MONDAY, MARCH 15, 1982.

FEDERAL GRAIN INSPECTION SERVICE

WITNESSES

C. W. MCMILLAN, ASSISTANT SECRETARY FOR MARKETING AND INSPECTION SERVICES

KENNETH A. GILLES, ADMINISTRATOR, FEDERAL GRAIN INSPECTION SERVICE

DAVID R. GALLIART, DEPUTY ADMINISTRATOR, FEDERAL GRAIN INSPECTION SERVICE

JOHN T. REEVES, ACTING DEPUTY ADMINISTRATOR FOR MANAGEMENT, AGRICULTURAL MARKETING SERVICE

BRADLEY L. HEIGES, BUDGET ANALYST, FINANCIAL MANAGEMENT DIVISION, AGRICULTURAL MARKETING SERVICE

STEPHEN B. DEWHURST, BUDGET OFFICER, DEPARTMENT OF AGRICULTURE

OPENING REMARKS

Mr. WHITTEN. The Committee will come to order. We have with us today the Federal Grain Inspection Service. We have back with us Mr. McMillan. How much of an increase are you asking for this time?

Mr. MCMILLAN. No increase, Mr. Chairman.

Mr. WHITTEN. We have with us Dr. Gilles, Administrator, Federal Grain Inspection Service, and his associates. We are glad to have you here. Please introduce any new witnesses to the Committee, and their biographical sketches will be included in the record at this point.

[The biographical sketches follow:]

KENNETH A. GILLES, ADMINISTRATOR, FederAL GRAIN INSPECTION SERVICE, U.S. DEPARTMENT OF AGRICULTURE

Educator and cereal chemist Kenneth A. Gilles, on leave of absence from the North Dakota State University (Fargo), has been confirmed by the Senate as Administrator of USDA's Federal Grain Inspection Service (FGIS). Established in 1976, FGIS ensures the accurate weighing and inspection of grain intended for domestic use. The agency also develops and reviews official grade standards for grain and other commodities.

Gilles was born March 6, 1922, in Minneapolis, Minnesota. He graduated from the University of Minnesota at Minneapolis in 1944, served in the U.S. Navy in the Western Pacific until 1946, when he joined Pillsbury Mills, Inc., as a research engineer concerned with developing convenience foods and derivitives of fats and oils.

In 1948, he returned to the University of Minnesota as a graduate student, and became an instructor and research fellow in the Department of Agricultural Biochemistry. Following completion of the Ph.D. degree in biochemistry, he joined the Research Department of General Mills, where he became the project leader for wheat quality and milling research. In 1961, he became Professor and Chairman of the Department of Cereal Technology at North Dakota State University. The research program involved the development of new grain varieties for the Spring wheat regions, including Hard Red Spring wheat, Durum wheat, and barley. The department became actively involved in providing assistance for export market de

velopment in association with Great Plains Wheat and Western Wheat Associates. Gilles participated in a number of wheat trade team activities in Europe and Asia. In 1969, he was appointed Vice President for Agriculture at North Dakota State University. As the administrative head of agriculture, he had the responsibility for the Agricultural Experiment Station, the Cooperative Extension Service, College of Agriculture, and international training programs. His activities included legislative liaison with the State and Federal Governments. He was responsible for program and budget evaluations, planning and staffing for the agricultural unit of the State Land Grant University.

He saw combat duty in the Western Pacific theatre, he has served as Editor-inChief of Cereal Chemistry, President of the American Association of Cereal Chemists, Chairman of the Great Plains Agricultural Council, Chairman of the Legislative Committee for the USDA Budget, Division of Agriculture, National Association of State Universities and Land Grant Colleges.

Gilles and his wife, Beverly, have two children, both physicians.

BRADLEY L. HEIGES

A native of Pennsylvania, Mr. Heiges attended Kent State University from which he holds a bachelor of business administration degree. Upon graduation he enlisted in the U.S. Army and served with the Office of the Inspector General, 4th Armored Division in West Germany.

Mr. Heiges began his civil service career with the Bureau of Economic Analysis of the Department of Commerce. He left the Department of Commerce as an economist to join the Agricultural Marketing Service of the U.S. Department of Agriculture as a budget analyst. He is presently assigned to the Federal Grain Inspection Service budget.

Mr. WHITTEN. You may proceed in any way you wish. Usually, the representative of the Secretary's Office gives an introduction for the principal witness.

STATEMENT OF THE ASSISTANT SECRETARY

Mr. MCMILLAN. They are all good, Mr. Chairman, and we are proud to have Dr. Gilles as the Administrator of the Federal Grain Inspection Service.

Accompanying him today are Mr. Dave Galliart, Deputy Administrator for FGIS; Mr. John Reeves, the Acting Deputy Administrator for Management, Agricultural Marketing Service; Mr. Bradley L. Heiges, who is in the Budget and Program Analysis Branch; and, of course, my ever present friend, Steve Dewhurst, who is the Budget Officer for the Department.

The Federal Grain Inspection Service, as you know, was statutorily created just a few years ago, and rather than have me go into detail, I would like for Dr. Gilles to proceed.

Mr. WHITTEN. Thank you very much. He does right well on these introductions, doesn't he?

ADMINISTRATOR'S STATEMENT

Dr. GILLES. Thank you, Mr. Secretary.

Mr. Chairman, we are very pleased to be here and to present comments relative to the Federal Grain Inspection Service. I find myself in a new role this year. You may recall, sir, I was in a similar role as chairman of the Legislative Committee for the LandGrant College System several years ago, so I have had an opportunity to testify before this Subcommittee before.

Our concern today is the Fiscal Year 1983 budget request for the Federal Grain Inspection Service. This service we feel to be very

significant because when one recognizes that about 71 percent of the value of agricultural exports come from grains and oilseeds, the importance of maintaining a credible national inspection system clearly emerges.

USER FEE

During the past year undoubtedly the most significant thing that occurred was passage of the Omnibus Budget Reconciliation Act, which became effective on October 1, 1981. This funding arrangement changes FGIS' situation from one in which about 58 percent of our funds were derived from user fees to a situation in which about 89 percent of our funds are now user fees.

The imposition of additional user fees has caused considerable concern because if our rates become excessive, industry will strenuously object to the increased fees and may not use the service for the discretionary activities, particularly in the interior; although the new law did not change the obligatory inspection and weighing of exports.

REORGANIZATION

As we looked at the way in which we had to make adjustments, program management was critically analyzed. As a result, the Agency was reorganized with a major reduction-in-force in both the field and headquarters staff and three administrative layers were eliminated. These changes were made in an attempt to maintain the credibility and integrity of the national system, and yet to operate in a more cost effective manner.

Inasmuch as our income now is highly dependent upon industry usage of our service, we are in a period of uncertainty as to exactly what our total financial resources will be for the next year. Therefore, the grain industry provides the key to the future.

The degree to which the credibility of the national system remains is a concern; and I am certain that Congress would not desire, nor permit, a return to a situation in which there are grain scandals in the Gulf. It is incumbent, then, upon the industry as well as upon FGIS to maintain a high degree of credibility in the grain marketing and inspection system.

ADVISORY COMMITTEE

We are pleased that Congress established an advisory committee. This committee was established initially in 1977 and has now been re-established. We are pleased to report that we have 12 people who represent a good cross-section of the country as well as the industry, ranging from producers to exporters. They have met on two occasions. We have developed some excellent dialogue and look forward to continued discussion and advice from that group.

SAFETY

The concern of elevator safety still remains. Last year there was one of our employees killed and seven injured in grain elevator explosions. As we look at the situation in broad scope there were 21 elevators of the 9,500 or so in the country that suffered explosions.

This is a very low percentage, but still if you are involved in that explosion, it becomes a very serious issue.

The FGIS safety program will continue to emphasize and maximize the safety of our employees and provide information and surveillance of the grain elevator explosions.

DECREASED EXPORT

The matter of fees I touched upon, but I would really like to emphasize the fact that our income is based on the volume of grain merchandized by the people we serve. In the past few months grain exports have been at low levels. As a consequence, there is less work and less income for FGIS. This does cause great concern because there is a fine line separating how far we can go to reduce our work force to accommodate this lower income and still respond to industry needs.

FISCAL YEAR 1983 REQUEST

With regard to the specifics of the request for Fiscal Year 1983, we are asking for $49.5 million. Of this amount $44.3 million will be fee-derived and $5.2 million will be appropriated. This represents approximately a $405,000 decrease in appropriated funds when compared to last year.

There will be some changes in the use of the appropriated funds. We will use these funds for the advisory committee and the international monitoring staff, as well as for standardization and compliance activities.

We have experienced a 5 percent reduction in funds, and expect standardization and compliance activities to be further curtailed. The international monitoring activity is primarily designed to permit the United States to maintain its prominent position in international grain trade. The United States did about $30 billion worth of international business last year. We believe that if there are concerns, prompt and thorough response to these inquiries by FGIS is essential to maintain favorable trade relations with foreign buyers.

Relative to our operating reserve, at the time the budget was developed, costs were anticipated to exceed revenues by about $1.7 million in 1982. However, since the basic budget information was compiled and presented, the deficit has continued to increase. Therefore in spite of our major cost-cutting efforts, today we anticipate further actions may be needed because we now expect to end the Fiscal Year 1982 with little or no operating reserve.

These comments, Mr. Chairman, represent our overview. We submit for your concern and consideration a statement which represents the entire presentation.

[CLERK'S NOTE: The full text of the Administrator's statement appears on pages 531 to 539. The explanatory notes for FGIS are on pages 589 to 608.]

Dr. GILLES. At this time we will be very pleased to answer questions you and members of the Committee may have for us.

Mr. WHITTEN. Thank you very much for your consideration. My colleagues may sometimes get tired of my raising some general

points about this budget, but I think they need to be included in the record.

USER FEES

I know of no period when agriculture has been in worse shape financially than right now. Three percent of the people free the rest of us to do all the things we do. Farmers are the biggest market for industry and labor and the biggest earners of dollars in world trade. If the Department would sell excess commodities instead of holding them, as authorized by the Commodity Credit Corporation, the farmer would have an even more favorable economic effect. Yet under these depressed conditions, you folks in the Department make them start paying user fees.

The farmers are bad off now-we had to get the Congress to appropriate an additional $5 billion a couple of weeks ago for the CCC because farm prices were so low that the loan price was better than the selling price. You are going to pile on more user fees. Isn't that what you recommend? He can't come close to breaking even, so he puts his crop in a loan and the loan doesn't equal his costs. Then the Department suggests he cut his volume 15 percent when his present volume won't let him break even.

You seem to pay more attention to user fees than you do to straightening out the food production situation. You figure if the farmer is so far in the hole, it won't hurt him to owe a little more. Dr. GILLES. Mr. Chairman, I am not quite certain I understand your question.

Mr. WHITTEN. I am speaking of the Department's position on user fees. You are supposed to inspect grain. You have recently changed the law, putting user fees on grain inspection. How does that fit in? Do you get your salary out of user fees or are they put in a revolving fund?

The law has passed I am advised, and I would like to hear about your implementation and its effect on the farmer.

Dr. GILLES. The law passed last summer.

Mr. WHITTEN. Does it require you to charge these fees?

Dr. GILLES. Yes, it does.

Mr. WHITTEN. Is that upon your recommendation, the Department's recommendation?

Dr. GILLES. It was part of the budget reconciliation.

Mr. MCMILLAN. It was part of the reconciliation bill of last year. Mr. WHITTEN. Is this the part of the bill the General Counsel's Office helped write? General Counsel designated some of their lawyers to help write the Reconciliation Act. Is this the part they helped with?

Mr. MCMILLAN. It has been my experience that any time you deal with anything in government, you can't do it without the General Counsel's Office's presence in one form or another.

Mr. WHITTEN. Just being present and being active are two different things.

Mr. MCMILLAN. That is right. The important thing, Mr. Chairman, is that the user fee aspect for Federal Grain Inspection Service is already in place.