the Department of Agriculture relative to the placement of inspection personnel in foreign ports in order to determine grades of our export grain after it is received in these ports.

We are in agreement that the new agency should clearly have authority for their personnel to spot-check arriving cargoes in foreign ports, and to take any other necessary steps to insure good performance of the agency in the supervision of grading, weighing, and honest loading of vessels here in our ports.

However, let me raise the question: With the placement of Federal inspection personnel at both ends of the overseas delivery system, this may only place these graders in the unbearable position of serving as witnesses in arbitrations between governments or large international companies in their disputes over quality and contract settlements.

It occurs to us that it would be quite expensive to scatter personnel all over the world on a permanent basis in sufficient numbers to grade all cargoes coming from the United States.

We do not understand what would be gained from this step, and we are concerned that the expense of such an operation would be reflected in service fees on our own activities here in the domestic market. We endorse the principle that the service should be selfsupporting. After all, the users are paying for weights and grades now, and they should continue to do so. But we, of course, would like to keep the amount of these fees at a reasonable level.

So this suggestion is offered: If it is the decision of the Congress to place a large number of graders overseas for the benefit of the international trading companies, the cost of that service should be handled separate and should be self-supporting in its own operation.

In closing, Mr. Chairman, I would like to point out that elimination of the private grain grading agencies and several other provisions of this legislation were the stated position attributed to the Secretary of Agriculture, and particularly to those of this staff, as reported in the media, only a few weeks ago.

We do not understand why the Secretary has not come forth with recommendations on legislation, and we are concerned about current rumors that imply that the Department has been pressured by other elements in the administration to go for a bandage-type legislation rather than a strong bill. I know that you are aware of this division of attitude within the executive branch, and urge that the Congress not be persuaded to pass a bill that falls short of the challenge posed by the recent disclosures of widespread fraud and mishandling of grain of this important industry.

Thank you.

Senator CLARK. Well, I appreciate your testimony very much, and I think you are quite right in saying that there is a division within the administration, and that I think particularly the Justice Department and the Office of Management and Budget are prevailing over the Department of Agriculture in this case, in arguing for no further governmental restriction and control. I think it is most unfortunate, but I think it is happening in packer bonding, as well. I took testimony for this committee on the packer bonding bill, and we had people from the Justice Department come over and testify on it, and it was my understanding that the person in the Department of Agriculture refused to testify against the bill. I think it is something that

the administration is going to have to work out within itself, but it seems to me that here too, they are letting ideology get in the way of any kind of practicality in assuming that the grain industry is working well.

All one has to do is take a look at the indictments that are coming in day after day after day to understand that the system needs changing.

I was very interested in your comments and criticisms of the assignment of people in overseas areas, and I appreciated your comments about the possibility of having someone over there to do spot-checks, as compared to having some permanent employee there on a full-time basis. We will certainly look very carefully at that.

Mr. PFINGSTEN. Senator, I did point out that we don't know what your purpose was for proposing that, and so allow for that. It may be our lack of knowledge of what your intent of it was that keeps us from, let's say, accepting it as ideal or necessary.

Senator CLARK. The intent of the legislation was to give the director of this new agency within the Department the authority to do that without directing him to do it-to put these people, perhaps, at the largest ports-like Rotterdam, or perhaps two or three other ports where, let's say, 60 to 70 percent of all the grain was received, if that could be done with reasonable cost, and with reasonable results, but I think some of the points you raised are valuable; particularly the first one, where you say:

With the placement of Federal inspection personnel at both ends of the overseas delivery system, this may only place these graders in the unbearable position of serving as witnesses in arbitrations between governments or large international companies in their disputes over quality and contract settlements. I think that is well worth considering before doing it.

The question I had particularly with you was, why do you think that we need a new agency to be responsible for grain inspection and weighing and these standards rather than just turning it over to the Secretary of Agriculture, as we have done in the past?

Mr. PFINGSTEN. If I may be so bold as to say so, I don't have much confidence in him, and we were talking about the connection between the inspectors and the personnel-I was listening to the testimony on it, and I remember only too well where he came from

Senator CLARK. I see.

Mr. PFINGSTEN [continuing]. And where the other one went to in the exchange.

Senator CLARK. I misunderstood you at first.

Mr. PFINGSTEN. It is the checkerboard proposition.

Senator CLARK. In other words, you feel that the connection between the grain companies and the Department is too close?

Mr. PFINGSTEN. Very, very close.

Senator CLARK. You would rather see something on a more independent level?

Mr. PFINGSTEN. Yes; independent, as we have some of our other agencies; kind of falling in a little disrepute at this time, but not quite so dependent on influence from the outside; an agency that operates and has no responsibility other than to the Congress of the United States, and perhaps the people that it is inspecting for. I would hate to see it get involved through the Department of Agriculture, or any other department where there is, as you pointed out yourself, the political influence that can come into being. Where it's an inspection

agency, that is their purpose solely and completely, and they are not responsible to anyone else.

Senator CLARK. I think you are on the right track. I might just say that I had the General Accounting Office-the watchdog arm of the legislative branch of Government-undertake a study of how many people had come out of one of the seven major grain companies to go to work for the Department, and how many people left the Department to go to work for the major grain companies in the last 6 or 7 years I forget the exact date. We got a preliminary report, but we have asked them to go back for more details. It is very discouraging when you realize that the former Secretary of Agriculture, Mr. Hardin, left that position to go on the board of, I guess, the largest grain company, and that the present Secretary of Agriculture left the board of that grain company to become Secretary of Agriculture, and that Mr. Palmby, Clarence Palmby, who participated heavily, and I think is most responsible for making the original 1972 Soviet sale, left to become vice-president of the Continental Grain Co., and he was replaced by a man by the name of Carl Brunthaver, who came from the Cook Grain Co., and has since returned to the Cook Grain Co. Mr. PFINGSTEN. That is what I had reference to.

Senator CLARK. One goes on and on and on, and it raises some real questions. I might just say, before leaving the subject, that another committee of the Congress, the Foreign Relations Committee, the Multinational Corporations Subcommittee of the Foreign Relations Committee, does have these aspects-it happens that I also serve on that committee-but it has many of these aspects under consideration: The degree of control that the grain companies have on the trade, and how that is affecting our international relations, our foreign policies. It is a very, very interesting experience. We are going to be investigating the subject, I think, over the next several months, because one of the problems with it is that many of these companies, being privately owned, do not file any records with the SEC, so that we are not sure who they are, in many cases. I think it is a very, very worthwhile investigation, but that will be conducted by the Foreign Relations Committee.

Mr. PFINGSTEN. The gentleman testifying this morning brought it out, I thought, rather clearly, that the investigative system was dragging its feet

Senator CLARK. The Office of Investigation.

Mr. PFINGSTEN [continuing]. Until an independent agency got in there, the FBI, and started it moving-that is one of the reasons why we lean very heavily toward a separate agency.

Senator CLARK. Thank you very much for your testimony. We appreciate it.

We are going to take a break now, but we are going to start at 1:30 sharp, very sharp, and the first witness will be Merlyn Groot, president of the Iowa Soybean Association at Manson, Iowa.

We stand in adjournment for about an hour and 20 minutes. [At 12:10 p.m., a recess was taken until 1:30 p.m. of the same day.]

AFTERNOON SESSION

Senator CLARK. The hearing will please come to order. I noticed at the hearing break that some of the news services were running

some stories from the United Press International that relate to the hearings today, one of which I thought I would read into the record. It is out of Washington, August 14, UPI:

Administration sources report that Agriculture Secretary Earl Butz apparently will not, after all, be allowed to propose creation of a new Federal-State grain inspection system.

In the wake of recent investigations of corruption in the inspection system and theft in some grain export shipments, Butz had wanted to propose elimination of the private inspectors and a new system in which grain would be checked by USDA and State authorities.

Yesterday, however, Butz said that the administration probably will come up with a proposal to retain the current inspection system, but to beef it up by providing more government supervision than in the past. Other officials say the White House turned down the Butz plan for a Federal-State inspection system because it would involve hiring too many additional Federal employees.

An Agriculture Department official says USDA now is working on a proposal under which there would be more government supervision coupled with a new crackdown on conflicts of interest in the private inspection system. That move would hit at cases in which some inspection agencies, like boards of trade in some areas, include in their membership some of the companies whose grain is inspected.

This story is out of New Orleans, August 14, UPI:

The former superintendent of a Mississippi River grain elevator pleaded guilty yesterday to federal income tax evasion charges related to the alleged theft of export grain.

Drebing Arlington Negrotto, Jr., of New Orleans, former superintendent of the Bunge Corporation Grain Elevator in Destrehan, Louisiana, admitted he owed $3,137.95 in taxes for 1969. Federal attorneys said the tax was due on $17.928 received from the sale of stolen or non-existent grain not reported with Negrotto's other income.

Negrotto was among 11 persons indicted August 5 on the tax evasion charges and among 13 indicted July 21 for conspiracy to steal grain from export shipments.

Negrotto could receive a maximum sentence of five years in prison and a $10.000 fine for the tax evasion charge. He also would have to pay back taxes, penalty and interest.

Well, we are going to hear now from Mr. Merlyn Groot, president of the Iowa Soybean Association, a group that has a great deal at stake with regard to the inspection system. You proceed in any way you think appropriate.

STATEMENT OF MERLYN GROOT, PRESIDENT, IOWA SOYBEAN

ASSOCIATION, MANSON, IOWA

Mr. GROOT. Thank you, Senator. I do operate a grain and livestock farm near Manson, and I appreciate the opportunity to testify in behalf of the Iowa Soybean Association.

We have just returned from the national convention of the American Soybean Association in which the voting delegates addressed the question of soybean grading and standards in its resolutions. A copy of those resolutions is included as a part of this testimony, and I would like to submit these for the record.1

I should also apologize that they were not able to be included right in the typing itself because they have not been printed yet, and also they were typed up-in fact, my wife typed them from my notes, and so when they do get printed, if there is any difference in wording, or anything, this is the reason.

1 See p. 48.

Senator CLARK. Fine, fine.

Mr. GROOT. These recommendations, resolutions, primarily came. from the Grain Standards and Quality Committee of the ASA of which I was a member, and in addition to what is listed on that, I would quote a recommendation which we made in that a high-level trade team be sent to work with overseas customers and possibly work out recommendations of things that foreign customers could do to upgrade the whole picture of buying grain, from the farmer to the utilizer overseas, so this is not included in those resolutions, but it was a recommendation.

Senator CLARK. Good.

Mr. GROOT. I understand the administration is to introduce legislation on this subject in the future, and we would like the opportunity to compare the two bills when that time comes. With respect to his particular resolution S. 2256, I would direct the following comments-and I do not want these to be interpreted as being critical. I think I would like to make some objective observations, and I hope they are.

Senator CLARK. Good.

Mr. GROOT [reading]:

1. Inclusion of authority and responsibility for grain inspection, grain standards, and grain weighing under one agency would be an advantage.

2. Reorganization of the grain inspection system should not be done under one year provisions but should be made permanent.

3. Some questions have been raised concerning grain inspection at foreign ports. We feel the objective is to assure the loading of a specified product and elimination of fraud. We feel a program of monitoring at foreign destination would achieve this objective on a practical basis at much lower cost. Personnel stationed at the major ports would also be available to help cut red tape in cases of disputed grades.

This has been brought out in one way that I think the objective of the personnel should be to aid in seeing that the system works. I think getting them caught up in litigation and in fact setting them as judges might not be an advantage.

Senator CLARK. We had some testimony earlier about that.

Mr. GROOT [continuing].

4. The practice of periodic rotating grain inspection personnel would have an advantageous effect of reducing the possibility for fraud.

5. Provisions should be retained for allowing farmers and grain handlers to do the best job of merchandising the grain itself as opposed to the incentive that now exists to add foreign material.

I think that here is where there may need to be clearer language stated so that we do not restrict the merchandising of the grain itself. Now, maybe if they can blend No. 1 grade and No. 3 grade to make a good No. 2 grade, maybe this would be an advantage and would be a good practical advantage to keep. I think my objective is to try to see a system that would give the best return to the farmer.

Senator CLARK. Right, right.

Mr. GROOT [Continuing].

6. In regard to the section to establish standards and procedures for loading export grain to control the activities of elevator employees, longshoremen, grain trimmers and others who participate in the loading of export grain, I will include the following resolution adopted at the ASA Convention two days ago: Believing in the free trade policy established by USDA and whereas there has been a threat by the ILA to refuse to load grain destined for export, therefore be it resolved that the ASA attorney contact the attorney generals of one or more of the prin