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) 2003.

The FAS mission remains constant: we are committed to expanding export opportunities for U.S. agricultural, fish, and forest products, and to helping alleviate world hunger and food insecurity. Given today’s management challenges, these goals must be accomplished through better public/private sector collaboration, strategic planning, greater use of technology, and resource management.

U.S. agricultural exports rebounded to $52.8 billion in FY 2001, an increase of $2 billion over 2000. FAS expects this trend to continue in FY 2002, with agricultural exports forecast to reach $54.5 billion. Two-thirds of the increase forecast for 2002 is expected in Asia, despite slower economic growth there. Export prospects for 2002 are improved over the previous year for several commodities including corn, wheat, and horticultural products.

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 $3.2 billion in U.S. agricultural products last year. The GSM-102 program helped U.S. exporters register sales of nearly $770 million in the Caribbean, Central and South American regions, a doubling in sales from the previous year. The GSM-103 program helped U.S. exporters sell over $14 million worth of wheat to Jordan and over $21 million worth of wheat to Tunisia. U.S. exporters continue to discover the benefits of the Supplier Credit Guarantee Program. We issued nearly $226 million in credit guarantees under this program in 2001.

With the aid of the Dairy Export Incentive Program (DEIP), U.S. exporters sold more than 58,000 tons of dairy products in FY 2001. The Commodity Credit Corporation awarded about $8 million in bonuses to help U.S. dairy exporters meet prevailing world prices and develop foreign markets, primarily in Asia and Latin America. As in recent years, market conditions did not warrant large-scale use of the Export Enhancement Program. However, sales of frozen poultry were facilitated by bonuses of nearly $7 million, which supported more than 11,000 tons of exported product.

FAS continues to stress the importance of market development. In 2001, 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 approved marketing plans totaling $33.5 million for 24 trade organizations under the Foreign Market Development (FMD) program.

FAS introduced 854 Cochran Fellows from 82 countries to U.S. products and policies in 2001 -- the largest number of participants in the program’s history. 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 November 2001 to further liberalize global agricultural trade under the World Trade Organization (WTO). The Doha Development Agenda includes an ambitious agenda and schedule for agricultural trade reform that will be critical if we are to achieve our goals of opening markets, eliminating export subsidies, and reducing trade-distorting domestic support around the world.

We also worked bilaterally to create and maintain market opportunities for U.S. exporters. FAS worked to defend U.S. corn growers against charges of dumping and subsidization brought by a Canadian corn growers association. We worked with Brazilian officials to lift barriers to U.S. wheat exports. We closely monitored access for U.S. beef to ensure that South Korea fully complied with the WTO ruling that allowed full access for beef imports to that market. FAS worked with the American Crop Protection Association and the U.S. fresh fruit industry to meet import requirements on Taiwan, maintaining a $200-million market for U.S. fruit.

To support both our export mission and our food security mission, we have used food aid to move commodities from the United States to needy people around the world. We also collaborated with a diverse group of U.S. institutions in research partnerships with 51 countries. These research and exchange activities promoted the safe and appropriate development and application of products from biotechnology, as well as other areas such as food safety, improved nutritive value of crops, environmental sustainability, and pest and disease resistance of crops and livestock.

In FY 2001, FAS programmed more than 4.4 million metric tons in food aid to help feed millions of hungry people in more than 70 countries around the world. Under the authority of section 416(b) of the Agricultural Act of 1949, as amended (Section 416), the Commodity Credit Corporation (CCC) donated approximately $650 million worth of commodities in FY 2001. We used 480,000 tons of those commodities as part of our pilot Global Food for Education (GFE) Initiative, a program to provide school feeding and pre-school nutrition projects in developing countries.

Concessional sales under P.L. 480, Title I, totaled over 750,000 metric tons valued at an estimated $105 million to seven countries. Another 450,000 tons of various U.S. commodities were donated to about 18 countries under the Food for Progress program, with Title I-funded Food for Progress donations accounting for over two-thirds of this tonnage.

In addition to our food aid activities, FAS continues to serve as the coordinator for the U.S. Government’s food security committee. Last November, at the Food and Agriculture Organization’s conference, USDA affirmed the U.S. commitment to assist in ending world hunger. Secretary Veneman also urged countries to support the development of products from biotechnology to help feed the world’s growing population.

Faced with continued growth in our agricultural productivity, 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;

< Represent U.S. agricultural interests by strongly advocating 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 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 international commitment to reduce hunger.

I would like to discuss our top priorities for FYs 2002 and 2003. Last September, Secretary Veneman released a report that identifies critical needs for U.S. agricultural policy for the new century. The report, titled "Food and Agricultural Policy: Taking Stock for the New Century," states, "Enhancing the competitiveness of U.S. food and agriculture in the global marketplace should be one of the primary objectives of our farm policy." To achieve this goal, we will focus on several strategies.

At the top of our list is moving forward in the multilateral trade negotiations on agriculture under the WTO. With the launch of the Doha Agenda last November, the United States has taken a leading role in the WTO negotiations underway in Geneva.

The Doha declaration is an important step forward for U.S. agriculture, calling for the new negotiations to be concluded by January 1, 2005. The comprehensive negotiations over the next three years will be centered on expanding market access, reducing export subsidies, and reducing trade-distorting domestic support. The WTO multilateral negotiations are the best place to address needed reforms in world agricultural trade because it is only in the WTO that we have broad disciplines on market access, subsidies, and technical measures. The mandate also guards against creating new loopholes in the rules that could be used to disguise trade-distorting measures.

Trade capacity building is also a high priority. If we are to achieve success in the negotiating process, we must engage the developing world in the creation and implementation of appropriate trading rules and guidelines. This 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 must address the concerns of developing countries, which make up the majority of WTO members. Without the support of developing countries, there will be no new multilateral round.

We also will continue to work with the countries that would like to join the WTO. Although increasing the number of members 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. And when membership in the WTO is achieved, we must continue to monitor aggressively those countries’ compliance with their commitments. We must ensure that acceding countries implement trade policies and regulations that are fully consistent with WTO rules and obligations.

For example, after many years of negotiations, China and Taiwan joined the WTO in December and January, respectively. As part of the WTO membership process, both countries reached agreements with the United States that, when fully implemented, will bring great benefits to our farmers and ranchers. However, in order to realize these gains, we must be vigilant to ensure that China and Taiwan live up to their WTO commitments and maintain open markets. We are expanding our staff resources to monitor this compliance. A priority of FAS this year will be the negotiating of a WTO accession agreement with Russia.

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 (excluding our NAFTA partners).

We also are actively participating in the Asia Pacific Economic Cooperation (APEC) forum. We expect APEC to serve a key role in 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. Just last month, USDA organized a meeting for high-level government officials of the 21-member economies of APEC to discuss biotech issues. The meeting was an opportunity for officials to discuss recent breakthroughs in biotech research, consumer awareness of biotech issues, capacity building for developing countries in biotechnology, and issues being addressed by international organizations such as Codex Alimentarius

Another priority is how we deal with the issues surrounding products produced through biotechnology. The increasing number of countries around the world that are issuing regulations relating to products of biotechnology present a particular challenge, both for our infrastructure and for our food and agricultural exports. I could go on at length to describe our efforts at USDA to try to stay on top of the issue and to ensure that government actions on labeling and product approval in China, the European Union, and elsewhere, do not lead to trade restrictive policies that reduce market access for U.S. commodities.

This issue will continue 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, our focus will be on making sure that biotech approval regimes, wherever they exist, are transparent, timely, predictable, and science-based.

We also continue to work on improving the way we carry out our market development programs. When FAS implemented its Unified Export Strategy (UES), our goal was to streamline the planning and application process for exporters who apply to participate in our market development programs. The UES encourages our strategic partners to formulate market-specific strategies for developing or expanding export markets. This approach facilitates a more effective use of FAS’ full arsenal of market development programs.

This effort grew out of our strategic planning process that integrates all the marketing, credit, and trade policy tools that we have available to maximize the market for agricultural products. This process lets 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.

Let me give you a few examples of how exporters can increase their effectiveness by combining programs. The American Sheep Industry Association (ASI) used the Quality Samples Program (QSP), the FMD program, and its own industry funds to develop a market for U.S. wool in Italy. The Association used the QSP to send U.S. wool samples to potential buyers in Italy, and followed up with an FMD-funded trade mission. Prior to these efforts, U.S. wool was relatively unknown in Italy, and sales to that market were irregular and small. Italy is one of the world’s most important markets for wool, and ASI’s strategy and use of market development programs allowed the organization to make significant sales to major buyers in that market.

U.S. Wheat Associates used a similar combination of programs to help introduce U.S. wheat to millers in Burma. Through a combination of QSP and FMD, U.S. Wheat provided technical assistance to show the millers how U.S. wheat compares to wheat from Australia. As a result of the efforts, several mills, which had never before bought U.S. wheat, purchased 16 containers of dark northern spring wheat and five containers of soft white wheat, with plans for additional purchases.

We will continue to encourage U.S. exporters to develop and refine their marketing strategies, look to new market opportunities, and fully use all the FAS tools at their disposal.

To help exporters in this effort, FAS continues to refine its own global marketing strategy to target those markets that offer the most growth opportunity. We must protect our hard-won gains in mature markets, and at the same time, set aggressive but achievable growth targets in those markets that offer the most potential.

Our global marketing strategy is also instrumental in our ongoing review of our overseas office locations and staffing. We must fully utilize 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.

Mr. Chairman, we appreciate the support provided by the Committee in the FY 2002 appropriation for FAS. The increased funding enabled FAS to substantially bolster our overseas market intelligence capabilities and maintain an increased overseas presence in Ukraine and Balkans. In addition to funding FY 2002 pay cost increases, FAS was able to add new staff to enhance our technical trade resolution capabilities.

Mr. Chairman, our FY 2003 budget proposes a funding level of $139.8 million for FAS and 985 staff years. This represents an increase of $9.4 million over FY 2002, with staffing levels unchanged. Although previous budgets addressed resource requirements arising from growing workload demand, the FY 2003 budget primarily focuses on funding for much-needed improvements in the agency’s infrastructure to ensure effective implementation of our programs. Key to infrastructure improvement is the FAS electronic government (e-Gov) initiative.

The budget includes an increase of $6 million to support a comprehensive e-Gov initiative designed to modernize FAS business practices and operations and, thereby, ensure compliance with statutory requirements for electronic business transactions and record keeping. The Administration, Congress, and Department have mandated transition to an e-Gov model of operation, incorporating high-speed communication with customers, real-time collaboration across Federal agencies and with private-sector partners, and heavier reliance on automated processes for knowledge management. The Government Paperwork Elimination Act (GPEA) requires all Federal agencies to provide individuals or entities the option to submit information or transact business electronically, and to maintain records electronically, when practicable, by October 2003. These two requirements have created a requirement for continual improvement in use of electronic technologies in serving FAS’ clientele. To become and remain e-Gov and GPEA compliant will require ongoing investments in three primary categories: bandwidth, modification of business practices, and software and hardware as follows:

FAS operates in 93 cities overseas, almost all of which are connected to Washington electronically via government-operated telecommunications lines operated by the Department of State (DOS) Diplomatic Telecommunications Service (DTS). The current average bandwidth of 12.2 kilobit per second (kbps) was specified in a 1995 agreement with DOS and was intended for the low-bandwidth demands of electronic mail of the pre-Internet era.

Recognizing the profound impact this narrow bandwidth has on work performance in the new, Internet-oriented work environment, DOS is upgrading worldwide DTS to a minimum of 64 kbps by the end of 2002. This upgrade, while essential and unavoidable, is costly. At current rates, FAS use of the DTS at the new minimum line speed would increase annual costs by approximately $3.0 million.

As a less costly alternative to the DTS, FAS proposes to lease bandwidth from commercial providers of telecommunications bandwidth where it is available, reliable, feasible, and secure. Certain high-risk posts (e.g., Russia and China) as well as posts with no private Internet providers (e.g., Burma and Syria) will continue to be served solely by the DTS. This approach will result in a cost for minimum 64 kbps Internet access and Washington-to-field telecommunications of approximately $2.049 million per year.

The FAS e-Gov initiative includes $2.0 million to establish a recurring replacement cycle for mission-critical hardware and software. Chronic under-funding of hardware and software for the past several years has resulted in postponement of routine replacement of basic infrastructure. The bill for this neglect has come due. The requested funding addresses a number of problems, any of which could cripple the Agency including:

· Elimination of single point of failure in the FAS computer network.

· Replacement of backup of files and databases currently operating on obsolete technology.

· Replacement of several Internet web servers, large database servers, and our main communications (e-mail) server that are operating at full capacity and will be at the end of their useful life cycles in 2003.

This initiative also upgrades and modernizes FAS' remote sensing imagery and geographic information systems analysis capability, its economic analysis capability, its ability to communicate these findings, and its ability to enable the remote sensing unit to participate effectively in e-government.

Many of the customer-oriented business processes, including application for dairy import licenses, administration of export credit guarantees, and reporting of export sales, use business processes last updated in the 1970s and in some cases dating back to the 1950s. These functions are now performed using office automation and database management software and hardware that cannot meet the requirements of e-Gov or the GPEA.

This initiative provides for moving the Agency to a knowledge management footing, in which information collected and analyzed by Agency staff is indexed and clustered, and thereby made retrievable with minimal effort by program managers and senior policy makers. Current paper-based systems must be analyzed and re-engineered, however, as merely converting an old business process from paper to electronic documents would serve only to automate existing gross inefficiencies. The funding requested for re-engineering business processes will fund outside analysis of what the Agency should improve and provide a roadmap for concrete action. Funding for procuring commercial, off-the-shelf software and for software development will be used to implement the re-engineered processes.

The FAS e-Gov initiative includes $2.0 million for process re-engineering projects with the objective of moving manual processes to on-line, web-enabled system. Examples include:

· paper-based food aid program development procedures;

· paper-based ocean transportation and commodity shipment systems; and

· paper-based import license application and registration system.

Moving to an e-Gov environment affords FAS and the public it serves an opportunity to realize a highly efficient and cost-effective interaction. The successful transition is dependent not only on realization of needed funding in FY 2003, but also on sustained funding levels in future years.

The budget also proposes an increase of $250,000 to develop a plan to establish a standardized information system for all U.S. foreign food aid programs that will be accessible via the Internet to administering agencies, vendors, and grantees. The system will facilitate the distribution of information on U.S. food aid activities and operations, as well as improve program administration and execution. FAS will work to develop this system with the Farm Service Agency, the U.S. Agency for International Development (USAID), and the Maritime Administration.

Our FY 2003 request includes an increase of $1.0 million for the Cochran Fellowship Program and a total appropriated level of $5.0 million. This increase will support 150 additional participants in the program and help to achieve the agency’s goal of providing training to 1,000 participants annually. The additional programming will focus on several important topics, including biotechnology, food safety, World Trade Organization (WTO) accession requirements, and the quality and marketing of U.S. high value agricultural products.

The budget includes $2.086 million to fund projected pay cost increases in FY 2003. Absorption of these costs in FY 2003 would primarily come from reductions in agency personnel levels and would have a devastating effect on FAS efforts to address declining levels in the U.S. share of world agricultural exports.

For FY 2003, the budget proposes a total of $4.4 million to cover the costs of items previously paid from central accounts within USDA or on a government-wide basis, including GSA rental payments and civil service retirement and retiree health benefits. The 2003 Explanatory Notes provided to the Committee include information on the comparable levels for these items in FYs 2001 and 2002.

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.

Export Credit Guarantee Programs. The budget includes a projected overall program level of $4.2 billion for export credit guarantees in FY 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 $57 million will be made available under the GSM-103 program. For supplier credit guarantees, the budget includes an estimated program level of $750 million, an increase of $299 million from the FY 2002 current estimate. This increase reflects rapid growth in the level of sales registrations in FY 2001 and the expectation of strong program growth in FYs 2002 and 2003. For facility financing guarantees, the budget includes an estimated program level of $60 million, unchanged from the current estimate.

Foreign Market Development. The FY 2003 Commodity Credit Corporation (CCC) program and budget estimates include $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 promote a better understanding and appreciation of their high 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 FY 2003 at $90.0 million, unchanged from FY 2002.

Export Enhancement Program (EEP). World supply and demand conditions have limited EEP programming in recent years; however, the FY 2003 budget does include a program level of $478.0 million for the EEP, the maximum level permitted under the export subsidy reduction commitments of the Uruguay Round Agreement on Agriculture.

Dairy Export Incentive Program (DEIP). The budget assumes a DEIP program level of $63 million for FY 2003, slightly above the FY 2002 estimate of $61 million.

The Uruguay Round subsidy reduction commitments for dairy products are now fully phased in. For those products announced under annual DEIP allocations, the CCC baseline assumes programming at the Uruguay Round maximum quantity limits. The estimated program level for DEIP is an estimate of the level of subsidy funding needed to facilitate export sales at the quantity limits. The program level may increase or decrease from the projected level depending upon the relationship between U.S. and world market prices during the course of the programming year.

The Administration recently completed a management review of all U.S. foreign food assistance activities in order to rationalize and reform their administration and to strengthen their effectiveness. The results of the Administration’s review are reflected in the 2003 budget and program proposals.

P.L. 480. For FY 2003, the budget includes a total program level for all titles of P.L. 480 food assistance activities of $1.34 billion, which is expected to provide approximately 3.7 million metric tons of commodity assistance. For Title I, the budget provides for a program level of $160 million, which will support approximately 700,000 metric tons of commodity assistance. For Title II donations, the budget provides a program level of $1.18 billion, an increase of $335 million above the FY 2002 enacted level and $146 million above the current estimate for 2002, which has been increased as a result of funding provided through emergency supplemental appropriations and funding carried over from prior years. The proposed Title II program level is expected to support 3.0 million metric tons of commodity donations. As in recent budget submissions, no specific level of funding is requested 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.

In accordance with the results of the Administration’s food aid review, Food for Progress programming in 2003 will be limited to government-to-government programs funded through P.L. 480 Title I. CCC-funded Food for Progress programs that traditionally have been carried out through private voluntary organizations and cooperatives will not be funded as those types of programs will be the exclusive responsibility of USAID.

Donations of commodities under section 416(b) authority that rely on the purchase of surplus commodities by CCC will not be continued in 2003. However, commodities that are acquired by CCC in the normal course of its domestic support operations will be available for donation through government-to-government agreements. For 2003, current CCC baseline estimates project the availability of a limited supply of surplus nonfat dry milk that could be made available for programming under section 416(b) authority.

The 2003 budget includes $45 million in the P.L. 480 budget request to offset the proposed elimination of Maritime Administration reimbursements This increase is associated with a proposed change in the financing mechanism for the costs of meeting U.S. cargo preference requirements under the foreign food assistance programs. The budget proposes to eliminate Maritime Administration reimbursements and fund the full costs of cargo preference through the food aid programs themselves. This will eliminate a duplicative financing system and reduce record keeping, although the Maritime Administration will continue to assist FAS and USAID in ensuring compliance with cargo preference requirements.

This concludes my statement, Mr. Chairman. I will be glad to answer any questions.