Mattie R. Sharpless, Acting Administrator
Foreign Agricultural Service
U.S. Department of Agriculture
Before the House Subcommittee on Agriculture,
Rural Development, Food and Drug Administration, and Related Agencies
April 25, 2001
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 (FY) 2002.
U.S. Trade Prospects
U.S. agricultural exports rebounded to $50.9 billion in FY 2000, an increase of $1.7 billion over 1999. FAS expects this trend to continue in FY 2001, with agricultural exports forecast to reach $53 billion, up $2.1 billion over 2000. Much of the gain is expected in Asia, as that region’s economic growth continues to rebound from the financial crisis of 1997-99. Export prospects are promising in both value and volume terms for most major commodities, including corn, wheat, soybeans, soybean meal, livestock products, and horticultural products.
The FAS mission remains constant: we are committed to expanding export opportunities for U.S. agricultural, fish, and forest products, and to helping in the alleviation of world hunger and food insecurity. Given today’s budgetary environment, these goals must be accomplished through better public/private sector collaboration, strategic planning, greater use of technology, and resource management.
FAS Program Activities
To support our goal of expanding export opportunities for U.S. agricultural, fish, and forest products, we continue to use our long-standing export programs vigorously. For example, the export credit guarantee programs facilitated sales of more than $3 billion in U.S. agricultural products last year. The GSM-102 program helped U.S. exporters register sales of more than $400 million to Indonesia despite that country’s economic uncertainties. The program helped U.S. exporters continue to develop markets in the Andean region, with U.S. sales of over $122 million worth of feed grains and $100 million of wheat. The GSM-103 program helped U.S. exporters sell over $13 million worth of wheat to Jordan and to re-enter the grain market in Tunisia with sales of $9 million. The Supplier Credit Guarantee Program was used for the first time by importers in West Africa and Central America, resulting in sales of over $18 million to buyers in the West Africa Region, and about $14.5 million to buyers in Central America. The first guarantee was issued under the Facility Guarantee Program for a project to improve a grain elevator in the port of Veracruz, Mexico. When this project is completed, the facility will increase its capacity to import bulk grains from 5,000 to 20,000 tons per hour. It is expected to handle nearly 19 million tons of grain between 2000 and 2004, with about 87 percent of it coming from the United States.
With the aid of the Dairy Export Incentive Program (DEIP), U.S. exporters sold more than 95,000 tons of dairy products in FY 2000. The Commodity Credit Corporation awarded more than $78 million in bonuses to help U.S. dairy exporters meet prevailing world prices and develop foreign markets. Use of the Export Enhancement Program was limited in 2000 because of market conditions, with bonuses of about $1.6 million awarded for sales of more than 2,500 tons of frozen poultry.
We continue to stress the importance of market development. In 2000, we allocated $90 million to 65 U.S. trade organizations, State regional groups, and cooperatives for export promotion activities under the Market Access Program (MAP), and allocated $27.5 million to 25 trade organizations under the Foreign Market Development (FMD) program.
FAS introduced 735 Cochran Fellows from over 75 countries to U.S. products and policies in 2000. These Fellows met with U.S. agribusiness; attended trade shows, policy and food safety seminars; and received technical training related to market development. The Cochran Fellowship Program provides USDA with a unique opportunity to educate foreign governments and private sectors not only about U.S. products, but also about U.S. regulations and policies on critical issues such as food safety and biotechnology.
On the trade policy front, USDA works to open, expand, and maintain markets for U.S. agriculture. FAS was a key player in the successful launch of negotiations in March 2000 to further liberalize global agricultural trade under the World Trade Organization (WTO). In June 2000, the United States presented its comprehensive proposal to establish a framework for the new agricultural negotiations.
FAS continues to monitor aggressively foreign countries’ compliance with Uruguay Round Agreement commitments. In calendar year 2000, the United States raised significant compliance issues with other WTO members, addressing policies that affected about $450 million in U.S. agricultural trade.
To support both our export mission and our food security mission, we have used food aid to move commodities from the U.S. marketplace to needy people around the world.
Over the past two years (FY 1999 and FY 2000 food aid programs), FAS programmed more than 12 million metric tons in food aid to help feed millions of hungry people in more than 80 countries around the world -- from the unprecedented assistance package for Russia to food relief for Kosovo refugees, famine victims in North Korea, and hurricane victims in Central America and the Caribbean. Total U.S. contributions accounted for more than 75 percent of total global emergency food aid to the Horn of Africa this past year, helping to avert large-scale starvation.
Under the authority of section 416(b) of the Agricultural Act of 1949, as amended (Section 416), the Commodity Credit Corporation (CCC) donated about $500 million worth of commodities in FY 2000, including about 2.6 million tons of wheat and wheat products, 168,000 tons of corn, 141,000 tons of rice, 130,000 tons of soybean oil, and 26,000 tons of dry milk. These U.S. surpluses were put to good use, helping to relieve hunger and suffering abroad.
Concessional sales under P.L. 480, Title I, totaled about 1 million metric tons in fiscal 2000, including 500,000 metric tons of U.S. corn, 163,000 tons of soybean meal, more than 150,000 tons of wheat, and 135,000 tons of rice, among other products. These commodities, valued at an estimated $157 million, went to eight countries. Another 413,000 tons of various U.S. commodities were donated to 12 countries under the Food for Progress program, with Title I-funded Food for Progress donations accounting for almost two-thirds of this tonnage.
In addition, we have undertaken a pilot Global Food for Education (GFE) Initiative. This year, USDA is donating approximately 630,000 metric tons of surplus U.S. agricultural commodities for use in school feeding and pre-school nutrition projects in developing countries. School feeding programs help assure that children attend and remain in school, improve childhood development and achievement, and thereby contribute to more self-reliant, productive societies.
In addition to our food aid activities, FAS continues to serve as the coordinator for the U.S. Government’s food security committee. Last September, we issued a national food security progress report that outlines how the United States is working to address our international and domestic food security goals.
Priorities for 2001 and 2002
Faced with competing demands for budgetary resources, a strong U.S. dollar and continued aggressive spending on market promotion by our competitors, we must redouble our efforts to improve the outlook for U.S. agricultural exports. For this year, we plan to continue to:
Pinpoint constraints to exports of U.S. agricultural, fish, and forest products;
Work to remove trade barriers and trade-distorting practices;
Safeguard U.S. agricultural interests by advocating strongly U.S. policies in the international community;
Help producers, processors, and exporters to strengthen their export knowledge and skills;
Ensure that the U.S. farm, forest and fishery sectors have timely and complete intelligence about emerging market opportunities;
Inform foreign buyers about the superior quality and reliable quantities of agricultural products offered by U.S. producers, and educate them about how to locate U.S. products;
Use our export credit guarantee programs to reach new customers for U.S. agriculture;
Use our food aid authorities to help needy people overseas and farmers here at home;
Use USDA export assistance programs such as the Foreign Market Development Program and the Market Access Program effectively to pursue export opportunities; and
Work with emerging markets and developing countries to promote economic development to help meet the U.S. commitment to reduce by half the number of food insecure persons by 2015.
I would like to take a few moments to discuss our top priorities for fiscal years 2001 and 2002.
At the top of our list is moving forward in the multilateral trade negotiations on agriculture under the WTO. With the submission of our comprehensive proposal last June, the United States has taken a leading role in the WTO negotiations underway in Geneva. The WTO multilateral negotiations are the best place to address needed reforms in world agriculture because it is only in the WTO that we have broad disciplines on market access, subsidies, and technical measures.
As part of the negotiating process, we must engage the developing world in the creation and implementation of appropriate trading rules and guidelines. This undertaking will take time, but it will be worth the investment. These countries represent our future growth markets. If we are to realize our goal of liberalizing trade through multinational bodies such as the WTO, we cannot ignore the concerns of developing countries, which make up the majority of WTO members.
We also will continue to work with the countries that would like to join the WTO. While membership in the WTO is a high priority, we will continue to insist that these accessions be made on commercially viable terms that provide trade and investment opportunities for U.S. agriculture. This means that acceding countries will need to implement trade policies and regulations that are fully consistent with WTO rules and obligations.
China is a perfect illustration of this strategy. Although we are pleased with the U.S.-China accession agreement, and with China’s bid for WTO accession nearing completion, soon our work will shift toward implementation of the agreements. Chinese concessions will be important for improved access opportunities, but we must remain vigilant and work with Chinese officials to ensure market opening.
With more than 1.2 billion people or one-fifth of the world’s population, China’s accession to the WTO will give U.S. agriculture access to the world’s second largest economy in terms of domestic purchasing power. This could result in at least $2 billion in additional U.S. agricultural exports by 2005.
China’s WTO accession will strengthen the global trading system, slash barriers to U.S. agriculture, give U.S. farmers and agribusinesses stronger protection against unfair trade practices and import surges, and create a more level and consistent playing field in this market.
In order to realize these gains, we will be vigilant to ensure that China lives up to its WTO commitments, effectively administers tariff-rate quotas, eliminates discriminatory licensing, and fully implements the Agricultural Cooperation Agreement reducing phytosanitary barriers for citrus, wheat, and meat.
Another important area of work for FAS is the negotiation to establish the Free Trade Area of the Americas (FTAA). The FTAA is intended to be a comprehensive free trade agreement between the 34 democracies in the Western Hemisphere. Negotiations began in 1998 and are expected to conclude by 2005. By concluding the FTAA, the U.S. will gain liberalized access to a region of 675 million people with a combined consumer buying power of $1.5 trillion.
For several years now the other countries in this hemisphere have been removing trade barriers to each other’s trade. There are currently more than 30 reciprocal trade agreements in the hemisphere. The United States is a participant in only one, the North American Free Trade Agreement (NAFTA). USDA’s analysis shows that if the United States remains outside of this process, our agricultural exports to the region will be displaced by other hemispheric suppliers at a cost of about $130 million a year. On the other hand, U.S. participation in these agreements could mean an increase in agricultural exports of around $580 million annually. However, this negotiation will be particularly challenging since the Latin American countries are also major agricultural exporters.
We also are actively participating in the Asia Pacific Economic Cooperation (APEC) forum. Asia represents an important market for U.S. agriculture, and we are working with other APEC members to promote economic policies in the region to moderate economic shocks like the Asian economic crisis of 1997-98. We expect APEC to serve as the launching point for promoting continued trade liberalization within the region and in the WTO and we will be working through the APEC food system to realize this goal.
Another priority is how we deal with the issues surrounding products produced through biotechnology. There is a lot to say about what is happening in the biotechnology field and how it is affecting trade. I could go on at length to describe our efforts at USDA to try to stay on top of the issue or to ensure that government actions on labeling and product approval in Japan, the European Union, Korea, Australia, New Zealand, and elsewhere, do not lead to irrational policies that reduce market access for U.S. commodities.
But I believe that events of the past year have resulted in an environment for biotech products that is as unsettled as it has ever been during the short commercial life of this new technology. The demand by some users for non-biotech commodities only, the resulting calls for segregation by some handlers, and the indications that premiums and discounts may be appearing for non-biotech vs. biotech commodities are bound to have an effect on farmers’ decisions regarding what to plant next year.
This issue is likely to be a dominant one for U.S. agriculture in the immediate years ahead, whether in the WTO or in our bilateral relationships with customer and competitor nations alike. That is why we have said that when it comes to biotechnology and the next trade round, our focus will be in making sure that biotech approval regimes, wherever they exist, are transparent, timely, predictable, and science-based.
We also will be working to improve the way we carry out our market development programs. FAS is currently in the process of refining its global marketing strategy that will target those markets that offer the most growth opportunity. To capture the opportunities and address the challenges that lie ahead, FAS needs to build on the considerable progress it has made in the past three and a half years in implementing strategic planning at all levels of the Agency.
We must protect our hard-won gains in mature markets of Western Europe and Japan, and at the same time, set aggressive but achievable growth targets in those markets that offer the most potential. This will require a thorough evaluation of the U.S. opportunities and challenges in those markets, and close coordination with our private industry partners to turn the opportunities to our advantage and the challenges into opportunities. In the next 10 years, the growth markets are likely to be the developing countries in Asia (especially China and South East Asia, and possibly India) and Latin America. Gaining market share in these high-growth markets is the most effective way to increase market share globally.
Our global marketing strategy is also instrumental in our ongoing review of our overseas office locations and staffing. We must continue to strengthen our staffing in FAS overseas offices to ensure that we are positioned to take advantage of the market opportunities created by our market access initiatives as well as new opportunities offered by emerging growth markets.
Alleviating hunger and malnutrition in the world also presents a significant challenge. One means to ensure this issue is addressed appropriately is to identify within the global marketing strategy the food security challenges that currently exist and are likely to emerge over the next decade. We will continue to use our food aid programs to help developing countries that lack the financial means to meet their food needs.
After three consecutive years of essentially straight-lined budgets, we appreciate the increases provided in the fiscal year 2001 appropriation for FAS. The net increase of just under $6.0 million allows FAS to fund fiscal year 2001 pay cost increases fully and partially cover higher overseas operating costs. Additionally, FAS is able to add 15 staff years for food aid and monetization activities, as well as increase our overseas staff in Ukraine and the Balkans.
We believe the future offers continued opportunity for the expansion of U.S. agricultural exports. Strengthening our ability to compete globally has the direct payoff of increased farm income for America's farmers and ranchers and the continued economic development of rural communities. Our fiscal year 2002 request builds on the foundation provided by this Committee in fiscal year 2001.
Mr. Chairman, the fiscal year 2002 budget proposes a funding level of $125.8 million for FAS. This represents an increase of $6.4 million and supports several important agency initiatives.
First, in order to strengthen the agency’s market intelligence capabilities at our overseas posts, $2.7 million is requested to place 3 new American officers and 27 new foreign nationals on Personal Services Agreements (PSAs) in 14 overseas locations where workload demands have become acute. Over the past several years, FAS overseas offices have experienced dramatic increases in workload, particularly that associated with complex trade policy and food security issues. Meeting these priority workload demands, in addition to regular commodity reporting, marketing, and representation functions, has overwhelmed the capacity of many of our offices in important geographic areas.
As an example, under the bilateral agreement reached with China relating to its accession to the WTO, U.S. agriculture should have increased access for a range of products with lowered tariffs, as I mentioned earlier. However, existing staff are overwhelmed with requests for commodity and market intelligence, intervention on sanitary and phytosanitary (SPS) issues, and official and commercial visitors. FAS has assigned an officer to monitor the agreement, but has no marketing officer ready to identify potential opportunities and work with the private sector to take advantage of them. Currently, FAS simply lacks the staff resources needed handle these opportunities -- a situation repeated in numerous locations around the world.
The PSAs would assume a greater portion of core office responsibilities, thus allowing FAS Agricultural Counselors and Attaches more flexibility to focus on the government policies and issues that can affect the competitiveness of U.S. exports, particularly competitor activities within that market, host country compliance with existing trade rules, and the formation of cooperative links for the upcoming WTO trade round. Increased resources will be directed to China, Philippines, Canada, Colombia, Thailand, Israel, Turkey, El Salvador, Korea, Brazil, Russia, Argentina, Nigeria and India.
Second, the budget requests $750,000 and 10 additional staff years to improve FAS’ ability to address and resolve technical trade issues. Technical trade issues, such as the commercialization of food products produced using biotechnology, have become the fastest growing and most sensitive trade issues in U.S. agriculture today and is one of the Agency’s key priorities that I mentioned earlier. In addition to biotechnology, U.S. agriculture and our exporters are facing other critical challenges related to technical issues associated with food safety, changing production methods to address environmental concerns, the growing global concern over Bovine Spongiform Encephalopathy (BSE) or mad cow disease, and the expansion of foot and mouth disease. In all cases, FAS is responsible for assuring regulatory actions taken by our trading partners do not impede our exports and comply with the WTO SPS disciplines. However, existing staff levels only allow FAS to react, on a piecemeal basis, to immediate issues such as StarLink and unjustified BSE-related bans on U.S. meat exports to Africa.
The additional staff years requested will allow FAS to develop a cohesive strategy for addressing technical market access issues in current major markets and facilitating our entry into newer growth markets. Among other things, staff will be dedicated to developing a strategy for building a coalition of countries important to negotiations and discussions in international organizations. This represents an opportunity to avoid future market access issues by establishing relationships with appropriate government departments and officials. Developing a core group of countries with similar approaches to food safety and biotechnology will be crucial to the United States meeting its goals in international fora.
Finally, the budget includes $2.9 million to fund projected pay cost increases in fiscal year 2002. Budget constraints forced FAS to absorb pay costs in three of the past four fiscal years and doing so has exhausted most non-personnel cost reduction options. Thus, absorption of these cost in fiscal year 2002 would primarily come from reductions in agency personnel levels and would have a devastating effect on FAS efforts to address the decline in the U.S. share of world agricultural exports.
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 $3.9 billion for export credit guarantees in fiscal year 2002. As in previous years, the budget estimates reflect actual levels of sales expected to be registered under the programs rather than authorized program levels. Of the total program level, $3.4 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 $330 million and an estimated program level of $95 million for facility financing guarantees.
Foreign Market Development. The fiscal year 2002 budget includes Commodity Credit Corporation (CCC) funding of $27.5 million for the Foreign Market Development (Cooperator) Program, unchanged from last year. The CCC estimates also include $2.5 million in funding from CCC for the Quality Samples Program. Under this program, samples of U.S. agricultural products are provided to foreign importers in order to overcome trade and marketing barriers by promoting a better understanding and appreciation of their characteristics and quality. The Quality Samples Program is carried out through commodity organizations and agricultural trade associations.
Market Access Program (MAP). The CCC estimates provide funding for MAP in fiscal year 2002 at the maximum authorized level of $90 million, unchanged from fiscal year 2001.
P.L. 480. For fiscal year 2002, the budget includes a total program level for all titles of P.L. 480 food assistance of $995 million, which is expected to provide approximately 2.7 million metric tons of commodity assistance. In the case of P.L. 480 Title I credit sales, appropriated funding has been continued at the fiscal year 2001 level. However, the Title I credit level is reduced due to higher estimated subsidy costs for the program which result from changes in county allocations and financial terms.
Export Enhancement Program (EEP). World supply and demand conditions have limited EEP programming in recent years. However, the fiscal year 2002 budget does include a program level of $478 million for the EEP, the maximum level authorized by the Agricultural Trade Act of 1978, and the awarding of EEP bonuses can be resumed whenever market conditions warrant.
Dairy Export Incentive Program (DEIP). The budget assumes a DEIP program level of $42 million for fiscal year 2002, slightly above the fiscal year 2001 estimate of $34 million.
These levels are reduced from those of recent years for a number of reasons. Foremost among these reasons is the fact that the average subsidy rate for nonfat dry milk , the largest category of dairy products exported under DEIP, has declined from $1,040 per metric ton in fiscal year 1999 to a rate of $121 per metric ton during the first 6 months of fiscal year 2001. This development reflects higher world prices for nonfat dry milk and greater competitiveness for U.S. product in world markets.
This concludes my statement, Mr. Chairman. I will be glad to answer any questions.