Senator BELLMON. Now you are saying these forecasts are not objective. Mr. THOMAS. I am saying they are influenced by operating situations. Senator BELLMON. In plain language, are they objective, or are they not? Mr. THOMAS. Are they objective, or are they not? Senator BELLMON. Yes. Mr. THOMAS. We have not scientifically proven either way. Mr. THOMAS. No. Senator BELLMON. It seems you are saying they are not. Mr. THOMAS. Officials in the Department have expressed concern about programmatic influences on forecasts, but no one has factual evidence to prove it. That is why I am hedging to some extent. Mr. FASICK. To put it another way, there is some concern about the credibility and accuracy of forecasts and a seriousness of the intent to improve the accuracy and usefulness of it. Senator BELLMON. I think this is a dangerous thing, Mr. Chairman. If we are getting estimates down there that are bogus, we ought to know it, because we are sometime going to get caught short if they project more or less, and we end up with a different result. Senator HUMPHREY. What I understand you to be saying is that the refinement of the system of data collection is not sufficient to give the kind of accuracy that would be desired. Mr. THOMAS. That is correct. Senator BELLMON. I think what he is saying is that FAS put the heat on the ERS to get the common results they want. Mr. THOMAS. That is also correct. Senator HUMPHREY. That is bad. Senator BELLMON. It is bad. Senator HUMPHREY. That is bad news. We will look into it. I think that is something, Senator Bellmon, that could have a very serious impact on pricing, also on policy decisions relating to available supply. Mr. FASICK. The Government still needs to improve its market intelligence capability and forecasting system. Since it appears to us that major multinational exporters develop high quality forecasts of foreign demand for the commodities they export, we believe that the executive branch could benefit by considering some of the methodologies used by these companies. Market intelligence and the forecasting of foreign demand and supply have been given higher priority throughout the executive branch in recent years. We noted in our April 1975 report that the Agriculture Department attachés continue to have limited market intelligence tasks. This is due in part to their small numbers, multitude of other responsibilities, and the higher priorities placed on market development and export promotion. Agriculture and other executive branch forecasting entities have made little use of export data provided by Agriculture's export reporting system. Agency officials informed us that the data provided by the system constantly decreases or increases, and therefore fore casters cannot rely on it to make accurate short-term forecasts of foreign demand. I think the Senator used the term "bogus." That is possibly very, very strong. I really think the problem is in an environment of inaccuracy that would be a tendency to shade it toward your particular interests, whatever the figures happen to be, as opposed to deliberate intent to mislead those who use the figures. Mr. MILGATE. It might be where you add an emphasis. You could put an emphasis as contrasted to another and come out with a different interpretation. Mr. FASICK. Perhaps the most important consequence of Soviet grain purchases Senator BELLMON. Before you leave that point, may I, Mr. Chairman? Senator HUMPHREY. Yes. Senator BELLMON. If these kinds of pressures, however delicate or indelicate, exist in the crop forecasting system, do you have a recommendation as to how those can be removed? Mr. FASICK. I really believe, sir, if the data were more accurate there would be an improvement in forecasting. The climate for what some people would characterize as manipulated figures is because of the inaccuracy or unreliability of data. It is natural, if data is unreliable, for somebody to use that data in a way to further their interest. On the other hand, if there was credibility, and the data was right, they would be using data in making decisions. Senator HUMPHREY. What is the evaluation process of the data? Now, we have this, what do you call, domestic situation, and outlook board on our own domestic production. Do you know what the evaluation procedure is? How do they screen these figures? How do they test them as to accuracy and reliability? Mr. THOMAS. I am not exactly sure. I know there are interagency estimates committees in Agriculture which submit supply and demand estimates to an outlook and situation board. The outlook and situation board then comes up with a final figure or departmental estimate, publishes it monthly, and in some cases more frequently. Senator HUMPHREY. Is it on domestic supply? Mr. THOMAS. It is on domestic and foreign supply and demand. We have been aware of the fact there has been frequent internal departmental disagreements about the data; however, the estimate that emerges is a consensual figure of all departmental forecasting groups. In theory, no one particular group should be influencing the final figure. Yet, complaints have emerged from time to time in recent years that the opposite was the case. As I say, we have no evidence to support that. Senator BELLMON. Since this whole operation is handled in the executive branch, I wonder if it would help to improve its credibility, and perhaps its accuracy, if there was some participation by the Congress, maybe through the GAO. 75-079-76- -3 Mr. FASICK. We perceive ourselves as having a statutory responsibility now to review agency activities. Senator BELLMON. We need a team to watch the way it works, to blow the whistle if they think there are pressures, political pressures. Mr. FASICK. Probably the more appropriate approach would be for us to perform in a manner in which we normally perform. One of the provisions of section 812 that we provided to you, Senator, provides for a GAO role to ascertain the accuracy and adequacy of the data. That might solve it. Senator BELLMON. Did you make any study to see how accurate they have been in the past? Mr. THOMAS. There was a GAO report issued on USDA forecasting approximately a year ago. It said the key problem with forecasting was the question of accuracy of estimate of foreign supply and demand. It reviewed internal USDA forecasting committees, and other related matters, concluding that there was a need for improvement. The one thing we recognized in this review, once again, was the disagreement and conflict among various departmental groups in arriving at these estimates. Earlier, when you were not here Senator Bellmon, we discussed the export reporting system, and the fact that it is administered by the general sales manager's office, which is also responsible for the operation of Government-funded agricultural export programs. We believe that because export reporting is a monitoring and quasiregulatory function it might be beneficial to take the export reporting system management responsibilities out of GSMO and place it elsewhere in the Department of Agriculture or the Federal Government, such as in the Economic Research Service at USDA or in the Office of Export Administration at Commerce, or reporting directly to the Secretary of Agriculture and the Congress concurrently. These are all options available if you want to have a more objective operational approach in the monitoring of export sales data. Senator HUMPHREY. We come on the slow freight concerning these. estimates in the Congress. We will look at this very carefully. They have given us several options here. At the time, I told Senator Dole that many of its implications were so far reaching that I thought we should hold some special hearings on your proposed amendments to see what the impact would be, and how they could be handled and managed. Mr. FASICK. Perhaps the most important consequence of Soviet grain purchases over the past 4 years has been the realization that the U.S. Government's supply management policy is wanting. Massive purchases of U.S. grain in 1972 shifted the Nation from a surplus to a tight supply situation, which has only recently begun to ease. Not only has foreign demand increased, but Government policy has responded by shifting from a production control toward production stimulation. The official U.S. policy is characterized as full production and market oriented, and Government's role is to facilitate rather than to manage production. This policy presumably serves the general welfare in a variety of ways, including an agricultural contribution to the U.S. balance of payments. Grain sales to the Soviets have also helped to accentuate the export orientation of current U.S. agricultural policy. As foreign demand for U.S. agricultural commodities expanded dramatically, subsidization of exports-as a means of increasing balance-of-trade benefits and of insuring farmers a reasonable price for their commoditieshas become unnecessary. Government support of a full-production, market-oriented approach is simply a response to a change in world food demand. We believe that such a policy does not give adequate consideration to surplus, tight supply, and/or shortage situations-for it is not a policy for managing supply. It does not purport to regulate production nor explicitly advocate regulating the distribution of farm outputs among foreign and domestic customers. Senator BELLMON. Are you saying the Government should manage supply? Mr. FASICK. We are suggesting that there ought to be a supply management policy, and I think as we go on in our statement, Senator, we will explain that. Senator BELLMON. I read your statement. I got that impression very clearly. Who is the manager going to be? Mr. FASICK. Excuse me? Senator BELLMON. Who will be the manager? Mr. FASICK. Basically it would be the Department of Agriculture and, to a large extent, in consultation with the Congress. And I do not know whether you would call it complete management but I think, to an extent, that Government involvement is appropriate or Government involvement may be needed. Within that framework then, a supply management policy and a program for implementing it should be developed, and what our basic message here is, that it has not been done. Senator BELLMON. Do you not feel if the price, let us say, of soybeans is $8 a bushel, that this is a signal through the marketplace to farmers to grow more soybeans, quit raising corn and shift over to soybeans? If the price of wheat is $8 a bushel, there will be more wheat grown and less feed grain. This is a management supply that the free market provides. Mr. FASICK. But it does not take into account some of the extraordinary things that can happen to the agricultural sector. The one we talked about is the Soviet-type purchase, but it could as easily be the Chinese as the Soviets. Senator BELLMON. If we had been managing, to use your term in your frame of reference, our agriculture supply, would we have stopped that sale? What harm was done through that sale? Mr. FASICK. The sale to the Soviets? Senator BELLMON. Yes. Mr. FASICK. Any one of the three, or the 1975 sale? Senator BELLMON. All of them. Any one or all of them. Mr. FASICK. Again I think it was a question of meeting other national requirements or priorities. I think it begins with meeting our domestic needs. Senator BELLMON. Did anyone go hungry? Mr. FASICK. The other is to meet other international needs. Senator BELLMON. Now, if you let the market work freely, what will happen is that prices go up and we will stop using grain for livestock feed. We have 6, maybe 7, 8 billion bushels of corn, milo, barley, oats, that are used traditionally for feeding to animals and poultry. As the price rises, it becomes uneconomic to do that so we use that food for food consumption. So we have this tremendous reserve that is there to be taken away from the animals to be used for people when the market says that is the proper way to go. I do not see the need for management. It is all in the free market system that we have. Mr. FASICK. I do not question the traditional forces of the market being probably the predominant manager of what happens, I think, in the agricultural sector. I think what we are suggesting is what is done when those extraordinary circumstances come up. For example, if the situation in the world should change dramatically so that this meant the tight supply situation we have been experiencing does not materialize some year and our farmers have produced, and there is a tremendous surplus, we do not have a policy for what we are going to do with that surplus. How are we going to protect the producers and the consumers? Senator BELLMON. You do not have to worry about the consumers if you have a surplus. Mr. FASICK. Well, that is true. Senator HUMPHREY. Surely the producers, though. Mr. FASICK. But the producers. Senator BELLMON. I have a bill to do this, as the chairman knows. Mr. FASICK. That is management. Senator BELLMON. Not a management bill. It is a way of giving the producers a means of managing their own. Senator HUMPHREY. But I think what they are saying is that there needs to be a priority system for our foreign customers. For example, let us say that we had a poor corn crop this year, and yet we have traditional importers of American corn and, all at once, in comes the People's Republic of China, which is not a traditional importer, and they want to buy up, let us say, a billion bushels of corn. Now, are you going to sell a billion bushels to China, or are you going to take care of your traditional customers first? Senator BELLMON. I think any time the people of China need the grain and are willing to pay for it, they should have it, and we should not feed it to our pigs and chickens and our steers. Senator HUMPHREY. Yes. But what I am getting at is if you have traditional importers. Senator BELLMON. They can buy. Senator HUMPHREY. It is sort of like running a business. You have a certain number of commodities in your store. We have had to go through this in some merchandising. Somebody comes in and you have a regular customer, old John Jones out there, who has been your customer for 20 years. |