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Statement of Dan Glickman
Secretary of Agriculture
Before the House Agriculture Committee
October 6, 1999
Mr. Chairman, members of the Committee, I am pleased to appear before the Committee to discuss U.S. food aid to Russia.
While our aid has been met with overwhelmingly positive responses from U.S. farmers and ranchers, U.S. and international humanitarian organizations, and from within Russia, I recognize many have raised questions about it. Most serious, perhaps, are allegations from some sources -- still unsubstantiated -- of misuse or diversion. As we consider a new Russian request for additional food assistance, our experience with the current program will carry great weight. We also will consider the findings of a food needs assessment technical team that spent a few weeks traveling throughout Russia last month looking at the crops, livestock, transportation, and storage situation.
Responding to Russia’s 1998 Request for Assistance:
Last fall, when the Russian government presented the United States, as well as the European Union, with a formal request for food assistance, we had a reasonably good assessment of the situation from U.S. Department of Agriculture (USDA) staff in Russia, the Russian government, and other sources.
We knew that Russia faced a serious situation with uncertain consequences. The collapse of the ruble in August, 1998, followed by the collapse of the banking system, dramatically eroded purchasing power and disrupted the Russian system for paying for imports. Russia could no longer afford large-scale imports with devalued rubles. Some prices within Russia were out of reach of many consumers, and the Government stopped repaying its debts, exacerbating the country’s serious economic problems.
In addition to the financial crisis, Russian farmers were harvesting their poorest grain crop since World War II, as production plunged about 40 million tons from the previous year to only 47 million tons. Before long, the U.S. and international press were reporting on potential food shortages and hunger, especially among the poor, the elderly, children, and those in isolated regions, such as the Russian Far East.
The decision on how best to respond to Russia’s request for food assistance was not an easy one. But there was little question that we would respond.
To many young Americans, it may seem like a long time since the fall of the Berlin Wall and the end of the Cold War. In fact, Russia is barely eight years into a difficult transition from an authoritarian, centrally planned economy to some semblance of a democratic, market economy. In terms of our own economic, strategic, and national security interests, the United States has a major stake in supporting this transition and building a closer relationship.
For agriculture, too, there was little doubt about getting involved. The fact is that we are and we have been involved. We should remember that until the ruble devaluation, Russia was a major commercial market – the tenth largest export market for U.S. agricultural products in the last few years. Exports to Russia reached $1.3 billion in fiscal 1997, and were nearly as high in both 1996 and 1998. Russia was the largest export market in the world for U.S. poultry meat, a leading market for pork, and an important market for a number of other products. We were seeing strong increases in exports of U.S. red meats, fresh fruits and vegetables, and processed foods.
All of that ended with Russia’s financial crisis. Within a few months of the ruble devaluation, Russian purchases of U.S. agricultural products had plummeted 80-90 percent.
Russia had one problem, and we had quite another. Russia needed a significant amount of food, and we were not only in a position to provide a substantial assistance package, but such a response was clearly in the immediate interests of American farmers and ranchers.
What the Food Aid Package Provided and How It Has Helped:
In early November last year, following consultations with U.S. commodity groups and extended discussions in Moscow led by USDA’s General Sales Manager, I announced the key elements of a major U.S. food assistance package for Russia. Negotiations continued with the Russian government to formulate specific, comprehensive agreements, covering such issues as monitoring, transportation, exemption from Russian duties and taxes, delivery schedules and destinations, unpacking of products, monetization and the tracking of proceeds, and countless other essential details.
Accountability and the ability to monitor the movement of commodities and the proceeds generated from the sale of those commodities were the most critical issues for us. We were determined not to proceed until we had the agreement and cooperation of the Russian government in implementing a comprehensive and effective monitoring system, which I will discuss in a few minutes.
But, first, let me say a few things about the food aid package itself. As negotiated, the final package totals 3.2 million tons of U.S. commodities valued at $1.0 billion, including transportation costs. We are donating more than half the aid, and Russia is purchasing more than 1 million tons under P.L. 480, Title I.
As you know, most of the commodities are being monetized – Russia is selling the commodities at local prices and depositing the proceeds in the Russian Pension Fund. However, private relief organizations, such as the American Red Cross, and the Russian government are distributing 500,000 tons of products in a humanitarian distribution effort targeted to particularly vulnerable groups in settings such as orphanages, pensioners homes, and hospitals.
As of October 1, USDA has purchased 95 percent of the food and commodities, with 75 percent already exported. Shipments under this package should be completed in the next few months. Of the $1.0 billion package, we have reserved about $130 million to fund the additional cost of shipment on U.S. flag vessels to ensure that we ship 75 percent of the tonnage on U.S. flagship vessels.
The food aid we are providing is helping to feed hundreds of thousands of needy Russians. It has increased available supplies, provided additional confidence in food security, and slowed price increases. The need was especially clear this summer. By July 1, Russian grain stocks had dwindled to about a 2-week supply. U.S. and European food aid helped prevent a critical situation from developing this summer. Without the aid, many Russian mills, bakeries, and processing plants would not be producing food today, and many Russians – especially the elderly and the poor – would not be able to afford the food that is available.
We specifically targeted a portion of the package – 32 percent -- to provide assistance for Russian farmers – feed grains and oilseeds to help Russia’s ailing livestock sector, and 15,000 tons of vegetable and corn seeds to help improve production.
Importance of Commodity Shipments for U.S. Agriculture:
The decision to respond was the right one for needy Russians, and it was a good one for American farmers already struggling with large surpluses and rock-bottom prices. In this last year, farmers have experienced the lowest wheat prices in nearly a decade, the lowest corn prices in more than a decade, the lowest cattle prices in the 1990's, the lowest soybean prices in 27 years, and the lowest hog prices since the Great Depression.
The food aid package that emerged from negotiations with the Russians included products from each of these sectors and several more – wheat, corn, soybeans and meal, rice, beef, pork, poultry, seeds, and nonfat dry milk, beans, lentils, and vegetable oil.
The 1.7 million tons of wheat donated under Section 416(b) of the Agricultural Ac of 1999 to Russia represents 6 percent of total U.S. wheat exports this year – 1.7 million tons that otherwise would not have been moved out of the domestic market. It includes the two classes in the largest oversupply, hard red winter and soft red winter wheat. Of a total of nearly 6 million tons of U.S. wheat donations and concessional sales programmed worldwide for fiscal 1999, Russia was the largest recipient.
The U.S. pork industry also benefitted. In 1998, Russia was the fourth largest export market for U.S. pork -- a commercial market. Our 1998 exports totaled a little over 41,000 metric tons. With the collapse of the ruble, sales withered, with U.S. pork likely to be replaced by pork from the European Union coming in under very high subsidies and the EU’s food aid effort. The U.S. food aid package is maintaining the U.S. presence, with 50,000 tons of U.S. pork exported to Russia.
Let me take a moment here to give some well-deserved credit to USDA employees for their dedication and hard work on this food aid package. The magnitude, complexity, and in many cases lack of precedent for these agreements imposed extraordinary demands on their time, commitment, and creativity.
The food assistance we are providing is a temporary measure. It is not a substitute or a replacement for commercial trade. We look forward to the recovery of the Russian economy, renewed purchasing power, and the resumption of Russia’s normal commercial trade. But in the current situation, the food aid package is helping the Russia people through a difficult time, while maintaining the flow of U.S. products into Russia. It is a measure of our long-term commitment to this market.
Reviewing the Monitoring Effort:
I want to make a few specific comments on the monitoring effort. We worked very hard and tirelessly with the Russians in planning this food aid package. Before shipments began, we wanted to be sure we had agreements in place that would provide the highest level of confidence that the aid would be properly monitored and distributed.
Since last spring, eight USDA staffers from Washington were sent to augment our USDA staff in Russia. In fact, virtually the entire U.S. government team in Russia – from the State and Commerce Departments to the U.S. Agency for International Development – has had some role in oversight activity. I want to thank Ambassador Collins for his support of our efforts.
Monitoring is also a shared responsibility with extensive checks and balances on the Russian side to minimize opportunities for misuse or diversion. A U.S.-Russian Joint Working Group made up of representatives of the U.S. Embassy and the Russian government meets weekly to discuss the progress of the food aid program and resolve any complications that arise. In addition, our monitoring effort involves Russian ministries at the national level, as well as regional and local governments that receive the aid. Our monitors report that the cooperation on the Russian side has been very good.
Within Russia, the monitoring is a serious, sustained, hands-on effort. For direct feeding programs, we are tracking commodities to the actual point of delivery to recipients, such as orphanages, homes for pensioners, and hospitals. For the monetized commodities, we have seen no signs of unexplained shortages at ports or mills.
Mr. Chairman, we have all heard allegations of misuse or diversion in this program. I am personally concerned whenever I hear these allegations. So far, no one has presented us with any evidence that commodities or proceeds from our large current U.S. food aid package have been misused or diverted.
For this reason, I am especially pleased to have Inspector General (IG) Viadero testifying here today to address some of these questions. We are happy that a member of the IG staff was able to accompany an interagency group on the May trip to Moscow, and we welcomed his observations from this visit, which focused on matters such as financial guarantees, communications and documentation. These recommendations were communicated to the Moscow embassy staff at the time of the visit, and the staff immediately began to implement them.
Both the IG and the General Accounting Office (GAO) have a standing invitation to join program staff in the ongoing working group meetings on the food aid program here in Washington, and their participation has been a positive addition.
Looking Ahead: A New Request from Russia:
The final subject I want to mention is the new request from Russia. Two weeks ago, we received a formal request from the Russia government for another substantial food assistance package in the year ahead. A number of considerations will come into play in reviewing this request.
Last month, a U.S. technical-level interagency team spent a few weeks in Russia conducting a comprehensive food needs assessment. Several USDA commodity specialists were included on the team. Among other things, team members analyzed the current supply and demand situation for commodities by region, the status of Russia’s agri-food sector, and issues of transportation and storage. We are reviewing the findings of the interagency team and expect to have a clearer understanding of Russia’s needs in a few weeks.
Of course, another key consideration is our experience with the current program. We continue to monitor closely the current food aid package to be sure that it is meeting its objectives. If an agreement is reached on additional aid, we will insist on similar monitoring measures.
There are a number of other considerations, as there were in the case of the current food aid package. For example, we have to be careful not to reduce incentives for Russian farmers to produce food. We also have an obligation to other trading nations to avoid actions that would disrupt international markets, and we would consult closely with the EU and other major food exporters.
The United States and U.S. agriculture have a very large stake in Russia’s success. So this, too, must be part of our deliberations. Although it is premature to discuss a timetable at this point, we intend to move as quickly as possible in considering this request.
Conclusion:
Mr. Chairman, in responding to Russia’s need for food aid under the current package – and in working with the EU in that effort -- we did what had to be done. We were in a position to help because of large U.S. commodity surpluses. Nevertheless, we proceeded carefully, aware of the problems a food aid package of this size would present, and aware of the difficulties we might face within Russia. We carefully set up a monitoring system, and the Russians worked with us.
We have a lot to show for these efforts. That concludes my statement Mr. Chairman, I would be happy to answer any questions from the committee.
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