[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2015
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG
ADMINISTRATION, AND RELATED AGENCIES
ROBERT B. ADERHOLT, Alabama, Chairman
TOM LATHAM, Iowa SAM FARR, California
ALAN NUNNELEE, Mississippi ROSA L. DeLAURO, Connecticut
KEVIN YODER, Kansas SANFORD D. BISHOP, Jr., Georgia
JEFF FORTENBERRY, Nebraska CHELLIE PINGREE, Maine
THOMAS J. ROONEY, Florida
DAVID G. VALADAO, California
NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
Tom O'Brien, Betsy Bina, Pam Miller,
and Andrew Cooper,
Staff Assistants
________
PART 3
Page
USDA Inspector General........................................... 1
Commodity Futures Trading Commission............................. 135
USDA Research, Education, and Economics.......................... 349
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
________
Printed for the use of the Committee on Appropriations
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2015
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG
ADMINISTRATION, AND RELATED AGENCIES
ROBERT B. ADERHOLT, Alabama, Chairman
TOM LATHAM, Iowa SAM FARR, California
ALAN NUNNELEE, Mississippi ROSA L. DeLAURO, Connecticut
KEVIN YODER, Kansas SANFORD D. BISHOP, Jr., Georgia
JEFF FORTENBERRY, Nebraska CHELLIE PINGREE, Maine
THOMAS J. ROONEY, Florida
DAVID G. VALADAO, California
NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full
Committee, and Mrs. Lowey, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
Tom O'Brien, Betsy Bina, Pam Miller,
and Andrew Cooper,
Staff Assistants
________
PART 3
Page
USDA Inspector General........................................... 1
Commodity Futures Trading Commission............................. 135
USDA Research, Education, and Economics.......................... 349
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
________
Printed for the use of the Committee on Appropriations
U.S. GOVERNMENT PRINTING OFFICE
89-902 WASHINGTON : 2014
COMMITTEE ON APPROPRIATIONS
HAROLD ROGERS, Kentucky, Chairman
FRANK R. WOLF, Virginia NITA M. LOWEY, New York
JACK KINGSTON, Georgia MARCY KAPTUR, Ohio
RODNEY P. FRELINGHUYSEN, New Jersey PETER J. VISCLOSKY, Indiana
TOM LATHAM, Iowa JOSE E. SERRANO, New York
ROBERT B. ADERHOLT, Alabama ROSA L. DeLAURO, Connecticut
KAY GRANGER, Texas JAMES P. MORAN, Virginia
MICHAEL K. SIMPSON, Idaho ED PASTOR, Arizona
JOHN ABNEY CULBERSON, Texas DAVID E. PRICE, North Carolina
ANDER CRENSHAW, Florida LUCILLE ROYBAL-ALLARD, California
JOHN R. CARTER, Texas SAM FARR, California
KEN CALVERT, California CHAKA FATTAH, Pennsylvania
TOM COLE, Oklahoma SANFORD D. BISHOP, Jr., Georgia
MARIO DIAZ-BALART, Florida BARBARA LEE, California
CHARLES W. DENT, Pennsylvania ADAM B. SCHIFF, California
TOM GRAVES, Georgia MICHAEL M. HONDA, California
KEVIN YODER, Kansas BETTY McCOLLUM, Minnesota
STEVE WOMACK, Arkansas TIM RYAN, Ohio
ALAN NUNNELEE, Mississippi DEBBIE WASSERMAN SCHULTZ, Florida
JEFF FORTENBERRY, Nebraska HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida CHELLIE PINGREE, Maine
CHARLES J. FLEISCHMANN, Tennessee MIKE QUIGLEY, Illinois
JAIME HERRERA BEUTLER, Washington WILLIAM L. OWENS, New York
DAVID P. JOYCE, Ohio
DAVID G. VALADAO, California
ANDY HARRIS, Maryland
MARTHA ROBY, Alabama
MARK E. AMODEI, Nevada
CHRIS STEWART, Utah
William E. Smith, Clerk and Staff Director
(ii)
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2015
----------
Wednesday, March 5, 2014.
U.S. DEPARTMENT OF AGRICULTURE
WITNESSES
HON. PHYLLIS FONG, INSPECTOR GENERAL, U.S. DEPARTMENT OF AGRICULTURE
KAREN ELLIS, ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS, U.S.
DEPARTMENT OF AGRICULTURE
GIL HARDEN, ASSISTANT INSPECTOR GENERAL FOR AUDIT, U.S. DEPARTMENT OF
AGRICULTURE
Introduction of Witnesses
Mr. Aderholt. Okay. The subcommittee will come to order.
Good morning, everybody. Welcome to the Agriculture
Appropriations Subcommittee's first hearing for fiscal year
2015. I would like to approach our fiscal year 2015 bills with
basically three things in mind: number one, ensuring the proper
use of funds for robust oversight; second, ensuring the
appropriate level of regulation to protect producers and the
public; and ensuring funding is targeted to vital programs.
The audits and investigations conducted by the Office of
the Inspector General are key to the subcommittee's effort to
ensure the proper use of funds, to detect and reduce waste,
fraud, and abuse, and to strengthen the management of USDA's
agency and programs. The work is vital to us to make sure that
the decisions on how to allocate the funds and our oversight
work to ensure that the funding that we provide is utilized in
a proper way.
This morning I am pleased to welcome USDA Inspector General
Phyllis Fong, Assistant Inspector General for Investigations,
Karen Ellis, and Assistant Inspector General for Audits, Gil
Harden, to the hearing this morning. So welcome and thank each
of you for being here.
Ms. Fong, I would like to first of all congratulate you on
receiving the Distinguished Federal Leadership award from the
Association of Government Accountants last month. For those of
you who may not know, this recognizes Federal officials who
exemplify and promote excellence in enhancing sound financial
management legislation, regulations, practices, policies and
systems. So we are fortunate to have you at USDA, Ms. Fong, and
thank you for your service.
Before I begin the hearing, I do want to recognize our
ranking member, Mr. Farr from California, for any opening
comments that he might like to make.
Mr. Farr. Thank you very much, Mr. Chairman, and I
apologize for being late. I appreciate you getting the hearing
started. This is the first hearing of the year and we start
with the inspector general. I have to tell you I have mixed
emotions about inspector generals. I think that where you can
be very constructive in improving government is great, but I
have also seen a lot of unintended consequences from IG reports
that have led to things getting a lot worse. Before I got into
elected politics, I worked in the auditor's--in the legislative
analyst's office in Sacramento under a really famous fellow who
started the first state legislative analyst's office, Alan
Post, and I found that oftentimes when we were analyzing the
programs for the legislature, what we learned was that the
programs--I mean, the legislature just didn't write good law
and there--and got a lot of unintended consequences. And what I
would like to--I appreciate that you are also a member of the
Federal Inspectors General's Federal, what do you call it, the
government-wide program where you--73 Federal inspectors. I
just--when I get to questioning, I want to just discuss some of
the issues of how you fix things that are broken, but I
appreciate what--I echo the appreciation for the award you
received. We love public servants that are recognized by their
peers as outstanding, and you are certainly one of them, and
thank you for being here today.
Mr. Aderholt. Thank you. As this is our first meeting, let
me just go over a little few things about how the procedures
for the hearings are to our members. And we will work under, as
we always and have in the past, the 5-minute rule. Members will
be recognized for 5 minutes in order of seniority at the dais
at the beginning of the hearing and then in order of
appearance. We will alternate between the majority and the
minority members. And we may have a couple rounds to allow
members to get their question in.
So I would like to ask anybody with electronic devices, if
you can turn them off or put them on silent, that would be
helpful.
Inspector General Fong, I will note that your written
testimony will be included in the record, and I would like to
recognize you now for your oral statement and then we will
proceed with the questions.
Opening Statement
Ms. Fong. Thank you, Mr. Chairman, Ranking Member Farr and
members of the subcommittee. I appreciate the very warm welcome
that you are extending to our office today, and as always, we
appreciate the interest that you show in our work and what we
do at USDA.
As you know, our mission is to help USDA deliver its
programs effectively and with integrity, and we provide audit
and investigative services. Since you have my full written
statement, let me just highlight some of the significant work
we did over the last year aswell as some of the work that we
have in process that may be of interest.
In the area of food safety, we recently reported on swine
slaughter plants, and we found that a number of plants
repeatedly violated food safety regulations with little or no
consequence. We also issued a report on the need for FSIS to
test boxed beef for E. coli. That report came out a number of
months ago, but we believe it is very significant.
We are currently conducting audits of FSIS's public health
information system for the domestic inspection module, and we
are also doing an inspection of ground turkey processing.
OIG focuses also on helping USDA safeguard and effectively
deliver its programs. Given the importance of the SNAP program,
it had an $86 billion budget last year, which represents 56
percent of USDA's portfolio, we in OIG devoted more than half
of our investigative resources to addressing trafficking in
SNAP benefits, and this resulted in almost 400 convictions and
over $49 million in fiscal year 2013. We also spent a number of
resources on our audit side to issue recommendations to the
Department to better screen SNAP retailers who wish to enter
the program and remain in the program.
This year, we have kicked off an initiative with FNS to
work collaboratively to address SNAP fraud on a multi-agency
level that will involve our State and local partners as well,
and we have great expectations that this program will be
proactive.
Other work that we have in process focuses on how FNS
reports its SNAP payment error rates, and we are also looking
at factors that are causing high average food costs in the WIC
program.
Finally, as you all know, we work to help USDA improve its
overall management systems. This year we issued reports on the
Department's settlement of the civil rights complaints as a
follow-on to the Pigford litigation. We also issued reports on
IT security, financial statements and improper payments. We
have ongoing work on the claims review process for women and
Hispanic farmers and we also are looking at the use of Economy
Act transfers and reimbursable agreements by the Department as
it manages its funds.
Let me just briefly conclude my oral statement by
addressing the fiscal year 2015 request for the OIG. As you all
know, in response to government-wide budget constraints, we
have had to streamline our operations, as has every other
Federal agency, and we are presently operating at our lowest
level of staffing. We want to thank you at the subcommittee for
providing us with a much needed increase in fiscal year 2014.
This will enable us to provide more effective oversight of USDA
programs while we continue to look for cost saving
opportunities within our operation.
For fiscal year 2015, the President's request provides a
modest increase for us to adopt an innovative approach to
addressing improper payments in USDA programs, and we hope that
you are able to support that request. We are hoping to use data
analytics to really focus on the level of improper payments
across USDA, starting with the issues that we see in RMA and
some of the other agencies.
So thank you today for inviting me to testify before the
subcommittee, and we are pleased to answer any questions that
you might have.
[The information follows:]
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DEPARTMENTAL CHALLENGES
Mr. Aderholt. Thank you, Inspector. First of all, I would
like to start out with something that I believe I had mentioned
last year when we started out the subcommittee hearings, and
that was talking about the challenges and the successes. You
have mentioned some of those in your opening statement, but I
think last year I asked about the USDA's greatest challenges
and whether the Department is doing enough to address those
challenges. And can you tell a little bit about what you see
from your perspective and from your office, what is the
greatest challenges as you look to the year ahead?
Ms. Fong. Well, that is a very good question, and it gives
us a chance to look at the body of our work and see the major
themes coming out.
As we were preparing for this hearing, we were talking, and
one of the things that we see across the Department is that
there is a need to provide more attention to effective
management of the Department's programs and oversight of
programs both within the agencies and with respect to third-
party providers of benefits. We have done a number of reports
in the agencies. I think if you look at our IT security
reports, that is an indication of some of the problems that we
are seeing with agencies who need to really focus on their IT
security. Improper payments becomes a symptom of perhaps the
need for more effective oversight of how agencies deliver
programs. And what we were seeing is that in this era of budget
constraints, program managers are looking as a top priority to
deliver programs, to get the money out, to get the benefits out
to recipients and participants, and we believe that that is a
very important goal.
When an agency has perhaps less resources than it has had
in the past, sometimes agencies have to make some tough choices
about delivering benefits versus making sure that there are
enough controls in place, that there is enough oversight of how
those benefits are delivered, and we believe that there needs
to be a little more attention on the oversight side of that. We
see that in the SNAP program, in the nutrition programs, in the
crop insurance programs, in the farm programs. And as our
statement points out, we are doing continued work on those
oversight efforts by the agencies to see how effectively those
programs are working.
Mr. Aderholt. Where is USDA--in what areas are they doing a
good job in tackling the waste, fraud, and abuse?
Ms. Fong. Well, we are very encouraged by the partnership
that we have with FNS. We recognize that the SNAP program poses
a number of challenges for everyone at the Federal, State and
local levels in terms of delivery, but FNS has been very
willing and enthusiastic in terms of working with us to roll
out our initiative this year. And let me just talk a little bit
about that. We are partnering with them to work with State and
local administrative agencies as well as law enforcement to
really get at some of the root causes for vulnerabilities and
fraud in the program, and to ensure that fraud where we find it
is being addressed both at the retailer as well as the local
recipient level, and to also proactively get the message out to
people around the country that if they engage in fraudulent
activities, that there will be some consequences to that. So we
are rolling that initiative out as we speak, and FNS has been a
very, very active partner.
PROGRAM OVERSIGHT
Mr. Aderholt. You mentioned about the oversight of programs
and how important that is. I assume that is going to be one of
your top recommendations for USDA. What are some other
recommendations that would be near the top there that would
fall in that same category?
Ms. Fong. We feel very strongly that the Department needs
to focus on its IT security initiatives. I think there is a
recognition at the Department that this is a significant issue.
The use of IT cuts across all program areas. As we are becoming
more computerized, it is essential that we have good databases
and security of data. I think there is a good recognition of
the problem. The solutions are taking time, and they will
continue to require time and attention.
Mr. Aderholt. Okay. Thank you. Mr. Farr.
Mr. Farr. Thank you very much, Mr. Chairman.
IG WORK PROCESS
I would like to pursue a little bit of just the process in
which the IG's work, because you are on the council of--you are
chair, aren't you, of the Council on Integrity and Efficiency?
Congratulations. That is--you are in charge of what, 73 other
inspector generals?
Let's take the SNAP question that the chairman asked. I
mean, that seems to me, and just quickly thinking, that there
is probably no program in the Federal Government that has more
responsibilities to audit the recipient of the money, of the
benefit, and then how that benefit is spent. In most cases, it
is just does the money get to the right place, not how is the
money from the person spent. Nobody checks how Social Security
money is spent, but they do check on how SNAP programs are
spent.
So as you review these, and obviously, as you said, it is a
huge program. It is, what, 56 percent of the entire Department
of Agriculture's budget spent on food in America? Do you also
come in with recommendations on how to improve the program or
just that it isn't--because I have found in a lot of these
programs, like the school feeding program that I am really
interested in, we had seven or eight different programs within
schools. Nobody's come in and said why don't we put those under
one title and manage them under one silo rather than seven
separate silos, and whatever technology, because you are also
reviewing use of technology, appropriate technology, sort of
bar coding of the meals or bar coding the process.
I mean, there is just--do those recommendations, do the
IG's come in and say there is a better way of managing this law
that we are required to have you comply with?
Ms. Fong. You have raised a number of very interesting
thoughts in your question. Let me just comment on a number of
them. You mentioned the Council of the Inspectors General on
Integrity and Efficiency. It is composed of the 73 Federal
IG's. And our task, our mission is to identify issues that cut
across multiple agencies and then to do cross-cutting work and
come up with recommendations where appropriate. As you
mentioned----
Mr. Farr. Is that--excuse me. Is that also program change
or just how the IG's can better function?
Ms. Fong. It is both. We do focus on how IG's can better
function. We also look at program change. For example, we have
issued reports in the last few years on suspension and
debarment government-wide, on IT cyber security and how to
better evaluate that, and we have done something on export and
import trade. And one of the projects we are working on now
deals with cloud security, the security of the agencies using
cloud computing to manage a lot of their IT practices.
As you can imagine, it is not always easy to find topics
that cut across department and agency lines. For example, you
know, you mentioned that on the Social Security side that
perhaps people do not look at how Social Security recipients
spend their money. I would say----
Mr. Farr. Well, there is no law--there is no law into that
of how you spend it, where there is with SNAP, you are limited
as to how you can spend the money.
Ms. Fong [continuing]. And along those lines----
Mr. Farr [continuing]. The benefit.
Ms. Fong. At the IG level, at the IG council level
government-wide, what we would focus on in dealing with the
IG's from, say, the Social Security Administration or, say, the
Department of Health and Human Services with respect to
Medicaid, or Veterans Affairs with respect to veterans
benefits, is to find issues that we have in common, for
example, the need to match databases, not to pay people who are
on the death master list or who may be ineligible for other
reasons, and we have been able to do work at that kind of macro
level.
Mr. Farr. Does that come back to--I mean, here all of us
are elected to fix things that are broken in government, and
some of us think sometimes that it is broken on the collection
side and some of us think it is broken on the expenditure side.
I mean, that is the politics. But it seems to me that you are--
the thing I see in Congress different from when I was in local
and State government is that we do everything on a very general
level. We make law very general and then we have these rule
writings that gets into writing the detail, but the only people
that really examine and know how it really ends up on the
street are people like inspector generals and/or managers of
those programs, and very rarely do we get back sort of the
feedback, you designed this thing poorly. It is just--it is not
going to work the way you have written it. There is a smarter,
better way. That is what--the kind of feedback, you know, and
nobody knows that except the technicians on the inside. I
always tell everybody who is a public employee, tell us what is
broken. If you are running a program and you have to do a bunch
of dumb-dumb stuff, we want to know dumb-dumb, because we can
fix dumb-dumb, but we don't get it. I mean, we don't always get
it unless there is sort of a scandal or something like that.
And I just wondered if part of your responsibilities was to
come back and say, you know what, either the law or the regs
are just poorly written.
Ms. Fong. And that is a very good point. We do try to point
that out in our reports where we think that a regulation or a
law should be looked at and perhaps revised. The one that comes
to mind immediately is our recent report on SNAP retailers and
how the Department authorizes and reauthorizes retailers who
participate. There are a number of recommendations we made in
there that may require a change to law or regulation if the
Department decides it wants to pursue that, and so I would draw
your staff's attention to some of those recommendations.
Mr. Farr. Thank you.
Mr. Aderholt. Mr. Latham.
Mr. Latham. Thank you, Mr. Chairman.
NASS DATA
And welcome; appreciate your work. Your testimony reported
a lack of antiquated enforcement procedures and security
measures meant to protect the National Agricultural Statistic
Service information and understanding how important security is
on that information, the effects it can have on markets and
insider trading, whatever that--it is a little concerning to me
to hear that there are real problems.
Was there any data that was actually released prior to what
it should have been, or do you know if information did get out
ahead of--to affect the market?
Mr. Harden. Yes, sir. We would probably have to get back
with you on details, but before we did our review, I think a
couple years prior, there was some information that was
released a couple minutes ahead of time, but the impact on
that, I don't know the exact impact that it had on the market.
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Mr. Latham. Okay. Are you confident now that the
information is secure, that the data's not----
Mr. Harden. I know that as we did the review and we brought
the problems to NASS, they were very receptive and started
working on fixing the problems before the field work was even
finished. So in terms of the recognition of the problem, I
think they have a better handle on it now. We would have to go
back and look at it in the future to see if the fix is
sufficiently implemented.
Mr. Latham. Do you have any additional recommendations or
any other concerns or--other than what you have already----
Mr. Harden. No.
RECOVERY RECOMMENDATIONS
Mr. Latham. Okay. There were--I think in your testimony,
you did 17 audits, and as a result, determined there was $424
million of ``questioned'' or unsupported costs at USDA, and
there was $12 million that was recommended for recovery and
$412 not. Why would you not want to recover more than $12
million rather than the $412?
Ms. Fong. Let me just talk generally in terms of our
recommendations. We--as you point out, we make dollar
recommendations in a number of categories, and that cost
avoidance category generally applies when we are making
recommendations to the agency to take action before the money
goes out. Don't let the money go out to an ineligible person.
The recovery category is when the money has already gone out
and we tell the agency, take a look at this, we think it may
have gone, and they may be using it for an ineligible purpose
or an improper purpose. We will make those recommendations.
At that point, the agency then has to assess whether they
can take action, whether it is within the statute of
limitations, whether they have a likelihood of recovery,
whether there is any other factor that comes into play there.
And so we work with the agency to come up with recommendations
that are possible and implementable.
Gil, did you want to add----
Mr. Harden. And just to point out, a big part of the number
that was not recommended for recovery, I think if I go back and
look at the details, they are going to be connected with
statistical projections. So on the--we take a sample and we do
it statistically. If there are individual members of that
sample where we note that they were potentially ineligible, we
can make specific recommendations to the agency to go look at
those specific sample items, but then with our statistician, we
can take that data and apply it to the universe that we were
looking at at that point in time, which comes up with an amount
that is potentially ineligible, but it is something that is not
recoverable because it is not connected with a specific sample
item.
Mr. Latham. So these numbers are actually projections of
maybe?
Mr. Harden. Statistically, yes, those.
Mr. Latham. Okay. Again, define your question, unsupported
costs. What does that mean?
Mr. Harden. The unsupported costs category is where they
did not have the documentary support for whatever----
Mr. Latham. Okay.
Mr. Harden [continuing]. The decision was that was made,
and they couldn't provide it to us during field work or maybe
they were able to provide it to us after, they were able to
come up with it, or if not, then it stays as unsupported. It is
part of the question cost category.
Ms. Fong. For example, if the Department were to give a
grant to a recipient to carry out a certain kind of activity,
and the recipient then claimed costs under the grant, say, for
salaries or for purchase of equipment or whatever it is, if
they don't have the supporting receipts or documentation, then
the Department should not be paying that. The claimed costs
need to be supported and justified.
Mr. Latham. Okay. I am out of time. Thank you.
Mr. Aderholt. Ms. Pingree.
Ms. Pingree. Thank you very much, Mr. Chair.
Thank you for your testimony and all of the work you do on
behalf of the USDA and investigating things that really need to
be understood.
INVESTIGATION PRIORITIES
Let me just start with some of the questions around how you
decide where to focus your investigations. You did a great job
in the beginning, I think, explaining that because SNAP is such
a large percentage of the budget at USDA, it has been a focus,
and you have certainly done a lot of work of trying to sort out
what the areas are of fraud. It is always a volatile topic here
when it comes to the policy and the funding. And I appreciate
the fact that you have really started to look at some of the
retailing issues as opposed to just focusing on individuals,
because I think all too often we think about the individual who
committed the fraud.
So I want to just get a little bit of a comparison. I see
from 2012 data, about 50 percent of your investigations went
into SNAP fraud. My understanding is about 99 percent of the
people eligible for SNAP are completely truly eligible, so
clearly, some of this is happening in the retailing side.
Payment accuracy is 96.2 percent from 2011 data.
In Maine, where I represent, the average SNAP benefit is
about $122 a month, so individuals who do something incorrect
aren't necessarily defrauding the government for high numbers.
I, of course, want to compare this a little bit to some of
the farmers who receive different kinds of payments through
USDA. And the average of the top 10 percent of farmers is
$32,000 a year in crop subsidies. So just give me a sense on
how much you have done on that side, given the dollar value,
how able we are to understand when people are receiving those
subsidies appropriately, and how you balance out the use of
those resources, and I would say particularly in light of the
fact that with this passage of the farm bill, there are going
to be a tremendous number of changes in how farmers receive
subsidies, so it seems to me it will be an area of a certain
amount of confusion in the beginning.
Ms. Fong. Let me just comment generally about how we set
our priorities for our work. As you mentioned, on our
investigative side, which makes up about 40 percent of the
resources of our office, SNAP has taken up more than half of
our attention. And we generally focus on the retailers, because
that is the Federal level of responsibility, leaving the
recipient fraud generally to the State and locals to
investigate.
Now, both our audit side of the house and our investigative
side of the house, every year we look at the areas of highest
risk within USDA as we plan our work. And in order to kind of
assess that, we ask for input from Congress, from the Secretary
as to areas where you all might believe we could focus our
attention. We also look at the history of the various programs
in the portfolios based on our experience, the level of
funding, whether there are new legislative initiatives that are
being implemented, and any other factor that could come into
play. We then decide what areas pose the greatest risk at the
current time, and are ripe for a look. Many times we will not
look at a very new program, because we want to give the agency
a chance to start implementing it.
I think if you look at our full portfolio, you will see
that every year we are mandated by law to carry out financial
statement audits, which we do of the whole Department. We have
to look at IT security. We have to look at improper payments by
law, and so we spend quite a bit of resources on that. We have
also spent a lot of time on the conservation programs because
of the way those programs have been managed in the past. Crop
insurance is a matter of great interest to us, as is any food
safety issue. That tends to be one of our top priorities.
IMPROPER PAYMENTS
Ms. Pingree. So perhaps I could have the opportunity to do
a little more research on this or you could provide me with
that, but I am curious, given some of the priorities around
improper payments and what would be quite a bit of changes in
crop insurance. So, again, I am somewhat interested in how many
improper payments or how that is evaluated when it comes to
subsidies to farmers. And you may not have all that information
today, but I would be just generally interested in
understanding better how well we are able to investigate that
and how much of your resources go to that investigation.
And just as a little follow-up on that, so I know that part
of the new resources that are in the President's budget are on
the creation of these audit centers of excellence, which seems
like a potentially good way of going about doing that, so
again, in the future, do you have an understanding of how much
of that will be devoted to investigating SNAP fraud as opposed
to investigating subsidy payments?
Ms. Fong. We would be happy to provide some additional
detail for the record.
Ms. Pingree. I am out of time, so I know you probably don't
have a lengthy answer, but I would be happy to get more
information on that.
Ms. Fong. We would be happy to provide that.
Ms. Pingree. Great. Thanks.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Aderholt. Mr. Nunnelee.
Mr. Nunnelee. Thank you, Mr. Chairman.
IPERA
Ms. Fong, you state in your report that the USDA has not
complied with the Improper Payments Elimination Recovery Act of
2010. What areas is the USDA lacking full compliance with
IPERA?
Ms. Fong. Well, there are seven areas that we are supposed
to assess, and they are non-compliant with three of them. They
have not----
Gil, go ahead to make sure we get it right.
Mr. Harden. The three areas that they were not compliant--
we found issues with eight of the 16 high-risk programs.
Mr. Nunnelee. Eight of the 16 what?
Mr. Harden. High-risk programs that are covered as part of
IPERA. So for two programs, they have not published improper
payment estimates; for two programs they haven't published
improper payment rates of less than 10 percent; and then in six
programs, they haven't met their annual reduction targets.
Mr. Nunnelee. So what are they doing to correct these
areas?
Mr. Harden. By--this was the second year in a row that we
had--we had reported the non-compliance, and so we are doing
the current work right now, but they had to get with OMB and do
some extra work this year because they have not shown
compliance, but I will have to get back to you on exactly what
they have done.
Mr. Nunnelee. All right. So you--you know, we will submit
that for the record.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Nunnelee. All right. Last year you testified that there
were 10 States that have not met deadlines for recommendations
that you had recommended for the State compliance. Where are we
with those?
STATE SNAP COMPLIANCE
Mr. Harden. Those are with the SNAP----
Mr. Nunnelee. Yes.
Mr. Harden [continuing]. Databases?
Mr. Aderholt. Speak a little closer to the mike.
Mr. Harden. Those were with the SNAP----
Mr. Nunnelee. Yes.
Mr. Harden [continuing]. Databases? And we have gotten
agreement with FNS on all of those recommendations in terms of
the plan forward in terms of making corrections. We had
initiated work to do some follow-up work in that area, but when
we started that work earlier this year, we learned that FNS had
let its own contract to look at some of the very same things
that we were going to look at where they were working with
States to improve the methods for tracking down, you know, the
improper payments. So what we are doing with that right now is
monitoring how they are doing to see whether we need to go in
the future, as opposed to duplicating the effort that they are
doing right now.
Mr. Nunnelee. So is it reasonable to think that when we
come back this time next year, you will be able to report that
they have made significant progress?
Mr. Harden. I will look into that and see if we can say
that. I know that we can--one of the things that we are working
on right now is their quality control rate, and we are
continuing--we are starting to see problems with that error
rate as well, as well as errors with the school lunch and
breakfast. So it is a big, big problem, and they are making
incremental changes.
Mr. Nunnelee. Thank you. Thank you, Mr. Chair.
Mr. Aderholt. Mr. Fortenberry.
Mr. Fortenberry. Thank you, Mr. Chairman. Good morning.
Ms. Fong, first let me thank you, congratulate you on the
major award you received. And several years ago when I was
chairman of the Subcommittee on Nutrition on the House
Agricultural Committee, we had a robust dialogue about fraud
and waste in the SNAP program. You took some additional
initiative there and dug a little deeper, and I think we have
got some good outcomes, so thank you for that initiative.
I think it is important to say up front that this is
America. We don't let people bleed in the street, we don't let
people starve in their homes, and that is why programs such as
SNAP are important. Given the magnitude of it, given the amount
of money that it spends, even a small bit of fraud in it
creates the potential for savings, which, in turn, are
necessary in this tight fiscal time, but also it is not fair to
those who are in vulnerable circumstances to have dollars that
could be used to help them divided to people who are abusing
the system. So this--in that spirit is why we tend to focus
pretty narrowly pretty quickly on the SNAP program.
SNAP FRAUD
Back to that point, where do you find--do you find fraud in
the program concentrated in one area of the country or another?
Ms. Fong. I don't think we would say it is concentrated in
particular areas, because we don't--you know, it is hard to
project that. We do have major investigations going on all the
time around the country in all of the major urban centers that
you can imagine. The initiative that we are working on with FNS
has identified a couple of areas that we are going to focus on,
because the State and local authorities there are happy to work
with us and because we see opportunity there. And I----
Mr. Fortenberry. That is on the retailer side?
Ms. Fong. Retailer as well as recipient. It will----
Mr. Fortenberry. Let me ask you a question simply. How does
the most basic type of fraud take place? In other words, if you
are a SNAP recipient, somebody offers you some cash for the use
of the card, is that the fundamental way in which SNAP
recipients could potentially abuse the program, and the same
thing for the retailer?
Ms. Fong. That is basically the scheme. There are many
variations on it, but the idea is that if you are a recipient,
you offer your card up. You get perhaps $0.50 on the dollar for
that, so you are free to spend that money any way you see fit,
and then the retailer can redeem that card and get full value
for it.
Mr. Fortenberry. And I recognize that this fraud in the
program has dropped significantly since going to the electronic
benefit, but this basic problem still potentially exists and is
dependent upon the goodwill, the self-enforcement of the person
using it primarily. I imagine that is very difficult to stop.
AUDIT PRIORITIES
You walked through this a little bit, but I wanted to get a
better understanding of how you prioritize your work, how you
prioritize your audits. Is it simply based upon the magnitude
of the programs, where the money's spent, so you tend to divide
up what you have in terms of resources and focus on those
areas, or when something arises that looks problematic and you
are alerted to it, you tend to prioritize that?
Ms. Fong. It is all of those factors.
Mr. Fortenberry. Okay. And who makes that decision?
Ms. Fong. We do, the senior staff within IG.
Mr. Fortenberry. I assume you'd want suggestions.
Ms. Fong. Absolutely. We welcome suggestions from all
Members of Congress.
Mr. Fortenberry. Well, two points. You have asked for a
budgetary increase. I think it would be helpful to do some type
of study to show that if you are--the correlation between
budgetary increases and better outcomes for programs measured
in terms of impact as well as cost savings. That way, it helps
very much justify the case for an increase in your part.
PAYMENT LIMITATIONS
The second issue before I am out of time is Ms. Pingree had
a very good point. We are interested in stopping fraud, making
the system more effective no matter where it is, and in this
regard, I am interested in the question of exotic legal
arrangements that help skirt payment limitations and actively
engaged rules, if you will, for the appropriation of farm
payments. This is an area that I think we need to take a closer
look at.
Ms. Fong. Yes, I appreciate that. We do have information on
our return on investment. Over the last 8 years, we have
averaged $12 for every dollar invested in our operation, and so
we strongly believe that any increase in budget for us will
result in better and more audits and investigations that bring
back more money to the government.
And in terms of payment limitations and actively engaged
issues, we are very aware of those. We have a long history of
carrying out investigations into schemes involving that as well
as some audit work in that area. So we will take your
suggestion and explore that for next year.
Mr. Fortenberry. Thank you. Thank you, Mr. Chair.
Mr. Aderholt. Mr. Rooney.
Mr. Rooney. Thank you, Mr. Chairman.
NASS
Last month your office released an audit of the USDA's
National Agricultural Statistical Service, or NASS. Your
security review found that the agency failed to adequately
enforce critical security procedures and physical security
measures intended to protect NASS's information. You also
identified several instances where sensitive commodity market
data was compromised due to lapses in technology.
Has your office decided to conduct additional audits
related to the security of NASS in the programs?
Mr. Harden. Not at this--not at this time, because they
have been very receptive and proactive in working on the
recommendations and the problems that we noted, and so we would
probably include it as--in future planning to go back and see
if the measures they took, you know, solved the problems.
Mr. Rooney. What would you be looking for to see if they
did solve those problems?
Mr. Harden. I mean, we would follow up on the
recommendations that we just made. We would give them time to
implement those recommendations and then see if they
implemented them.
Mr. Rooney. Okay. NASS collects personally identifiable
information data for a number of surveys, including the
agricultural census, so based on the findings in your recent
security review, do you believe we should be concerned about
the USDA's ability to sufficiently protect this sensitive data
as well?
Mr. Harden. That was not something that was specifically
part of it. If I can get back to you on that, I would
appreciate it.
[The information follows:]
Based on our audit work, we have concerns about NASS' ability to
sufficiently protect all of its sensitive data, including data
containing PII. We conducted vulnerability scans of NASS' entire
network on which this information resides and identified multiple
critical and high IT vulnerabilities. NASS had not been timely
addressing these vulnerabilities. As a result of our review, NASS
created a group that has started taking action to remediate these
vulnerabilities.
Mr. Rooney. Okay. Thank you. And do you believe that NASS's
security weaknesses could lead to potential violation of the
agency's statutorily required confidentiality pledge?
Mr. Harden. I would also like to get back to you on that.
[The information follows:]
As previously stated, we found multiple vulnerabilities on NASS'
network that could affect the security of the information it collects
and thus its confidentiality statement. NASS is actively working to
remediate the vulnerabilities.
Mr. Rooney. USDA also has a good deal of secret and
sensitive, non-personally identifiable information, including
sensitive information regarding its plant and animal disease
research. What is your assessment of the USDA's cyber security
on this type of data?
Mr. Harden. That I don't think we have done recent work,
but I can look in to see what we have done in the past.
[The information follows:]
In our FY 2013 FISMA report, we continued to report a material
weakness in USDA's IT security, including agency IT security. The
Department has not (1) developed policies, procedures, or strategies
for continuous monitoring or risk management; (2) the Department and
its agencies are not in compliance with baseline configurations; (3)
vulnerabilities are not being remediated in a timely manner; (4)
separated employees' access to computer systems is not terminated in a
timely manner; (5) policies defining the detection and removal of
unauthorized network connections have not been developed or
implemented; and (6) policies have not been issued defining required
oversight of information technology systems that contractors or other
entities operate on USDA's behalf, including systems and services
residing in the cloud. Until these issues are resolved, all of USDA's
information systems and the information residing on these systems,
including PII and sensitive information (which includes plant and
animal disease information) have an increased risk of being lost,
disclosed, altered, and/or destroyed.
Mr. Rooney. Okay. I ask a lot of this because I also sit on
the Intelligence Committee, so this is sort of an area that I
am interested in, so I appreciate your getting back to me on--
--
The next question is, does the agency have sufficient
resources dedicated to protecting its secret non-personally
identifiable information?
Mr. Harden. That--let me get back to you on that one, too.
Mr. Rooney. Finally, Mr. Chairman, does the agency have
appropriate safeguards in place to ensure only those allowed to
access the information are able to do so?
Ms. Fong. I am just going to interject here. And since you
have a background in intelligence and data, you know that every
year we have to do a review under the FISMA statute which does
a comprehensive look at the Department's IT security across
agencies and from the whole IT security process from soup to
nuts, and I think it is safe to say that over the last few
years, we have found significant issues with the Department's
overall IT security processes.
We have made 49 recommendations to correct them, to come
into compliance with NIST guidelines. And many of the questions
that you are asking really go to the kinds of points that we
have been making, that the Department needs to tighten up and
come into compliance in those areas. So I just wanted to offer
that as background.
Mr. Rooney. Well, if you could also help me with the
answers to those questions as well, maybe I can help you in
that regard.
[The information follows:]
We had no audit work directed specifically at secret non-personally
identifiable information. But, one consistent theme throughout the
Department is not patching for known vulnerabilities, which
cybercriminals can use to exploit systems. As part of our FY 2013 FISMA
audit testing, we performed a vulnerability assessment on seven
agencies that were included in our FY 2008-2012 FISMA reviews to
determine if each agency was mitigating its vulnerabilities in a timely
manner and thus improving its security posture. We compared the average
number of vulnerabilities per device identified in our 2013 scans to
the average number of vulnerabilities found during the previous FISMA
reviews. For all seven agencies, the average number of vulnerabilities
per device increased--in most cases the number doubled; and for three
agencies, the number increased by more than eightfold. As a result,
USDA systems have an increased risk of sensitive and PII information
being lost, disclosed, altered, or destroyed.
Mr. Rooney. So thank you, Mr. Chairman.
Mr. Aderholt. Mr. Valadao.
Mr. Valadao. Thank you, Mr. Chair.
WIC
You mentioned FNS's work with State agencies on fraud. I
know California has had problems with their WIC oversight. The
WIC moratorium in California was a product of abuse of the
system, and I am very pleased with the action--or action was
taken. With that being said, the moratorium was set in 2008,
and little has changed since then. What steps have been taken
in California to address the control of high risk vendors?
Mr. Harden. I do know, and it is information that we will
have to get to you later, but as part of our current review of
the WIC program where we are looking at how States are
containing costs or how costs for the food packages are
determined, California is part of our review and it touches on
some of those questions.
[The information follows:]
We are currently reviewing FNS' WIC program and California is one
of the States included in this audit review. Our audit objectives are
to evaluate the factors that contribute to the high average food costs
reported for various states within the WIC program. We will also
evaluate FNS oversight activities for monitoring food costs. We would
be happy to brief the subcommittee once the report is ready to be
issued.
Mr. Valadao. One of the issues that we face, obviously in
my part of the country in California, we are suffering from
this water crisis and unemployment numbers are getting to
pretty extreme numbers now. WIC is obviously something that is
important to a lot of those people in the area, but at the same
time, you have got new stores opened up with an opportunity for
those people to be serviced or be able to purchase their
product through stores closer to home, something more
convenient for these people, and that opportunity is not being
afforded them, and I think it is something that needs to be
looked into, so I appreciate you looking into it and seeing
what we come up with. Thank you.
Mr. Aderholt. Mr. Bishop.
Mr. Bishop. Thank you very much.
FOREIGN AGRICULTURE SERVICE
I have a question on foreign ag service. As you know,
during June of 2010, the U.S. Agents of International
Development transferred $86.3 million to the Department of
Agriculture for capacity-building activities in Afghanistan,
and the OIG just recently released an audit of the Foreign
Agriculture Services' management of those funds, and the
program's activities in Afghanistan, and the audit found that
FAS had been aware of deficiencies in the management of the
capacity-building activities over in Afghanistan for quite a
while, but did not adequately implement corrective actions to
strengthen the management and control of activities until 2
years after the audit--after the funds were disbursed, I should
say.
The audit recommended that FAS forego accepting any further
USAID funds until full implementation in the form of a
monitoring process and other controls were put in place.
Has FAS begun to implement the recommendations as well as
those of their consultants? How much--can you tell us how much
has been spent in the capacity-building activities before your
audit, and did you see any positive results from the money
spent? And, finally, does FAS have similar capacity-building
programs in other parts of the world, and if so, should we be
concerned with the management of those programs as well?
Mr. Harden. In terms of whether--and I may not get all the
questions. If I forget one, I may ask to have it repeated. But
in terms of implementing the recommendations from the
consultant in response to our recommendation to get those
started, we do know that those are underway. From my
understanding--you know, I would have to rely on the numbers
that are in the report in terms of how much money they have
spent in terms of what we looked at. I do know that this was
the largest amount of money in these type of funds that they
had ever tried to manage, and so they recognized that as we had
discussions about that, that they really were not equipped to
handle it right off the bat.
And as far as capacity-building of this nature in other
parts of the world, I am not aware of any, but I will go back
and ask.
[The information follows:]
The Department, under the Foreign Agricultural Service's (FAS)
oversight and administration, does fund and participate in various
capacity building initiatives in foreign countries, with the primary
intent of building future markets for American agricultural products
and secondarily increasing agricultural productivity, agricultural
services, and livelihoods in these countries. These projects include
activities such as developing or rebuilding local market
infrastructures, rehabilitating watersheds and improving irrigation
infrastructure, and providing agricultural technical assistance to
local producers. However, starting in 2010 with the transfers of
Section 632(a) funds from U.S. Agency for International Development
and/or the U.S. Department of State, the level of funding and
activities by the Department increased significantly, particularly for
capacity building in Pakistan and Afghanistan. Because of this
significant increase in funding level, FAS commissioned an independent
study to strengthen its policies and procedures and its control
structure and to ensure that it could properly administer the increased
influx of funds. Also, under the increased funding provided under the
Section 632(a) funds, the Department's involvement changed. As part of
the U.S. Government's Agricultural Assistance Strategy for Afghanistan,
the Department partnered with the Afghanistan Ministry for Agriculture,
Irrigation, and Livestock (MAIL) to improve MAIL's capacity to provide
agricultural services to the Afghanis. In this situation, FAS worked
directly with MAIL to assist in developing a better infrastructure.
Mr. Bishop. Thank you. Let me just look at the farm bill,
which was really a roadmap for the management of our USDA
programs for which we use. Can you tell us whether Congress
addressed all of the key issues facing the Department and
moving into the future? Example, the question of who is really
a farmer as the farm bill terms it, who is actively engaged in
farming, that is--that continues to be a somewhat vague issue
and one that I think the Department is developing regulations
on. In theory, these regulations will potentially address the
concerns of many people who believe that farm subsidies
should--that farm subsidies often, not necessarily should, wind
up in the hands of the people who aren't working on the farm or
who don't have an active interest in the farm.
FARM BILL AND OVERSIGHT
So my question is whether or not the farm bill did enough
on this and other ongoing issues, and what gaps in
opportunities do you see in terms of the challenges that are
facing the Department in managing agriculture under the farm
bill?
Ms. Fong. Well, let me just generally comment that we are
still in the process of going through the farm bill, trying to
get a handle on what the new provisions are and what they might
mean to us as we develop our priorities for next year's work.
I appreciate the fact that both you and Mr. Fortenberry
have raised the issue of actively engaged. I think that is a
very difficult and complex issue. I know in our history at USDA
IG, we have had a number of cases where we have taken
successful prosecutions against people who have taken advantage
of some of the different approaches to that, people who've, you
know, engaged with some--created 17 or 18 straw partnerships to
triple or quadruple or whatever the amount of money they get
under that program fraudulently. So we are aware that there are
some vulnerabilities in that, and I appreciate your raising
that.
PROGRAM FRAUD
Mr. Bishop. How does the fraud, waste, and abuse with
regard to the insurance programs, the FSA programs stack up
with the fraud in nutrition in terms of dollars with the
nutrition programs, such as SNAP, WIC and the other nutrition
programs?
Ms. Ellis. I think that based on the work that we have done
the past several years and with the large influx of funds in
the SNAP program, we are seeing a large amount of fraud there
just because it is large dollars.
With regard to farm programs, I do know that we have cases
across the country both in the various farm program cases as
well as crop insurance. So far our work is not stacking up to
the same amount as we are on SNAP.
Mr. Bishop. But in terms of the percentage of fraud and the
dollars in fraud, do the nutrition programs add up to more
fraud or less fraud as compared to the disaster programs and
the FSA programs?
Ms. Ellis. It is hard for us to actually figure out what
the fraud amount is. What I can go based on is the type of work
that we do and where we are spending our time, and with regard
to SNAP----
Mr. Bishop. You don't have any idea about the number of
dollars?
Ms. Ellis. No, because we don't know all of the fraud that
is actually going on. There could be parts of fraud that I am
just not aware of.
Mr. Bishop. I mean the ones that you have investigated----
Ms. Ellis. Right.
Mr. Bishop [continuing]. And that you have found?
Ms. Ellis. We have--the larger amount has been in the SNAP
program as opposed to the other farm programs.
Mr. Bishop. And just to follow up on that, was it on the
part of those administering the program, was it on the part of
those who were recipients? Where do the fraud--was it the
vendors?
Ms. Ellis. With regard to SNAP, our responsibility is
chiefly with the retailers, so our work is mainly with the
retailers and that is where we are seeing the fraud. The States
and the locals are responsible for dealing with the majority of
the recipient fraud.
Ms. Fong. Just to offer a couple of comments on the
dollars. Just looking at our investigative statistics for the
last 2 years or so, in the farm programs, we had about $33
million in terms of investigative recoveries for fraud, and in
the crop insurance program, about $40 million. There is a huge
case in North Carolina involving the tobacco farmers that
accounts for much of that. So I think what we are seeing is
that when we find fraud in those programs, they tend to involve
multi-million dollars and many people.
Mr. Bishop. In the FSA programs?
Ms. Fong. FSA and RMA.
Mr. Aderholt. We are going to need to move on. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
Inspector Fong, thank you for your testimony this morning.
I appreciate having you before the committee. Certainly a lot
of issues have been covered. There are probably many, many more
we won't have time for this morning, as the USDA's a vast
agency with a lot of responsibilities. I think a lot of our
conversation this morning has been how we try to provide the
services the USDA is supposed to provide for the most amount of
people and the most effective and cost efficient way, which is,
I think, what everybody, both parties and everyone in this
town, I think, hopes occurs.
WIC
I would like to discuss maybe one that hasn't been brought
up this morning, and this is the WIC program. And I don't know
if you are familiar with the Government Accountability Office
report last year about the WIC program in February of 2013,
which was entitled ``Improved Oversight of Income Eligibility
Determination Needed'', and it highlighted some disturbing
trends that have occurred in the WIC program related to how
States are implementing it in an inconsistent manner, and it
talks about, in part, how over 60 percent of States use only
income within the last 30 days, when the standard for WIC
eligibility is annual household income. They only count a
portion of the income of a household instead of the household--
income of every member of a household.
Some States have increased their eligibility threshold
beyond the 185 percent of the Federal poverty level and their
adjunctive eligibility options that as States increase the
threshold for other programs, then they become adjunctively
eligible for the WIC program.
The GAO study found that the FNS has never examined the
reports for State and local WIC agencies' compliance with
Federal regulations despite over one-third of the States having
problems in this area, and that the last time the FNS provided
guidance to States on the income eligibility determinations was
1999. This has led to a point where now over half of the
infants in the country, born in this country start out on a
Federal program. They start out on the WIC program. And so we
want to ensure the dollars we spend go to the families that are
most needy, and that the idea that the majority of the country
would be on these programs from birth because of ineffective
implementation from States is very concerning to, I think, all
of us on the committee.
And I guess, are you familiar with this report, and what
sort of inspection have you looked into as to how the FNS could
resolve these concerns that were, I think, disturbingly brought
up in the GAO report?
Mr. Harden. I guess just as a way to start, being as GAO
was already looking at that, we did not do work on income
eligibility just so that we weren't duplicating efforts, but
yes, we were aware of what they were doing.
Some of the work that we reported on last year that would
be a little different but is also part of the problem is how
States oversee the vendors and their vendor management, because
they have a new rule on that, and we noted some similar type
problems where they weren't doing the monitoring that they
should have been doing.
And currently we have work in process to look at how
States--the cost of the food baskets for the different
participants, to see how some States make those dollars go
further than others and if there are ways that we could have
more consistencies in that from State to State.
Mr. Yoder. So are you aware of FNS efforts to correct these
problems that were cited in the GAO report?
Mr. Harden. I would have to go back and look and see what
they said they were going to do. And I don't have specific work
right now to see if they are doing those, if that is what you
are asking.
Mr. Yoder. Right. So as far as you know, these--the States'
implementation that is inconsistent in allowing these things to
occur, it is continuing to this very day?
Mr. Harden. We are seeing some of that in our work, that
there are inconsistencies from State to State.
Mr. Yoder. Well, I would actually look into that. There are
many, many areas where this occurs where we have States that
don't follow the guidelines, and it is not fair, and I think
the folks in States that do follow the guidelines and if the
policies are implemented in an inconsistent way, it doesn't get
to the people that need it the most as these programs get
stretched and expanded beyond our capacity to--to support them.
Just maybe one general question on USDA and their size and
operation. I mean, one of our hopes on this committee is that
we can, you know, run a leaner operation in Washington, D.C.,
therefore allowing the dollars that we do spend here that are
scarce, to be able to spend them to actually help folks who
need them the most.
What measures have you suggested or have you seen USDA can
use to provide greater services to farmers and folks that they
are charged with overseeing and regulating and providing
services to in a more cost-effective manner using technology,
or in a way that might create savings over the long-term? How
can we run the USDA in a more cost-effective manner?
OPERATIONAL EFFICIENCY
Mr. Harden. I have to go back and pull some specific
recommendations, but we have noted across the Department and in
terms of talking to the program officials, the agency has, in
terms of now that you are in a leaner operating environment, to
really look at their operations from a risk-based approach to
make sure that they are prioritizing their work and monitoring
where they really need to be spending that.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Harden. The analogy I use with them is, in the past, if
you had a priority to look at 10 things, and you can't look at
all 10 things anymore, you can only look at five, tell me what
those five are and how you got to those decisions so we can
either agree or disagree as to how you got there.
And there is a variety of work that we have done, and I
have to go back and pull specifics where we talked to them
about their use of computer information systems in rural
development as well as some of the farm programs to better use
that information or have the information to do it on a leaner
staff.
Mr. Yoder. And the reason I really go to this point--I
think this was brought up by one of my colleagues as well, is
that you have, you know, we have fewer farmers today than we
had years ago, and is the USDA, are their operations consistent
with the dollars per farmer ratio? How are we responding to the
changing agricultural world?
Ms. Fong. I think one of the things that we have been
seeing in our reviews across the board is, as you mentioned, it
is important that the States implement effectively and
consistently all the programs that they have. It is also
important that USDA program managers and agency officials
communicate effectively with their State and regional
structures, the Federal structures. As the programs
decentralize and more staff is put into the field and the
responsibilities devolve into the field, it is critical that
the field employees really understand the programs, the
requirements of the programs as they administer them, with
respect to individual farmers, conservationists and ranchers.
We are seeing that with the departure of institutional
knowledge and less staff and perhaps less training, there needs
to be increased focus on that, on the part of the USDA
officials at the management level.
Mr. Yoder. All right. Thank you for your response. Thank
you, Mr. Chairman.
Mr. Aderholt. Inspector General, when I started out the
questioning, we talked about the challenges and the Department
knew enough to address some of the issues and successes that we
see.
Let me pose one question to you just summing that up.
DEPARTMENTAL PRIORITIES
If you were the Secretary, what would you focus your
efforts on in that regard as far as trying to make sure that
the issues that are before you that you see that need to be
dealt with from your chair as Inspector General and you were
advising the Secretary, or if you were to change positions to
be the Secretary, what would be the effort that you would focus
on?
Ms. Fong. I think it all goes back to the very basic issue
of leading and managing the Department with a diverse
portfolio. You have to set a very strong tone, which I believe
the Secretary does, that management is important. It is
important in delivering our programs that we deliver them
effectively to the right people and that we avoid situations
where fraud or improper payments could occur. And that message
needs to then permeate the organization. It is a huge
organization. I think each agency has its challenges in terms
of workforce and resources and training and priorities, but I
do believe that this Secretary and Deputy Secretary have set
that tone and are willing to be very supportive of the message
that we bring forward as the Inspector General's office. When
we find situations that require attention, we find that the
Department does respond very positively to that.
Mr. Aderholt. The USDA is making improvements but still has
problems with accurate reporting of improper payments as we
have discussed. In your testimony, you note that USDA has taken
more effective measures, or if they had taken more effective
measures to avoid noncompliance, it could avoid $74 million in
improper payments. What could USDA have done to save that $74
million?
IMPROPER PAYMENTS
Ms. Fong. I think that goes back to our audit report that
we were discussing a few minutes earlier about whether USDA was
in compliance with the Improper Payments Act; and the $74
million is our estimate of what USDA could have avoided if it
had taken steps to comply with every portion of that Act.
Mr. Harden. More specifically, if they had met the targets
for reducing improper payments that they set for themselves, or
for the six programs that that was associated with, they would
have avoided $74 million in improper payments; so it is them
meeting their targets.
Ms. Fong. You all probably are aware that the provisions in
the Improper Payments Act now require USDA to work with OMB to
actively address the situations this year because it has been 2
years in a row that the Department has not met those targets.
What happens next year is if the Department continues to miss
its targets, the Department is then required to work with
Congress to determine ways to address these issues, so there is
an escalating set of requirements in the Act.
SNAP FRAUD
Mr. Aderholt. Your report on SNAP retailers raise concerns
about the Food and Nutrition Services ability to effectively
carry out oversight and enforcement activities related to
fraud, and we have talked quite a bit this morning about the
SNAP issues; but the subcommittee has repeatedly directed USDA
to permanently disbar retailers that are found guilty of fraud,
yet the report found that some retailers were still
participating in the SNAP program after being permanently
disqualified. What more does the Food and Nutrition Services
need to do to ensure fraudulent retailers are permanently
removed from SNAP?
Mr. Harden. That is where we made recommendations where we
felt that legislative changes were needed, and we are currently
working with FNS to get agreement on those. Their most current
statements to us is that there were changes in the farm bill
that may address some of the issues that we had. We are waiting
for them to show us those things to see if whatever the
provisions were would address the problem. If not, we will
continue to work with the Department to make that a proposal,
because that is something we feel that should be done.
Mr. Aderholt. Thank you. Mr. Farr.
Mr. Farr. Thank you, Mr. Chairman. I want to invite you out
to my district. It is a different perspective on agriculture
than I think your State. I represent one county, Monterey
County, that the gross sales of--there is over 100 crops grown
in the county, and the gross sales exceed that of 25 States in
the United States of their total agricultural sales. And it
doesn't have any subsidies at all. No water subsidies, no power
subsidies, no conservation subsidies, no price support. We
don't grow the commodity programs, but we do rely on, you know,
people eating nutritious food because that is what we grow, the
salad mix of the world.
And we have a lot of poor people harvesting those crops,
and they do rely on the WIC program and the SNAP program, and I
think it is right that we look at particularly the retailers
that are defrauding. Individuals, I think that amount of money
to try to collect from a poor person because they bought the
wrong thing is, we ought to put the emphasis on, as you have
stated, on the retailers.
FOREIGN AGRICULTURE SERVICE
I want to shift, because I think one of the biggest frauds
that has happened to the United States has been our
expenditures on the war efforts in Iraq and Afghanistan. All we
hear every day is the amount of contracts that have been let
that don't--and you talk in your paper about, and I think Mr.
Bishop brought it up, about capacity building. And as a
returned Peace Corps volunteer, I am very interested in
countries' capacity building.
We just got back from Colombia, which we did a very
successful thing with capacity building there. The unfortunate
thing is that almost every single contract let was to an
American company, so we really weren't building capacity within
Colombia or Afghanistan or Iraq. We were building capacity of
American contractors.
Your report points out that the Department of International
Development transferred $86.3 million to USDA to work on
capacity building, I guess agricultural capacity building in
Afghanistan; and your review found that senior managers of FAS
were aware of the general control weakness before receiving the
funding. Nevertheless, the FAS had not implemented performance-
monitoring plans for all the projects until over 2 years after
the first project began. You go on to say, without adequate
management controls in place, FAS cannot effectively monitor
these projects and faces difficulty in providing adequate
insurance that the funds are effectively accomplishing the
program goals, the program goals being capacity building.
FAS has agreed to all the recommendations. So what
happened? Did anything happen? You just agreed to the fact that
you indicated that these things weren't in place and that there
was money misspent?
I don't think Congress is asking enough questions about how
our money is being spent, and I think capacity building is very
important, but we ended up trying to dictate what capacities
they ought to build, spend our money on it, and they don't use
it, like that big, huge warehouse that we built in Afghanistan,
millions of dollars, that the Afghans didn't want. We found out
in Iraq we built all kinds of generators for people but never
taught them how to run the generators or change the oil and all
that is melted down. I mean, there is tons and tons, millions
and probably billions of dollars misspent.
As your Council of the Inspector Generals on Integrity and
Efficiency, have you collectively looked at our capacity
building, so-called capacity building expenditures, in our war
effort? Because you are looking agency by agency, and I wonder
what the sum total of that----
Ms. Fong. Actually, USDA has a very small piece of capacity
building in effect in Afghanistan. Most of the money that is
going there my understanding is it is coming through State,
Defense, and AID, and the Inspectors General at those agencies
are working together very closely. They are on the ground in
Afghanistan. The Special Inspector General for Afghanistan
Reconstruction has issued a number of very hard-hitting reports
showing that the funds have not been going to where they should
be going.
My understanding is that at USDA, this is the one piece of
the funding pot that we have. We don't have any more because
FAS recognizes that it needs to put into place a management
system of controls before it accepts any more funds. So I think
from a macro level, the IGs are in there. At USDA, it is a very
small piece of our portfolio.
Mr. Farr. In this case they knew before they even received
the money they didn't have adequate implementation in place?
Mr. Harden. Yes, and part of the reason why we couldn't get
any further into that issue is there was lots of finger
pointing when we started asking the questions, and the people
that accepted the money and were running the programs when it
started are no longer there.
Mr. Farr. I know my time is expired, but I just want to
have you think about this. Capacity building is our future. If
we are going to get out of anything, we have got to leave the
host company with its capacity to function. And it seems to me
we do not review. We just sort of throw money. It is a war. We
got to fight the war, and we waste so damned much money that we
shouldn't be wasting. We ought to be smarter about capacity
building, and we ought to have your inputs on how to do that.
Mr. Aderholt. Mr. Fortenberry.
Mr. Fortenberry. Give me your highest recommendations, your
best recommendations, for legal changes that would save money
and improve outcomes.
LEGISLATIVE RECOMMENDATIONS
Ms. Fong. Well, I think we talked a little bit a few
minutes ago about our recommendations in the retailers, the
SNAP retailer report. Other recommendations are to look at
implementation of how programs are being run. I am thinking in
terms primarily of the crop insurance program to make sure that
the improper payments rates are being hit there and that the
program is being implemented and overseen as effectively as it
can be as well as the conservation programs. There have been a
number of new programs enacted that we want to take a look at.
We recognize that there are a number of management challenges
there that need to be addressed.
Mr. Fortenberry. I assume the mission of your office is
twofold. One is to ensure effective implementation of the law
as written by Congress, but then to turn and make suggestions
about how if the general goal is such, certain programmatic
changes empowered by legal considerations could be implemented
to make, again, the outcome more effective. The more you can
specify that, the more helpful it is. This conversation has
been very good and productive and helpful, but again, bringing
it down into very narrow specifics that we can include in must-
pass bills. Not a lot of things get passed on a regular basis;
but when we have something that can improve outcomes and save
money, it is helpful, I think, to all of us, speaking on behalf
of my colleagues, with limited staff and limited resources to
be able to pinpoint specific things in terms of an outcome
here.
Again, it is not meant to put you in a political position,
but consistent with the mission that is already laid out in
law, if certain changes would be made, this mission would be
met better and/or savings could be achieved.
Ms. Fong. In that spirit, I would draw the committee's
attention to the question of overlap and duplication in
programs. I think all of you know that GAO has issued a number
of reports on overlap and duplication across government
entities. And some of the issues that they identify were
potential overlap in nutrition programs as well as potential
overlap in RD and business enterprise programs. And we have
issued a report, I think in the last year, making some
recommendations with respect to nutrition programs and how the
Department and Congress could think about those issues.
We are in the process of doing a report on potential
overlap and duplication in the RD business enterprise programs
which I think will be issued in the next several months, so I
would draw your attention to some of those reports.
Mr. Fortenberry. I am familiar with the GAO's last work in
this regard, and I think they are in the process of updating
that now. One of the difficulties is we always want a number.
Give us the number of what we can save. In those reports, the
GAO is hesitant to give a number, preferring instead to talk in
terms of broad ranges of a probability of tens of millions of
dollars, where some people interpret this as into the billions
or even hundreds of billions of dollars. So that is one of the
difficult problems here, again, to narrow it down and to try to
get hard numbers, so that we can prioritize what makes sense
and work it through a process here which is, again, quite
difficult to get consensus with.
Thank you, Mr. Chairman.
Mr. Aderholt. Ms. Pingree.
Ms. Pingree. Thank you, Mr. Chair. Thank you for all your
comments and answers here today.
ACTIVELY ENGAGED RULES
At the risk of duplicating, I just want to reinforce what
Mr. Fortenberry talked about; Mr. Bishop talked about this, and
I mentioned it in the beginning; but I do think there is
particular interest in some of the things that you talked
about, the actively-engaged rules. Mr. Bishop said, you know,
the idea of people who receive direct payments and other
subsidies that have nothing to do with or aren't really
participants in farming. I know there is always a lot of
political interest around SNAP and SNAP recipients and
retailers and all the fraud and potential fraud in that program
and how much it can add up because of the big dollars in the
program; but as you mentioned earlier, sometimes in the subsidy
programs when you discover that there has been a lot of people
involved, $33 million, $40 million, nothing gets under people's
skin like this idea that there are crop subsidies going out
there that don't go to farmers they go to, you know, mainly ZIP
Codes in big east coast cities. I mean, there is just a lot of
interest in this, and I know you have done some work; but I
just want to reinforce that this is an area, I think, of
continuing concern. It came up a lot in the farm bill, and with
all the changes in the farm bill I know it will take you a
while to sort out how this could be looked at; but I just think
it is a really critical area to be examined. The dollars are
high.
You mentioned that there is always a lot of exotic legal
arrangements, legal maneuvers. I would say the second thing
that really gets under people's skin is when they realize that
a lot of lawyers figure out a lot of fancy maneuvers and then
somehow the money doesn't go to the right people.
Mr. Farr mentioned an issue that is a big issue in my
district. I don't have a lot of subsidized crops. I don't have
corn, wheat, all the big ones; but we have a lot of vegetable
growers, a lot of people who are trying to expand their very
small farms. And the first thing they will always say to me is
how come the money always goes to all those other guys and
there is so little available to us?
It is a huge resource issue for USDA. Every time we manage
to enhance a little bit in some of those areas, people always
look at it and say, well, what about the billion, 70 times as
much money goes into the commodity crops as into ``specialty
crops,'' which is really the vegetables and things that people
want to buy locally. They want to buy direct. There is huge
consumer interest in this.
I just can't say it enough. I thought that one of my issues
that I was so pleased that Mr. Fortenberry brought up but I was
going to say the same thing is sometimes the only way you can
skirt a legal maneuver is by understanding what legal changes
Congress can make that at least it will take the lawyers 3
years to figure out how to change it again.
So I think that is extremely beneficial, particularly in
this area, where it is not just the simple thing of, you know,
SNAP fraud, somebody gives their card to somebody else. You
know, it is not that easy. It is very complicated. I understand
that, but sometimes that means we need real suggestions and
ideas of how to get at the root of this and how to make those
changes, because I think this is a big issue in how resources
are divided around supporting farmers in this country and very
lopsided. And as you said, when the fraud is discovered, it is
usually big. It involves a lot of people, and it is often not
going to the people who are literally are putting the hard work
in a farm every day.
So I do hope as you are looking into the next year and how
your resources will be spent, that you really hear that that is
bipartisan across the board, across the country, people are
concerned with that issue.
The only other thing I wanted to bring up, and I think you
have answered a lot of questions about are there adequate
resources; it seems as though given the number of things we
want to know about and the challenges that are out there, there
are never adequate resources, particularly in cost-cutting
time, but it would be helpful just to hear a little bit more
about that.
WIC
Oh, and the only other specific question I was going to ask
you previously, you mentioned something that you were looking
into in the future about WIC food costs. I didn't know exactly
what you were referring to. So to the little time I have, and I
know you are going to say you need more resources; so maybe you
should answer the food cost thing first.
Mr. Harden. On the WIC food costs, we have got an audit
currently underway where we are looking at how States manage
those costs and with the food packages. We have seen some
States have high food costs, others have lower food costs and
see if there is any efficiencies or consistencies that can go
from one State to another. That is something we are working on
now and expect to have out in the next several months.
Ms. Pingree. Thanks. I am good.
Mr. Aderholt. Mr. Bishop.
PIGFORD II
Mr. Bishop. Thank you very much. The OIG recently released
its Pigford II audit, which was required by Congress as a part
of agreeing to fund the settlement of the case against the
Department. I was pleased to learn that in your opinion, the
final adjudication process of Pigford claims and related
administrative issues went relatively smooth outside of a
handful of claims, I think about 20, which may not have been
handled properly.
In your audit report you said that in connection with our
audit, nothing came to our attention to indicate that the
administrative entities were not adequately implementing the
claims process in accordance with the settlement agreement. So
it would appear that USDA and the Department of Justice did a
pretty good job in managing and placing the adequate controls
on the final adjudication process. Would you say that that is
correct? And of the 20 problems that you had, how many claims
were successfully paid out appropriately?
Ms. Fong. Let me just offer a couple of comments on that
audit. As you point out, we are required by law to do an audit,
a statistical sampling audit, of finally adjudicated claims.
Because this issue has been of great interest to a lot of
people, we decided to do an audit prior to final payout of
claims just to make sure that the process was running
correctly; and so as you pointed out, we generally found that
the process that was developed was a good process to handle the
adjudication. We did find some problems that we pointed out to
the neutral and arbitrator, and they, to their credit, took
action on those during our audit and are dealing with that.
They are now in the process of getting ready to pay the
claims, at which point we are now starting our statutorily-
required audit of the claims that have actually been paid to
make sure that the money is going to the right people who are
eligible. So I just wanted to tell you that we are doing a
little bit more than required by law to ensure that this whole
process runs effectively.
Mr. Bishop. How many total claims were there, are you
paying out?
Mr. Harden. Say in the neighborhood of 40,000. I would have
to go back and get the specifics.
Mr. Bishop. Somewhere in the neighborhood of 40,000?
Mr. Harden. I think so, but I would have to go back and----
[The information follows:]
With respect to the In re Black Farmers Discrimination Litigation,
the Claims Administrator received approximately 40,000 claims during
the entire claims process. According to the final accounting document,
dated August 2013, 18,409 Track A claims were approved for awards,
totaling over $1.1 billion. There were no Track B claims approved.
Ms. Fong. That are going through the process.
Mr. Bishop. And you picked up some possible problems with
20 of those?
Ms. Fong. Well, we took a sample of 100 claims to look at,
and of those 100 claims we found 35 of them had some questions.
So that was a random sample. At this stage of the game we are
now involved in auditing claims that have actually been paid,
and we will see how that turns out.
BUDGET IMPACTS
Mr. Bishop. With regard to the staff reductions that you
have experienced, you have gone through several staff
reductions, including volunteer buyouts and early retirements.
Given the impact of sequestration and the related
administrative reductions in the Department spending, your
staff has been hit pretty hard. What has been the impact on
your ability to carry out your responsibilities, to identify
and undertake new audits and investigations with which you are
tasked; and are there audits which you would like to have
undertaken but you were unable to undertake as a result of a
lack of funding or a lack of staff?
Ms. Fong. Well, as you know, we were not exempt from any of
the reductions and sequestrations, and as a result of that, we
have taken significant reductions to our resources, especially
on our staff. We are at the lowest level of staffing that we
have ever had. And because of that, we have had to really
narrowly define our priorities and we have only been able to
focus on the highest priority work.
We are very grateful for the increase that you all are
giving us in 2014. In fiscal year 2013, we had to basically
eliminate training. There was a period of time where we could
not do any job-related travel on our investigation side, which,
as you can imagine, was very challenging because allegations of
fraud come in from around the country; and if our investigators
can't travel there, they can't really look into that.
On the audit side, we have lost very experienced staff. We
are unable to backfill there. And so we weren't able to
undertake all of the audits that we would normally want to
undertake. As you know, the IG function is a level of resource
function. To the extent that we have resources, we can do more
work, and we can bring back our return on investment, which is
roughly $12 for every dollar invested, so we believe that we
are a good investment for the taxpayer.
Mr. Bishop. But you haven't been able to do all that you
were obligated to do with the directives that you received from
Congress and under the law because of limited resources?
Mr. Harden. I would say on the audit side, the way we
continue to prioritize our work, those mandatory items, if we
have direction from Congress on like the financial statements
or IT security or improper payments, those go at the top of the
list. Those are the first ones that are going to be part of the
plan. Then we go into what I view as our discretionary time;
and that is where we really look at the risks associated with
different programs of the Department. Are they a new program?
Have we seen problems before? And we continuously have to
prioritize that each year. As staff has gone down, then there
is less to this plan; but we, you know, try to keep that on the
forefront as we go.
Mr. Bishop. Thank you.
Mr. Aderholt. Let me follow-up with a little bit of what
Mr. Bishop was talking about as far as the resources. In your
testimony in the most recent semiannual report to Congress,
which was released last December, you write that since fiscal
year 2012, the Office of Inspector General's appropriations
have fallen to the lowest level since 2008, and the staffing is
at the lowest level the agency has established. Of course,
Congress was able to provide full funding for your office for
fiscal year 2014. Will this allow you to address the staffing
needs?
Ms. Fong. We are, right now, backfilling or filling
critical vacancies that became vacant, and that is very
important to us. We are also anticipating that we will be able
to do some hiring of entry level auditors and investigators
which is critical to our future success. We have not been able
to hire new staff for several years because of hiring freezes
and, you know, the potential for furlough, which fortunately we
didn't have to do. So we are looking this year to bring back
and fill some critical vacancies. We don't have a precise
number yet, but we can keep your staff apprised of that.
Mr. Aderholt. How will the full funding affect the
priorities that you set for your audits and investigations for
the remainder of the fiscal year?
Mr. Harden. I guess the way I would answer that is we are
implementing our plan as we put it out last October. But next
week, I meet with all of my audit directors from around the
country to talk about are there any mid-course corrections that
we need to make? Is there anything that we thought was a
priority that really wasn't the priority that it needed to be;
is there something that needs to take its place? That is
something we do at least twice a year to see if there is any
specific changes. And then we make changes to the plan as
different things come in and are brought to our attention like
if there is a congressional request or something from the
Secretary's office.
IT SECURITY
Mr. Aderholt. Inspector Fong, you talked a little bit about
IT security. In fiscal year 2010, 2011 and 2012, USDA had the
worst cyber security score of all the large departments. As you
know, USDA's score comes from your office or the office of the
chief information officer. The score board for fiscal year 2013
has not yet been released. Do you see improvements?
Ms. Fong. We would characterize the Department's progress
on this as slow but moving in the right direction. We have, as
you all know, issued a number of very significant audits on
various aspects of the IT security program at USDA. The bottom
line here is that the CIO recognizes that this is a major
weakness that needs to be addressed. And what we are
recommending to the CIO is that they identify and focus on a
priority grouping of issues to deal with and accomplish that
and then go ahead and move on with identifying a second group
and a third group and a fourth group, so that at least they can
show measurable progress. What we have seen is that in the last
year, the CIO has issued some significant policy directives in
three areas in the Department to give guidance to the agencies.
We think that is a very good first step. They need to keep
continuing to take concrete steps and ensuring that the
agencies then implement within their own jurisdictions, and
that, I think, is one of the big challenges for the CIO.
Mr. Aderholt. Does Congress need to consider legislative
changes to help USDA address the problem?
Ms. Fong. I should give some thought to that. My initial
response is that there is quite a bit of guidance in law and
regulation. NIST puts out all kinds of directives on how these
programs need to be addressed. I don't think there is a lack of
guidance and requirements. So I am not sure what additional
legislative action would be appropriate. Perhaps continuous
reporting might be useful.
Mr. Aderholt. Mr. Farr.
Mr. Farr. Thank you very much, Mr. Chairman. I know as we
have this discussion, it strikes me that the IGs are sort of
the fiscal grand jury of the Federal Government. You do these
reviews like our civil grand juries do back in California, and
they come up with recommendations for how a local government
can improve itself. I just wondered if, as chair of the Council
of Inspector Generals on Integrity and Efficiency, CIGIE; is
that what you call it?
Ms. Fong. CIGIE.
Mr. Farr. How do you pronounce it?
Ms. Fong. CIGIE.
Mr. Farr. CIGIE. As chair of CIGIE, is there a report that
CIGIE puts out every year sort of prioritizing what are the
common needs of across-the-board, all 73 agencies that have
IGs?
Ms. Fong. Actually we do. We put out an annual report to
Congress and the President. And I would be happy to provide
your staff with a copy of that.
Mr. Farr. Yeah, I think it would be very interesting. I
think Mr. Fortenberry and Ms. Pingree, and what all of us up
here have said is that we are looking for fixing things that
are broken. I would hope that maybe even the Council could talk
about it. Do the reports the way you are doing, but it would
also be very helpful to us if you get a list of, this is the
first hearing we have, so all of the Department of Agriculture
is going to come in here after you, and it would really be good
to set us up with, you know, things that, you know, need
fixing, that we could address our approach to, address our
questions to.
So I think that the presentation for all IGs would be
improved if we could get those kinds of questions that
everybody here has been asking you; and I just take it back to
the Council and see if that could be part of the presentations
that you all make. I think it would put us and your IGs in
general in a much better, more useful, I guess, more useful to
us as lawmakers rather than just--certainly the audits are
important and all of that, but the information from those
audits is try to improve our law making. That is what we do,
and our allocation of limited resources. Thank you, Mr.
Chairman.
Mr. Aderholt. Mr. Bishop.
Mr. Bishop. Nothing.
Mr. Aderholt. Okay. Well, thank you for your testimony here
this morning, and we look forward to working with you as we go
through the appropriations for fiscal year 2015; and, again, we
appreciate your information and look forward to following up on
some of the things you will be presenting to the subcommittee
on the follow-up questions, so with this, the hearing is
adjourned.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thursday, March 6, 2014.
COMMODITY FUTURES TRADING COMMISSION
WITNESS
HON. MARK WETJEN, ACTING CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION
Mr. Aderholt. Okay. The subcommittee will come to order.
Chairman Wetjen, I welcome you today to the subcommittee.
We apologize for a late start, but votes were called, and of
course, we are not in control of the vote schedule. So thank
you for bearing with us on that.
Congratulations on your new job and new role as Acting
Chair. I appreciate your taking the opportunity to testify. As
the Acting Chairman and accommodating our short schedule this
year to have this hearing in order to accommodate our regular
order, we look forward to your testimony this morning and
hearing from you.
As we all know, the Commodity Futures Trading Commission is
responsible for principle-based regulations of commodities,
futures, options and swap markets in the marketplace. These
markets are integral to our Nation's free enterprise system.
Some would say that the CFTC is resource starved. I think
we need to take a closer look at that perception. This agency
has received seven consecutive annual increases in funding, an
overall increase of 92 percent since the financial crisis of
2008.
There are not many agencies that have enjoyed such an
increase. For this reason, I am glad to see the decreased
budget request of $280 million and the President's
acknowledgement that this committee has been saying for a while
now that the requests for the past few years were inflated and
not based on real needs.
One of those issues I want to be sure to address today is
the absolutely unnecessary furloughs that occurred in 2013. I
understand that this did not happen under your watch as the
chairman, but I do want to be sure that the employees of the
CFTC understand that they were victims of what some of us think
were some questionable decision making.
We sent out a statement on October 24th, 2013, and it was
reported to the press that the CFTC had explicit legal
authority to spend amounts necessary to avoid furloughs. At
that time, CFTC told me that they could not use the authority.
However, a short while later, in January, two days after
the day of agency-wide unpaid leave, CFTC used this same
authority to prevent more furloughs. CFTC's choice to not
prevent all agency furloughs rests squarely on its shoulder.
With regard to CFTC's fiscal year 2015 budget request, I
look forward to ensuring that CFTC puts priority on resources
by performing core functions properly and avoiding regulatory
overreach. CFTC has finished the majority of the rulemaking
under the Dodd-Frank bill without the bloated budget request
over the past few years.
Similarly, they should be able to implement the regulations
without excessive funding increases. As I say, we look forward
to working with the CFTC to find ways to streamline operations,
put a priority on the resources that are there, and avoid
unnecessary regulatory overreach.
Before we recognize you, Mr. Chairman, for your opening
statement, I would like to recognize the Ranking Member of the
subcommittee, the distinguished gentleman from California, Mr.
Farr.
Mr. Farr. Well, thank you, Mr. Chairman.
And I would like to echo your words. Congratulations and
thank you for being here today.
I was impressed with your testimony. What happens in this
committee is it is sort of a push-pull here. Some people think
that we are going to solve our problems by cutting everything,
and others feel that we are going to solve our problems by
adding everything.
I was just interested in where the two areas, and you do
not have to answer this right now because this is opening
statement, but I want to address a sentence in your statement,
that for the responsibility that we have given you in law that
Congress has enacted, Dodd-Frank, how many cops do you need on
the beat.
At the same time, this issue on technology, I mean, your
increase is 70 percent increase in technology, and the play
between using technology so that you can have less employees, I
mean, is just a smart, modern operation. But it seems to me
that you cannot use technology for cops on the beat. I mean, we
have not replaced in all the technology we use in law
enforcement; we have not replaced literally the cop on the
street.
Perhaps you can share with us how that interplays and why
you need to sustain the budget that the President has asked
for.
Mr. Aderholt. Thank you, Mr. Farr.
With that, I will turn it over to you, Chairman Wetjen.
Without objection, your full testimony will be included in
the record. If you would like to summarize your testimony and
hit the highlights and then we can proceed with the questions.
Again, we know we started late. So we will try to make up
some time in trying to condense some things. So, again,
welcome. We look forward to your testimony.
Mr. Wetjen. Thank you very much, Mr. Chairman.
Good morning, Chairman Aderholt, Ranking Member Farr, and
members of the subcommittee. Thank you for inviting me to the
hearing today on the President's fiscal year 2015 budget
request for the Commission.
In both my written and delivered remarks, I attempt to
provide this subcommittee useful context to the important role
the Commission plays in the financial system and the economy as
a whole, as well as the important role this committee plays in
helping our agency achieve its mission.
I also hope to provide a clear picture of the potential
risks posed by the continued state of underfunding for the
agency.
As you know, the Commission was directed by Congress to
police the derivatives markets, which includes futures,
options, and swaps contracts relating to underlying
commodities. These markets are critical to the efficient
functioning of the global financial system and the economies it
supports. Without them, a farmer cannot lock in a price for his
crop. A small business cannot lock in an interest rate that
would otherwise fluctuate, perhaps raising its costs. A global
manufacturer cannot lock in a currency value, making it harder
to plan and grow its global business. And a lender cannot
manage its assets and balance sheet to ensure it can continue
lending, fueling the economy and the process.
The derivatives markets better enable these enterprises to
do what they do best, create jobs and grow the economy. When
not overseen properly, irregularities or failures of firms in
these markets can severely and negatively impact the economy
and cause dramatic losses for individual participants, and this
is why appropriately funding the CFTC is so critical.
The unfortunate reality is that at current funding levels
the Commission is unable to adequately fulfill the mission
Congress gave it. That mission is to prevent disruptions to
market integrity and the build-up of systemic risk, as well as
ensure that these markets are free of fraud and manipulation.
Recent increases in the agency's funding have been
essential and appreciated. They have not, however, kept pace
with the growth of the commission's responsibilities, including
under Dodd-Frank. Allow me to explain how the markets we
oversee and the responsibilities of the Commission have grown.
The notional value of derivatives centrally cleared by
clearinghouses was $124 trillion in 2010 and is now $223
trillion. That is nearly a 100 percent increase. Now more than
ever a clearinghouse's failure to follow international
guidelines in the commission's regulations designed to ensure
proper risk management could have significant economic
consequences.
The amount of customer funds managed by clearinghouses and
futures commission merchants was $177 billion in 2010, and is
now over $225 billion. The Commission's rules are designed to
ensure customer funds are safely kept by these firms, and a
failure to provide appropriate oversight increases the chance
of risky practices, placing customer funds at risk.
I must remind the committee that two such firms have failed
in the last few years.
The total number of registrants and registered entities
overseen directly by the Commission, depending on the measure,
has increased by at least 40 percent in the last four years.
This includes 99 swap dealers, two major swap participants, and
dozens of clearinghouses and trading venues.
The CFTC also oversees more than 4,000 advisors and
operators of managed funds, some of which have significant
outward exposures across the financial markets.
Additionally, the Commission directly or indirectly
supervises approximately another 64,000 registrants. These
intermediaries are by and large well run firms that perform
important services for their customers. But those relying upon
these firms in the American public deserve assurances that the
risks the firms pose are being mitigated by an agency capable
of meaningful oversight. Yet the agency's current onboard staff
responsible for this mission is just 644 employees.
The fiscal year 2015 request is a significant step towards
the longer term funding level that is necessary to fully and
responsibly fulfill the agency's core mission. It recognizes
the immediate need for an appropriation of $280 million and
approximately 920 staff-years, which is heavily weighted
towards examinations, surveillance, and technology functions.
The request balances the need for more technological tools
to monitor the markets and identify risk and compliance issues
with the need for expert staff to analyze the data collected
through technology.
In conclusion, the Commission's ability to appropriately
oversee the derivatives marketplace hinges on security
additional resources.
Thank you for inviting me today, and I would be happy to
answer any questions.
Mr. Aderholt. Thank you, Mr. Chairman.
As I mentioned in my opening statement, I would like to
correct the misperception that CFTC has been purposely starved
for resources since the financial crisis of 2008. CFTC has
received a 91 percent increase in funding, practically doubling
its size from 112 million to 215 million. Yet we constantly
read in the press that the agency is just barely getting by,
and you yourself have referred to the agency as resource
constrained at different hearings.
Given the substantial increase in funding and the work that
CFTC has already accomplished, why CFTC needs another 30
percent increase in funding is what we would, you know, like to
hear your argument on that.
Mr. Wetjen. I appreciate the question, Mr. Chairman.
I tried to in my previous remarks just now give a number of
different measurements of both the marketplace and the entities
that function in the marketplace that we oversee, and I tried
to give a sense of scale and also a sense of the increase in
responsibilities.
And on the scale side, those two measurements of the
notional value of the market plus the amount of customer funds
that are supposed to be safely kept under our regulations by
both clearinghouses and FCMs is a good measure.
And then I think the total number of registered entities
that we either directly or indirectly oversee is a rather large
number. As I said, it is roughly a total of 68,000 registered
entities, and that reflects an increase in one of the
subcategories of about 40 percent over the last several years.
So all that said, those descriptions try to give you a
sense that the responsibilities have, in fact, grown. Some of
that is a function of new responsibilities given in recent
years, but the rest of it has to do with just regular organic
growth in the marketplace and organic growth among the
registered entities who are trying to serve needs for
participants in these markets.
Mr. Aderholt. Of course, the President did decrease the
budget request this year, and what is your rationale of his
decrease?
Mr. Wetjen. Well, the budget request this year and in
previous years when I have been involved in the process, I have
always looked at each of them with the three primary focuses in
mind, if you will, and I have always looked at these requests
to determine are we doing enough on the three core functions of
surveillance, examinations, and enforcement.
And prior to my current role, I would review them with
those goals in mind, to look and see are we leveraging
technology sufficiently and are we including or adding enough
staff to make sure we can satisfy those three key areas.
I believe previous budget requests did that. I think
today's budget request before you that we are here to discuss
will put us in a very, very strong footing if funded at that
level. I think we are going to be able to do a level job on
those three key areas.
The other thing I would point out is that the request this
year is a little bit different because it tries to be
respectful of the Congress' direction through the budget
resolution, which basically called for level funding for
discretionary spending as it relates to the current level of
spending on the discretionary side. So in light of that it just
felt sensible and the right thing to do to be a little bit more
constrained or restrained in the request.
Mr. Aderholt. Well, I understand that this is the first
time that you have been the chairman as far as with the budget,
and so you have not had as much involvement as you have now as
chairman with the resources, but thank you for the response.
Mr. Farr.
Mr. Farr. Thank you, Mr. Chairman.
You indicated in your questioning there or noted the
percentage of increase in the budget, but I think it also fails
to note the percentage of increase in responsibility. Can you
put that into some kind of percentage terms?
And I also read that you only have 40 more employees than
you did 20 years ago. So lay out for me a little bit about what
the magnitude of the Dodd-Frank responsibility is, and that is
what this whole debate is about. We have enacted a law. It
gives you lots of things to do in these categories in an area
that had never been regulated before. So you are going in to do
something that nobody really had a lot of experience with, rule
writing, all of that stuff, with a budget that we keep whacking
away at.
It does not seem to me that you can do what you are
mandated to do in law even with the ``ask'' the President is
making. So could you put that into some context of what the
increase in responsibility is?
Mr. Wetjen. I appreciate the question, Congressman.
Again, I mentioned several before, but we might just key in
on those entities that we directly oversee at the CFTC. Those
would be these intermediaries, such as futures commission
merchants, managed funds, swap dealers, and major swap
participants. In those four key categories alone we have seen
an increase of 40 percent in the number of entities now
registered with us.
And of course, once an entity registers, it is subject to a
host of responsibilities under our regulations that we at the
agency must oversee and enforce. So I think that is a pretty
instructive measurement.
The other, as I said a little bit earlier, the amount of
customer funds now being held by clearinghouses and futures
commission merchants has increased by more than $50 billion, I
think the figure was. That is additional money that belongs to
customers that has to be managed well and safely kept, and in
the event that some sort of failure, which is something we have
seen unfortunately in the last few years, those funds can be
lost or tied up in a bankruptcy proceeding or whatever else for
some amount of time, and we need to do our level best to make
sure that does not happen again.
Mr. Farr. How short of what the President has asked for do
you think the ``ask'' is? I mean, you seem from what I have
read, and part of it came out of this New Republic article
which was November of last year that really defends, I think,
very strongly that Congress has been underfunding its
responsibility for your duties.
Mr. Wetjen. So, Congressman, the question is how much----
Mr. Farr. Well, I hear you have fewer people now for
enforcement than you did in 2002. How can that be? Is that just
because we have not put enough money into enforcement?
Mr. Wetjen. Well, that is probably part of it. Some of it
obviously has to do with attrition, but again, with more
responsibilities at the agency, the growth within the Division
of Enforcement has not been as fast as perhaps other divisions
within the agency had to be in light of some of these new
responsibilities. So that explains some of it, too.
But, no, the request, again, before you today I think will
get us to the minimum level of staff that I believe we need to,
again, execute on those three core areas: examination,
surveillance of the marketplace, and a good, strong credible
enforcement program.
Mr. Farr. My time has expired. Thank you.
Mr. Aderholt. Mr. Nunnelee.
Mr. Nunnelee. Thank you, Mr. Chairman.
Mr. Chairman, thanks for being here.
Justice Oliver Wendell Holmes one day said, ``I am not near
as concerned where men stand as in what direction he is
headed.'' (sic) And I like the direction you are headed. I like
it when folks come here and say, ``We are going to request less
money than before.'' I appreciate that attitude.
But I have been around government long enough to know that
when an agency comes and says, ``We are going to make do on
significantly less money,'' I need to ask a couple questions.
So my main question is you are not looking to supplant the
decrease in funding that you are requesting by any type of
increase or any new user fees, are you?
Mr. Wetjen. Mr. Congressman, I appreciate the question.
The President's proposal or request references user fees,
and if that is something that Congress entertains, there would
be a lot of issues to work through, and you know, the CFTC
would want to be part of that process.
My view on the matter at the moment is that, again, even in
the relatively short while that I have been serving as acting
chair, I have seen firsthand the types of effects it has on the
agency and our ability to respond to questions, to respond to
petitions from the marketplace, to try and respond to
international regulators who are asking for us to enhance and
improve upon or increase our coordination efforts and
harmonization efforts.
All those things take time and resources and people, and so
the fact that we are falling a little bit short in our ability
to do those types of things, it leaves me in the position where
I am basically open to considering anything to make sure that
we, again, have the people we need to do the job and the
technology necessary to leverage that human capital.
Mr. Nunnelee. We need to talk long and hard before we start
talking about adding new user fees or increasing anything
charged.
All right. Let us move on. I understand you are involved in
looking at the regulations dealing with high frequency trading.
Just explain to me from a layman's point of view what you are
hoping to accomplish and how you want to accomplish that.
Mr. Wetjen. Well, Congressman, the main thing the agency
has done is we put out for comment a concept release that asked
a series of questions to the marketplace concerning how do we
make sure these types of firms do not pose unacceptable risks
to the marketplaces that they are operating in, and the use of
algorithms and computer technology to increase the speed with
which trading occurs.
It creates a certain type of risk that has to be accounted
for, and the exchanges and the participants themselves have a
number of risk controls in place already, and so the basic
thrust of the concept release was asking questions to the
marketplace: are the controls in place now the sorts of
controls that are bare minimum necessities to control for that
risk?
And then it also asks questions about what other types of
controls might we consider, and so the focus is really on risk,
and it is the type of risk that is posed by the fact that the
trading activity happens so fast through the use of computers,
and again, it creates unique sorts of risks and issues for
policy that the commission needs to work through.
Mr. Nunnelee. In light of the fact that you have not fully
implemented all of your rulemaking required under the Dodd-
Frank Act, why would you think it is necessary to move forward
in new areas of regulation?
Mr. Wetjen. Well, I think, again, as it relates to high
frequency trading, where we are in the process is we have put
out for comment this concept release, and recently the comment
period was extended. I think it might be closed now.
So what we will do now is we will read through what was
submitted to us. I am sure there will be a number of
discussions that take place, and depending again on what the
input from the marketplace is or was through that process, we
will have to make a judgment about what to do going forward,
but I have not prejudged the concept release or the comment
letters that have been filed under it. So that is where we are
in the process at the moment.
Mr. Nunnelee. All right. Thank you, Mr. Chair.
Mr. Aderholt. Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
And welcome, Mr. Wetjen. As you know, there have been
several entities who have been working for some time with the
CFTC on enforcement with respect to the metals market for
aluminum at the London Metals Exchange. Your predecessor,
Chairman Gensler, last summer indicated the CFTC has the
authority to act in training manipulation related to the London
Metals Exchange.
Given the CFTC's role in protecting and preserving the
integrity of commodity markets, are there funding or research
issues that are preventing the commission from exerting its
proper authority or to bring the London Metals Exchange
practices in accord with global commodity exchanges where
commodities are traded?
Mr. Wetjen. Mr. Congressman, I thank you for the question.
Whenever the agency and the staff at the CFTC hear anything
from the marketplace about possible manipulative activity, we
take all of it very, very seriously, and we look into it.
If we are resource constrained, obviously that could have
some level of impact on our ability to pursue certain sorts of
conduct or activity that is revealed through some kind of an
investigation that we might do at the agency.
Mr. Bishop. Is that the case in all cases?
Mr. Wetjen. Well, I cannot speak to any ongoing
investigations specifically, but it does stand to reason, you
know, the fewer resources we have, the harder it will be to
pursue that in the best way possible.
Mr. Bishop. You ultimately would need additional resources
in order to address those concerns?
Mr. Wetjen. It would definitely be helpful, yes.
Mr. Bishop. Thank you for that forthright answer.
As you may know, last year I shared my concern with
Chairman Gensler regarding the potential international reach of
the CFTC's proposed cross-border rules, particularly as they
might impact Europe and Asia. Specifically there was a concern
in the industry with respect to the scope of cross-border
applicability, as well as the fact that both the SEC and the
CFTC share some responsibility for regulating swaps.
Can you give the subcommittee an update on this matter? And
I am particularly interested in where you and the SEC are in
terms of the rulemaking process and whether or not there is a
possibility of enacting rules that would be similar, if not the
same, so that the regulated parties will not have to comply
with multiple rules.
Also, can you update us on any discussion with your
counterparts in Asia and Europe regarding this issue and any
outcomes?
It is our understanding that the European Union is not
expected to take up any rulemakings until 2016. Just tell me
whether or not that is going to create some heartburn for the
U.S. because of the delay.
Mr. Wetjen. Thank you, Mr. Congressman.
I guess there are two points. The first is our coordination
with the SEC, and then our coordination with Europe. On the
former, as you likely know, the CFTC finalized its cross-border
guidance last summer, and that was the result of a fairly
lengthy process that included a proposal where we solicited
comments from the marketplace. The final guidance was issued
last summer, there was a deliberative process that led to it,
and I think that we did a level job of taking into account the
feedback we got through the comment process.
So, again, that has been in place now for more than six
months. Meanwhile the SEC continues its effort to implement a
cross-border policy, and I can assure you there is a lot of
discussion taking place between the two agencies. In fact, in
just the last few weeks as sponsor of the Global Markets
Advisory Committee at the CFTC, I hosted a meeting on the
CFTC's cross-border policy, and we had staff from the SEC who
were present at the meeting and presented and gave us their
views on a host of different topics. So that is just one
example of how the agencies continue to work fairly closely.
Some of this happens outside the public eye, of course, and
a lot of it happens through the staff, but there is a lot of
dialogue I can assure you, especially now, as I said, given the
fact that the SEC still has to do a few things by way of
rulemakings to put their policy in place.
Mr. Bishop. I think my time has just about expired. Thank
you.
Mr. Aderholt. Mr. Valadao.
Mr. Valadao. Thank you, Mr. Chair.
And, Chairman, Andrei Kirilenko, former CFTC Chief
Economist, recipient of the CFTC Chairman's Award for
Excellence in 2010, and co-authored the 2010 Flash Crash
Report, has recently produced a new paper on financial
regulation in his role at the Massachusetts Institute of
Technology.
Some recommendations he had for the financial regulators
are: financial regulations should recognize the automation
increasingly higher transaction speeds make it nearly
impossible for humans to provide effective layers of risk
management. Regulators need to change their surveillance and
enforcement practices to be more cyber centric rather than
human centric.
My question is your budget requests only a small increase
for the development, modernization and enhancement of
technology. However, it requests an increase of 35 percent for
new staff. Can you explain the discrepancy, given these
recommendations?
Mr. Wetjen. Thank you, Mr. Congressman.
I go back to the three key areas of our mission that I
mentioned before, and they are, again, surveillance,
examinations of our registered entities, and enforcement. And
in order to do a sufficient job in those three key areas, we
need the additional staff request under this budget.
That is not to say we do not need additional investment in
technology, and I completely agree that we do. I have not read
Mr. Kirilenko's paper, but I do agree with his thesis, and we
have been trying to use and deploy some of the new funds set
aside for technology for new initiatives. One of those new
initiatives that is being considered is trying to collect and
analyze order message data. That is something that some of the
other commissioners at the agency have shown some interest in
as well, and that is the sort of thing that I think would speak
to or respond to some of the issues it sounds like raised in
Mr. Kirilenko's paper.
Mr. Valadao. Thank you.
Mr. Aderholt. Ms. DeLauro.
Ms. DeLauro. Good morning.
Mr. Aderholt. Good morning.
Ms. DeLauro. Thank you. I am sorry I was not here for your
testimony, but I am delighted to have you as a witness this
morning.
I want to first say very quickly that I was stunned, but
pleasantly stunned, to read your forthrightness, your honesty,
and the clarity of both yourself and Commissioner Chilton about
underfunding and what that means to your agency.
A couple of very quick yes or no, and then I want to move
on to the question. Are you a regulatory agency?
Mr. Wetjen. Yes.
Ms. DeLauro. Okay. And with that, simply what do you
regulate?
Mr. Wetjen. The derivatives markets.
Ms. DeLauro. How much money is involved in that derivatives
market?
Mr. Wetjen. Well, the size, the notional value of the
markets fluctuate, but it is anywhere between four and $500
trillion.
Ms. DeLauro. Four to $500 trillion. A trillion dollars a
day my colleague Mr. Farr talks. More than that.
Now, I am going to get to dollars that you need and the
risk to underfunding that may not come up in this round, but I
will get back to that, but your testimony, CFTC has fallen far,
far short ``of performance goals for its examinations
activities due to a significant lack of resources.''
Now, this is a subcommittee that has recently been obsessed
with reducing fraud and error rates in the SNAP Program, which
has one of the lowest error rates of any Federal program at 3.4
percent. I would hope that my colleagues would be equally
concerned with fraud and abuses that go unchecked in the swaps,
futures, and commodity markets.
I might add that as I understand it, you had 82 enforcement
actions over the last three years. You brought in more than
$1.7 billion in sanctions. This would seem an area where
additional funding would yield additional revenue for the
government. And we have provided an appropriations amount at
that time of about $600 million.
When you have been forced to prioritize your
investigations, what has been left out? What would you be able
to accomplish with a more robust funding level?
Mr. Wetjen. Congresswoman, I appreciate the question and
your interest in the agency.
Just speaking to, again, one of those three core areas that
I had mentioned, enforcement, as you alluded to in your
question, we have not really grown that division much over the
last number of years, and we are actually at a lower level than
we were more than a few years ago. And so with fewer staff in
enforcement, obviously, it stands to reason there are probably
going to be fewer enforcement matters the division can bring.
So we want to have a credible enforcement program, and so
we want to be able to pursue any relevant type of conduct or
manipulative conduct that an investigation turns up. And,
again, in order to do that, in order to respond to every
referral that comes in in a meaningful way, in order to respond
to referrals from our Division of Market Oversight, which is
the division responsible for surveillance, we have to have----
Ms. DeLauro. Would you be able to bring in more revenues?
Mr. Wetjen. It is hard to predict that because it sort of
depends on the nature of the case, but it would stand to reason
that the more matters you bring presumably the more revenues
you would bring in by way of fines, yes.
Ms. DeLauro. To be repetitive, it has been three years,
$1.7 billion. What a heck of a return on an investment there.
I also might add that my understanding is that in 2002 you
had enforcement people. The numbers were 154. In 2014, we had
149, and just very quickly, once again, the difference between
what you were doing in 2002 and what you are doing in 2014, and
the dollar amount that you are dealing with now as opposed to
2002.
Mr. Wetjen. Yes, Congresswoman, that is right. Again, I
mentioned the 40 percent increase in the number of registered
entities directly overseen by the agency. I think that is a
very good measure of the growth of responsibilities.
I also go back to the increase in the amount of customer
funds that clearinghouses and futures commission merchants have
to keep safe and manage for risk. Both numbers have increased
substantially and so all the more reason why we need to keep a
close eye on what is happening in these markets.
Ms. DeLauro. I would just conclude by saying that my own
view, and I think it is evident here, is that strong funding
for the CFTC reduces the deficit in many more ways than a lot
of other actions that we are presuming to take on, and so that
we ought to be able to provide the resources necessary for this
regulatory agency to carry out its mission.
Thank you, Mr. Chairman.
Mr. Aderholt. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
Mr. Chairman, thank you for joining us today. I appreciate
your testimony, and I want to compliment you on your open
approach towards making sure that we have good information,
good comment opportunities for folks to weigh in on some of the
important decisions you are making at the CFTC.
I want to echo some of the concerns that Mr. Bishop brought
up regarding cross-border swaps. In fact, our committee last
year passed a bipartisan amendment to support the notion that
the SEC and the CFTC should coordinate on these swaps so that
we have as much certainty and consistency, predictability, and
openness in the process to ensure that the rulemaking is done
in a way that achieves the goal, which is to protect consumers
and ensure that the CFTC can do its proper oversight.
I just want to note that I think the changes you brought
forward as acting chair have been very positive and improved in
that regard, and it has been noticed.
I want to ask a little bit of a follow-up from Mr. Bishop's
question, and the guidance that you put out, I guess, in
November, I know you have put that on hold and are seeking
further comment because of the disarray it has caused in the
market.
Can you give us a status report on the comments that you
are seeking with respect to the November changes?
Mr. Wetjen. Thank you, Mr. Congressman, and I appreciate
your kind words.
The advisory you mentioned from November 14th of last year
was, indeed, put out for comment by the commission at the
beginning of the year, and I think there is a little bit of
time left in the comment period.
Once the comment period closes, we need to carefully review
what has been submitted and get a better sense of how exactly
the marketplace thinks that we should resolve the set of
circumstances addressed in the advisory, and there are a number
of different ways we could do that, including sticking with the
advisory, but depending, again, on what the comments that come
in say, we could consider a number of different things.
So I can assure you there is openness to considering any
number of different ways to handle this, but I think that with
respect to the guidance from the summer, the cross-border
guidance from the summer, I think that people can perhaps
quibble around the edges, but I think it reflects pretty sound
policy and was the result of a very long, lengthy deliberation
process. So I am very interested in making sure that that stays
in place and people can continue working and complying with it.
Mr. Yoder. What is the time line on the completion of the
November guidance?
Mr. Wetjen. The no action relief currently in place lasts
until September. So the comment period, as I said, I believe
closes in another week or so. So, again, presumably we would
want to, after reviewing the comment letters, make some sort of
a decision about what to do before the related no action relief
expires in September.
Mr. Yoder. Fair enough. We have seen a lot of news about
banks' involvement in the commodities markets. I know the
Federal Reserve is seeking public comment on this topic.
However, the CFTC has the authority to police those markets for
manipulation. Do you believe the CFTC has enough statutory
authority to gather the necessary information to protect the
commodities markets from fraud and manipulation?
Mr. Wetjen. Yes, I believe so. There are, of course,
reporting obligations over the marketplace related to
derivatives. The agency also has special call authority that it
can rely upon if it hears of something and it gets a referral
and wants to follow up with additional information. So that is
something that we have at our disposal.
We, of course, can share information with other Federal
agencies, and an example of this that does not necessarily
relate to all of the energy markets, but at least with respect
to power and electricity, we just announced the first transfer
of data from the CFTC to the FERC yesterday, and that was done
pursuant to a memorandum of understanding that the two agencies
entered into, which we were directed to do by the Congress
several years ago.
So I feel reasonably confident now that we are able to get
the information that we need to pursue any enforcement actions
if necessary if there is manipulation taking place.
Mr. Yoder. Thank you, Mr. Chairman. I yield back.
Mr. Aderholt. Mr. Fortenberry.
Mr. Fortenberry. Thank you.
Good morning, Mr. Chairman. I am sorry I did not have the
benefit of your earlier testimony so I am playing a little bit
of catch-up here, but I did review some of it.
Are the derivatives markets broken?
Mr. Wetjen. I do not believe so, no.
Mr. Fortenberry. Do they function well?
Mr. Wetjen. I think they function reasonably well. There is
a structural shift taking place on the swap side, as you know,
given the reforms over the last several years, and there is
going to be some adjustment that goes along with that, but I am
not hearing or seeing anything that leads me to believe that
there is brokenness in the markets, no.
Mr. Fortenberry. Here is why I asked the question, and I
think you are probably aware of what I am hinting at. When you
have an inverse relationship of what has traditionally been
between hedgers and speculators, when you have unexplained
price volatility when there is not a disruption of supply, for
instance, the very purpose of a derivatives market, which is to
hedge risk and decrease volatility and make the market more
perfect, actually may be lending itself to increased volatility
and market brokenness, and that is the point of my question.
The point in the example here, in 2008, the price of oil
shot up to $145 a barrel. Then it rebounded, came back down. By
2011, there was a run-up of about 20 percent in the price of
oil, but gasoline prices went up to their 2008 levels, again,
no interruption of supply.
So this unexplainable price volatility begs the question as
to whether or not speculation in the market itself is
undermining the very purpose of the market to decrease
volatility and hedge risk.
Mr. Wetjen. I appreciate the question.
I think I have not studied the data closely. It probably
would be confirmed in most studies that certainly there has
been perhaps an increase in volatility at least during certain
periods of time or the last number of years in the markets.
There are a number of possible explanations for that, including
the question asked earlier about the presence of high frequency
trading firms.
So the trading velocity and the trading volume has changed
a lot, but I think the real measure of whether the markets are
working or not or the best measure is: Is there sufficient
liquidity for those who really need to do traditional hedging?
Is there sufficient liquidity in the marketplace for them to
achieve that purpose?
By and large my sense is that in most cases anyway that is
something that is achievable for them.
Mr. Fortenberry. Well, I would not disagree with that, but
at what cost given the volatility and what is causing the
volatility. Is it basically underlying structures of supply and
demand? Not clearly, and so the market itself maybe a factor, a
significant factor in the increase of volatility, which is very
disruptive to free market economies. In other words, it begs
the question of as to whether or not this is functioning
properly.
It is a larger academic question. I recognize that and your
day-to-day management of trying to ensure there is not fraud of
insider trading, all the things that you do maybe do not lend
itself to deeper reflection on this purpose, but I think it is
important because the very reason we are talking about giving
you more money is because we keep seeing problems here. We do
not want any cheating. We want the free market to function
properly, but at the same time if the fundamental structures
are cracked betraying the very purpose of the market, I think
that is something we have to look at and think through.
Mr. Wetjen. Congressman, that is a very thoughtful point
and question, and I agree. I think it would be worthwhile to
take a step back and maybe look at the big picture and perhaps
I could follow up with you after the hearing and figure out a
way to do that and maybe get some additional information for
you that could be useful. So I am happy to follow up with you
on that.
Mr. Fortenberry. I would appreciate that.
Thank you, Mr. Chairman.
Mr. Aderholt. You mentioned in your testimony that various
statistics have been used to measure the increase of CFTC's
responsibilities. One thing that is mentioned is the gross
notional value of hundreds of trillions of dollars, which is
several times larger than the world economy, but the Bank for
International Settlements has published its data that would
disagree with that.
I would like to look at some other measurements. You are
including one, increase in trading volume; number two, increase
in customer funds; and number three, increase in registered
entities under CFTC.
Using your own statistics, number one, the increase in
trading volume for futures is 13 percent. For swaps it is 33
percent. The increase of customer funds is 27 percent. The
increase in registered entities is 40 percent.
So the highest metric you have given would be 40 percent.
Yet the CFTC's budget since the financial crisis of 2008 has
increased 91 percent. Explain to us the request for another 30
percent increase in CFTC's budget.
Mr. Wetjen. Mr. Chair, I appreciate the question.
The way I approached this budget was looking at those
different ways of measuring, but also looking at the mission of
the agency set out under the statute. I analyzed it by focusing
on the number of people we have and then making judgments about
the number of people that I thought we needed to execute on
those mission activities, focusing, again, on three key ones
for me which are enforcement, surveillance, and examinations.
And I just went through the divisions and looked to see,
well, how many people do we have doing those three key things
in examinations? In the Division of Clearing and Risk, it is a
very small number. I think it is around 12 or 13.
In the Division of Swap Dealer and Intermediary Oversight,
it is slightly larger because they have more registered
entities under their purview, but still a pretty small number.
In fiscal year 2013, it looks like it was 48.
And, again, DSIO, that division oversees tens of thousands
of entities, either directly or indirectly. Most of those are
indirect, but a substantial number are under the CFTC's direct
oversight.
So we do not need enough people to look at every single
last one of those registered entities year after year, but we
need enough to basically keep the entities honest and to do at
least a reasonable, acceptable level spot check of those
registered entities, and again, based on the number we have
today, we are not able to do that.
Mr. Aderholt. You mentioned the CFTC's leverages of
resources of self-regulatory structure. The number of
regulatory includes around 800 staff plus CFTC's 647 employees,
and that would make a total of about 1,450 employees to
regulate the industry.
Do you think it would be more transparent to acknowledge
the totality of the hard working regulatory staff rather than
just CFTC's own in asking for the increase?
Mr. Wetjen. Well, I think the budget request itself does,
indeed, acknowledge that. There is a reference to the fact that
there is a coordination and cooperation effort with the self-
regulatory organizations, and so I can certainly concede that
point.
But the types of reviews that the SROs often do is a little
bit different than the type of reviews at least focusing on
examinations, the sort of examinations that the CFTC staff
would be responsible for doing. The CFTC staff ultimately are
the ones responsible for providing interpretations about what
the regulations actually require, and they look at and do these
examinations through a slightly different lens, I would
suggest. It is much more risk based. It is much more policy
driven, and so with that type of approach and combination with
the approach taken by the SROs, I think in the cases where you
have both entities involved, both the SRO and the CFTC, that is
how you get the best oversight.
But, again, even though that type of cooperation where we
are doing it qualitatively, different type of review, and we
are not doing it of all the registered entities that the SROs
might have direct oversight over, we still do not have enough
people to have that level of cooperation.
So, again, that is why the request was made at the number
it was requested at, because we need additional staff,
additional FTEs focusing on that examination function, just
focusing on the examination for now. That does not get into
enforcement and surveillance.
Mr. Aderholt. Mr. Farr.
Mr. Farr. I find that people are always fighting regulation
in politics at whatever level of government you are in, and yet
it is the business sector that comes in and asks for
regulations. They want licensing. They want standards set up.
They want certainty, and certainly financing is of all of them.
You know, you want some predictability that you are not going
to have a disaster, that some unforeseen circumstances are
going to occur because that makes it a lot more risky.
There must be somebody out there in the private sector who
wants you to have more staff and do a better job of providing
an opportunity for transparency because this is what we are
really talking about, is transparency and then where you find
anomalies enforcement.
Who are the people that might be interested in seeing you
get a bigger budget?
Mr. Wetjen. Mr. Congressman, I could identify them. I could
probably give you their phone numbers, too, if you like
although I will not do that here.
Now, to be sure, that is, in fact, the case. We have
tremendous demands placed on the agency right now, demands for
clarifications, petitions for one purpose or another, including
relief or including some other action expected or needed from
the agency, demands for guidance, demands for interpretation.
So, and I mentioned it a little bit earlier, there are a
number of demands on the international front, and as we know,
these are global markets, and there are other regulators and
jurisdictions who have a say in the oversight of these markets,
and there is a tremendous amount of dialogue that takes place
between the other regulators around the globe. They have
demands. We have demands of them.
Let me give you an example. The European Commission right
now is undertaking the number of equivalence determinations,
and these are determinations about whether or not some of our
rules are sufficiently similar to theirs or whether some of the
entities based in the U.S. but operate over in Europe can
follow CFTC regulation rather than European regulation. That
includes dealers. That includes clearinghouses.
And so there is a tremendous amount of work and time that
gets put into having those dialogues and trying to work with
these other regulators so that they come out with a good result
on their own equivalency determinations.
Mr. Farr. What U.S. entities or companies want better
regulation?
Mr. Wetjen. Well, I think my sense is that most
participants in the derivatives markets think that confidence
is built and there is greater credibility when there is
sufficient strong oversight of the markets. When we saw the
failures of the two FCMs several years back, it was kind of a
jarring event, I think, for a lot of the participants in the
futures market, in particular, because that was the failure of
a sizable firm. A large number of customer funds were put at
risk and tied up in bankruptcy, and I do not know if it was a
crisis of confidence, but as I said, it had a real jarring
effect. We could sense that at the agency, and it seemed very,
very real to me.
So those who are watching that incident very, very closely,
I am sure most of them would agree that we need a properly
overseen and properly regulated FCM community to make sure that
people continue bringing liquidity to these markets that the
FCMs intermediate in.
Mr. Farr. Most of your activities you stated are in
surveillance, examinations and enforcement. I think that is
similar to what our intel agencies do. I am just thinking if
you were an intelligence agency before a congressional
community and asking for the assets to do this, I doubt that we
would be criticizing you in the sense that you do not need the
money or you do not need to do the work in order to have the
intelligence of our markets, and in this esoteric area of
future swaps and options, we need it more than ever.
So I just think that this committee, we ought to think
about this. This is our responsibility. Do we really want to
handicap this agency at a time when we have enacted the law and
told them what to do and then turning around and not allowing
them to carry it out it seems to me very dangerous.
Mr. Aderholt. Mr. Nunnelee.
Mr. Nunnelee. Thank you, Mr. Chairman.
The CFTC is involved in a rulemaking change that is going
to lower the trigger for transactions from $8 billion to $3
billion. How many firms will be added at the $3 billion trigger
that are not covered with the $8 billion trigger?
Mr. Wetjen. Thank you, Mr. Congressman.
The agency does not know the answer to that right now. The
way the swap dealer rule works is that it set the threshold at
$8 billion, which is to last until October of 2017, and there
was a request of the chairman, Chairman Aderholt, to try and do
some of this analysis sooner, which we can and will do, but we
will have to analyze and try and solicit some information from
the dealing community itself to get a better handle on that,
and we are happy to do that.
But just as far as how the rule operates, the threshold
remains in place until 2017. I think originally the thinking
was that once we had pretty solid reporting from the SDRs on
swap data activity, that would give us an even better handle on
how to determine what the level of dealing activity was among
these different firms and make a judgment closer to that date,
but we can do it sooner if that is the wishes of the committee.
Mr. Nunnelee. Do you have a feel for a range of the number
of firms that may be added by this change in comparison to the
number that you are currently regulating?
Is it ten percent more, 100 percent more?
Mr. Wetjen. Honestly, Congressman, now we have 99 swap
dealers registered, and I do not have the feel for how many
more it would be. I am sure it would be some because we are
aware that there are other entities that do the sort of dealing
activity that would be encompassed by the swap dealer rule we
put in place a couple of years ago, but I would have to get
back to you on a better approximation.
Mr. Nunnelee. That is one of the things we will be
interested in, and then as a follow-up, we want to know, okay,
how are you going to regulate an increased number of firms
while you are requesting less resources.
Mr. Wetjen. Well, you know, on the request, what we
requested today would be, I think, a substantial increase above
what we have now, but I take your point.
Mr. Nunnelee. We may be following up with questions for the
record on that. Thank you.
Thank you, Mr. Chairman.
Mr. Aderholt. Mr. Bishop. I am sorry.
Mr. Bishop. Thank you very much.
As you know, Dodd-Frank as a part of the CFTC's expanding
enforcement obligations created an authorized Whistleblower
Program, and it is my understanding that the Securities and
Exchange Commission has recently received more attention for
its Whistleblower Program. However, whistleblowers have been
very active at the CFTC regarding a wide array of fraudulent
practices from price manipulation to Ponzi schemes.
In fact, the number of whistleblower claims filed with the
FTC has jumped from 58 in fiscal year 2012 to 138 to fiscal
year 2013. Can you update us on where the Whistleblower Program
is currently with CFTC and what resources are being proposed
for next year, and what are your plans for promoting its
existence, including any awards program?
Mr. Wetjen. Thank you, Congressman.
We do, in fact, have a Whistleblower Program that is
relatively new. There is a sizable budget for it. I would have
to get back to you on the exact number, but as you pointed out,
at the SEC we have seen the successes that can come from this
program, and there are a lot of referrals that can be generated
from this type of program.
So, again, I think it is going to be a nice addition to the
program at the CFTC to try to make sure we are responding to
any manipulative or fraudulent activity in the marketplace, but
I am happy to follow up with you on more specific figures.
Mr. Bishop. As you know, the CFTC is included in the ag.
appropriations bill because of its historical connection to the
agriculture markets, but the number and the scope of non-
agricultural issues has dramatically grown at the Commission in
recent decades.
But despite the growing importance of the non-agricultural
issues, agricultural issues still remain a critical component
of your work. I am concerned that given the fiscal environment
in which we are operating today and the inevitable budget
reductions which will occur in every agency of the Federal
Government, including yours, the CFTC's management of
agriculture markets could possibly get the short end of the
stick.
How do we make sure that agriculture does not
disproportionately pay for reductions in your budget, combined
with the growing pressure you are under to expand the agency's
non-agricultural activities, particularly as a result of Dodd-
Frank?
Mr. Wetjen. Thank you, Congressman.
You are right. The ag. markets, in particular, have played
a special role in the history of the CFTC and also in the
history of the markets. I think in a lot of ways they developed
in that space and expanded from there, as you said.
We are always trying to be mindful of the special needs or
special issues that can materialize in the agricultural asset
class, and we try to pay careful attention to that. Just to
give you an example, we have a weekly surveillance meeting at
the CFTC, and we are going to cover a couple of topics tomorrow
that actually relate to agricultural products.
So it continues to be an area of importance, and especially
since the underlying commodities of these derivatives contracts
are so meaningful and important to the everyday citizen. We
always need to make sure we are taking care to understand
exactly what is going on in those markets and watch them very
carefully.
Mr. Bishop. Right. Finally, let me ask you, going back to
Dodd-Frank and farmers, one of the little known goals of the
Dodd-Frank is the facilitation of a more transparent risk
management process for farmers and ranchers. But it would
appear that the resulting transparency has come at a real cost,
particularly to the Nation's farmers and ranchers who utilize
futures markets for hedging and are now experiencing
dramatically increased risk management costs.
As part of the CFTC's efforts to expand transparency, a new
rule governing records of commodity interests and related cash
forward transactions was issued and approved in December of
2012. Under this rule all communications leading to a futures
or swap transactions are required to be recorded, including
voice and text message recordings.
Voice recording systems can cost upwards of $50,000, which
is likely cost prohibitive for most small to midsize working
farmers and ranchers. Several major farm organizations have
expressed some concern regarding the rule's recording
requirements and their cost effectiveness.
Can you tell us the thinking behind this particular
requirement, and was the CFTC aware of the cost impact that
this would have on farmers and ranchers?
I am always reminded of a cost-benefit analysis that I feel
should always be done when regulations are put in place.
Mr. Wetjen. Congressman, I appreciate the question.
There was a rulemaking on Regulation 1.35, which is the
voice recordkeeping requirement that you mentioned. There was a
cost-benefit type analysis done under the statute with respect
to that rule, as it is done with every rule.
I think it is fair to say that when crafting that rule, and
there was an attempt to calibrate it in a way that it was
focused on the categories of market participants where you are
most likely to see manipulative or fraudulent activity. I think
probably, Mr. Bishop, you and I would agree farmers do not
normally come to mind.
But we have heard some of these concerns raised as well at
the agency, and for that reason, as well as because we are
hearing some concerns about some of our other rulemakings that
seem to impact the end user community, just this week I
announced a roundtable on end user related issues, including
1.35, including the special entity de minimis threshold for
swap dealers, as well as this seven-part test for volumetric
optionality, which is a long way of saying it is a test to
figure out whether or not an instrument is a trade option or
not.
And so we are going to host a roundtable to talk through
more detailed issues related to the rulemaking that you
mentioned, and we will be doing that later this month, actually
in early April.
Mr. Bishop. Is there a likelihood that you might provide a
little relief?
Mr. Wetjen. Well, I think we are very much in fact finding
mode. Again, if I could characterize it this way, and I am sure
staff in the building at the CFTC might have more detail, but
right now it is just noise, and so we need to get to the bottom
of it, and that is the purpose of the roundtable.
Mr. Aderholt. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
On the topic of transparency, you are the CFTC's rep. on
the Financial Stability Oversight Council, FSOC, which was
created by Dodd-Frank as one of the many regulations to create
certainty and predictability in the markets and protect
consumers, again. It has come under some criticism for being
weak in terms of transparency, in terms of who is being
regulated, why they are being regulated, how those things are
arrived at.
And I wonder if you can assure the committee that you will
help do everything you can to increase the transparency on the
FSOC so that American stakeholders, all of us, can ensure that
we know what is going on and why it is happening.
Mr. Wetjen. Mr. Congressman, I appreciate the question.
I agree transparency is important. I will point out
additionally that under Dodd-Frank there are a number of
responsibilities given to the FSOC, as I am sure you are aware,
including certain designations, systemic designations, of
certain financial institutions, and there is a lot of
sensitivity around that process for reasons I am sure you can
imagine and are aware of.
And so there has to be some balancing between the need for
transparency, but also the need to make sure that some of the
sensitive information that is discussed in the context of these
FSOC meetings is kept close. But I am more than happy to
continue talking with you about ways to improve transparency
around FSOC where appropriate.
Mr. Yoder. Well, I think anything we can do to ensure that
Americans know why its government does what it does and what
its rationale is and give voices to folks that do not normally
have a voice in the process to ensure that when oversight is
occurring, it is being done consistent with what congressional
intent is, with what Americans want.
I think my colleagues on both sides of the aisle would
argue that we should always err on the side of transparency,
absent, you know, national security questions or other things
of classified nature. The idea that the deliberations of the
FSOC would be less transparent or not be fully open to the
public, I think, is concerning to a lot of us, and it weakens
the effectiveness of those who would hope that we do a better
job of oversight in the country.
Finally, as you know, the CFTC's inter-affiliate rules do
not just impact bank. They impact end users. They certainly
have an effect on folks all across the country. As market
participants work to come into compliance with new regulations,
what will you do to ensure a smooth market transition?
And will you work with market participants to provide
relief when necessary?
And, for example, the inter-affiliate exemption from
clearing requirements will soon expire. How can the CFTC ensure
that this does not have unintended consequences or market
disruption?
Mr. Wetjen. Well, you mentioned the inter-affiliate
clearing exemption for clearing, and there is an actual
Commission action that is outstanding that expires on March
11th, as you mentioned. The extension of that has been
circulated around the commission, and that will be released
today.
As far as orderly transition more generally, we have had to
respond at the commission in a way over the last several years
to ensure that very same thing that you mentioned, and there
has been no actual relief that has been issued. There has been
interpretive guidance issued and the like and we will continue
to do that as necessary. In fact, we had to do it recently in
the run-up to the effectiveness date of our trading mandate,
and so some issues were brought to the Commission's attention
regarding certain types of trades that are commonplace in the
market, important for participants to continue doing, but there
is not a state of readiness in the infrastructure for swaps to
continue trading those on a regulated sub-platform. So we had
to provide relief there.
So that is just another example of what we needed to do,
and I hope indicates the continued openness to doing that where
necessary.
Mr. Yoder. I appreciate it.
Thank you, Mr. Chairman.
Mr. Aderholt. Ms. DeLauro.
Ms. DeLauro. Thank you, Mr. Chairman.
The CFTC, unlike most other financial regulators, is
dependent upon an annual appropriation from the Congress, and
it has no reserve fund. I am not sure everyone understands
this. Quite frankly, the other four main financial regulators
have in some parts some self-funding mechanisms, and CFTC does
not.
When the government shut down last October, the equity
markets were still overseen by the Security and Exchange
Commission. Federal Reserve was open for business, and yet
futures and most swap markets were left with essentially no cop
on the beat.
What happened or, rather, what activities were halted
during the government shutdown?
And the second part of that is would a fee-based system
outside of the appropriations process add more certainty, if
not more resources, to your work?
Mr. Wetjen. Thank you, Congresswoman.
The time of the shutdown was unfortunate. We were only able
to have essential staff at the agency during that time.
Ms. DeLauro. So you had to furlough?
Mr. Wetjen. I suppose it is another way of putting it, you
know, and so essential staff was present. So some of the key
function areas of the agency had folks devoted to that during
that time, but most of the agency, you know, was not in the
office during the shutdown.
So it was a little bit unfortunate, too, in the sense that
we are also overseeing another key implementation date at the
time. It was when the self-registrations became effective. So
that created a number of different issues that had to be dealt
with and made it especially difficult that we had so many staff
away.
Certainly I would think a user fee would----
Ms. DeLauro. Let me just on the point you just made. What
activities were halted during that shutdown?
Mr. Wetjen. Well, I do not know. I would have to go back
and get back to you, Congresswoman, because essential staff was
allowed to come in, and so we probably had key people, at least
the division directors, for example, there.
Ms. DeLauro. I would like to, and if you can get back to me
on that, I would like to know what interruptions there were in
the course. You know, something had to give.
Mr. Wetjen. Yes.
Ms. DeLauro. Something had to give.
Mr. Wetjen. There was not typical, normal operation, no.
Ms. DeLauro. Okay. So please let me know what the result of
that was.
Mr. Wetjen. Sure.
Ms. DeLauro. And I am sorry. I interrupted you on the fee.
Mr. Wetjen. Yes, just on the fee, I mean, obviously that
would be very, very important in terms of certainty, and it
would give us a better ability I would think, too, to plan
because you would be able to predict based on the calibration
of the fee or however it is designed.
Ms. DeLauro. As action tax, what?
Mr. Wetjen. Yes, I think what the President's budget
recommended was as user fee. So it is something like a
transaction tax, but the details would have to be worked out
later.
Ms. DeLauro. Your colleague, Mr. Chilton, said at a
President's request, ``This budget asks a strained and
exhausted CFTC staff to do the impossible with too little. We
work hard here. We have been granted needed regulatory tools to
do the job. A magic wand, however, is not among those tools,
and we are not magicians. The agency requires basic minimal
support to accomplish our newly assigned tasks. Sadly, in this
regard, the President's budget request fails.''
In your testimony you stated that the CFTC is not able to
complete its mission at current funding levels. Is the
President's request enough for the CFTC to complete its
mission?
And then I have a follow-up question.
Mr. Wetjen. I believe this request will put is at a level
with respect to FTEs or staff to be able to execute on those
three key core areas that I mentioned, enforcement,
surveillance and examinations.
Obviously, with even more resources we can do even more and
do an even better job, I believe, but I think at the request
level we would be on the pathway towards sustainability in
terms of what we need to continue executing the way that I
think the American public needs us to.
Ms. DeLauro. Again, according to Commissioner Chilton, your
limited resources have already led to slow investigations and
the prioritization of enforcement cases. What is your
investigations backlog?
Are cases going uninvestigated?
And are we setting ourselves up for the next MF Global or
worse, another Great Recession, and that is about underfunded
priorities? Can you?
Mr. Wetjen. Yes. On the----
Ms. DeLauro. What is the investigations backlog?
Mr. Wetjen. I would have to get back with you on specifics,
Congresswoman, but again, just speaking generally, the fewer
resources we have means the fewer people we have, which means
that there is just going to be a lessened ability to pursue
referrals that come in from folks on the outside or the
Whistleblower Office that Congressman Bishop mentioned or
referrals that come in from our Division of Market Oversight,
which surveils the markets, leverages technology to do that,
but we are not going to be able to pursue all of those leads,
if you will, and do the sort of investigation that we might
otherwise like to do if we are constrained.
Ms. DeLauro. Let me, if I can, I was just handed a piece of
information, and my colleagues may be aware of this. The CFTC
was unable to file charges--and that was my next question: what
cases are going uninvestigated?--unable to file charges against
certain individuals in the London Whale case because it did not
have the funds to do that.
This is from the head of Enforcement at CFTC in an
interview with the Wall Street Journal last year. So I would
also like to know what cases are going uninvestigated. That
would, I think, bear some light for this committee to know what
we are doing.
I happen to believe that the budget is not enough. I heard
your answer to that.
Mr. Wetjen. Well, you and I agree on that. All right. Let
me give you another example. There are two major cases underway
right now. One is the MF Global bankruptcy proceeding as well
as the MF Global enforcement actions, and to do an able job in
those matters we need to have expert witnesses. That is another
thing that has not been discussed, but it is critical to
bringing a successful complex case, and again, if we do not
have enough resources, we are not going to have the experts
that our litigants need to be successful in court.
Ms. DeLauro. Well, that leads me to what I had asked before
about are we setting ourselves up for the next MF Global or
worse, another Great Recession, as a result of shortchanging
the resources to this regulatory agency which has been handed
an exceptional amount of increased responsibility and with
fewer funds than it needs in order to be able to carry out that
mission.
Could we look at another MF Global?
Mr. Wetjen. It is certainly conceivable. Again, that goes
back to the examinations function. To be confident that we are
not going to see a situation like that again we need regular
thorough examinations, not duplicative examinations, because
the chairman's point is certainly right. There are other
entities involved in this process, but just to do the sort of
spot checking of the front line examiners, that is not being
done now. It is not.
And I was actually writing this in a conversation earlier
this week. There was a time before, before these increased
responsibilities, where you would see more of that, but again,
we just do not have the staff among the examinations team to do
that minimal level of examination.
Ms. DeLauro. If I could just ask you to provide I would
like to.
Thank you, Mr. Chairman, for your indulgence.
If you can, what I would like to know from you is at what
level of funding are you able to carry out the regulatory
function and mission that you have been tasked with. And I am
not saying, you know, pie in the sky. I am asking you to let us
know what this agency needs to be able to do its job and to be
able to save maybe another $1.7 billion, help us to decrease
the deficit, and just in terms of carrying out your operations.
Thank you so much.
Mr. Aderholt. Mr. Rooney.
Mr. Rooney. Thank you, Mr. Chairman.
Mr. Wetjen, in a Senate Banking Committee hearing last
summer, former Chairman Gensler testified that the CFTC has
clear authority to police the physical and derivative markets
for aluminum. He also stated that the London Metals Exchange is
operating under a no action letter agreement with the CFTC as a
Foreign Board of Trade or FBOT. It is expected that the Foreign
Board of Trade will maintain the same quality of market
expected by American consumers and is typically exhibited in
domestic exchanges regulated by the CFTC, such as the Chicago
Mercantile Exchange and the International Commodity Exchange.
Do you agree with those statements by your predecessor that
the CFTC has the authority to regulate this FBOT?
Mr. Wetjen. Thank you, Mr. Congressman.
I will have to confirm this to be sure, but I am nearly
certain that the LME has applied to become a Foreign Board of
Trade. That is a relatively new rulemaking that was passed. In
fact, it was one of the first rules I voted on. So it was
finalized just a couple of years ago.
But again, back to the overall discussion about resources
at the agency, we are continuing to work through those
applications, and that is another area that I have not focused
on as much today during this testimony, but we also need staff
to be reviewing these registration applications that are coming
in from not on FBOTs, but other registration categories as
well.
Mr. Rooney. Okay. Well, the second part of the question is
less about manpower and resources as opposed to your opinion on
the matter when it comes to specifically an example. The Metro
International Trade Services' waiting period for aluminum has
grown from six weeks to 16 months since being purchased by
Goldman Sachs. The company holds 1.5 million tons of aluminum,
and this manmade backlog was created to drive up the commodity
premium for profit, and it has cost American consumers, more
than five billion over the last three years.
Do you believe in your opinion that this type of behavior
in the market violates the conditions of the no action letter
that I referred to in the first question?
Mr. Wetjen. Congressman, I have to get back to you because
it would depend in part on the actual terms of the no action
relief, but apart from that, as you alluded to in the earlier
part of your question, we always have manipulation authority
over the underlying commodity if it is something that is being
used in interstate commerce. So we would have that authority in
any event.
I am not sure, and I can get back to you on this, but I am
not sure exactly what the conditions and terms of the relief
LME is operating under are, but again, I also think they have
applied to become a Foreign Board of Trade, and there would be
a number of obligations it would have to adhere to as a
registered FBOT at the CFTC.
But I can follow up and give you more details about how the
no action relief they are under now actually operates.
Mr. Rooney. Thank you, sir.
Thank you, Mr. Chairman. I yield back.
Mr. Aderholt. Mr. Farr.
Mr. Farr. Did I hear you right that you oversee 400
trillion?
Mr. Wetjen. Yes. The notional value of the swap market
fluctuates globally, but the last I checked I think it is
somewhere between four and $500 trillion, yes. That is the
outstanding notional value.
Mr. Farr. And we are arguing over a budget increase of 65
million?
Ms. DeLauro. Yes.
Mr. Farr. You know, I think your budget sucks, to put it in
the street language. [Laughter.]
And I am glad this hearing has all been recorded and taken
down because if anything goes wrong, I want people to reflect
back on March 6th, 2014 to the ag. appropriations hearing, just
to reflect on, you know, that we asked you these questions
about this responsibility.
I think the Administration is underfunding you. I mean, you
got 100 million less than what you asked for last year, and now
you come back in and certainly needed that 100 million and are
only asking for 65 million.
I mean we are just sitting here trying to figure out how
much 400 trillion is. Nobody in all of our bright staff back
here can figure it all out. It is a lot of money, and you are
not open seven days a week. So this is more than a trillion a
day.
Mr. Wetjen. It is a substantial marketplace, sir. There is
no doubt it is huge.
Mr. Farr. Well, what is the worst case scenario? What
happens if you fail, if somebody gets by your surveillance,
examinations or lack of enforcement?
Mr. Wetjen. Well, I think maybe one way to answer it, Mr.
Congressman, would be to just look back over the last six years
or so, and we have seen what happens when you have major
participants in the derivatives marketplace fail, and we have
seen several examples of that, and it had a reverberating
effect throughout the financial system.
I am not suggesting that the only cause of those failures
was the activities of those firms in the derivatives markets,
but it gives you some sense of how bad things can get if these
markets are not overseen properly. There is just no doubt.
Mr. Farr. Has anybody figured out what that value is, how
many trillions that is?
Mr. Wetjen. I am sorry. Trillions?
Mr. Farr. Of what the market, the negative, does that
reach.
Mr. Wetjen. I mean, what did we lose, eight million jobs,
as a result of the financial crisis?
Mr. Farr. Just in this country.
Mr. Wetjen. Yes.
Mr. Farr. I think we are getting the point across. I have
been on this committee a long time, and I have to admit that
not many people in Congress or this country understand what
this trading commission does. You are the only one that is not
self-funded, I understand. I mean, all of the others have a
user fee.
Mr. Wetjen. Yes.
Mr. Farr. And you collected $1.7 billion in fines.
Mr. Wetjen. Yes, the SEC has a bit of a hybrid system, but
yes.
Mr. Farr. And we cannot even give you another 65 million
when you have collected a gazillion times more than you are
asking for?
I mean, I think I am just trying to plead with my committee
members and our colleagues that this is really an important
responsibility. You know, most of us here in Congress are just
ordinary people, and we do not have a lot of background in
financial markets and things like that, and I do not think most
of us could discuss intelligently swaps and options and
futures, and yet we have that responsibility in this committee.
And I am just pleading with my colleagues that I do not
think we want to play loosely with your budget, particularly
when you are in a new realm after what we have gone through.
You are the future. You know, we are supposed to fix things
that are broken, and we learned that this was broken and it had
a very serious, detrimental effect to the American economy, to
the world economy, and now we are going to try to make sure it
does not happen again.
And we are--I cannot say that publicly--we are just kind of
being a penny wise, pound foolish right here, and I hope that
our committee will follow your request and fully fund you.
Thank you, Mr. Chairman.
Mr. Aderholt. Thank you.
Well, thank you, Mr. Chairman, for your testimony. Of
course, I think good people can disagree on exactly how the
funding and dire need of resources and look at this, but we
have taken your testimony into consideration, and we certainly
understand that you have an important responsibility and that
what you do is no small thing, and so we do understand that.
We want to provide the resources that you need, but at the
same time we want to make sure that we are responsible to the
taxpayers and find that medium and happy balance between the
two.
So, again, we appreciate your work at the Commodity Futures
Trading Commission, you and all of your colleagues, and so we
look forward to working with you on this as we continue through
the hearing process and through the fiscal year 2015.
Thank you.
Mr. Wetjen. Thank you very much, Mr. Chairman. Thank you.
Mr. Aderholt. The subcommittee stands adjourned.
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Wednesday, March 26, 2014.
USDA RESEARCH, EDUCATION AND ECONOMICS
WITNESSES
DR. CATHERINE E. WOTEKI, UNDER SECRETARY, RESEARCH, EDUCATION AND
ECONOMICS
DR. CHAVONDA JACOBS-YOUNG, ADMINISTRATOR, AGRICULTURAL RESEARCH SERVICE
DR. SONNY RAMASWAMY, DIRECTOR, NATIONAL INSTITUTE OF FOOD AND
AGRICULTURE
DR. MARY BOHMAN, ADMINISTRATOR, ECONOMIC RESEARCH SERVICE
DR. CYNTHIA CLARK, ADMINISTRATOR, NATIONAL AGRICULTURAL STATISTICS
SERVICE
DR. DONALD K. BICE, ASSOCIATE DIRECTOR, OFFICE OF BUDGET AND PROGRAM
ANALYSIS, DEPARTMENT OF AGRICULTURE
Introduction of Witnesses
Mr. Aderholt. Well, good morning. The subcommittee will
come to order. Thank you for joining us this morning and to
discuss the USDA's fiscal year 2015 budget request for its
research agencies.
As I have mentioned before, the subcommittee is focused on
the themes of ensuring the proper use of funds through
oversight, ensuring the appropriate level of regulation to
protect producers and the public, and ensuring funding is
targeted to vital programs. We will be reviewing the budget
requests with this in mind this morning.
I would like to welcome to the subcommittee Dr. Cathie
Woteki, the Under Secretary for Research, Education, Economics,
and chief scientist for the U.S. Department of Agriculture.
Also joining today will be Dr. Cynthia Clark, Administrator of
the National Agricultural Statistics Service; Dr. Mary Bohman,
Administrator of the Economic Research Service; Dr. Chavonda
Jacobs-Young, Administrator of the Agricultural Research
Service; Dr. Sonny Ramaswamy, Director of the National
Institute for Food and Agriculture; and Mr. Don Bice, Associate
Director of Office of Budget and Program Analysis. Welcome,
everybody.
Opening Statement--Mr. Aderholt
USDA is proposing a $63 million increase over the fiscal
year 2014 enacted level for its research programs. It does not
include the additional $227 million for research that was
included in the President's Opportunity, Growth, and Security
Initiative. We cannot consider the initiative because it is
outside the established budget cap for fiscal year 2015.
The budget request includes a significant increase of 50--
sorry, of $75 million to create three new innovation
institutes. We will explore this proposal in detail as this was
not part of the discussion of the 2014 farm bill.
There are also many other increases, decreases,
consolidations and transfers in the budget proposal. The
hearing today will allow the subcommittee to thoroughly examine
them and ultimately help to determine whether USDA is
effectively administering its programs, its activities, and
meeting its broad mandate for agricultural research consistent
with congressional intent.
Before I conclude, I do want to recognize Dr. Clark, who
recently announced her retirement from the National
Agricultural Statistics Service. Thank you for sharing your
expertise and time with USDA over the years, and also with the
agricultural community.
I also congratulate Dr. Jacobs-Young on her new appointment
as Administrator of the Agricultural Research Service. We look
forward to working with you. I enjoyed our visit yesterday when
you came by the office, so thank you for doing that.
I also would like to thank Dr. Bohman for the timely
assistance that your staff has recently provided this
subcommittee on research questions. Your staff knew right where
to go to find--to help us find the right answers, so thank you,
Dr. Bohman, for that.
And finally, thank you, Dr. Ramaswamy, for your work to
ensure that the National Institute of Food and Agriculture is
sharing information with Congress, particularly in those as it
relates to agriculture and food research initiatives which help
us to make good funding decisions.
This subcommittee and all of agriculture is fortunate to
have all of you that are sitting at the table this morning as
experts, as professionals, as leaders in the ag community
serving not only the Department of Agriculture, but also the
Nation as a whole, so thank you for that.
At this point, I would like to recognize our ranking member
for the subcommittee, Mr. Farr of California, and see if he has
some opening remarks.
Opening Statement--Mr. Farr
Mr. Farr. Thank you very much, Mr. Chairman, and I echo
your accolades for the fine work that the committee has done.
It is nice to see the diversity here of women before our
committee in a Department that has been predominantly,
throughout its history, a very male-oriented Department.
I think this subject matter, I mean, it probably isn't
controversial, so it doesn't attract a lot of people to come
in, but it is--to me, our investment in research, America's
investment in research, is probably the distinguishing factor
of how America can stay ahead of the rest of the world in
economic development.
I chaired the economic development committee in the
California State Legislature and had a chance meeting with all
of the top industrial leaders in the State, and every one of
them indicated that the one thing that the government could do
that they couldn't do alone is the investment in research; also
investment in education, because of all their workforce came
out of education. And, frankly, it wasn't about how much taxes
and regulations there were; it was about how do you also create
communities of quality of life that attract an intellectual
capital that they need to hire in their companies, and sort of
these things that were external were beyond the companies'
ability to do on their own. And David Packard was very
instrumental in my life and certainly built a beautiful
aquarium in Monterey, but his interest was always--even with
that aquarium--was in research and in marine research and
applying that research.
So I find that this arm of the U.S. Department of
Agriculture is key to America, and I am going to be asking some
questions about why there isn't more investment, or why is
there not an investment in one thing or another, or why there
are cuts, because I think that if we are going to, in this
competitive world--we are unique, Mr. Chairman, in that we have
a lot of microclimates in this country that other countries
don't have, particularly in the fresh vegetable area where you
just can't grow these crops in other places of the world or
even other places in the United States.
You know, there is a lot of pressure on food safety, food
security, inputs, pesticides, herbicides, sort of the negative
things that can affect the environment and have downstream
effect. So, if we are going to really find alternatives to
things that we don't want to continue to use, and if we are
going to find better ways of producing food in a more cost-
effective way, we are going to have to really strongly support
our research service, so I appreciate the committee being here
today and having this discussion. Thank you.
Mr. Aderholt. Thank you, Mr. Farr.
And, Dr. Woteki, again, welcome to the subcommittee. We
will turn to you for your opening statements. Your full
statements, of course, will be included in the record, so feel
free to summarize any way that you would like, and then we will
proceed on with the questions.
So Dr. Woteki.
Opening Statement--Dr. Woteki
Dr. Woteki. Well, thank you, Chairman Aderholt, and good
morning to you, and to Ranking Member Farr, and to
Representative Pingree. It is a real pleasure for my colleagues
and me to appear before you to talk about our budget request
for fiscal year 2015. And as you have noticed and noted
already, we are appearing before you with a new addition as the
Administrator of the Agricultural Research Service. Dr.
Chavonda Jacobs-Young testifies for the first time in this
capacity. And I also greatly appreciate your noting the many
contributions that Dr. Clark has made. So we are looking
forward, though, to finding an outstanding replacement for Dr.
Clark.
My colleagues and I have provided quite extensive written
testimony for the record. We appreciate your putting that in,
and I will summarize just at a very high level.
In addition to preparing for this hearing, we have been
spending a lot of time in implementing the Agricultural Act of
2014, and our budget proposal includes additional reporting
information for the National Institute of Food and Agriculture,
for the Agricultural Research Service, and also for the
Economic Research Service, which was required by section 7513.
A second report on research accomplishments, 5-year
projections of our research priorities, and also examining
potential areas of the duplication with the private sector and
other Federal agencies is in final clearance and will be
submitted to you very promptly.
The President's fiscal year 2015 budget proposal and the
farm bill provide for new ways of partnering with university
scientists, with educators, and with the private sector. This
investment in science and education is an important contributor
to rural economic growth, to the creation of new industries,
and also for keeping U.S. agricultural productivity high.
The return on the Federal investment in agricultural
research is in the range of 20 to 1, and nearly 1 in 10 jobs in
the U.S., about 16 million jobs total, is in the agriculture
and food-related sectors.
The farm value of production is estimated to be $400
billion, and the research investment, as Congressman Farr
noted, pays off in a lot of different ways, in an educated
workforce, in patents and licensing agreements that lead to new
agricultural products and consumer goods, and in the creation
of new businesses.
This past year the REE agencies accomplished a lot. ARS
entered into more than 50 new Cooperative Research and
Development Agreements (CRADAs) and continued working in
another 250 active CRADAs, helping companies to solve problems
through cooperative research. ARS annually files over 100
patent applications and averages over 400 active licensing
agreements.
NASS completed the Census of Agriculture that is providing
important information for informed policy decisions, and also
program delivery.
The Economic Research Service informed public and private
decisions with 268 new research publications and updates to
over 70 different data products.
Work supported by the National Institute on Food and
Agriculture at the University of Nebraska has resulted in the
reduction in irrigation water used annually by 114 billion
gallons. That is enough water to supply a city the size of
Tucson, Arizona, for a year.
And to meet the opportunities to grow our scientific
workforce, NIFA also supported the education and training of
over 1,100 doctoral and post doctoral students.
So, the total request for the REE agencies is $2.9 billion.
The request includes $75 million to establish three new
innovation institutes focused on high priorities for research.
The institutes are going to be virtual organizations, meaning
no buildings will be built with these funds, but they will
include multiple partners from academia, from the private
sector, and from Federal labs. These will be public-private
partnerships with the intention of leveraging private
investment into them, and NIFA will be administering them as a
competitive program.
The institutes are going to focus on three high-priority
areas: pollination and pollinator health; combating the
development of pathogens that are resistant to antibiotics; and
the third one is going to focus on building a national network
for bioproducts manufacturing innovation.
We are also committed in the budget to helping sister
agencies in furthering food safety, and there is, within NIFA,
a $2.5 million request to establish a program to provide food
safety training and outreach to owners and operators of small
farms, food processors, and fruit and vegetable vendors that
are affected by the Food Safety Modernization Act of 2011.
The President's 2015 budget request, as you have indicated,
also includes a separate Opportunity, Growth, and Security
Initiative, and within that there is $277 million targeted
investments in this mission area. The initiative includes $197
million for the Agricultural Research Service, and most of that
would be dedicated to replacing the Southeast Poultry Disease
Research Laboratory in Athens, Georgia, where very critical
research on avian influenzas is conducted. And the initiative
also includes $80 million to enhance NIFA's base formula and
competitive programs at Hatch and Evans-Allen and AFRI.
So, in conclusion, I believe that these initiatives that I
have highlighted, as well as the high-priority budget increases
and reallocations that are indicated in the agency testimony,
are critical to sustaining and enhancing a well-rounded
research and education portfolio.
Mr. Chairman, we look forward to working with you as we
continue together to support a world-class level of science and
to increase the strength of U.S. agriculture. My colleagues and
I are ready to answer any questions you might have.
Mr. Aderholt. Okay. Thank you. Thank you, Dr. Woteki.
[The information follows:]
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RESEARCH INFORMATION SECURITY
Mr. Aderholt. Let me start out, and I will ask about
something that we heard earlier this year. The inspector
general issued a report on the effectiveness of your agency's
lockup procedure to ensure the security of sensitive
information on commodities.
The inspector general, from my understanding, complimented
the National Agricultural Statistics Service on a swift
response, but tell the subcommittee why it took an audit to
bring these issues to light.
Dr. Woteki. Well, Mr. Aderholt, we take our security and
our lockup procedures very, very seriously, and the National Ag
Statistics Service has, over the years, improved their
approaches towards security. I would like to ask Dr. Clark to
tell you specifically the steps that they have undertaken in
response to this recent audit.
Mr. Aderholt. Okay.
Dr. Clark. We take our security very, very seriously, but
you need to understand that we are working in an environment
where technology is constantly changing, and in order to meet
the release time, which is to the minute, to the second even,
we need to be on top of all of our security procedures.
We did have an incident several years ago where we had a
switch failure, which caused an early media release and since
then we have been doing a number of different things to enhance
our security. We have, most recently, installed a scanning
procedure for people going in to pick up iPhones, or any
computers, or any other equipment. We have cameras at the
entrance of our lockup procedure. We have enhanced the
procedures in our area where the media is located to ensure
that no release can happen except at the time when it is
scheduled.
The audit asks for us to have an external review on an
annual basis, and we have had several reviews in the last year;
and also to have an internal review committee that is
periodically looking at our security procedures. So this is
what we are planning to do, and we will be keeping on top of
it, and we also work with other statistical agencies. In fact,
our procedures are probably the most secure of all of the
agencies.
Mr. Aderholt. Now, I know that the inspector general's
report noted that management decisions have reached--been
reached some 14 of 17 recommendations?
Dr. Clark. Yes.
Mr. Aderholt. And what is the status of those remaining?
Dr. Clark. Most of them are all in progress or--and
completed. We provided dates at which they would be completed.
They would all be completed by October of 2014, and they are
all on the way.
Mr. Aderholt. So you feel confident that the problems found
by the inspector general have been addressed at this point?
Dr. Clark. Yes.
Mr. Aderholt. And what would be the result of a leak of
this sensitive data?
Dr. Clark. Well, it is market-sensitive data, and you have
trading that goes on within seconds of the time of the release,
and the media--we have allowed media to have access to our
lockup procedure. They provide reports. We provide data that
goes out exactly at the time of release. But if you have a
breach of security, then it affects the markets.
INNOVATION INSTITUTES
Mr. Aderholt. Okay. The budget proposes $75 million in new
funding to create three new innovative institutes. I understand
this proposal is based on the recommendation from the
President's Council of Advisors on Science and Technology. Just
talk a little bit about the innovation institutes and their
connection with the 2014 farm bill. That was not in the farm
bill; is that correct?
Dr. Woteki. That is correct.
Mr. Aderholt. And----
Mr. Farr. Food Safety Modernization Act probably.
Mr. Aderholt. Were they proposed by the administration, and
have they been debated at Congress at all at this point?
Dr. Woteki. Well, I think we are having that discussion
right now as part of our budget request. The innovation
institutes were recommended to the President by his Council of
Advisors on Science and Technology, and they did an in-depth
study of the challenges that are facing American agriculture.
And we are asking the question, is our research infrastructure
up to those challenges, and if not, what are the things that we
need to be doing differently? And one of their recommendations
was to establish what they called a new innovation
infrastructure that would take us into closer working
relationships with the private sector and really focusing our
efforts on some of the big problems and big challenges.
So the innovation institutes are essentially a reflection
of that recommendation to the President. The advisors had
recommended the establishment of six innovation institutes,
each one to be funded at the level of $25 million a year for a
period of 5 years minimum, and that these innovation institutes
should be public-private partnerships so that they would be--
the research agenda would be determined in close consultation
with the private-sector contributors to the innovation
institutes.
Mr. Aderholt. My time is up.
Mr. Farr.
FOOD SAFETY OUTREACH
Mr. Farr. Thank you very much, Mr. Chair.
I do think we also have to consider that the responsibility
for this agency and our other FDA agencies are newly mandated
under the Food Safety Modernization Act, and one of the
questions I have is that one of the new programs that you
mentioned under the extension of the food safety outreach is
the Food Safety Outreach Program, which is a proposal to work
with small and medium-sized farms.
I mean, they think this law is a big challenge to have to
meet. They don't want to be priced out of the market. And I
appreciate the fact that you are going to try to reach out to
them to get them on board, but why just 2\1/2\ million bucks?
That is for the whole country. That doesn't look like it can
reach about anybody. What do you plan to do with that?
Dr. Woteki. Well, we have had ongoing discussions with the
Food and Drug Administration about what is the role that our
intramural programs can play in helping them establish the
evidence base for their programs, and also, more recently, what
is the role that the extramural programs that are administered
by NIFA can play. Out of those consultations has come this
proposal for $2.5 million, and I would like to ask Dr.
Ramaswamy to talk with you in more detail about the content of
that.
Mr. Farr. Is this more to deal with the coordination of all
these programs, or it really is to use the money for outreach
to small farmers?
Dr. Ramaswamy. So, Congressman Farr, thank you so much, and
thank you so much, Mr. Chairman, for having us here this
morning. And indeed, you are correct. The intent is to use
these funds that we are requesting to develop educational
information in the form of outreach and extension for the small
producers and small processors, and we will partner with FDA
very closely in working with them, and also with the other
agencies within USDA and outside of USDA as well to make sure
that we are getting all the information put together to create
this information.
Mr. Farr. Well, I am little concerned that it might be just
Federal one size fits all. Remember, our States and local
governments have a lot of regulation on farming practices, and
California's standards are much higher than anything the
Federal Government has, pesticide regulation, what you can and
cannot use, setbacks. So I would hope that you might integrate
these on a sort of regional basis, bringing in what the local
laws also require.
Dr. Ramaswamy. Indeed. So what we intend doing is to work
through the Cooperative Extension Services; they are going to
be very much involved in this.
Mr. Farr. Okay.
Dr. Ramaswamy. And so as you currently pointed out, each
State is a little bit different in terms of the rules and
regulations and laws that they have, and so we would be working
through that network and making sure that we are developing the
knowledge and creating the delivery mechanisms as well.
Mr. Farr. I appreciate that.
Dr. Bohman, I was very interested and intrigued but to see
the following statement near the end of your testimony: Quote,
``ERS will examine the effects of FSMA across the fresh produce
supply chain, including the guidance issued by FDA as it
relates to the development of a risk-based food safety
system.''
Can you discuss how you are going to--is this research or
how are we going to measure FDA's guidance, because there are
some concerns as to the practicality of them.
Dr. Bohman. Well, thank you very much.
As you mentioned, the Economic Research Service has a
group, a team that works on food safety issues that is
collaborating with our experts on horticulture markets, and we
are coordinating what we are doing with the USDA food safety
group and with the economists at FDA.
I think our strength is that we can bring the realities of
the markets and our economic expertise to these food safety
issues. So we have been providing our expertise in terms of the
internal rulemaking process, and we are developing research
that can look at what data we would need to understand how the
rules are impacting the industry, you know, what is working,
what is not working, and start to build that research now as
before and during the implementation of the Food Safety
Modernization Act.
Mr. Farr. I think it would be very important to share that
lessons learned with Congress, because I am afraid that what
Members will do is hear from their local growers and then come
in here and try to piecemeal the amendment to the Food Safety
Act, and who knows what politics will be about? So, if you are
ahead of the curve, and you are telling us that we can fix
these things or you can fix them administratively would really
be helpful to us.
Dr. Bohman. Well, thank you. That is--our plan is to make
all our research results public, and we are happy to share our
plans with you as they evolve.
Mr. Farr. My time is up. I will have to ask next round. I
want to go into the horticulture issue.
Mr. Aderholt. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman. And I appreciate all of
your testimony today.
Dr. Ramaswamy, it is good to see a fellow Kansan or K
State----
Dr. Ramaswamy. Yes, sir.
Mr. Yoder [continuing]. Background. We all had a rough
weekend in St. Louis.
Dr. Ramaswamy. Indeed. Indeed. Sorry about KU losing that.
Mr. Yoder. Sorry about K State losing.
Dr. Ramaswamy. What a bummer as well.
Mr. Yoder. We thought our friends in Kentucky were our
friends, but apparently they took out K State and Wichita State
and----
Dr. Ramaswamy. Indeed.
WHEAT AND BARLEY SCAB INITIATIVE
Mr. Yoder [continuing]. So a tough weekend for all of us.
But on to more important issues.
Certainly as a Kansan and someone who grew up on a farm and
had a great appreciation for wheat, Kansas is the greatest
wheat-producing State in the country, last year I expressed
some concern over the administration's proposal to eliminate
the U.S. Wheat and Barley Scab Initiative Research Project that
funds a substantial portion of research at K State.
What does the future of this program look like? I believe
there is over 5 million recommended in the--I think in the
budget. What does the future look like in terms of the
administration's support for this program, and what can I tell
farmers back home regarding our ability to resolve some of
these concerns regarding wheat and barley scab?
Dr. Ramaswamy. So--go ahead.
Dr. Woteki. Well, I am happy actually to report to you, Mr.
Yoder, that we have been able to restore funding for the Wheat
and Barley Scab Initiative back to the 2011 levels in the 2014
budget. Then there really has been some very significant
progress that has been made over the last several years coming
out of what has been an extended research effort. It has
focused on breeding, and there has been an increase in the
varieties with resistance for this particular disease in wheat,
as well as one barley variety with partial resistance that was
released by ARS in 2011.
There is better information made available to farmers so
that--coming out of the surveillance and monitoring activities,
so that when they do apply fungicides, they can do it with a
much better timing and help to head off an outbreak of scab.
And that alert system goes directly to the farmer through an
email or a text message.
So, we are really pleased that with the 2014 appropriation,
that we have been able to restore these funds.
Mr. Yoder. Well, I think that is welcome news, and I
appreciate the message that sends, I think, to Kansas wheat
farmers.
In terms of laboratories, what are the ARS's plans for
upgrading regional small grains genotyping laboratories to
next-generation genotype technology?
Dr. Woteki. Let me ask Dr. Jacobs-Young if she is prepared
to answer that question.
Dr. Jacobs-Young. Thank you for your question, Mr. Yoder.
So as you can see in the fiscal year 2015 proposal, we have
$155 million requested for a facility in Athens. Along with
that facility, there are many other facilities that we have
listed on our Capital Investment Strategy where we need to make
significant investments to modernize those facilities. We are
definitely supportive of the small grains facility, and we have
been working to look at ways to use creative mechanisms to
invest in those facilities.
I wanted to add on the wheat, we are also looking at the
testing for wheat and trying to bring those up to date. We have
a test that we use in the wheat quality laboratory that is 80
years old, and I think it is called the ``falling number,'' and
we feel there is a better way to do that, and so we are also
looking at how we can--how we can bring that into the 20th--at
least 21st century.
FOOD SURVEY
Mr. Yoder. Well, I think certainly our efforts to modernize
all this makes a big difference and, I think, speaks to how,
with technology, we can create efficiencies and opportunities
all across the country.
I had another question regarding the National Household
Food Acquisition and Purchase Survey. I noticed that that was
in the proposed budget. We have had some issues with other
surveys in the Federal Government being mandatory, being
compulsory, and having penalties and fines. Could you explain
how this survey works; and is it voluntary, mandatory; and who
would be being surveyed; and how it is effectuated?
Dr. Bohman. Yes. We are reporting for fiscal year 2015 that
we will be publishing results from this survey----
Mr. Yoder. Okay.
Dr. Bohman [continuing]. Which was conducted in 2012. And
it was a voluntary survey that ERS and the Food and Nutrition
Service funded and was carried out by Mathematica Policy
Institute. And the goal is to provide a comprehensive overview
of how people acquire food, not just what they buy in the
grocery stores, what they eat out, what food may be given to
them or that they acquire from a food pantry. And so we did a
week-long diary with people who agreed to do this voluntarily,
and we had made sure that we included a large number of low-
income respondents so we can look at questions that are in the
public domain about what people eat who are part of the
Supplemental Nutrition Assistance Program.
So we expect to have this data. It is in the final clearing
stages by the end of May, and we will be publishing reports
this year and into next year using that information.
Mr. Yoder. Look forward to seeing the results.
Thank you, Mr. Chairman.
Mr. Aderholt. Ms. Pingree.
PLANT BREEDING
Ms. Pingree. Thank you very much, Mr. Chair.
Thank you all for being here today and for all your hard
work on behalf of consumers and farmers.
I am going to start with a question around plant and seed
breeding. So, Dr. Woteki, I think probably this is for you, but
I am happy to have anyone talk about it.
In the administration's fiscal year 2015 budget, the USDA
proposes a new initiative on genetic improvement in
translational breeding within the Agricultural Research
Service. One of the target areas of funding is classical
breeding, among other research areas.
I have a perspective representing a lot of farmers, having
a small farm myself, and like a lot of other farmers, I am
personally very concerned about farmers' dwindling options for
locally adapted and publicly available seed varieties and
animal breeds. I think that for agriculture to be successful in
the long term, particularly given current trends, our farmers
need access to seeds that are adapted to their local climate,
pest conditions, and growing systems.
You also know that in order to be effective, the adaptation
process needs to be ongoing, because climatic conditions and
pest challenges are also constantly changing, and it seems like
they are changing more rapidly now than they ever have before.
So farmers increasingly need seeds that are bred in their local
conditions and cropping systems. They need, in my opinion,
seeds that are classically bred and available for public use.
So just to sort of continue with this thought, there has
been extensive dialogue between concerned farmers like myself
and the Administration regarding the implementation of the 2008
Farm Bill directive to make conventional plant and animal
breeding a priority within the Competitive Research Program. So
I appreciate that the Administration recognizes that this is a
concern and has put in stronger language in the Fiscal Year
2014 request for applications within the Agriculture and Food
Research Initiative.
So in spite of these small signs from the Administration
and all the steps that you have taken over the last few years,
it is clear, I think, that more needs to be done not only to
ensure our Nation's future food security, but also to ensure
that today's farmers, especially some of the young and
beginning farmers engaging in the new opportunities out there
for local and organic markets, have access to the highest-
quality seeds that are bred for their types of farming
conditions.
We are losing the pipeline of future plant breeders who
will be essential in solving the pest and disease problems that
the next generation of farmers face, and, again, especially
concerning some of our climatic uncertainties.
So, my question. I think there are a lot of grave concerns
out there from all kinds of farmers. Can you talk a little bit
about the USDA's efforts to reverse the trend of declining seed
varieties, and how the new ARS initiative that you are
proposing will help solve some of these problems or work
towards it?
Dr. Woteki. Certainly. And I very much hear and understand
your request. I also want to note that not only your voice, but
many others have been approaching us, making this plea for a
greater emphasis on classical breeding techniques.
In response we have done a couple of things. We held a
workshop last year. We have actually posted the results of
that. It was a listening session where there was a really broad
spectrum of individuals and organizations that came in and
spent a day talking with us about what they viewed as being the
needs across the spectrum in plant breeding. But there were a
lot of voices expressing concern about the diminishing--
apparent diminishing interest on the part of our programs in
classical breeding.
We don't feel that that perception is necessarily correct.
We feel that in our programs, both the intramural ones and the
extramural ones, that we are providing opportunities for
researchers to put in proposals for funding in the--if they are
in the extramural community, in the universities, to be funded
by the National Institute of Food and Agriculture, and that
also within the ARS programs, that there is a wide variety of
breeding approaches that are taken from the classical through
to the latest techniques in genetic--using the new genetic
technologies.
So, we have established, though, as a follow-up to this
listening session, a working group within the Department that
is focused on plant breeding. And I have been meeting with that
working group in recent weeks and have asked them to develop a
roadmap on breeding approaches for us to be following.
So we hear the concerns, and we have taken these very
positive steps of the listening sessions, and the internal
working group, and now this roadmap. And in the meantime we
also share your concerns about education and training, and the
translational breeding initiative in this budget request is a
key step for ARS, the in-house agency. In addition, NIFA,
through the capacity funding that it provides to the State
agricultural experiment stations that is in turn matched by the
States is enormously important for doing exactly that local
adaption breeding at the land-grant university that is so
important in the State for farmers within that State. So that
is another mechanism that we have of supporting classical
efforts that are done really to come up with that locally
adapted variety.
Mr. Aderholt. Okay. Mr. Rooney.
Ms. Pingree. I am out of time, but I will follow up later.
Thank you.
CITRUS DISEASE
Mr. Rooney. Thank you, Mr. Chairman. I want to thank my
friend from Kansas for--I understand, before I came in, he was
singing the praises of the Florida Gators, and rightfully so,
so I appreciate that. It takes a big man to admit greatness.
I just want to say, before I get into my questions, if I
could, a couple of thank yous to the members that are sitting
on this panel on behalf of the Florida citrus industry for your
efforts in combating citrus greening and canker. Obviously, you
all know the situation in my home State and now the situation
for the rest of the country, so hopefully the efforts that you
are undertaking right now will help save our industry.
I am happy to support your work here in Congress. As you
know, the lines of communication with my office are open, with
my staff, specifically the one back here with the orange shirt
on. We are always in character.
So I also want to say a special thank you to Dr. Jacobs-
Young for your efforts in hiring a new director in the ARS Fort
Pierce lab. I have been down there numerous times, and I know
how important that work is, and I really feel like, based on my
visits there, that they are close to getting what they need. So
this transition is important, so I appreciate all that you have
done in getting the most qualified and best person to continue
on, especially at this pivotal time.
I would like to ask a couple of quick questions, if I
could, to Dr. Ramaswamy about the Emergency Citrus Disease,
Research and Extension Program. As you know, in the 2014 farm
bill, the intent of the legislation is that research projects
funded under this authority should be prioritized based on the
critical threat of citrus greening, and to the maximum extent
practical, the agencies should adhere to the recommendations of
the Citrus Disease Subcommittee. And the farm bill required the
establishment of the Citrus Subcommittee within 45 days.
Can you let us know where we are at with that, and then
once appointed, what is the timeline moving forward? Once
recommendations by that committee have been provided, do you
consider those proposals simultaneously, or do you wait until
after the proposals have been made?
Dr. Ramaswamy. Thank you very much, Congressman Rooney, and
thank you for your support as well of the overall agricultural
research and education enterprise as well.
Very specifically, in response to your question, we are
indeed in the process of soliciting nominations. So there is
the Citrus Disease Subcommittee that is part of the NAREEE
Advisory Board's specialty crops research--or specialty crops
committee. That committee, we have already got six members that
are from last year, and we are in the process of--we are
seeking nominations for three more. And that request was sent
out to the community at large last week, and our intent is once
the nominations come in to the Secretary, that they will be
vetted, and then by the 25th of April, we hope to have that.
By the 1st of May we hope--our staff hopes to have a
consultation with that subcommittee and get input on the
priorities that are needed. And then our hope is to incorporate
that and then release a request for application--as a
supplement to the Specialty Crops Research Initiative request
for applications that has already gone out. If so, it will come
out as a supplement. If everything falls in place, we hope it
happens on the 15th of May, and then beyond that, you know, it
is a two-step process.
We have to make sure that the work that is to be undertaken
is relevant to the industry first. And then once that is done,
the proposal will be recommended for a full-blown scientific
merit review. That is the second step. And once that is done,
the decision is going to be made to make the funding available
to the individuals that are involved in research and extension.
Mr. Rooney. Okay. And as you know, the Citrus Disease
Research Program received $25 million in mandatory funding for
Fiscal Year 2014, and this is good news. For our industry there
is a considerable amount of ongoing research related to citrus
greening that has been supported by this program.
Can you explain how your agency can ensure that the funds
are effectively spent in a relatively short period of time
while avoiding duplicative research? The reason I ask this is
because when I was down in the district, after we got the good
news that this was all going to happen, obviously one of the
biggest concerns of the growers is, you know, time is of the
essence. It is good that we have got this funding, but we are
kind of at the moment of truth here with regard to where we go
in the future of growing oranges in Florida. So, if you could
help reassure that it is going to be as quickly as possible.
Dr. Ramaswamy. You have my word on it, Congressman.
Mr. Rooney. Okay. Thank you very much.
With that, Mr. Chairman, I yield back.
Mr. Aderholt. Mr. Bishop.
SOUTHEAST POULTRY RESEARCH LABORATORY
Mr. Bishop. Thank you very much.
Let me welcome all of our panelists this morning and thank
you collectively for what you do and what your agencies do to
assure that American agriculture is the highest quality, the
safest, the most abundant and most economical fruit and fiber
anywhere in the world, and it is because of what you do that
makes us that way.
I want to go back to the Southeast Poultry Research
Laboratory, Ms. Jacobs--Dr. Jacobs-Young. Last year, of course,
as was indicated earlier, you proposed to invest $155 million
in the new Southeast Poultry Research Laboratory in Athens,
which was the Department's number one priority for the agency
last year.
As you may know, I am the cochair of the Congressional
Chicken Caucus. Georgia is the number one producer and exporter
of poultry products in the Nation, and, of course, the chicken
industry as a whole is an integral part of our national
economy. And according to the Chicken Council and the U.S.
Poultry and Egg Association, the poultry industry directly and
indirectly provided over a million jobs, $47 billion in wages,
and $197.5 billion in economic activity, and $17.2 billion in
government revenue.
The construction of the new lab is critical, because the
lab provides solutions to national and international exotic,
emerging, and endemic poultry disease problems that impact
poultry as well as human health. This year you put the research
lab into Opportunity, Growth and Security Initiative, OGS, for
a total of $197 million, which included five additional
projects in addition to the SEPRL.
What is the current status of the Southeastern Poultry Lab,
how much was obligated for the lab in the current fiscal year
2014, and can you share with us your thinking behind the OGS
Initiative? And the final part of that question is in the event
that Congress should not choose to fund the OGS Initiative,
what will happen to the projects that were included in that OGS
Initiative, particularly the research lab in Athens?
Dr. Jacobs-Young. So, Congressman Bishop, thank you for
that question, and you are absolutely correct. The poultry lab
was our number one priority last fiscal year, and it is our
number one priority this fiscal year. And we did not receive
funding to begin the project, and so there was no money
obligated to modernize that facility.
SEPRL is 33 years old. It has been built with a technology
that was very innovative at that time. It is no longer
innovative. SEPRL is separated into many different buildings,
so the chickens are housed in one building, and we do the
laboratory work in another. And so we have duplicative systems
to keep the avian influenzas, the BS3--BSL3 laboratories for
its containment, so it is very important. We can do energy
conservation at the least if we were to consolidate all of our
efforts into one building.
There is also a desire to consolidate the Avian Disease and
Oncology Laboratory from Michigan into that facility, so we
will fortify our work in this very important area and also
build critical mass.
We only need to look at the news to see how avian influenza
has impacted the global economy, and our scientists have
traveled to help our sister countries be able to deal with this
very significant issue. If we don't have this modernized
facility, and we are one of the world's largest producers of
poultry, then I am--I think we lose a step in our ability to be
able to respond to issues that could be significant,
significant to our industry.
Dr. Woteki. I might note also, Mr. Bishop, that this
laboratory was indicated as being the highest priority for
replacement within the ARS infrastructure. In the report that
Congress requested that we develop 2 years ago assessing the
research infrastructure and providing a capital investment plan
for improving that infrastructure, our assessment is to
maintain and improve our laboratory infrastructure within ARS,
we will need approximately $150 million a year. And this
particular laboratory, because it is so critical in research on
preventing avian influenzas, in understanding them so that we
can develop countermeasures for them, because it requires
containment to both--to protect our flocks as well as the
people that are working with these infectious viruses, that
this--this is our highest priority.
We put it in the new initiative that the President has in--
called the OGSI because the budget proposal that we brought
forward is within the agreement levels, for 2014 and 2015. This
high-priority additional research infrastructure and research
projects are being highlighted in the budget because, with
these investments, we can do more, and we can do it better, and
we can do it safely within this kind of new laboratory.
So the whole intent in bringing forward the OGSI is to also
demonstrate that for this investment, for agriculture's future,
you are going to get a return.
Mr. Aderholt. Mr. Valadao.
Mr. Valadao. Thank you, Mr. Chair.
Doctor--and if I pronounce this incorrect, I apologize--
Woteki?
Dr. Woteki. Exactly right.
FOUNDATION FOR FOOD AND AGRICULTURE RESEARCH
Mr. Valadao. Perfect.
The farm bill created the Foundation for Food and
Agriculture Research that will match private and nonprofit
sectors with public funds. Have you outlined your research
priorities for this project yet?
Dr. Woteki. Well, we were really pleased, Congressman, that
the Foundation for Food and Agriculture Research was authorized
in the farm bill because it provides us with a new way of
working with partners outside the Federal Government and
outside the historic partnership that we have with the land-
grant universities.
The legislation itself has a lot of attributes that are
very similar to the foundation for the National Institutes of
Health, and also a foundation for the Food and Drug
Administration, and a number of other similar types of
foundations that have been established in recent years. So we
have taken the opportunity to meet with the executive directors
and the general counsels of those foundations to learn more
about how they operate and also to get some advice from them
about how to go about establishing this new entity.
Mr. Valadao. I am sorry, the priorities, is what I was
getting at. Just any idea where the research is going to be--
the money is going to be spent on what type of research?
Dr. Woteki. Well, that is actually going to be coming from
the external world.
Mr. Valadao. Okay.
Dr. Woteki. But I think the guideposts are established in
the legislation saying that this is work that is supposed to
complement the already funded programs that we have.
You know, the ideas are going to be coming from external.
They are going to be coming from companies, they are going to
be coming from organizations, and they are going to be coming
to the foundation and saying, we would like to partner with you
and with the Federal partners in USDA in this project, and then
the board of directors is going to be deciding whether they are
going to take this on or not.
U.S. AGRICULTURE PRODUCTIVITY
Mr. Valadao. Okay. You mention in your testimony that the
U.S. agriculture productivity is now growing more slowly than
both China and Brazil, and that you believe it is due to the
amount of money both these countries spend on research.
Do you think that our overburdened regulation such as rules
treating milk spills like oil spills, obviously the release of
personal information of some of the farmers that happened not
too long ago, or the changing of the definition of waters of
the U.S. without going through Congress were also to blame? Or
even things as simple as the marketplace going towards a more
organic-type farm where production is obviously less per acre
or per cow. Or whatever type of product. There is a difference
in production, but what do you attribute this more to than
anything?
Dr. Woteki. Yeah. I think that the increase in agricultural
productivity that I am referring to is being measured before
the marketplace in which the regulation that you are referring
to would be implemented. The kind of investment that is made in
agricultural science is leading the farmers to new ways, new
seeds, new ways of production that are increasing yield per
acre, which is the way really that we are measuring that kind
of agricultural productivity.
RESEARCH INFORMATION
Mr. Valadao. Through science, we have seen many
breakthroughs in agriculture that improve crop yields, dairy
productivity, and feed-to-grain ratios. An ARS initiative
outlined in your budget directs 26 million to focus on crop and
livestock genetic improvements. However, despite our success
moving forward, many still fight the outcomes of the very
research to improve feed efficiency, resist pesticides, or weed
growth, to name a few.
What ideas would you have to disseminate the information to
the public so that the American people can continue to trust
our farmers and ranchers to deliver safe and healthy product?
Dr. Woteki. Well, I think everybody here with me, the
administrators of our agencies, agree with the sentiment in
your question that we need better science education in the
U.S., and we also need a better part--a bigger part of our
curriculum devoted to providing information both through school
curricula and through more informal routes of education about
where your food comes from.
Mr. Valadao. Well, one of the things that I see, because I
am a dairy farmer myself, and I do farm a little bit of row
crops as well, we see a lot of product come out onto the
marketplace, and we struggle to get either released or approved
by whatever agency would have to do so. And then once it is
approved, then you see some of the agencies even come out and
not be as supportive publicly as the farmers would appreciate
or ask the agencies to be so.
I mean, genetics on cows, obviously that is probably an
easy one because you breed just like you do any other animal;
you look for superior traits in an animal, and you breed the
animal alongside of that. But when it comes in to row crops, if
you are looking for certain types of crops to grow that are
more drought tolerant, whatever it may be, we do struggle as a
farmer getting our word out, and it would be helpful, I guess,
if the agencies would help a little bit with the information on
how safe these products are and how the consumer shouldn't be
concerned and be able to purchase the product. So thank you.
Dr. Woteki. Yeah. Well, we also understand that sentiment.
We had an opportunity yesterday--it was the 100th anniversary
of Norman Borlaug's birth--to hold a symposium in his honor
yesterday afternoon. We also participated in the ceremony with
the unveiling of his statue in the Rotunda. Mr. Latham was one
of the speakers at the program.
But in the afternoon symposium, we had a number of
students, high school students, college students, who were
speaking, and they actually were addressing this question as
well about how do we provide more information to the public so
that there will be that level of trust in their food, and where
it comes from, and in the safety of that food.
Mr. Valadao. Thank you, Mr. Chairman.
Dr. Woteki. And they very much were emphasizing the
importance of it is for everybody who is involved in
agriculture to be conveying that message.
Mr. Aderholt. We need to go on with Mr. Fortenberry.
FARM WORKER WAGES
Mr. Fortenberry. Thank you, Mr. Chairman.
Good morning, everyone. Good afternoon.
I want to start right away into a question regarding what
is called the adverse effect wage rate. I don't know what
``adverse effect'' means, but, nonetheless, it is adversely
affectingly us in Nebraska. The adverse effect wage rate is
$13.41, the highest in the country. The reason this is a
difficulty--and I will give you a story.
Two small farmers came to see me recently. They are
specialty crop farmers, and they use the H-2A visa program for
help. They are trying to do this legally, in the right way,
and, yet, they are being effectively penalized by this peculiar
determination by the Department that the adverse effect wage
rate is $13.41.
Now, right next door in Iowa it is $12.22. Next door in
Minnesota it is $11.49. In Colorado, it is $10.89. In
California, it is $11. That means that they cannot compete
based upon an artificial statistic that is coming out of the
Department in conjunction with the Department of Labor.
So I want to know what is the methodology for this. I want
you to know the impacts that this is having. I would like to
see this reexamined as quickly as possible because this is not
a matter of taking months and months to unpack something that
is very deep in the Department.
It is affecting farmers on the ground right now who are
trying to do exactly what the Department is asking them to do
by developing traditional means of production, creating local
food markets, entering into a field of, again, agriculture that
has diminished over the years, but now is reemerging. That is
exactly what we have been trying to do in agriculture to
augment the ag family.
But it seems to me that we are artificially penalizing them
by this very high wage rate and creating an unlevel playing
field for them. I don't know. I surmise that having North
Dakota at the same rate has to do with something that is
related to oil field worker salaries.
So that has created an artificial demand in the northern
part of this, again, artificial grouping of states, an
artificial demand for labor that is completely inconsistent
with what the reality is on the ground in Nebraska and in the
surrounding states. I mean, even in Oklahoma it is a little
over $10.
So I would like this addressed, please, as to what this is,
how it is determined, how we fix this so that it is more fair,
but quickly. Because we are undermining one of the Department's
goals here by a statistic that is generated through some
process that is unfamiliar to me.
Dr. Woteki. Well, I had not heard about this particular
statistic until very recently. It is derived from a survey that
the National Agricultural Statistics Service does called the
Farm Labor Survey.
And Dr. Clark could give you a brief overview of the
methodology. But, also, if you would like a more in-depth
consultation, we would be happy to provide that.
Mr. Fortenberry. Well, I would like it fixed. I mean, that
is the reality. I don't think this is fair. How we are grouped
all the way with, again, oil field workers in Nebraska who--why
is this happening?
Again, it is inconsistent with the Department's goals to
promote this form of agriculture. And you are penalizing
farmers, again, who are trying to do this the right way by
using labor through a legal program, and I think it is
fundamentally unfair.
Dr. Woteki. As I said, sir, we would be happy to provide
you with information about the methodology. We understand your
concerns.
[The information follows:]
Methodology of Farm Labor Survey
national agricultural statistics service (nass)
The Department of Labor (DOL) is responsible for determining the
adverse effect wage rates. In order to determine these rates, DOL has a
reimbursable agreement with the National Agricultural Statistics
Service (NASS). Under the agreement NASS collects data on the number of
hired farm workers, average hours worked, and wage rates based on DOL
specifications.
The target population for the Farm Labor Survey includes U.S. farms
with sales of $1,000 or more. The survey uses a combined sample size of
about 12,000 farms. Survey data is collected for the week in which the
12th of each month occurs in January, April, July, and October. Data is
collected through computer-assisted telephone interviews. Personal
interviews are reserved for special classes of non-respondents, some
large operators, and other special cases.
Mr. Fortenberry. Okay. I am questioning the methodology.
Dr. Woteki. And we'd be happy to----
Mr. Fortenberry. This is a time I have right now.
Dr. Woteki. We would be happy to talk it through with you.
Dr. Clark. I could give you a few details.
The adverse effect wage rate is equal to the highest of
three indicators: The prevailing wage rate, the minimum wage
rate, and the annual weighted average hourly rate for field and
livestock workers that is published by USDA. This is a
Department of Labor regulation, and it is for the H-2A.
NASS conducts a semiannual survey that provides data
annually at the request of the Department of Labor. This is
funded by the Department of Labor. And that is the survey that
you are referring to.
And, generally speaking, it might be the highest of those
three wage rates; so, it would be used in calculating the
adverse effect wage rate.
Mr. Fortenberry. What is the minimum wage in California?
Dr. Clark. I am not sure I could tell you that.
Mr. Farr. $10. !
Mr. Fortenberry. That is about 2\1/2\ lower than where I
am. So you understand the point here?
Dr. Clark. Yes.
Mr. Fortenberry. We have taken some sort of statistical
model and applied it in realtime that is penalizing farmers who
are trying to do this the right way and are acting consistently
with the intentions of farm programs in the Department.
But I think this has to be reviewed, again, not--with all
due respect, Madam Secretary, not in my office with me, but I
would like this reviewed now back in the Department to
demonstrate--or at least have it reconsidered--how this is
inconsistent with the reality of what wage rates are in
Nebraska.
Dr. Clark. We can address the survey. But, as I mentioned,
it is not--it is done as a reimbursable survey at the request
of the Department of Labor.
So we are affected by the funding that is provided by the
Department of Labor to design a survey that has the quality
that you are seeking.
We can have a discussion of that, but it has to be in
conjunction with the Department of Labor that is funding this
survey.
Mr. Fortenberry. Okay. That is still not clear to me, what
you just said. Is it the Department of Labor's or the
Department of Agriculture's responsibility?
Dr. Clark. We are collecting the data. We are doing it to
the specifications that the Department of Labor is providing us
and the budget they are providing us. And so, if the data is
not at the----
Mr. Fortenberry. So you have the input data. You have
responsibility for the input of data to determine the outcome
that the Department of Labor is using in their survey--or as
part of their report?
Dr. Clark. We are doing the survey in conjunction with them
under their specifications.
Mr. Fortenberry. Okay. Fine.
We have got a problem here. Okay? Who is going to help me?
Dr. Woteki. Mr. Fortenberry, we will certainly look into
it, and I will be reporting back to you.
[The information follows:]
Determining and Implementing the Adverse Effect Wage Rate
national agricultural statistics service (nass)
The Department of Labor (DOL) is responsible for determining the
adverse effect wage rates. DOL has a reimbursable agreement with NASS
to collect data for the Farm Labor Survey based on DOL specifications.
DOL's current H-2A regulations state that the Adverse Effect Wage Rate
(AEWR) shall be equal to the highest of the following three indicators:
(1) The Prevailing Wage Rate, (2) The Minimum Wage Rate, or (3) The
annual weighted average hourly wage rate for field and livestock
workers (combined) for the region as published by USDA based on its
quarterly Farm Labor wage survey.
Mr. Fortenberry. Very quickly, please.
Dr. Woteki. Very quickly.
Mr. Aderholt. Mr. Farr, the Ranking Member, would like to
say something.
Mr. Farr. I just happened to get about 3,000 guest workers
over the border for these programs and you have to really go
through three departments, first of all, the Department of
Labor, USDA, and State Department. You might want to bring all
three of those departments into your office and see if you can
clean it up.
Mr. Fortenberry. Thank you.
Mr. Aderholt. At this time I would like to recognize Mr.
Latham. But before I do, there has been a request for him to
sing the Iowa Corn Song.
ANTI-MICROBIAL RESISTANCE
Mr. Latham. We did that yesterday in Statuary Hall. Thank
you very much, Mr. Chairman. And later in private I will be
glad to do that. But welcome.
And, first of all, I am very pleased in the budget that you
are not taking money out of the formula funding for places like
Iowa State. And I know you are cheering for the Cyclones in the
tournament this week, being a former dean there.
But I was very pleased, also, in your testimony you
mentioned that a one-dimensional approach that targets meat is
inadequate to mitigate the problem of antimicrobial resistance.
It is common and popular to blame the resistance solely on
livestock production, even though the issue, as we understand
it today, is far more complex and nuanced.
Unfortunately, some Federal agencies, such as the Centers
for Disease Control and Prevention, sometimes join in that
chorus, and some report on resistance threats target livestock
production, but make no mention of the overprescription and
misuse of antibiotics by humans.
I am curious. How much do you engage with the CDC and other
Federal agencies on the issue? What research is USDA conducting
on the issue? What has research shown? And can you assure us, I
guess, that USDA talks to other agencies to get a more balanced
approach as far as what they are saying to the public?
Dr. Woteki. Well, Mr. Latham, we do work very closely with
the Centers for Disease Control, with the Center for Veterinary
Medicine at the Food and Drug Administration and, also, with
the National Institutes of Health in a three-pronged approach
towards antimicrobial resistance.
We have a role in surveillance and--with APHIS and ARS,
both, involved in what is called the NARMS system, the National
Antimicrobial Resistance Monitoring System. And it is focused
on three pathogens: E. coli O157:H7, salmonella and
Campylobacter.
Our research programs are both conducted by ARS, and NIFA
also sponsors research at universities across the country,
land-grant universities like Iowa State, and that research
program has two focuses.
One is identifying alternatives to the use of antibiotics
in livestock rearing, and, secondly, on just fundamental
understanding of the ecology of pathogens in livestock-rearing
operations, how these resistance genes exist in the environment
and are transmitted from the environment to livestock and then
through to the consumer.
So that research program has that fundamental emphasis,
but, also, the real practical thing of, ``What can we be doing
to reduce the presence of these organisms in livestock
rearing?'' And that is where the third prong comes in, and that
is outreach and education.
So what we find from these research programs goes through
to the extension programs, goes through the veterinary medical
education and animal science curricula. So it is a three-
pronged approach.
And we are active participants with the other Federal
agencies in a task force that is focused on antimicrobial
resistance. We work with them under the plan that is public,
out of this task force, and updated every few years to reflect
what we have learned and new directions that we are heading in.
PORCINE DISEASE
Mr. Latham. Do you ever--a lot of producers are obviously
very concerned that the perception out there is that, by eating
meat or whatever, that somehow they are losing resistance. I
see I am very short on time here. I talked too much about Iowa
State.
But I did want to know what you are doing about the PED
virus and that situation. It is a huge issue, obviously, with
the devastation--death of up to 5 million pigs so far and what
is going on.
Dr. Woteki. Well, we share your concerns about the Porcine
Epidemic Diarrhea (PED) virus. ARS has had a really active
program of research. And I think Dr. Jacobs-Young could fill
you on in that.
Dr. Jacobs-Young. So, Congressman Latham, I am sure you are
aware that there is no current effective vaccine for PED. So we
are working in our animal protection work in ARS to help
develop a vaccine for PED.
One of the things that we have recognized is that it is
transferred from fecal to oral. That is how it is transferred.
So what we have learned early on is just management
practices can also help mitigate some of the spread of the PED.
That is washing hands, washing boots, keeping populations
separated.
It has the worst impact on pigs from 0 to 3 weeks old. So
that is where it can be really devastating. So how can we
impart some immunity in some of our older hogs.
And so we are new on this activity. 2013, I believe, is
when it first really reared its head. And so we are making some
progress on that.
And our work at the National Animal Disease Center (NADC),
which I am sure you are very familiar with; over at Clay
Center; and here in Beltsville, Maryland--between those three
centers, we will get it figured out.
Mr. Latham. Thank you very much.
RESEARCH INFORMATION SECURITY
Mr. Aderholt. Thank you.
Interesting article in The New York Times last month about
the espionage. And, of course, it reports on the growing
efforts to steal feed technology by foreign nationals.
Obviously hurts American producers, companies, and researchers.
Dr. Woteki, I will address to you. I know the Department of
Agriculture is aware of the seriousness of this problem, no
doubt.
Can you walk us through some of the things that the
Department is doing to protect the secretive and sensitive
research information.
Dr. Woteki. Most certainly, Mr. Aderholt.
In our research programs, there are really three--three
pillars to them. And one is that, to the fullest extent we
possibly can, we want to share our results. And we have this
ethic of sharing the research through publication and journals
and, more recently, by providing data publicly online.
But the other two pillars are we also respect the privacy
issues. So when we enter into research agreements with
companies or when the statistical agencies obtain data from
farmers, that protection of privacy is very important.
And then the third pillar is the protection of intellectual
property where, when we, again, enter into agreements with
companies, with sharing of data, we also sign confidentiality
agreements with them and we honor those confidentiality
agreements.
In that context, the events of intellectual property theft
that you were referring to were ones that we found very deeply
troubling. We have in the Agricultural Research Service
undertaken a review of our procedures that we have in place to
make sure that, first of all, everybody is current on their
training and has a full understanding of what their roles and
responsibilities are and, secondly, to do the kind of internal
audit of the way that we are operating to determine, you know,
if we are meeting our own standards.
So Dr. Jacobs-Young is new in this job, but she is taking
these aspects of protection of intellectual property very
seriously.
Mr. Aderholt. What protocols are in place to ensure that
foreign nationals who work for the Department's research agency
are not engaged in espionage?
Dr. Woteki. It is very difficult to assure, as you have
posed this question, that someone is not engaged in espionage.
What we do do is to make sure that personnel are thoroughly
vetted before they are hired into critical positions and, when
they are hired, that they are properly trained and understand
what our rules and requirements are.
SOUTHEAST POULTRY RESEARCH LABORATORY
Mr. Aderholt. Okay. Let me switch over to something Mr.
Bishop had inquired about, about the President's Opportunity,
Growth, and Security Initiative for the design and build of the
poultry science lab in Athens.
Of course, as I mentioned, while we cannot consider the
request this year because it exceeds the budget cap for fiscal
year 2015, the subcommittee recognizes the need to invest in
infrastructure for agricultural research.
What are we looking at as far as the length of time to
design and build the facility?
Dr. Woteki. I don't have a firm timetable immediately on
hand. I am looking to Dr. Jacobs-Young.
Do you know the timetable?
Dr. Jacobs-Young. From design to finish, we are talking 3
to 4 years.
Mr. Aderholt. Okay. Do you anticipate costs will rise and
additional appropriations are going to be needed in the future?
Whoever.
Dr. Jacobs-Young. Cost of inflation. So the cost of
inflation is the only thing that I can see from this point. As
technology changes--we really can't predict where technology is
going to go. But I assure you we will do our best to stay
within the confines of the budget.
Dr. Woteki. The one thing that we do know, sir, is that the
longer that we delay in beginning this construction, the
greater the cost is going to be.
SPECIALTY CROPS
Mr. Aderholt. Sure.
What is ARS's strategy for future investments, such as what
is needed for specialty crops?
Dr. Woteki. With respect to infrastructure, sir?
Mr. Aderholt. No. Specialty crops. Well, what is ARS's
strategy for future investments when it is needed? I know Mr.
Farr has noted this need for years.
Dr. Woteki. Well, we have asked our external advisory
committee, the NAREEE board, to do a review of our portfolio of
research.
One of the recommendations that the President's Council of
Advisors on Science and Technology made--or one of the
inferences, actually, in their report was that the balance in
our research portfolio between the major crops and the
specialty crops was not appropriate.
So we have asked NAREEE Board to provide us with some
advice, to do a really thorough review of that balance within
the portfolio.
We do think that the specialty crops area is one in which,
if the budget situation turns around, that there is a great
opportunity for increased investment that will be very
beneficial for American farmers.
So we are looking to come back to you in a year with a
report from our advisory committee about that balance and some
recommendations about future directions.
Mr. Aderholt. Okay. Mr. Farr.
FLORICULTURE
Mr. Farr. Mr. Chairman, thank you for asking that question.
I will just follow up quickly.
The Secretary was in here suggesting that the unfunded
balance--the unspent balance every year of the USDA ought to be
rolled over into a capital outlay fund and use that fund for
funding the projects that you have prioritized.
I appreciate--what the committee asked them to do is to
take a look at what the Defense Department does in doing their
capital outlay for all the different services. They have a
thing called the FYDP, which is a 5-year list, and you get on
that based on, you know, priority needs.
So the services--you don't end up just building all Air
Force or all Army or whatever it is and they are all on merit
and we never have any earmarks. And so it makes the process
very fair. And that is what you have done, and I appreciate
that.
And now we have to find the money to pay for it. And so
that is what the Secretary suggested, that we create a capital
outlay fund, because Congress has a hard time appropriating
that money now that we--you know, we have to rob from Peter to
pay Paul and nobody wants to give it up.
There are no Peters around. Nobody wants to rob from Peter
anymore. Lots of Pauls, but no Peters.
But, anyway, I want to ask something about the bump--well,
first of all, the floriculture issue. I have a lot of flower
and nursery production in my district, and I was really
surprised to see that your budget cuts money from that
floriculture nursery research.
That is a research program that is well supported by the
industry, leverages a lot of industry funds. When there were
earmarks, we put them in there. Congress has supported it.
I am surprised why you would cut almost three-quarters of a
million dollars out of the program toward administration
priorities.
Why do you pick on this program?
Dr. Woteki. Well, each year, Congressman, we go through a
prioritizing of projects. I think we have talked in past
hearings about the cycles of program reviews that we go through
to identify what----
Mr. Farr. Yeah. But why this one? Do you have any
specifics?
Dr. Woteki. Well, these are judgments of what are lower
priority programs. Sometimes those judgments are also based on
an assessment of--has the research program largely met its
goals.
So for each cycle in our budget, you are going to see this
request for appropriation going towards a higher priority and a
retiring of areas that are deemed to be lower priorities.
Mr. Farr. In prioritizing that, do you also look at
industry match and industry involvement?
Dr. Woteki. That is certainly part of the assessment. Yes.
Mr. Farr. I mean, road-building projects, if you don't
produce part of the money at the local level, I mean, in
California, they won't even consider it. Some counties in
California and cities have created a special tax for just that
purpose.
But you have--it's a sort of--you go to the first of the
line if you are putting up money. And it seems to me that where
there is enough interest in the industry to put up private
capital to support balanced research, then we ought to
prioritize those higher. And it seems like that's here but--
Dr. Woteki. And that is also one of the ideas behind this
Foundation for Food and Agriculture research that will provide
new opportunities for doing that kind of partnering, accepting
funds from external organizations to complement research
programs----
SUSTAINABLE AG- RES- AND EDUCATION PROGRAM
Mr. Farr. I think that is a great idea, and I hope you will
follow through with that.
Let me ask Mr. Ramaswamy about the sustainable agriculture
and research, the SARE program.
You know, I think it has a proven track record to
delivering farmer-ready research innovations to farmers in the
field. And I am pleased that you bumped it up, but it has only
got about one-third of its authorized level.
Why aren't we putting more money into it?
Dr. Ramaswamy. Thank you very much, Mr. Farr, for that
question. And, indeed, you are right. The SARE program has done
very well in supporting--or helping to develop sustainable
approaches to production agriculture.
And so, as we were developing the budget for 2014, we
stayed within the bipartisan agreement and, looking at
increasing one place, you had to come up with an offset in some
other place.
And so, as you might well imagine, there are a lot of
programs that really need--desperately need very significant
increases in funding. And so we had to, you know, juggle these
numbers across all the different lines.
As you know, we have about 60 different lines that we have
within NIFA and we are trying to figure out how best to support
all of these different programs. You know, like you, we're
supportive of the SARE program as well.
Mr. Farr. Well, I think it goes to the former question,
too. I mean, these are all specialty crop issues, and it seems
to me that so much of our research, as you have indicated, is
tilted and their facilities and everything else have been about
traditional--the commodity programs. And we'd like some parity
here.
Dr. Ramaswamy. In addition to the SARE program, of course,
we have got the Specialty Crop Research Initiative, the Organic
Research and Extension Initiative, and other programs that the
individuals that seek support for SARE could apply to those
other programs as well. So we have seen an increase in those,
including the Agriculture and Food Research Initiative as well.
So, hopefully, you know, we are trying to meet the needs
that are out there. Obviously, as you stated in your opening
statement, it is not commensurate with the needs that are out
there----
Mr. Farr. I would be interested in what you just said about
they can apply to the other programs. Would you give us a list
of how many of those have been funded from the other programs?
Dr. Ramaswamy. Yes, sir.
[The information follows:]
Sustainable Agriculture Research Funding
National Institute of Food and Agriculture is now advancing
sustainable agriculture practices as a part of many new programs that
did not exist when SARE was the primary funding source for sustainable
agriculture research and extension. Many of these programs were created
and/or funded through the 2008 and 2014 Farm Bills. These include the
Specialty Crop Research Initiative (SCRI), the Organic Agriculture
Research and Extension Initiative, the Beginning Farmer and Rancher
Development Program (BFRDP), the Agriculture and Food Research
Initiative and the Community Food Projects Competitive Grants Program.
In comparing the lists of SARE grant recipients between 2008 and
2013 with the grant recipients from these other programs, we found that
eight individuals had received funding from SARE and one of these other
programs. In fact, one of the recipients was Dr. Press at University of
California, Santa Cruz. In general these recipients had smaller SARE
grants first which were followed later with larger grants from the
BFRDP or SCRI. The following is the list of grant recipients who
received a grant from both SARE and one of the other programs.
Leigh Adcock, Women, Food and Agriculture Network, SARE
and BFRDP;
Douglas Collins, Washington State University, SARE and
BFRDP;
Sally Miller, Ohio State University, SARE and SCRI;
Michael Morris, National Center for Appropriate
Technology, SARE and BFRDP;
Daniel Press, University of California, SARE and BFRDP;
Anusuya Rangarajan, Cornell University, SARE and BFRDP;
Harald Scherm, University of Georgia, SARE and SCRI; and
Glenn Teves, University of Hawaii, SARE and BFRDP.
Mr. Farr. I would like to share those with my growers.
Mr. Aderholt. Mr. Nunnelee.
ARS LEADERSHIP
Mr. Nunnelee. Thank you, Mr. Chairman.
I presume I need to ask Dr. Jacobs-Young, unless somebody
else could better answer the questions.
The Agricultural Research Service has their five-state mid-
south headquarters in Stoneville, Mississippi. Last year, the
mid-south director, Dr. Ed King, retired. And I just need to
know a timetable on filling that vacancy.
Dr. Jacobs-Young. Thank you for that question, Congressman
Nunnelee.
Yes. We definitely miss Dr. Ed King. He was a historical
monument in ARS. And so we miss his leadership.
The timetable--we are looking at October 1st where we are
going to do a little bit of reshuffling of our senior
executives in ARS. And so October 1st we will have a
permanent--our plans are to have a permanent senior executive
in place.
Currently, we have an acting area director, Dr. Dan
Upchurch, who is also--you know, he is great. So he is serving
in that position. And Archie Tucker, who is the number two
there, has also been there for many, many years. So it is under
great leadership.
CHILDHOOD OBESITY
Mr. Nunnelee. All right. Thank you.
One other question. Last month researchers at the Centers
for Disease Control and Prevention published an article that
claimed that prevalence of obesity among preschoolers had
fallen by 43 percent in the last decade.
Since then, numerous researchers have said that the
headlines were simply too good to be true. As a statistician
and economist, I hope you can shed some light on the issue.
Dr. Bohman. Well, thank you, Mr. Nunnelee.
You are asking about one of these perennial research
questions on the changes in obesity, what is causing them, what
are links to government programs, such as school nutrition or
the Supplemental Nutrition Assistance Program.
And the Economic Research Service has active work in this
area. We bring our strength in understanding consumer demand
and data. And we have also found some positive results in
nutrition trends.
We released a study a couple of months ago that looked at
changes in diet using data from the National Center for Health
Statistics, the National Health and Nutrition Examination
Survey (NHANES survey), over the period of the recent
recession, and we find that during that period you see an
improvement in diet.
Some attributed this to people eating out less, where we do
know that data shows us that the food consumed in restaurants
is of higher fat and lower nutritional value, but, also, some
evidence that people who read nutrition labels and pay
attention to dietary advice have seen improvements in diet over
this period.
We have also looked at research on whether SNAP
participants have better diets than nonparticipants. We see a
mixed result, depending on whether you look at fats or which
types of foods.
So I think it is still an open question, but we have seen
some positive results, and we see a need to continue investing
in research in this area.
Mr. Nunnelee. Thank you.
I yield back, Mr. Chairman.
Mr. Aderholt. Ms. Pingree.
POLLINATOR HEALTH
Ms. Pingree. Thank you very much, Mr. Chair. Again, thank
you for all your input this morning.
I want to talk a little bit about the pollinator research
in the Fiscal Year 2015 budget. I think we have all heard a lot
about the concerns in American agriculture.
Obviously, there is a huge dependence on honeybees to
populate the crops. Some estimates say we are losing 30 percent
of our honeybee colonies every year. So, obviously, there is a
lot of interest in acting on this and putting in more research
on it.
I signed a letter that many of my colleagues signed to the
President last month, urging that his budget include increased
funding and research for the causes of colony collapse
disorder, and I was pleased to see in the President's proposal
that the creation of the Innovation Institutes--one of them
would receive up to $5 million to focus on this.
Given that this is a $20 million impact, in a sense, on the
industry, is this enough? Can you talk a little bit about what
you are likely to do, should this come through, and sort of
your concerns on this issue.
Dr. Woteki. Well, we have received numerous letters from
Members of Congress over this past year----
Ms. Pingree. We like our honeybees.
Dr. Woteki [continuing]. With an emphasis on doing more on
pollinator health.
So this innovation institute is one response that we are
proposing. It would be a way to partner with the private sector
and, really, to focus research on understanding what are--at
least a half dozen different hypotheses about what is causing
the decline in honeybees and in pollinators, in general.
And through that--and, again, because these innovation
institutes would be public-private partnerships, also focusing
on getting the solutions coming out of those insights into the
hands of beekeepers and farmers and changing whatever
agricultural practices we may have to change in a way that will
support pollinators and, also, support pollination and be an
economically feasible approach for American agriculture.
We are also partnering with a number of other agencies
within USDA and with agencies external to USDA in planning
those efforts and in coordinating the research that is already
underway in this very important problem area.
So we hope that, through this combined effort of continuing
our ongoing activities and then augmenting them with an
innovation institute, that that focused level of activity
within a defined period of time is going to provide some real
insights and some products and practices that can be adopted to
help immediately.
Ms. Pingree. Just a little follow-up on that. I mean, this
is proposed funding, and you said that you are already doing
some research. I think a lot of people see this as a crisis in
the industry and, obviously, having a huge impact already.
Have you made some strides? I mean, are we getting close?
Are there some practices that you are already suggesting?
Because it is hard to talk about it in the future when it is so
imminent.
Dr. Woteki. Dr. Ramaswamy happens to be an entomologist and
for my team has been our lead person on this pollinator
interagency work and activity.
So, Sonny, why don't you just----
Dr. Ramaswamy. Thank you very much, Congresswoman Pingree.
And, indeed, the U.S. Department of Agriculture is
investing quite a bit of resources in addressing honeybee
health in general and also looking at other pollinators as
well.
And between the Agricultural Research Service and the
National Institute of Food and Agriculture, we are investing in
the neighborhood of around about $25 million a year currently
in addressing particularly honeybee health. But as I said, you
know, bumblebees and other pollinators are being impacted as
well.
And, specifically, a couple of examples about things that
are going on: We have the community of scientists that are
working together, including our extension specialists and the
extension educators as well that come together collaboratively
to work across the United States in multidisciplinary teams.
They have identified some of the reasons for why we have
declines in the population of bees, the honeybee specifically,
and these relate to the loss of habitat. These relate to the
parasites and pathogens, such as viruses and varroa mites.
These relate to the nutritional status of honeybees.
These relate to what we call migration because we are
transporting bees long distances. As you might well know, well
over half the honeybee hives are used to pollinate almonds like
in the month of February, which is when they should be resting.
So there are a lot of factors that go into this. Those have
now been identified. And in addition to identifying those,
there is work that is going on across the board, whether it is
Federal scientists or State-based scientists, coming up with
ways of, you know, improving the genetics of the honeybees.
There are some really excellent discoveries that have been made
in that realm.
Also, for varroa mites, there have been some new ways of
controlling them that includes technologies related to
biotechnology that is called interference RNA methods, and it,
you know, hits the varroa mites. There is also some
biopesticides that are in the process of being registered. One
of those biopesticides is from hop, you know, the hop plant
that goes into flavoring beer.
There are these hop beta acids and that is in the process--
again, based on research that the Agricultural Research
Service, scientists have undertaken, and that is in the process
of being registered currently as a biopesticide.
So we have made a lot of progress and, unfortunately, it is
almost like a moving target and we need to continue to invest
our intellectual and monetary resources to address that.
Ms. Pingree. Thank you very much.
Mr. Aderholt. Mr. Fortenberry.
Dr. Clark. Maybe I could add something to that. One of the
things that has been missing is an information base. NASS has
had a survey of beekeepers where they have been measuring honey
production.
But this survey----we have an initiative to include in this
survey questions related to colony losses, pests and parasites,
management practices, crops pollinated, and locations served,
as well as estimates of revenues and expenses, which will help
us provide a benchmark to know what is happening and then could
be repeated in the future to see if any of the research that is
being conducted has an impact.
Ms. Pingree. So my time is up. But this is a survey you are
proposing to do or are in the process of doing it?
Dr. Clark. It is in the budget. We are proposing $2 million
to expand our current survey of honeybee production.
Mr. Aderholt. Mr. Fortenberry.
FARM WORKER WAGES
Mr. Fortenberry. Thanks, Mr. Chairman.
I want to return briefly to this adverse effect wage rate
issue simply to make my point in a little more conciliatory
manner. Since becoming a Member of Congress, one of my key
policy concerns is how do we ensure that we have a robust
agricultural sector.
And that is a very broad spectrum and production
agriculture is at its heart and that is essential, but we have
also worked on trying to figure out ways to expand the ag
family. And in the farm bill we have had all kinds of new and
emerging policies to help small beginning farmers and specialty
crop farmers.
So here I stumble upon a circumstance where we are doing
exactly the policy outcome and they are being affected by a
strange type of statistical problem that is being generated in
a cross-jurisdictional manner between the Department of Labor
and the Department of Agriculture. This is why I think I am
coming across so passionately about this.
I don't want to see them go out of business. And they can't
compete based upon this higher wage rate which is being foisted
upon them, but is inconsistent with wage rates, I would
suggest, all around us where I live. We have a grouping of
States here that have disproportionately high adverse effect
wage rates. It seems very peculiar, given the other States
where minimum wage and prevailing wages are much, much higher.
That is why I am saying please get to the bottom of this
quickly. I understand the entangled explanation--or I didn't
fully understand the entangled explanation of how this has
cross-jurisdictional boundaries, but I am just trying to get to
the bottom of how we reevaluate this quickly before these
farmers give it up because they simply cannot compete based
upon what is being told to them by the government in a policy
that is inconsistent with other policies across the hall. So
that is why I want to push this and make this clear.
Dr. Woteki. We understand, sir.
CENTERS FOR AGRICULTURAL EXCELLENCE
Mr. Fortenberry. Thank you.
The second issue I wanted to raise briefly is we have a
wonderful community college in northeast Nebraska called
Northeast Community College. They have written to you asking--
with their interest in becoming one of the Centers for
Agricultural Excellence.
And I know that is in the farm bill--that is authorized in
the farm bill. I would appreciate any consideration you could
give them. They have a long agricultural tradition there. I
think the initial response from you was that this has not been
funded previously.
But do you anticipate these centers developing in the near
term?
Dr. Woteki. Well, I was in Omaha in January and had the
opportunity, actually, to have lunch with the President of
Northeast Community College.
Mr. Fortenberry. Okay. I am sure he told you what I just
told you.
Dr. Woteki. Yes. And they have a great concept for the
development of agriculture as part of the college curriculum.
At the time that we met, what I was referring to was that
there was a provision in the 2008 farm bill for Centers of
Excellence. We were unable to use that authority as it had been
enacted without an appropriation to go with it.
With the new farm bill, there is additional language that
Dr. Ramaswamy and his team----
Mr. Fortenberry. He knows a lot about Nebraska.
Dr. Woteki [continuing]. Have been thinking through how
they are going to implement this new authority.
So, Sonny, you want to talk about your current thinking.
Dr. Ramaswamy. Right. Thank you very much, Dr. Woteki.
And thank you, Congressman Fortenberry. Good to see you
again, sir.
Indeed, within the AFRI program--the Agriculture and Food
Research Initiative--we have an opportunity to create these
Centers of Excellence. And so we have a team of individuals
that is putting together the approach that we are going to
take.
And as you likely know, Deputy Secretary Krysta Harden is,
you know, helping us look through the Farm Bill and how do we
approach these things, and we are putting together as we go
forward--and I can't tell you a lot more because we are still
developing it.
It could potentially offer an opportunity. I don't know. I
mean, in this particular case, I read the letter as well, and I
have spoken to a lot of other community colleges as well about,
you know, the possibility of engaging them in creating the
pipeline of young people that we need to--that needs to come
into the agricultural workforce, the scientific disciplines, et
cetera.
And as it has been construed in the language in the Farm
Bill, it is more about offering funding for research
enterprises--research and education enterprises if the
community college in Nebraska partners with the University of
Nebraska in Lincoln, Iowa State, and others as a member--as a
consortium, as it were. They will be able to participate in
this as well.
By themselves, for the land that they have that they would
like to utilize in offering education and research sorts of
opportunities, in and of itself, I don't know if they will be
able to be competitive. So it might be a separate conversation
with them and connecting them with Ronnie Green and others.
Mr. Fortenberry. Sure. That is an absolutely fair answer
because we do an extraordinarily large amount of agricultural
research through the university system and we are proud of
that.
And I somewhat anticipated that might be a potential
outcome here, but I did just want to raise the issue for your
awareness.
Thank you very much, Mr. Chair.
Mr. Aderholt. As we conclude, I am going to go ahead and
recognize Mr. Farr.
CALIFORNIA DROUGHT
Mr. Farr. Thank you very much, Mr. Chairman. I guess these
are last questions.
But Governor Brown of California has had an emergency
declaration of the drought that exists there. He has asked
Congress and the President to declare a national disaster.
I don't think Obama has done that--President Obama has done
that yet. But I am sure your department must have been asked
what you might do to help mitigate the problem. That is all we
are talking about in California, is the drought.
And I wondered if you had any--and we all know the
conservation and all that stuff. Is there anything innovative
coming out of the department that might be helpful?
And, particularly, agriculture gets a bad rap because of
the water they use, and we are pitting the population of
California, the urban--I mean, it is the L.A. Basin where all
the people live and where all the food they eat is consumed.
But, you know, there are constantly letters to the editor
complaining about the lack of best management practices in
agriculture. So time is really short. But if you have anything
you are working on, I would like to know about it.
Dr. Woteki. Well, one of them is a new initiative within
the competitive grants program that Dr. Ramaswamy has
initiated.
Dr. Ramaswamy. Thank you very much, Mr. Farr.
Indeed, we have just released--just about a month ago we
have released a request for applications in the water area in
the Agriculture and Food Research Initiative, and we are
proposing to invest $30 million over the next 5 years. And the
intent there is very----
Mr. Farr. 30 million bucks? That is nothing.
Dr. Ramaswamy. For starters. I mean, we are hoping to
continue to make investments, and ARS and other sister agencies
within USDA are also making very significant investments--
intellectual investments as well as monetary investments in
this area.
Mr. Farr. But it seems to me what we are doing mostly in
our area is reclamation. And, frankly, the State kind of led
that. Feds were way behind in being able to use, you know,
sewage water treated----
Dr. Ramaswamy. Right. In addition to this particular
request for applications, we are also supporting efforts in
water reuse and recycling, in genetics and plant breeding, in
improving varieties that can be drought-tolerant and salt-
tolerant, et cetera.
So there are a number of programs, and we could certainly
provide you a list of things that we are supporting and----
Mr. Farr. Well, it might be very helpful just to--maybe in
conjunction with the ag department in California and others, to
pull together kind of the state-of-the-art knowledge and stuff
that we have in all these different areas so at least people
who are searching for some innovation can find out where to
find it.
It would be helpful for all of us in--you know, with 54
Members of Congress from California who are all asking this
question, and it would be--I think it might be helpful.
And there is nothing--without more rain, there is no--
nobody wins. You can't build anything fast enough to meet this
year. But we certainly will be--I think we are going to get
through it just by squeezing every drop out of the system.
Dr. Jacobs-Young. So, Congressman Farr, currently ARS
invests a little over $30 million a year in drought research.
And so we are--similar to what Dr. Ramaswamy talked about, we
are looking at optimized irrigation systems. ``How do we get
more crop per drop?'' is what the National Program Leader (NAL)
told me about.
We are looking at using nontraditional water sources,
looking at salinity-tolerant crops and then, most importantly,
building predictive systems.
We have a system that is called the evaporative stress
index, which is able to predict drought and, so, giving
producers an opportunity to make decisions ahead of the drought
actually occurring.
And so that system is currently able to produce predictions
a couple of weeks ahead of our traditional systems that we
currently have in place. And so we are working on more
predictive systems for----
Mr. Farr. I don't know if that is as effective as just
getting this total use of water. I mean, it has got to be used
over and over again. We don't use it enough.
And I think California therein is the answer, is that we
are going to develop some more productions out of saltwater. We
are going to probably do a lot more inground storage on drawing
water off the rivers in peak flow.
We are probably going to build some more off-stream
reservoirs, not on-stream. We are not for dams. And I think we
can build the infrastructure that can be consistent in low-rain
years.
But I think it is that technology in drip irrigation,
reclamation, all of that kind of micro stuff, that is really
going to be almost mandatory in the industry.
And I think that is where you could really be helpful,
showing us the science that you know about how little you can
get by on.
Dr. Ramaswamy. Indeed. And there is a lot of wonderful work
that is going on in California, ARS labs as well as the
University of California (UC) system as well. And we will get
you a----
Mr. Farr. A list.
Dr. Ramaswamy [continuing]. A composite list of it.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
FARM AND RANCH IRRIGATION SURVEY
Dr. Clark. Could I just add that the National Agricultural
Statistics Service, as part of the Census of Agriculture,
conducts the Farm and Ranch Irrigation Survey, and we just will
complete that data and release it in October of this year,
covering the previous year.
This survey is done every 5 years. So we will give you at
least the information on what practices are and the changes
that have happened between 2013 and the past 5 years.
Mr. Farr. That would only be helpful for us if it was done
on California almost by county because it is not--you know, who
cares what the national standard is? We only care about our own
backyard.
Dr. Clark. I know we have State data. I don't know if it is
at the county level. But it is a survey.
[The information follows:]
Farm and Ranch Irrigation Survey
national agricultural statistics service (nass)
NASS estimates it will release the results of the Farm and Ranch
Irrigation Survey in November 2014. These results are based on regions
or States that have a large enough sample. California is included among
those States with a large enough sample to publish by States, but not
by county.
FOUNDATION FOR FOOD AND AGRICULTURAL RESEARCH
Mr. Aderholt. Thank you.
Well, as we conclude today, thank you for being here.
Let me just ask Dr. Woteki one last thing. You note in your
testimony about the 2014 farm bill created the Foundation for
Food and Agricultural Research, provided $200 million in
mandatory funding for it, USDA is directed to stand up the
foundation.
What is your time frame, expecting that to be operating?
Dr. Woteki. Well, we expect the Foundation to be up and
operating in mid-summer. The Secretary did a listening session
about the farm bill implementation a few weeks ago and, at that
point, indicated that was our time line.
Mr. Aderholt. Okay. Thank you.
All right. Well, again, thank you each for being here this
morning and for your testimony. We look forward to working with
you as we progress with the fiscal year 2015 budget. Thank you.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
W I T N E S S E S
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Page
Bice, Dr. D. K................................................... 349
Bohman, Dr. Mary................................................. 349
Clark, Dr. Cynthia............................................... 349
Ellis, Karen..................................................... 1
Fong, Phyllis.................................................... 1
Harden, Gil...................................................... 1
Jacobs-Young, Dr. Chavonda....................................... 349
Ramaswamy, Dr. Sonny............................................. 349
Wetjen, Mark..................................................... 135
Woteki, Dr. C. E................................................. 349