Hubert O. Farrish
Representing the
North American Export Grain Association
before the
Committee on
Agriculture, Nutrition and Forestry
United States Senate
on issues relating to the
Reauthorization of the Federal Grain Inspection Service
February 1, 2000
Mr. Chairman and Members of the Committee:
The export grain marketing and handling industry appreciates the opportunity to present its views on the role, function and performance of the Federal Grain Inspection Service section of the Grain Inspection, Packers and Stockyards Administration. This is timely as it occurs in advance of legislation being introduced to re-authorize FGIS.
I am Hubert (Bert) O. Farrish, President of Columbia Grain, Inc. which is headquartered in Portland, Oregon. Columbia is engaged primarily in the export of grain to Asia, the Middle East and Latin America. We are one of the largest users in the United States of the services provided by FGIS.
Today I am testifying on behalf of the North American Export Grain Association, an industry association representing U.S. grain exporters and associate members. I am a NAEGA Board member and chair its Grades and Inspections Committee
On September 30, 2000, five sections of the Act that created FGIS will expire. These five sections give FGIS the authority to:
1. Collect and invest official agency supervision fees for inspection (7 USC 79 (j)(4))
2. Collect original weighing service fees; collect official agency weighing supervision fees (7 USC 79A (l)(3))
3. Provide for a 40% cap for total administrative and supervisory costs (7 USC 79(d))
4. Receive Appropriations (7 USC 87h)
5. Advisory Committee Authority (7 USC 87 (j))
With the exception of the last item, without the aforementioned authority the FGIS cannot operate.
In my testimony today, I will discuss what I think the GIPSA/FGIS is doing well, how this agency could improve and the challenges for the future.
BACKGROUND:
The nature of the nation's official grain inspection system has changed and evolved since the U.S. Grain Standards Act was first adopted by Congress in 1916. The FGIS was created in 1976 and assumed the responsibilities of the Grain Division of the USDA's Agricultural Marketing Service.
The mission and activities of GIPSA, as stated in its most recent report to Congress, are:
GIPSA administers uniform, national grain inspection and weighing programs established by the U.S. Grain Standards Act, as amended. Services under the Act are performed on a fee basis for both export and domestic grain shipments. The Act requires generally that grain be inspected and weighed; prohibits deceptive practices and criminal acts with respect to the inspection and weighing of grain; and provides penalties for violations.
In administering and enforcing the Act, GIPSA:
The Grain Standards Act provides that official inspection is mandatory at export and voluntary at domestic points. At export locations, FGIS either functions as a direct service provider or delegates it authority to state operated agencies in, for example, California and Washington State. At domestic locations, official services are provided by designated agencies which are either State agencies or privately owned companies. FGIS supervises the services provided by these agencies. Since the last re-authorization in 1993, there has been a very significant growth in the use of non-official inspection agencies for domestic grain inspections.
REMARKS REGARDING FGIS OPERATIONS:
In the view of exporters, the FGIS has two broad missions:
1. To directly provide the service of inspection and weighing grain for export or supervise delegated State agencies that provide this service.
2. To provide the structure and administration of the U.S. Grain Standards Act which benefits all segments of the grain industry including producers, processors and consumers.
My remarks will be made in the context of these two broad missions.
What are the successes of FGIS?
1. The FGIS grade and weight certificate commands respect and has great credibility and integrity with importers worldwide. From an exporter's point of view, we would not want to see any actions taken to damage this credibility. FGIS does an excellent job fulfilling the role of an unbiased entity to certify grades and weights to the export markets.
2. FGIS has responded to industry cost concerns by reducing total staff. From 1993 to 1999 total staff declined from 646 to 555 full time and 74 part time employees. Much of this personnel reduction can be attributed to reduced domestic inspections due to increased competition from private unofficial agencies. At export locations there is a greater reliance on temporary help rather than permanent employees. FGIS has reduced the cost per ton of providing the service to the industry.
3. FGIS is working with industry on a broad range of issues, including:
A. Automated inspection procedures
B. Biotechnology testing issues
C. End use value characteristics in grains
D. TCK testing for future exports to China
E. Improved data handling and computerization of operations
F. Computer imaging of grains for inspection purposes
G. Standardization activities
4. FGIS has communicated well with the grain trade through its Advisory Committee and various industry committees such as the NAEGA organization has.
5. FGIS has done an excellent job in its customer outreach program.
What are areas of concern or need for improvement?
1. The battle for cost control or improvement will never end. As we are all well aware, agriculture and grain exports are an embattled industry. It is an industry constantly in search of ways to reduce costs to improve our competitive position and returns to our shareholders or owners. As long as the industry perceives itself paying more for the direct service than it believes necessary, there will be pressure to reduce costs. We need cost control but not a loss of certificate integrity. Grain inspection is still a labor intensive activity and will be for some time.
2. The twin sister of cost control is flexibility in operations. As a government agency, FGIS operates by a different set of rules than the private sector. FGIS does not have control over its personnel costs; Congress does. Personnel costs are far higher than would be the case in a similar private sector provider.
FGIS recently published notice in the Federal Register for a 2.4% fee increase due to a 4.8% mandated pay increase. Although we may not like higher costs, I commend the agency for absorbing part of the increase through improved efficiencies. FGIS has responded to industry in this case.
FGIS must, by Executive Order, negotiate any change in work procedures with its union representatives. This has made needed changes that would improve operations and flexibility very difficult to achieve. The grain trade is dynamic and ever-changing and needs flexibility to compete.
3. I have stated that FGIS has communicated well with the grain trade; but I think there is room for improvement. One area would be to improve communication concerning research that FGIS is contemplating conducting. I think a research committee or subcommittee of an already existing format could do the job, without forming a new committee. This would help bring more focus to research and help ensure that scarce research funds are well spent.
4. I think the Congress and the Executive Branch need to better understand this agency's multiple functions and the funding that supports FGIS activities. As I have stated, this agency has a dual function: 1) act as a direct service provider that is necessary to the conduct of a very large export trade; and 2) serve as the "keeper of the standards" for U.S. grains. It is an agency that provides many services, not directly related to the daily export of grain, as noted earlier in this testimony. It is more of a broad oversight regulatory authority. The cost for this oversight should be borne by all segments of the industry.
GIPSA/FGIS is funded by two methods:
1. User Fees
2. Appropriated Funds
In that context, the exporters understand that we must pay for the direct service or supervision and an appropriate amount of overhead to support it. But as an agency with many functions other than grading grain for export, GIPSA/ FGIS benefits all sectors of the U.S. grain production and processing system as well as consumers. Therefore it is critical that appropriated funds or some other funding mechanism are readily available for this support. The U.S. exporter cannot continue to shoulder more in user fees than its fair share. Each budget cycle we face this pressure to shift more costs to user fees which are paid primarily by exporters. It is easy to see exporters as a funding source since we are mandated users of the service.
The economics of GIPSA/FGIS are much like that of the grain industry. This is a volume oriented business that has very identifiable breakeven volume numbers. It is not accident that the financial health of FGIS has improved as export volumes has risen for the past three years. The industry needs volume to survive.
5. The time line for changing procedures, regulations and practices needs to shrink to accommodate the faster pace of change in business. The Federal system is slow and cumbersome, depending on the change sought. This is an issue that has been discussed with the agency but I feel it needs to be highlighted today. If the Federal system is to be a reliable business partner, it needs to move faster and we need to anticipate change better.
The Future:
This is an exciting and challenging time for Agriculture. The advent of biotechnology holds much promise for the grain industry and great challenges also. Importers of U.S. grains are becoming much more sophisticated in the specifications that they demand from U.S. grains.
In the future GIPSA needs to work closely with all segments of the grain industry to:
1. Be prepared to provide GMO trait testing as the market may require.
2. Identify and provide the testing of end use value characteristics that processors require and producers need to know.
3. Continue the development of technology that lowers costs and improves delivery of services and data.
4. Identify how GIPSA/FGIS fits into the E-commerce economy.
5. Continue to identify and conduct research that benefits the producer, consumer and the grain handling and processing industry.
6. Have more contact with grain importers to increase FGIS understanding of importer concerns and requirements.
I will conclude by saying the export industry needs GIPSA/FGIS to be a cost effective, forward-looking business partner that assists U.S. producers and exporters in expanding our world market share. FGIS is a critical link in the conduct of the U.S. export grain trade.
That concludes my testimony, Mr. Chairman. I will be happy to answer any questions.