cattle and diagnostic equipment to China.

Scientists are also promoting new industrial uses for U.S. agricultural products overseas. Initiatives include collaboration with Hungary on biodegradable plastics from corn starch, Argentina on hypoallergenic latex from guayule, and Mexico on pulp and paper products from crop wastes. Such projects help open new markets for U.S. products and diversify the U.S. export portfolio.

An important component of global food security is food safety. USDA has ongoing efforts to transfer existing technologies and develop new technologies in food safety. An example of successful technology transfer is a project that allowed USDA to provide relevant information to the Bulgarian government concerning health risks of rice grown in a region contaminated with arsenic. Subsequent efforts have focused on developing new phytoremediation techniques using plants to detoxify contaminated soils.

CHALLENGES FOR 1998

Mr. Chairman, we just need to look at the front page of nearly any newspaper in America to see the issues confronting American farmers and producers. From Asian currency problems to biotechnology to food safety concerns, American farmers face challenges that were unthinkable just a few years ago. Today's global trading environment means that the actions taken by governments and businesses far from U.S. shores can and do have an impact on U.S. farmers. The enactment of the landmark 1996 farm bill makes the role of exports and, in turn, the role of FAS even more prominent in increasing the economic opportunities for America's farmers and ranchers. I would like to take a few moments to outline some of the issues we will be focusing on in the coming year.

Impact of Asian Financial Problems. Under Secretary Schumacher, General Sales Manager Goldthwait and I traveled extensively throughout Asia last month to learn first hand the problems and the issues facing those countries and U.S. exporters. USDA's latest export forecast shows plainly the impact the events in Asia are having on our exports to those markets.

We intend to use all the programs at our disposal to diminish the impact on U.S. agricultural exports. We have announced the availability of $1.1 billion in export credit guarantees to South Korea, and have increased the availability of export credit guarantees to the Philippines, Indonesia, Malaysia, Thailand, and Singapore to more than $1 billion. We will be sending a technical team to the region this spring to ensure the smooth operation of these programs. We also will continue to constantly review the situations in these markets to ensure that U.S. exporters have all the necessary tools available to them.

Competitive Pressures. The outlook for U.S. agricultural exports is heavily influenced by competitive pressures that differ by commodity and can affect price and/or quantity of sales. One of the primary sources of this pressure is the rising value of the U.S. dollar, especially against the currencies of our major competitors. This has the effect of making U.S. exports more expensive to our customers, relative to those of our competitors. Unfortunately, the dollar has been rising against the currencies of all our competitors. Given the strength of the American economy, this situation is likely to continue for the foreseeable future, putting downward pressure on the U.S. share of world trade.

There are commodity-specific competitive pressures that pose challenges to U.S. exports as well. Record production of soybeans in South America will continue to pressure prices in 1998 and these pressures will continue in future years. We expect South American production of grains and oilseeds to expand significantly in the years ahead, offering increased competition to U.S. suppliers in third country markets, and pressuring prices in the process. Likewise, Chinese corn and East European corn and feed wheat available for export have been putting downward pressure on U.S. corn prices so far this year. While the threat from Chinese corn appears to have abated as supplies have diminished, East European products will continue to pressure U.S. corn prices.

In addition, we will continue to face stiff competition in markets around the globe. Our annual review of the export promotion activities of the 22 countries that account for our major competition found that just like the United States, many of our competitors have ambitious export goals. The EU and other countries assist their producers and small business to develop foreign markets through activities similar to our Market Access Program and Foreign Market Development Program. Market promotion by EU countries is estimated at $400 million in 1995/96, with about one-half of that amount provided by EU-member governments. The rest of the funds comes from producer-funded organizations and other fees. Australia, Canada, and New Zealand have strong national government promotion agencies and rely heavily on their statutory marketing boards to carry out market development activities for producers of specific agricultural products.

In addition to market promotion activities, the EU also carries out an extensive subsidy program. Of the $7.2 billion budgeted by the EU in 1997 for export subsidies, over 85 percent was for exports of high-value products such as fresh and processed fruits and vegetables, wine, dairy products, and meat and meat products.

Fast-track Authority. We were obviously disappointed that the President's traditional trade negotiating authority was not renewed in 1997. Like his predecessors since Gerald Ford, the President and his negotiators need this authority to gain further market access overseas, extract significant concessions from our trading partners, and play a leadership role in shaping new trade agreements. But it isn't over. The Administration is conferring with key members of Congress to secure this authority. Our preference would be for broad fast track authority, incorporating the specific goals for agriculture that were spelled out in the President's last bill.

Next Round of Multilateral Trade Negotiations. As important as the Uruguay Round was for initiating the process of liberalizing world trade in agricultural products, a lot of work remains to be done. WTO members agreed to begin negotiations on the next phase of agricultural trade liberalization at the end of 1999. These negotiations are the best chance U.S. agriculture has for further reducing tariffs, opening new markets, and addressing unfair trade practices on a global scale. Fast track authority was critical in concluding the Uruguay Round, and renewed authority is viewed as essential for U.S. negotiating credibility and success in future WTO negotiations. Several key issues stand out:

Refining Our Export Assistance Efforts. Today's competitive environment for exporters coupled with budget realities means that the Federal government must continue its efforts to do more with less. At FAS we are using the Government Performance and Results Act (GPRA) strategic planning framework to rethink our export assistance efforts from top to bottom. We continue to emphasize customer service and search for ways we can improve program delivery. This year, we will begin moving toward a one-stop application process for both our MAP and FMD programs to better coordinate our export efforts across programs, as well as simplify and reduce the paperwork burden on potential program participants. This is one example of our efforts to implement GPRA principles to guide us in allocating our export promotion resources.

In our credit guarantee programs, we will continue to expand our outreach activities to educate both potential exporters and importers about how the programs can benefit them. We will also continue to work to increase the number of U.S. firms participating in the export market through our efforts with state departments of agriculture and state legislators as well as groups such as FFA.

World Food Security. Improving world food security continues to be a top priority. This year, we will continue to work with the public and private sectors to develop a U.S. Action Plan on Food Security that will serve as a blueprint for future U.S. policies and programs. Our food aid programs are also under review as we evaluate the changes that were made as a result of the 1996 farm bill.

Another area of emphasis is our effort to ensure that farmers and consumers around the world have access to approved products resulting from biotechnology. Properly used and regulated, biotechnology offers one of the most promising tools for meeting future demand for an abundant, affordable, nutritious, and safe global food supply. It holds the potential for reducing the use of crop chemicals and fossil fuels, adapting plant varieties that can be grown in harsh conditions, reducing losses to plant pests and diseases, increasing the shelf life and the nutritional content of foods.

Equal Employment Opportunity. I am firmly committed to ensuring that FAS supports the civil rights of all our employees. As you can see, the challenges facing us are many, and we can only begin to accomplish these goals by effectively working together. Under the direction of Secretary Glickman, we are committed to ensuring equal opportunity; respecting the civil rights of all employees, clients, and customers; and creating a work environment that is free of discrimination and harassment, while accommodating the needs of persons with disabilities. As an Asian American, I have experienced prejudice and stereotypical assumptions solely based on my heritage. As FAS administrator, I will carefully monitor the implementation of our agency's EEO commitment and will hold each employee at every level personally accountable for his or her conduct and performance, as a public servant, in equal opportunity and civil rights.

FAS BUDGET REQUEST

Mr. Chairman, today's budget realities mean that government must be leaner and more efficient, but the era of a responsive and responsible government is not over. While there are things that government can't or shouldn't do, there are many legitimate public needs that only government can meet. Whether it's working to resolve trade disputes, supporting the American private sector as it battles in export markets against foreign competitors flush with funds from their national treasuries, or educating potential exporters, FAS has a vital role to play.

The fiscal 1999 FAS budget proposes a funding level of $145.6 million and 819 staff-years. This represents an increase of $5.6 million above fiscal 1998 funding levels but a reduction of 62 staff-years from 1998 levels. The budget proposes several initiatives that I would like to briefly review with you.

The 1999 budget proposes that the costs of operating the CCC Computer Facility , and other related FAS Information Resources Management (IRM) costs shall be funded through the FAS appropriation. The Facility serves as the Department=s collection point for international production intelligence and crop estimates. Currently, these activities are funded through a reimbursable agreement with CCC. This change will shift funding for these activities from mandatory to the more appropriate category of discretionary spending. Additionally, with this shift, funding for these activities will no longer be subject to the annual limitation on CCC reimbursable agreements established by provisions of the 1996 Farm Bill.

The funding support for the CCC Computer Facility and other IRM costs is estimated at $12.0 million in fiscal 1999. The budget proposes to finance this activity primarily by reducing employment, associated administrative cost reductions, and a reduction in the FAS contribution to the Foreign Market Development (FMD) Cooperator Program from $27.5 million to $22.0 million. It is anticipated that increased cost-share contributions by participants in the FMD Program will offset reduced FAS contribution levels.

Year 2000 Efforts. I am pleased to report that all computer hardware and application software systems will be Year 2000 compliant by the end of calendar 1998. Of the 14 FAS mission-critical systems, eight are already compliant, and the remaining systems will be re-engineered or modified during calendar 1998. Independent Verification and Validation (IV&V) of FAS systems will be performed during the latter part of calendar 1998.

The budget proposes $2.0 million to establish an overseas buying power maintenance account to assist FAS in managing unanticipated changes in the costs of overseas operations associated with exchange rate losses. This proposal responds to fiscal year 1998 conference report language that directs the Department to develop a plan for establishing an account to manage overseas currency fluctuations. Under this proposal, funds appropriated for this purpose in 1999 will be transferred to a revolving fund where they will remain until expended. Funds could be withdrawn from the account after exchange rate losses are verified. Exchange rate gains that may accrue will be deposited into the account.

The budget provides an increase of $2.0 million for pay costs and higher agency contribution levels for employees under the Civil Service Retirement System and includes $4 million for overseas administrative services provided by the Department of State in support of the International Cooperative Administrative Support Services (ICASS) program. In 1998, $4.4 million has been transferred from the Department of State for this purpose.

The budget includes an increase of $500,000 to develop a more effective FAS Government Performance and Results Act (GPRA) performance measurement and evaluation system and to re-engineer market intelligence gathering processes. FAS will enlist the help of private sector experts to develop a cross-agency performance tracking and evaluation system to determine success rates in attaining goals and objectives outlined in the FAS Strategic Plan. FAS also will evaluate and re-engineer its crop and market intelligence gathering activities, interagency partnering, and evaluation and dissemination processes to make them more efficient in terms of resource utilization and more responsive to internal and external customer needs.

For fiscal 1999, the budget includes $3.0 million for the Cochran Fellowship Program, unchanged from 1998 levels.

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, tempered by the need to reduce Federal spending.

Export Credit Guarantee Programs. The budget proposes a new approach to presenting the estimates for the CCC export credit guarantee programs. Program levels, budget authority and outlays will reflect the level of sales expected to be registered rather than the authorized levels. This provides more realistic estimates of the costs of the guarantee programs and improves the accuracy of CCC budget estimates. This change will not restrict program use; the authorized levels remain available for use as determined by program demand and changing market conditions.

Following this new approach, the budget projects an aggregate program level of $5.0 billion for export credit guarantees in fiscal 1998 and $4.6 billion for 1999. These program levels are significantly higher than in recent years, reflecting large increases in programming in Southeast Asia and South Korea during 1998 that are expected to continue into 1999.

The 1999 program level includes $4.3 billion for the GSM-102 program and $100 million for the GSM-103 program. Additionally, the budget includes $150 million for supplier credit guarantees and $50 million for facilities financing guarantees.

P.L. 480. The 1999 budget provides a total program level of $979 million for P.L. 480 foreign food assistance, a reduction of $133 million from 1998 levels. At this program level, 2.8 million metric tons of commodity assistance will be provided, 700,000 metric tons below the current estimate for 1998. The reduction in P.L. 480 funding proposed for 1999 will occur in the Title I program; funding for Titles II and III will remain unchanged from 1998 enacted levels. This will ensure the availability of adequate resources to meet the most serious food assistance needs.

Market Access Program. For the Market Access Program, the 1999 budget proposes to continue the program level at $90.0 million, the maximum annual program level authorized in the 1996 Farm Bill.

Export Enhancement Program. For the Export Enhancement Program (EEP), the budget proposes a program level of up to $320 million for fiscal 1999. While world market conditions have limited the use of EEP over the past two years, we believe it is extremely important that we maintain a strong position in order to protect U.S. agricultural trade interests. Additionally, the budget proposed a flexible multi-year program level for EEP of $1.2 billion for the fiscal years 1999 through 2003. This proposal will provide the Department with the administrative discretion to determine the annual funding level for EEP, subject to the $320 million limitation in 1999. Amounts not used in one year will remain available for use in subsequent years, subject to the export subsidy reduction commitments made in conjunction with the Uruguay Round Agreement on Agriculture. It is anticipated that this proposal will generate some $1.4 billion in savings over the five-year period that will be used to finance crop insurance sales commissions, increased EQIP funds, and other increases requested for mandatory programs in the budget.

Dairy Export Incentive Program. For the Dairy Export Incentive Program (DEIP), the budget includes a program level of $82.3 million, somewhat below the current level due to projected tighter domestic market situation. As is the case with EEP, actual 1999 program levels 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.


Last modified: Thursday, October 14, 2004 PM