S. HRG.

109620

REVIEW THE UNITED STATES DEPARTMENT OF

AGRICULTURES MANAGEMENT AND OVERSIGHT OF THE PACKERS AND STOCKYARDS
ACT

HEARING
BEFORE THE

COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION

MARCH 9, 2006

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(
Available via the World Wide Web: http://www.agriculture.senate.gov
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30235 PDF

2006

For sale by the Superintendent of Documents, U.S. Government Printing Office

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COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman
RICHARD G. LUGAR, Indiana
TOM HARKIN, Iowa
THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont
MITCH MCCONNELL, Kentucky
KENT CONRAD, North Dakota
PAT ROBERTS, Kansas
MAX BAUCUS, Montana
JAMES M. TALENT, Missouri
BLANCHE L. LINCOLN, Arkansas
CRAIG THOMAS, Wyoming
DEBBIE A. STABENOW, Michigan
RICK SANTORUM, Pennsylvania
E. BENJAMIN NELSON, Nebraska
NORM COLEMAN, Minnesota
MARK DAYTON, Minnesota
MICHEAL D. CRAPO, Idaho
KEN SALAZAR, Colorado
CHARLES E. GRASSLEY, Iowa
MARTHA SCOTT POINDEXTER, Majority Staff Director
DAVID L. JOHNSON, Majority Chief Counsel
STEVEN MEEKS, Majority Legislative Director
ROBERT E. STURM, Chief Clerk
MARK HALVERSON, Minority Staff Director

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CONTENTS
Page

HEARING(S):
Review the United States Department of Agricultures Management and
Oversight of the Packers and Stockyards Act ...................................................

01

Thursday March 9, 2006

STATEMENTS PRESENTED BY SENATORS
Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, Committee
on Agriculture, Nutrition, and Forestry .............................................................
Salazar, Hon. Ken, a U.S. Senator from Colorado ................................................

01
02

WITNESSES
Bertoni, Daniel, Acting Director, Natural Resources and Environmental
Team, United States Government Accountability Office, Washington, DC ....
Fong, Phyllis K., Inspector General, United States Department of Agriculture,
Washington, DC ...................................................................................................
Link, James E., Administrator, Grain Inspection, Packers and Stockyards
Administration, United States Department of Agriculture, Washington, DC,
Accompanied by: Ms. Mary Hobbie, Assistant General Counsel, Trade Practices Division Office of the General Counsel, United States Department
of Agriculture, Wahington, DC ...........................................................................

08
05

04

APPENDIX
PREPARED STATEMENTS:
Harkin, Hon. Tom ............................................................................................
Bertoni, Daniel ..................................................................................................
Fong, Phyllis K .................................................................................................
Link, James E ...................................................................................................
DOCUMENT(S) SUBMITTED FOR THE RECORD:
Grassley, Hon. Charles E .................................................................................
Thomas, Hon. Craig .........................................................................................
Stevenson, Randall J ........................................................................................
QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD:
Chambliss, Hon. Saxby ....................................................................................
Harkin, Hon. Tom ............................................................................................
Salazar, Hon. Ken ............................................................................................
Thomas, Hon. Craig .........................................................................................

30
52
41
34
66
64
68
72
83
95
101

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REVIEW THE U.S. DEPARTMENT OF AGRICULTURES MANAGEMENT AND OVERSIGHT

OF THE PACKERS AND STOCKYARDS ACT
Thursday, March 9, 2006

U.S. SENATE,
AGRICULTURE, NUTRITION AND FORESTRY,
Washington, DC.
The committee met, pursuant to notice, at 10:36 a.m., in room
SR328A, Russell Senate Office Building, Hon. Saxby Chambliss,
chairman of the committee, presiding.
Present or submitting a statement: Senators Chambliss, Lugar,
Thomas, Harkin, Nelson, and Salazar.
COMMITTEE

ON

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR

FROM GEORGIA, CHAIRMAN, COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY

The CHAIRMAN. Good morning. I welcome you all this morning to

this hearing to review the United States Department of Agriculture, Grain Inspection, Packers and Stockyards Administrations
management and oversight of the Packers and Stockyards Act. I
want to thank our witnesses for making the effort to attend this
hearing to provide testimony on this issue of critical concern to the
United States livestock industry. I also welcome those listening
today on our web site.
In January of this year the USDA Office of the Inspector General
released an audit report that detailed serious failures in GIPSAs
management and oversight of the Packers and Stockyards Act of
1921. This act is a critical law that assures farmers and ranchers
that business transactions are conducted under the principles of
fair competition, open and honest trade practices, and prompt payments to producers.
The audit report from the Inspector General raises serious questions about the Department of Agricultures competence in investigating anticompetitive behavior in order to ensure that all livestock industry participants are treated equitably. I am greatly concerned and disheartened with the message that the findings detailed in the report regarding GIPSAs actions sends to the American public, consumers, and participants in the livestock marketplace.
The report from the Inspector General States that some 50 investigations into potential anticompetitive behavior were awaiting approval from senior management and therefore were not being acted
upon. Further, the report states that policy decisions were not
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2
being made due to a lack of a competent internal managerial structure within the Packers and Stockyards Program Division of
GIPSA, and that previous advice provided to GIPSA by the Office
of Inspector General in 1997, and by the Government Accountability Office in 2000, was not implemented.
It is totally unacceptable for our government to conduct business
in this way, and I fully expect the Department of Agriculture to
swiftly and honestly respond to actions in the marketplace that
might signal anticompetitive behavior. Not doing so calls into question the ability of the department to oversee the Packers and
Stockyards Act generally, and greatly threatens the confidence livestock market participants extend to the government.
While it appears that the problems identified in the report are
managerial in nature, I cannot emphasize enough my frustration
and discomfort on behalf of Americas farmers and ranchers. It is
imperative that GIPSA correct the failings identified in this and
previous reports in a timely fashion, to ensure that this vital sector
of our agricultural economy continues to operate in a transparent,
fair, and competitive manner.
I look forward to hearing from our witnesses, and I am hopeful
their testimony will provide us with some confidence that steps are
being taken to address this critical issue. Senator Harkin has told
us that he will be a little late in getting here this morning. When
he does arrive, we will certainly turn to him for any opening statement he might wish to make. At this time I will ask my two colleagues that are here, Senator Lugar, Senator Salazar, if you all
have any opening comments you wish to make.
Senator LUGAR. No.
The CHAIRMAN. Senator Salazar?
STATEMENT OF HON. KEN SALAZAR, A U.S. SENATOR FROM
COLORADO

Senator SALAZAR. Thank you very much, Chairman Chambliss. I

want to thank you and all of my colleagues on this committee who
requested the hearing, and I think it focuses on a very important
issue. It is important for this committee to be involved in making
sure that the provisions of GIPSA are enforced.
The Packers and Stockyards Act is an extremely important law,
and when properly enforced, it should effectively ensure fair trade
practices and competitive marketing conditions in our livestock,
meat, and poultry markets. Ranchers across the country, including
in my State of Colorado, are faced every day with the increased
concentration in the industry.
For example, we all know today that four meat packers control
over 80 percent of the marketfour meat packers controlling over
80 percent of the market. Consider that in a multibillion dollar industry, four packers control, again, 80 percent of the market.
Mr. Chairman, I hope that this hearing today signals that this
committee is committed to ensure that GIPSA is in fact carefully
enforced, and that the Department of Agriculture is fulfilling its responsibility and mission with regard to the Packers and Stockyards
Act. The issue is of paramount importance to many of the small,
independent ranchers in Colorado, and I am pleased that the Office
of the Inspector General completed a thorough and I must say

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3
what I believe is an unbiased audit of GIPSAs management and
oversight practices. I appreciate your work on that, Ms. Fong.
I am also heartened that GIPSA has already taken some steps
to improve their deficient policies, and has signaled that they will
actively work with OIG to remedy both their inadequate management structure and investigation protocol. I also hope, Mr. Chairman, that this hearing indicates our intention to ensure that there
is fair enforcement of this important law, and that we will follow
up on this matter in the next few months to check on the progress
of GIPSA in implementing and enforcing the OIG recommendations.
The Packers and Stockyards Act was passed in order to prevent
unfair, discriminatory, and deceptive acts and practices in the meat
packing industry. Under the act, ranchers who are bound to the
market are prevented from being taken advantage of by the huge
producers. In addition, it rightly separated production and manufacturing arms of the meat and poultry industry. I am extremely
supportive of the mission of this act, and believe that if properly
implemented and enforced, that the act will serve everyone well,
both big and small.
Many of these small, independent ranchers in Colorado and
across the country have faced years of drought. That, combined
with increased concentration of the markets, has resulted in declining farming and ranching populations, and indeed over the last
several years a decline overall in terms of the income that is coming into rural America.
Unfortunately, this audit reveals that the agency tasked with
protecting our ranchers by guarding against deceptive practices
was found to itself have engaged in questionable reporting and
oversight. I am deeply concerned about that, and look forward to
your presentation here this morning.
U.S. cattlemen deserve to have protection from anticompetitive
practices, and deserve to know that the proper checks and balances
are in place so that they are protected against any type of discriminatory practice that may occur. I truly hope that GIPSA enacts the
policy recommendations of the OIG with all diligence and all speed.
And again I thank Chairman Chambliss and Ranking Member
Harkin for agreeing to hold this hearing.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you. The committee would like to welcome
our panel today, which includes representatives from the Grain Inspection, Packers and Stockyards Administration of USDA; USDAs
Office of Inspector General; and the Government Accountability Office.
James Link is the Administrator for USDAs Grain Inspection,
Packers and Stockyards Administration. Mr. Link holds an MBA
and a Certificate of Ranch Management from Texas Christian University, and has contributed to American agriculture in both academic and professional settings. Most recently he served as the Director of the Ranch Management Program at Texas Christian University in Fort Worth, Texas. Welcome, Mr. Link. We are pleased
to have you with us.
Ms. Phyllis Fong is the Inspector General for the U.S. Department of Agriculture. Ms. Fong holds a JD degree from Vanderbilt

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University School of Law and is a member of the Tennessee and
District of Columbia bars. Ms. Fong has served our country
through various government positions, most recently as the Inspector General for the U.S. Small Business Administration. Ms. Fong,
we are glad to have you with us.
Mr. Daniel Bertoni is the Acting Director for Agriculture, Food
Safety and Security issues in the U.S. Government Accountability
Offices Natural Resources and Environment team. He holds a Masters degree in political science from the Rockefeller School of Public Affairs and Policy. Over the course of his career, Mr. Bertoni
has focused on identifying and preventing waste, fraud, and abuse
in Federal programs. Mr. Bertoni, we welcome you today.
We are pleased that you are all here. We look forward to your
testimony, and Mr. Link, we will start with you, go to Ms. Fong,
and then to Mr. Bertoni.
STATEMENT OF JAMES E. LINK, ADMINISTRATOR, GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION,
U.S. DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY
MARY HOBBIE, ASSISTANT GENERAL COUNSEL, TRADE
PRACTICES DIVISION, OFFICE OF THE GENERAL COUNSEL,
U.S. DEPARTMENT OF AGRICULTURE

Mr. LINK. Thank you. Good morning. First I would like to introduce Mary Hobbie with the Office of General Counsel, that works
with us on a daily basis. I appreciate the opportunity to be here
today to highlight for you a number of the changes underway in
the Grain Inspection, Packers and Stockyards Administration to
improve and strengthen the enforcement of the Packers and Stockyards Act.
On October 17, 2005, I became the Grain Inspection, Packers and
Stockyards new Administrator, responsible for, among other things,
the Packers and Stockyards Program. The Packers and Stockyards
Program facilitates the marketing of livestock, poultry, and meat,
and promotes fair and competitive trade practices for the overall
benefit of consumers and American agriculture.
Under my leadership, the employees of the agency are making
and will continue to make the needed changes to strengthen and
enforce the Packers and Stockyards Act. We have already begun
making the fundamental changes in the culture of the organization
that are essential to empower our employees to enforce the act, and
develop the internal processes and controls necessary to deliver improved results.
The Office of Inspector General report identified four major areas
of weakness in the Packers and Stockyards Program: bad recordkeeping; poor investigation management; lack of policy vision and
decision; and lack of follow-through on recommendations of early
reviews. These are fundamental and serious weaknesses. No business can be successful with this report card.
The Inspector General offered 10 recommendations to improve
our operation. We have accepted all 10 and established an aggressive schedule to implement them. The Inspector General has expressed satisfaction with all measures we are taking. Adopting an
Inspector Generals recommendation represents a good start, but is

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5
only the beginning of the changes that we in the Grain Inspection,
Packers and Stockyards Administration are going to take.
We have undertaken specific steps to meet the recommendations
of the Office of Inspector Generals report. For example, we have
implemented four new policy directives to address recommendations one, three, five, and six in the Office of Inspector Generals
report, which deal respectively with defining investigations versus
regulatory activities; revising the organizational structure to provide greater authority to the regional offices; enabling the legal
specialists to freely contact and work more directly with the Office
of General Counsel; and developing a structure for receiving, reviewing, and acting on policy issues and internal requests for guidance. We are also in the process of programming changes into existing software to accommodate the need to track investigations
and identify regulatory versus investigative activity in the old
Complaint and Investigation Log.
To accomplish this goal, we must begin by addressing the needs
of our employees. I have opened my door to all employees by establishing a confidential employee-Administrator communication web
site; by making onsite visits to the field offices; and, most recently,
by initiating a full-scale organizational review and assessment of
the program.
The review team, comprised of USDA officials outside our agency, will begin analyzing the organization of headquarters staff and
continue about the organizational strength and weaknesses in a variety of areas. I will use the survey results to enhance our work
environment and culture and to improve our organizational effectiveness.
The Packers and Stockyards Act and the Packers and Stockyards
Program that enforces it play an important role in American agriculture. The Office of Inspector General report was a disturbing reflection of weaknesses that are impeding our agency from carrying
out our mission. I am fully committed to establishing the policies
and creating the organizational culture that we need to promote
fair business practices and competitive environments to market
livestock, meat and poultry. Only through these changes can we
protect consumers and members of the livestock, meat and poultry
industry.
Thank you for the opportunity to address the committee, and I
am happy to respond to your questions.
[The prepared statement of Mr. Link can be found in the appendix on page 34.]
The CHAIRMAN. Thank you, Mr. Link. I should have made it very
plain that the issue raised in the OIG report preceded your leadership in this position, and the criticism that may be directed by this
committee toward the activities detailed in this report certainly are
not a reflection on you. I should have made that very plain.
Ms. Fong, we welcome you and look forward to your testimony.
STATEMENT OF PHYLLIS K. FONG, INSPECTOR GENERAL, U.S.
DEPARTMENT OF AGRICULTURE

Ms. FONG. Thank you, Mr. Chairman and members of this committee. We are very pleased to be here. It is a privilege to address
you on this issue of great concern to all of us, and we certainly ap-

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6
preciate your interest in the work that we have done. We are very
committed to assisting the department to move forward in its efforts to improve and implement this program in an effective and
efficient way, so we thank you for this opportunity.
Our written statement, which is provided for the record, provides
a detailed overview of our work in this area, so this morning I just
want to highlight for you the most important findings in our recent
audit report. As you have noted, we have done work in this area
over the last decade.
We issued a report in February 1997 that reported on the results
of our assessment, and at that time, we recommended that GIPSA
consider improving its monitoring of the market for anticompetitive
behavior by taking actions such as redistributing agency resources
among its national and regional offices, making greater use of its
economic staff in investigations, and increasing its consultation
with OGC and its attorneys. As you all have mentioned, GAO has
also done a report in this area which I am sure my colleague will
address, so I would like to move on and talk about our most recent
audit report that was issued in January of this year.
That audit report was done in response to a request from Senator Harkin, who wrote to us last year expressing his concerns
about the management and oversight of the Packers and Stockyards Program. Of particular concern to him was the number of investigations being conducted by GIPSAs Competition Division, as
reported in GIPSAs annual reports. As you know, the number of
actual investigations can be an indicator of the level of GIPSAs enforcement activity for a particular year.
So in response to this request, we initiated an audit to evaluate
GIPSAs management and oversight of P&SP. We focused on
GIPSAs actions to investigate and act against anti-competitive activities; to count and track its complaints; to improve program operations; and to improve its allocation of investigative resources.
To accomplish this audit work, we performed 6 months of field
work, both in headquarters and the regions, and we interviewed
over 50 GIPSA employees, which is a large number of people for
us to interview during the course of an audit. We released our
audit report in January to the committee, and we had four major
findings.
First of all, regarding P&SPs investigative tracking system, we
found that the system counted all P&SP activities as investigations, including administrative and routine activities, because there
was no better policy-based definition established. We also found
that records in the tracking system were not complete and there
were no procedures for validating the accuracy and completeness of
the information recorded. There were also variances among how
the agencys three regional offices classified activities as investigations.
To address these issues, we made some recommendations to
GIPSA: that it implement a policy that better defined what an investigation is and that it implement procedures for recording data
in its tracking system. GIPSA has taken action to address this.
They have issued a policy statement to accomplish this, and they
have agreed to implement procedures for tracking and validating
their investigative data.

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Our second set of findings pertain to GIPSAs management control over competition and complex investigations. We found that
during the period of our audit, P&SPs Senior Management Review
Panel, which was created to plan and conduct these complex investigations, was in fact inhibiting the agencys ability to investigate
anticompetitive activities. This was due, we found, to lack of an effective process for identifying the work to be performed, for approving work plans, for performing field work and analysis, and for reporting on results. As a result, complex investigations were not
being completed.
We made recommendations to GIPSA that it implement a welldefined investigation system that would communicate managements expectations to its staff about the investigative process, and
that the agency develop an organizational structure that better divided responsibility. Administrator Link has led GIPSA, in agreeing to these recommendations, and they have taken action to implement a revised structure in response.
Our third major finding pertains to our review of the agencys
control structure for making policy decisions and regulatory
changes. We found that while GIPSA had established a new policy
group in June of 2005, P&SP had not established an effective internal control structure for this group to receive and act on policy
questions that were raised by its own staff.
As a result, timely action was not being taken on issues that impact the day-to-day business practices and activities of producers.
There were numerous policy issues covering all types of P&SP investigations that did not receive adequate attention and were
awaiting decision. We made recommendations to GIPSA that it implement an approved structure to address policy issues and regulatory reform matters, and GIPSA has agreed to implement these
actions promptly.
Finally, our audit assessed GIPSAs implementation of prior IG
and GAO recommendations. What we found was that, in response
to prior review recommendations, P&SP had taken positive action
to reorganize its operations and enhance regional office expertise in
livestock species. They also took action to hire staff with the right
mix of skills: legal, economic, and statistical.
What our report found, however, was that the agencys actions
in these areas could still be improved. The areas that could be improved involved integrating economists into the investigations; establishing effective legal consultations with OGC; hiring an experienced manager to lead P&SP investigations; and developing more
of a teamwork approach for investigations, to involve economists
and OGC attorneys.
We recommended that GIPSA take further action to empower its
legal specialists to consult with OGC, and to develop a process to
make substantive changes regarding P&SP operations and internal
review functions. GIPSA again has accepted our recommendations
and has taken action or pledged to take action in response to these
recommendations.
In conclusion, I would like to recognize and thank Administrator
Link for his willingness to work with us in addressing these issues,
and for his resolution and ability to take prompt action. I would

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also like to recognize Secretary Johanns strong support for this
program and his commitment to resolving these issues.
I want to thank the committee for your interest in these issues,
and would be happy to respond to any questions.
[The prepared statement of Ms. Fong can be found in the appendix on page 41.]
The CHAIRMAN. Thank you.
Mr. Bertoni?
STATEMENT OF DANIEL BERTONI, ACTING DIRECTOR FOR AGRICULTURE, FOOD SAFETY AND SECURITY, NATURAL RESOURCES AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Mr. BERTONI. Good morning, Mr. Chairman, members of the

committee. I am pleased to be here today to discuss the Department of Agricultures management and oversight of the Packers
and Stockyards Act. Within USDA, the Grain Inspection, Packers
and Stockyards Administration or GIPSA is responsible for investigating unfair and anticompetitive practices in the $90 billion livestock market.
Prior reports by USDAs Inspector General and our office over
the last decade have identified substantial weaknesses in GIPSAs
investigation and enforcement activities and recommended actions
to address them. However, the most recent OIG report shows that
GIPSA still has not taken sufficient steps to address those recommendations.
My testimony today is based on our prior work, and focuses on
three specific areas: first, the factors that affected GIPSAs ability
to investigate anticompetitive practices; GIPSAs actions to address
our recommendations in areas where its efforts fell short; and,
going forward, other issues GIPSA should consider as it moves to
strengthen its oversight and investigative role.
In summary, several critical factors detracted from GIPSAs ability to investigate anticompetitive practices. First, its investigations
were initiated and conducted primarily by economists, without formal involvement of USDAs General Counsel, and often lacked a
legal perspective necessary to assess potential violations of the law.
Second, its investigations were designed for trade practices and financial issues it had emphasized for years rather than the more
complex, competition-related concerns it was now encountering.
And, third, while not a critical issue, GIPSAs efforts to inform the
Congress about certain industry activities that raised concerns
under the Packers and Stockyards Act were lacking.
We recommended that USDA integrate OGC attorneys into the
investigative process earlier; that they enhance the role of legal
specialists; that they develop a teamwork approach to investigations similar to the Department of Justice and the Federal Trade
Commission, where economists and attorneys work closely together
throughout the investigative cycle; and, finally, to adopt a more
systematic approach to case selection, planning, and conducting investigations.
USDA concurred with our recommendations and noted specific
actions it planned to take. We later testified that we were encouraged by USDAs positive response. Unfortunately, the 2006 report

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9
of the OIG identified substantial ongoing management weaknesses
and noted that GIPSAs actions to implement our prior recommendations were insufficient, especially in regard to integrating
OGC attorneys into the investigative process and developing a
teamwork framework for its investigations.
It is troubling that these plans which appeared to be carefully
laid out by USDA in late 2001 were never wholly or effectively implemented. Unfortunately, as the 2006 report makes clear, GIPSAs
Senior Management Review Group became a log jam for the
progress of investigations and contributed to delays in providing
policy and investigative guidance, the end result being a deterioration in GIPSAs investigative capacity.
As noted this morning, GIPSA has stated its intent to address
the new OIG findings as well as our prior recommendations. However, given its lack of progress in implementing report recommendations dating back nearly a decade, continued vigilance
and monitoring by the OIG and other oversight entities will be essential.
Beyond increased monitoring, GIPSAs success will also require
sustained management attention and commitment that has thus
far been elusive. However, we believe that such a focus is necessary
and will ultimately result in a more vigilant and skillful Federal
presence.
Finally, as GIPSA moves forward, it should consider assigning
lead roles to OGC attorneys for more complex anticompetitive investigations, a practice that we have recommended, and is also consistent with DOJ and FTC investigations. In going forward, it is
also possible that GIPSAs efforts to periodically inform the Congress about new anticompetitive activities could be further leveraged.
For example, GIPSA has initiated a study on livestock marketing
practices which will be issued later this year. While informative to
the industry and policymakers, this analysis could also help GIPSA
identify current and emerging areas of vulnerability and better target its investigative activities for the future.
Mr. Chairman, this concludes my formal statement, and I am
pleased to answer any questions you or other members of the committee may have. Thank you.
[The prepared statement of Mr. Bertoni can be found in the appendix on page 52.]
The CHAIRMAN. Ms. Fong, Mr. Bertoni, thank you for your thorough investigation and your issuing of this detailed report on this
issue that is critically important to this industry.
Mr. Link, GIPSA has traditionally provided Congress with an annual report detailing its performance and activities in both the
Federal Grain Inspection Service and the Packers and Stockyards
Program. In 2004 the P&SP Division of GIPSA did not provide
Congress with an annual report, and again failed to do so for 2005.
Based upon the findings in the 2006 OIG audit report, I think
it is imperative that P&SP reinstate its policy of providing Congress with an annual report, and I would hope that you would be
willing to do that in the future. Can you give us some idea about
when we might be able to expect that?

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Mr. LINK. Yes, sir. I was made aware of that quite recently, and
I have already enacted that this year there will be a report filed
from GIPSA that includes both Packers and Stockyards and Grain
Inspection.
The CHAIRMAN. Very good. Thank you.
At this time Senator Harkin has arrived, and Senator, we will
turn to you for any comments you might have to make, and if you
will, just proceed directly into questioning when you complete any
comments you wish to make.
Senator HARKIN. Thank you very much, Mr. Chairman. I apologize for arriving late. But I had read your testimony last night, Mr.
Link, be assured of that. And Ms. Fong and Mr. Bertoni, I read
your prepared testimonies last night. I just ask that my full statement be made a part of the record. I will just comment on it briefly, Mr. Chairman.
The CHAIRMAN. Without objection.
[The prepared statement of Senator Harkin can be found in the
appendix on page 30.]
Senator HARKIN. I just want to first of all commend you, Mr.
Chairman, for holding this hearing today to examine USDAs authority and commitment to enforcing this important law, the Packers and Stockyards Act.
Over a period of time I had heard from a lot of producers that
USDA was failing to act on their complaints of unfair and anticompetitive practices by packers. I was also hearing through various sources that USDA was purposely misrepresenting its enforcement activities to give the appearance that it was in fact enforcing
the Packers and Stockyards Act when it was not, so that is when
I asked the Inspector General to investigate. The Inspector General
found that USDA management was preventing employees from investigating complaints of anticompetitive conduct, and even covering up its inaction by inflating the number of investigations listed in its annual reports.
Again, Mr. Link, I read your prepared testimony and some of the
actions that you are taking. I commend you for that, and I hope
you proceed quickly to implement those, but I hope you will understand if I am a little skeptical. We have had promises before.
USDA has had a long history of agreeing to make changes and
never following through.
The Inspector General, at our insistenceand I dont mean just
me, there are a number of us herein 1997 the Inspector General
made recommendations to improve GIPSA at that time. The GAO,
Mr. Bertoni, in 2000 conducted another audit suggested those same
changes be made as recommended by the Inspector General. A
number of us provided funds. GAO said funds were lacking. Well,
we provided money. We provided funds to carry out GAOs recommendations in 2001. It is now 2006. None of those recommendations were ever implemented, even though we were told and told
and told that they were going to be done, and now GIPSA is in
complete disarray.
It is also troubling that while GIPSA was failing to enforce the
Packers and Stockyards Act, no one above the level of Deputy Administrator took corrective action. Where was the government oversight? Where was the GIPSA Administrator, the Under Secretary

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for Marketing and Regulatory Programs, or even the Secretary of
Agriculture?
Most importantly, though, what bothers me is, where was
USDAs Office of General Counsel? OGC has a history of inaction
on enforcement of the Packers and Stockyards Act. Surely the OGC
has a responsibility to enforce the law. I commend, again, the Inspector General for looking at this.
Now, again, we have some legislation that a number of us, bipartisan, have introduced to provide improved enforcement of the law.
I would like to hear from you, Mr. Link, on this. This legislation
would create an Office of Special Counsel for Competition Matters
at USDA, whose sole responsibility is to investigate and punish unfair, anticompetitive behavior in the agricultural markets. This
high profile person would be appointed by the President, confirmed
by the Senate, to create new accountability for enforcing the Packers and Stockyards Act.
The fact is that upper levels of USDA were unresponsive to the
problems at GIPSA, despite the fact that I and many others on
both sides of the aisle were sending letters to the Secretary pointing out that such problems existed, and the failure to implement
the past OIG and GAO recommendations, supports my assertion
that something is needed to change here.
And so I guess my first question to you, Mr. Link, would be just
that. I hope you are aware of this legislation that has been introduced. Like I said, it has some bipartisan support. With the low office morale at GIPSA, the rate of turnover, all of the things that
happened, please address yourself to the provision of the bill that
would set up a high level Special Counsel for Competition Matters,
appointed by the President, confirmed by the Senate, to create new
accountability for enforcing the Packers and Stockyards Act. Could
you address yourself to that, please?
Mr. LINK. Senator, yes, sir. Senator, the Administration has not
been asked their opinion of the bill at this point in time. I feel that
our agency has the capability to work within the guidelines that we
have now, to operate and be successful.
Senator HARKIN. Well, again, as I said, I like to hear that, but
I heard that in 1997. I heard it in 2000 under a previous Administration, I want to add, under a Democratic Administration, I heard
the same thing. So again, I am just a little skeptical, and I just
wonder if we dont need something else. The status quo just does
not seem to be working.
How has it been possible, Mr. Linkand I am sure you have investigated this, and I commend you, you have been more active on
this than anyone I have seen in a long timehow it is, in your own
words, how is it possible that GIPSA was in such disarray for so
many years but no one above the level of Deputy Administrator
ever took corrective action?
Mr. LINK. Sir, I am not trying to avoid your question, but I really
dont know enough about the history of the previous Administrators that were involved with GIPSA to really be able to answer
your question intelligently. Really all I can address is what I am
aware of after I came on board, and I am sorry, I dont know the
history.

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Senator HARKIN. Mr. Link, I hope that you and your staff will
go back and see what happened in 1997, in some of the hearings
we had then, and in 2000. This is not new stuff. It is new because
you are new, but sometimes it is interesting to go back and try to
take a look at what happened in the past, to inform you of where
you are right now. So I hope that you will take a look at that and
become more knowledgeable of what has happened in the last eight
or 9 years.
What is GIPSAs protocol right now, Mr. Link, for communicating
its mission and daily operations up through you to the Secretary?
What kind of protocol is that?
Mr. LINK. You mean from an inquiry from a producer, basically?
Senator HARKIN. Yes, for communicating what it is GIPSA is
doing, what kind of input is it getting in from producers, what kind
of requests are coming in, what actions are taken. How does that
get to the Secretary?
Mr. LINK. Well, first of all, when an inquiry comes in from a producer, lets say he feels that he was wronged at a local sale barn,
they will contact the regional office in which it occurred. The regional manager then makes a decision as to whether it will be investigated or not. We have clarified what is going to constitute an
investigation, a regulatory thing.
The team there then will decide whether action needs to be
taken. If that happens, then one of our RAs, resident agents, will
go out and start the process to look into this thing, to decide
whether yes, it is a violation, or not. If they determine it is, then
the team gets involved, with our legal specialist that we have
there, the economist that we have there, to determine what the infraction is. Then that decision is made with the Office of General
Counsel as to whether to move forward through that, and then it
comes, that case then would come to the headquarters for action
by the Office of General Counsel.
Senator HARKIN. Now, you may not have this information right
now, but would you provide it to the committee? Mr. Chairman, I
would like to ask that this information be provided. In the last 7
years, can you go back for the last 7 years and inform this committee how many requests for investigationI want to make sure
I get my terminology righthow many requests for investigation
came in regarding anticompetitive practices, and how many that
GIPSA referred?
I am told that GIPSA only referred two investigations over the
course of several years, but I dont know how many came in. I am
told they referred two, but I dont know how many came in, and
I would like to know what that was. Is there any recordkeeping of
that? I dont know.
Mr. LINK. I would have to go back and look. Part of the problem
that we had, and the OIG report pointed that out, was a breakdown in communication as to what the complaint was, whether it
was anticompetitive, whether it was check-kiting, and part of that
it would be difficult to point out. Some of these, also, we have to
realize that a complaint may be made and the evaluation looked
at and said, you know, This isnt a valid complaint. We dont need
to go forward with it. But that would be recorded.
Senator HARKIN. I understand that.

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Mr. LINK. So this is part of what we are addressing now with our
tracking system, is so that we can, if someone does complain, we
can enter that and tell where it is at any given time, and if it is
followed up on or not.
Senator HARKIN. Well, let me ask you this, Mr. Link, following
up on the Chairmans question on the annual report that you say
you are now working on developing. That might be a good thing to
include in that report, and I would ask that you do so, and if there
is any problem with that, I would like to know why you cant. Put
in your annual report how many requests came in and then how
many were referred on, and obviously we dont need to know the
disposition of every one, but sort of categorize them for us, so we
have some idea of what is happening there.
Last, Mr. Chairman, I just want to ask one question. For the
OIG, what was the cause of the dysfunctions at GIPSA? What
caused all this dysfunctional activity going on?
Ms. FONG. Well, I think it was a very difficult situation. As you
know, GAO and our office had done a number of reviews over the
years, and we pinpointed a number of areas where we thought
GIPSA should take action.
Our recommendations have focused on the need to have the legal
and economic and statistical expertise integrated as a team early
on in the process, so that those kinds of investigations are handled
appropriately. We also felt that there was a need to make sure that
the appropriate level of management attention was given to these
investigations.
Our review showed that GIPSA tried to take action to implement
our recommendations back in 2000 and 2001. They attempted to
hire more staff with the kinds of expertise that they needed. They
attempted to implement a structure where they would make sure
that the investigations moving forward had some quality control to
them.
Unfortunately, the efforts that GIPSA took to address our previous recommendations in fact inhibited their ability to really implement an effective program. We were told that there was such an
emphasis on trying to ensure quality in the investigative process
that that tended to create other issues, as detailed in our reports.
As a result, there were bottlenecks in the process and policy issues
were not addressed, and basically the program was not able to
move forward as it should have moved forward.
Senator HARKIN. Well, when a phone call is listed as an investigation, you know there is something wrong.
Mr. Chairman, you have been very kind. I have taken more than
my share of time. If we go around again, I would like to ask for
some time after others have had the chance.
The CHAIRMAN. Senator Lugar?
Senator LUGAR. Thank you very much, Mr. Chairman. I appreciate the focus of you and Senator Harkin on the procedures and
the expert testimony of our witnesses.
Let me take a little different tack. I come from a family in which
my grandfather and my father were involved in commission business at the Indianapolis stockyards from the 1930s to the early
1950s. As a boy I went out to the yards. I saw what they did at
5 oclock in the morning. They were with the packers, with their

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14
customers. I went with my dad out into the field to consult with
farmers about when their livestock should come in. He was their
advocate. They were his clients.
So that was obviously a different period with the stockyards that
came into being in the 1920s, but it was a highly competitive situation. Many bidders, although there were two or three large packers in Indianapolis which dominated the scene, but the price mechanism situation was very active.
Now, what I see described here is a situation which you have detailed in preparation for our hearing, our staff pulled together, in
which essentially in the 1990s, with the decade before this one,
there were 300,000 farms involved in hog farming, and this was
down to less than 100,000. I dont know what the figure is now, but
I suspect many fewer. And we are still maybe only 25, 26 percent
of the hogs by the turn of the century, 2000, were really involved
in a competitive market. This is the allegation, that the other 74
percent became involved with large packers dealing with large feed
lots.
And I think, you know, for the general public as well as Senators, we have to look at the heart of the matter. The allegation
is that concentration continues, that it is very substantial, and that
it inhibits price finding in a competitive way. And in short, that
deals are made outside the stockyards and they involve most of the
livestock, cattle and hogs, just sort of out of sight, out of mind.
What is left for the few that are still in the yards is also questionable, because at least in the alternative press, not in your testimony here, there are allegations literally that retaliation occurs
against some of these small farmers who protest that a deal is
being made. Now that is why the enforcement mechanism is of the
essence.
If I were Secretary of Agriculture, I would say, Listen, the integrity of the whole process is at stake here. This is not simply
whether GIPSA works or whether it doesnt, whether a few inspectors more are needed here and there, and whether the audits come
in quickly. This is sort of basic to the whole competitive aspect in
the industry.
And the allegation is being made that the Secretary of Agriculture has not taken that very seriously, not just this one, but this
certainly goes back for several years. If you were a conspiracy theorist, you would say that the large packers, the large farmers, really
have a friend in whoever the Secretary is. And so whoever down
in the weeds is taking a look at all of this, is going to be hobbled
by the fact that at the top level, the top guy doesnt say, you know,
Get to it. Lets make sure that there is integrity in the process and
we can se what is occurring.
Now at the end of the day economists may say, Listen, you dont
understand the way things are going. Whether it is dairy cattle or
regular cattle or hogs, the economic way to handle this is by having
very large production, very large feed lots. The logistics of all of
this ought to be evident to you.
This is the way our country becomes more competitive, and I
think we all understand that. We have all witnessed that in our
States. But this is of small comfort, that if you are still out there
with 50 hogs or 100 hogs or 200 or what have you in some sort of

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15
minimum lot, you may be in transition. The next generation may
not want to feed that number, may want to join somebody else.
And so I think we realistically understand the trends of things,
but we also understand the need for integrity and fairness and
somebody with the searchlight of truth, in essence. And as I understand, Mr. Chairman, this is why you and Senator Harkin have
called the hearing, so that in fact somebody says to the Secretary
of Agriculture, not just to you people, that this is very important;
that at least there are some people in the Senate who thing it is
important.
We may not be savants as to precisely how you get to it, although I support the thoughts that Senator Harkin has suggested.
Procedurally you have to do it in the rule of law. You need proper
counsel, proper investigations. But we also need some analysis by
the department. What is going on in these markets? Some overview
in terms of policy, whether this is good or bad for America, and
how in fact we protect at least those from any thoughts of intimidation or being outside the market.
So, having given this essay, I ask you, Mr. Link, if you have any
comment as to what kind of interest is there at the level of the Secretary or anybody else in the department? Are you sort of left alone
down there to do your duty as a new man on the job, full of vim
and vigor, but at the same time you are wondering what is happening upstairs?
Mr. LINK. The Secretary is committed to enforce the act and correct these measures that we are taking right now. The market reporting is a complex issue, and we are working on that right now
through this RTI study. Hopefully we will have that information by
the end of the year.
Senator LUGAR. About how many farms are left and how they
sell and so forth?
Mr. LINK. This is basically on how things are marketed, both
through the cattle and the hogs and the sheep industry. We are auditing not only the producers but also the procurers of this, the
slaughterhouses also, and hopefully that information will give us a
better picture of what we have. I think we are pretty well informed
now, but this will either confirm or deny what we know about how
the market is functioning right now.
Senator LUGAR. I hope you will share that with the Chairman
and the Ranking Member quite promptly, because we need that
data. The data we are looking at here is at best circa 1999, maybe
2000. We are way behind the curve, even in terms of the official
documents of our government, quite apart from what we have in
front of us today, so we dont want to deal with the anecdotal. We
need the facts, and I would hope that you would stress the urgency
of getting that information here, because this is a committee that
might want to take action on this.
Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Senator Lugar.
And, Mr. Link, I think as you can see, the emotions run pretty
high on this issue. This has obviously not been getting the attention at the department that the members of this committee think
it should be, and I would hope you would not only think through
the comments that Senator Lugar made, but stress that to the

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folks underneath you as well as above you, that we are serious
about enforcement of this particular act.
I dont know where we are going relative to this legislation. I
dont know whether the legislation put forward by Senator Harkin,
Senator Enzi, Senator Thomas, and Senator Grassley is a good idea
or a bad idea but I would encourage you to take a look at it. And
I would encourage you within the next 30 days or so to report back
to Senator Harkin your feelings relative to that particular piece of
legislation, because I have an idea that there is going to be a movement on the part of these folks to try to pursue some activity on
this.
So I cant overemphasize that I know you are the new man, the
new sheriff in town, and we appreciate that, but you have been
there for about 5 months now, and I would hope that you would
certainly move the ball forward and begin addressing the issues
that are out there, as well as this legislation, and do so with all
due haste so that we can start getting some positive answers.
Senator Salazar?
Senator SALAZAR. Let me just follow up on the question in terms
of attention at the higher levels, and I will direct this to the Inspector General, Ms. Fong. You obviously spent a lot of time doing this
report, and I commend you for taking the kind of straightforward
approach and developing recommendations that I know are harsh,
but I think they are real.
Do you have any thoughts about how we get this issue, which
has been hanging around the heads of GIPSA now for many, many
years under both Democratic and Republican administrations, at a
much higher level of attention within USDA?
Ms. FONG. Well, this certainly has been a difficult issue for the
department. Just to reiterate our experience in the Office of Inspector General, when Senator Harkin sent us his request last spring
that we look into this program, and he detailed first the reasons
for his concern, we immediately briefed the Secretary on it. We told
him that there was a great deal of concern on the part of the committee, and that we were going to initiate the work. We kept the
Secretary apprised of our findings as we uncovered them, and he
expressed to me his full support for addressing these issues.
So that is our experience in terms of how the upper levels of the
department are viewing these issues. We have been told that it is
of prime concern to the Secretary.
Senator SALAZAR. Let me just follow up with that question. I
think that the essence of your findings here is that there has been
a systemic failure in terms of the enforcement of the law, and I am
trying to figure out what the motivation of that systemic failure is.
As Senator Lugar said, and I have the most admiration for him,
the allegation might be made that those who have the economic
power in this industry now have a good friend in the position of
Secretary of Agriculture, regardless of which administration has
been in power. Just given the systemic failure that you identified
in your report, do you sense that that might have been the case?
That there is took much of coziness, if you will, between those who
control 80 percent of the market and whats happening in the Secretarys office?

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Ms. FONG. I can understand that that question would be on the
table. When we did our review, we performed extensive field work.
We visited all the field offices and talked with over 50 GIPSA employees. We talked with officials at headquarters. And during our
field work, the issue of improper influence or undue influence was
never raised with us.
It has been our experience when we do reviews that if there is
a concern about improper motivation or lack of interest, those
kinds of concerns are put on the table by someone. In this case we
did not hear that kind of concern raised. We focused our review on
the systems and the processes that we felt required attention, and
basically found the systems were in disarray.
Senator SALAZAR. Ms. Fong, in your conducting of your review
and developing your report, I know you spoke to many of the employees of GIPSA out in the field to develop your findings and your
recommendations. Did you speak as well with people within the
Secretarys office, and try to get their assessment as to why we
were having these kinds of problems in the enforcement of GIPSA?
Ms. FONG. To the best of my knowledge, we did not. We focused
on GIPSA primarily because the scope of our work was to identify
what was going on with regard to how investigations were being
handled, and how the recordkeeping processes and the approval
processes worked within GIPSA itself. At the point where we came
up with our findings, which we felt were very significant, we
stopped our field work and wrote our report, because we thought
it was important to surface these issues as soon as possible. So we
did not expand the scope of our audit beyond GIPSA.
Senator SALAZAR. Let me just ask you one more question. One
of the things that I think you found was, there were some 1,800
inquiries or investigations that were being cited by GIPSA that
they were working on, but in fact only two or maybe three investigations had really moved forward.
And one of the recommendations in your audit is that a standard
come forward from GIPSA that would determine what is, you
know, just a phone call, what might be just an inquiry, versus
what is an investigation. Did you provide recommendations on
what kind of standard it is that GIPSA might be able to use with
respect to that definition of what is an investigation versus just answering a phone call?
And, Mr. Link, if you would answer that question, too, relative
to how you intend to define that standard for what is an investigation versus just picking up somebodys phone call that somebody
might answer.
Ms. FONG. Yes, we did address that issue. We found that things
that were classified as investigations under the old system ranged
from, as you point out, dealing with phone calls or reviewing paperwork within the office, including field visits to field locations. We
recommended that GIPSA make an appropriate delineation between what was truly investigative activity versus more administrative oversight or routine correspondence activity.
Senator SALAZAR. Mr. Link?
Mr. LINK. Yes, this is one of the things that we have already
done. We have spelled out what constitutes an investigation, and
then what other activities are regulatory. The majority of our ac-

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tivities are regulatory: getting annual reports, reminding, checking
bonds, this type of stuff.
Senator SALAZAR. What would you say is an investigation versus
a regulator monitoring action? How would you define an investigation, Mr. Link?
Mr. LINK. Well, if there is a complaint for late payment or a bad
check, something like that, that would instantly be an investigation. But again, we do a lot of annual things, like annual reports,
checking bonds, checking custodial accounts, that type of stuff that
is part of the regulatory action but it doesnt really require an investigation. Or if it is an inquiry, somebody calls in to ask about
some order buy or something like that, those arent counted as investigations. Those are part of the regulatory action.
Now, what actually has to have someone go out or come into the
field office, that requires looking into, then that is. We classify that
as an investigation. We follow their guidelines almost to the letter.
Senator SALAZAR. If I may, Mr. Chairman, just a quick comment.
It seems to me that Senator Lugars point is a very important point
in terms of what has happened in the market out there, with now
having 80 percent of the market concentrated among four packers,
and how that economic reality of our times is affecting our agricultural industry and our independent livestock producers is something which is just a reality. I mean, I dont know that I know
what the answer is to how we deal with that issue, but it is something that would be important, from my point of view, for us as a
committee to have a better handle on, also for the Department of
Agriculture maybe to give us some guidance on that particular
issue.
And the second comment I would make, Mr. Chairman, is that
it seems to me there is a management disconnect somehow between the Secretary of Agriculture and what is happening in
GIPSA. So notwithstanding that over the years the Congress will
make all these recommendations and suggestions, we dont seem to
be moving the ball forward in terms of improving the enforcement
of GIPSA.
And I think all of us here, Mr. Link, want you to do your job
well, and want to support you in doing your job well, but it seems
that there is a management disconnect somehow between GIPSA
and the Secretarys office.
The CHAIRMAN. Point well taken.
Senator Thomas?
Senator THOMAS. Thank you, Mr. Chairman. I will try and stay
within my time here.
It seems like the purpose of the Packers and Stockyards Act is
fairly well defined: maintaining competition, banning price discrimination, manipulation of prices and those kinds of thing, misrepresentation of sources and that. So I assume that that is your
responsibility.
Mr. LINK. Yes, sir.
Senator THOMAS. What do you think are the biggest obstacles?
I hear from my friends that apparently most people dont believe
it has been administrated properly. What do you think are the biggest obstacles to accomplishing what is clearly set out here?

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Mr. LINK. Well, I think we have addressed them. Like the OIG
report, I think there was a breakdown of communications, kind of
a case where the left hand didnt know what the right hand was
doing, and it slowed the process down.
I think the steps that we have taken to smooth that out, to make
sure everybody knows where they fit into the picture so that they
can move things forward at a much more rapid pace, will be very
helpful, and closer attention to detail. I am kind of detail person,
and I have become intimately involved in the operations since I
have been here.
And I think clarifying to everybody how they fit into the picture.
Some of the strides that we are taking in response to the earlier
reports about putting legal specialists in the field and economists
in the field, I think there was a little disconnect there that we are
fixing, to where they are making more of the decisions at the local
level, so they are more in tune to what the problems are on the
local level rather than sending them forward to the headquarters
to be dealt with at this level.
Senator THOMAS. Thank you. Ms. Fong, I understand or I would
think the Inspector General means oversight of activities to see if
they in fact are being done thoroughly and properly. Why do you
suppose it has taken so long, if in fact what I hear here is the case,
for 10 years? Who is responsible for coming up with some solutions
to these things or causing things to change?
Ms. FONG. Well, I think we have addressed our recommendations
to the department, to GIPSA and its Administrator, and certainly
oversight should be provided at the Under Secretary level to make
sure those things happen.
Senator THOMAS. What is your responsibility to see that they do
happen, if they are not happening?
Ms. FONG. Well, our responsibility is to periodically review and
evaluate what is going on, and to report to you and to the Secretary what we see.
Senator THOMAS. And do you feel as if that has been done thoroughly?
Ms. FONG. I believe that our audit work has been very thorough
in terms of the issues that we have looked at. We were responding
in this particular case to specific questions that were raised to our
attention by the ranking minority member here, and I believe that
we addressed those questions very thoroughly.
Senator THOMAS. That is good, and I am glad to hear that, but
I would think regardless of the minority member, your responsibility is to see that it is carried out in accordance with the provisions of the act.
Ms. FONG. Yes, you are absolutely right, and our oversight continues. It doesnt end when we issue an audit report. We do engage
in continual conversation with the agency as to how they follow up
on our recommendations.
Senator THOMAS. I understand.
Why is the Natural Resources and Environment Team involved
in this?
Mr. BERTONI. We have the agricultural issues in NRE, and we
have done prior work on this issue also. We issued a report in 2000
on this.

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Senator THOMAS. Thank you. Thank you very much.
The CHAIRMAN. Senator Nelson?
Senator NELSON. Thank you, Mr. Chairman.
Inspector General Fong, I am going to relate a bunch of words
that begin with the prefix in. In dealing with GIPSA, in your report you didnt conclude that they were indifferent or incompetent,
but that there were some systems that were inadequate. Is that an
appropriate conclusion for me to draw from looking at your report
on GIPSA?
Ms. FONG. I think that is a fair statement.
Senator NELSON. Is it also fair to say that in some respects their
effort was incomplete and inadequate?
Ms. FONG. That is also fair.
Senator NELSON. Well, to use another word, Mr. Link, when you
come back here at our invitation, I assume that all these in words
will go away, and that you will be able to come back with adequate,
complete action and the like, or I can suggest to you that you will
be in hot water.
[Laughter.]
Thank you, Mr. Chairman.
The CHAIRMAN. Again, well stated.
Senator Harkin?
Senator HARKIN. Thank you, Mr. Chairman, and I wanted to follow up on Senator Lugars very probative discourse a little bit ago.
I thought, when he started talking, some bells went off in my head.
I started remembering some things, so I asked my staff to get me
a letter.
And I am going to ask that this letter be included in the record,
Mr. Chairman. It is a letter I received in response to an inquiry
that I had made 2003, January 14th. It is a letter to me dated February 24, 2003, from Bill Hawks, Under Secretary for Marketing
and Regulatory Programs. Are you ready for this? This is his letter
to me:
Given the rapid changes in industry, it is important to note that
the Packers and Stockyards Act has not undergone a thorough review since its passage over 80 years ago. While most of the provisions are sufficiently broad to address emerging needs of market
participants, there might be changes to the Packers and Stockyards
Act that would be appropriate to address the major changes occurring in technology, marketing, and industry business practices.
GIPSA is undertaking a top-to-bottom review of the Packers and
Stockyards Act and its regulations to help ensure that the Packers
and Stockyards Act continues to help assure a healthy, efficient,
fair, and competitive market for everyone competing in todays livestock, meat packing, and poultry industries.
It is 3 years later. I havent seen one iota of anything come out
of this. Do you happen to know what happened to that top-to-bottom review at all, Mr. Link? I will bet it is the first time you ever
heard of this, probably.
I dont know, Ms. Fong, did you, in your investigation, did you
find out anything at all of what happened to this so-called top-tobottom review?
Ms. FONG. I am not aware of that.

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Senator HARKIN. I am just saying that is why I agree Senator
Lugar is right on this. I mean, there needs to be something brought
up-to-date on this, to make sure that we are doing what needs to
be done in the present situation, present marketing practices, to
provide that we have transparency in competition.
I just wanted to read one other thing. I just want you to know
that this is not somethingand, by the way, the legislation has
three Republicans and one Democrat. I seem to be lonesome on my
side on this right now. I hope to get some more. But this is the one
calling for a special counsel. I had said that in my letter at that
time, and here is the response from Mr. Hawks:
Regarding a Special Counsel for Competition, we believe a special counsel in USDA would not benefit USDA or agriculture. Competition issues can affect all parts, he goes on, and basically they
are saying they have got all the authority they need. So again you
can see why I might be a little skeptical. We have been down that
road before, and we were told 3 years ago we didnt need it. They
were going to do all this stuff, and nothing has ever happened.
And so again, Mr. Chairman, I just think that we need to proceed on this. I hope that you will follow through, and I think Ms.
Fong has done an outstanding job. I shouldnt say you particularly,
but your whole department, the IG and the investigation has done
a good job. I would say the same with GAO, too.
But one last thing I just wanted to bring out. I had hoped that
maybe we might, Mr. Chairmanand I am sorry I didnt mention
this to you, I am at fault on this, trying to get Ms. Waterfield to
testify, but I didnt request it. She has resigned, I know. She is no
longer there.
But for the Inspector General, just for the record, I just want to
say, do you feel, given the past Deputy Administrators actions or
inactions, basically actions, that there should be any further action
regarding her?
Ms. FONG. I am not sure what further action could be taken. And
the reason I say that is, as you mentioned, she has resigned. During our review we looked very carefully at what she did, and how
she managed her operation. What we found, we would characterize
as tremendous mismanagement. She told us that she was motivated by trying to make sure that the investigations that moved
forward were of high quality. Her motivation was to ensure quality
in the program, and so she instituted a number of measures that,
as we have seen, backfired in a sense.
We did not find any evidence that would lead us to make a referral to our investigative side of the house. In other words, we did
not find any indication of criminal conduct, as it were. And so I am
not sure what further action could be taken at this point.
Senator HARKIN. Well, are you, in your investigation are you confident that the people above her were not aware of or were not
complicit in some of the actions that she was taking? It just seems
to me that over all this time, with the things that she was doing,
what was happening above her? Was there any oversight? Were
there any communications? Or was she just out there on her own?
Ms. FONG. We had no evidence that there was tremendous involvement from the ranks above her, in any kind of sense. The Administrator position had been vacant for a number of months, and

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so there was an Acting Administrator for a period of time. The
Under Secretary position has been vacant for a period of time as
well. And so I think that created a situation where perhaps there
werent the levels of review that would normally exist.
Senator HARKIN. Just in closing, Mr. Link, I would ask you again
if you will go back and try to find out what happened to that promised review. Was anything done? I dont know. It was said in the
letter that they were going to do this top-to-bottom review and everything. I just dont know how far it got.
Maybe if you go back and have some of your people look back in
the files and find out what happened to that promised review, and
if there were any findings from that at all. I mean, maybe a review
was done and some findings were made but never communicated
to us. I dont know. Could you go back? And, Mr. Chairman, I
would ask that you formally to do that, and try to get whatever information you have on that back to the committee here.
The CHAIRMAN. Senator Lugar?
Senator HARKIN. Well, I dont know that I have anything else,
Mr. Chairman.
The CHAIRMAN. You want to think about it a minute?
Senator HARKIN. Yes, yes.
The CHAIRMAN. Senator Lugar?
Senator LUGAR. Mr. Chairman, I wanted to comment that obviously our witnesses today are taking the brunt of all these questions, and at the same time we are commending them for their conscientious activity. I think in fairness there is some shared responsibility.
And Senator Harkins letter to the Secretary in 2003 sort of reminds me of hearings even way back in the ancient history of my
chairmanship, in which we were trying to probe what is going on
in the stockyards in America, what is happening in the cattle and
hog markets. Obviously it was of great interest to not only me personally but members of our committee, and it is apparent that not
much has happened in the intervening period.
This is why I think the Secretary and each of you have to understand, it is not that I have some brief in conspiracy theories, but
the facts are that as you pointed out, Mr. Link, you are pulling together some very important information about concentration in the
markets. How many farmers are actually left as competitors in
these situations? And what are the realities, if we look at the local
level, of the pricing mechanism? The perception and the reality of
the fairness of that?
Now, you know, for this committee to act appropriately, we also
need to be updated. Not every member of the committee, myself included, really understands precisely who is in the market now and
what their perceptions are. It may be the Stockyards Act itself
needs substantial amendment, quite apart from the agency that
you are trying to regulate. It could be that, as Senator Harkins letter suggests, and the response from Secretary Veneman, that a lot
has changed, a whole lot.
Now this committee, say in dealing with the commodity futures
markets, has recognized that. We have had regular amendments of
statutes because those markets are dynamic and they have
changed abnormally in a very short period of time. I dont see the

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same activity in the livestock markets, or the same recognition of
what is actually occurring in agricultural America.
So even as we charge you with being very diligent with whatever
this act is now, and it may have been just as inadequate 10 years
ago as it is now, in order to get something that is up-to-date, we
really need to understand the markets and the feelings of people
who are in these markets. Otherwise we are going to have political
arguments that are based not on the facts but on emotions and
feelings of unfairness, and that will not be healthy for the USDA
or for us or for, more importantly, the constituents that we serve.
And I think you understand that, but I just wanted to underline
my concern once again, to get us the facts, to try to think through,
is the act that we now have adequate really to meet these particular circumstances in 2006, as opposed to what they may have
been at any one point in our history?
Thank you, Mr. Chairman.
The CHAIRMAN. Senator Harkin?
Senator HARKIN. Mr. Chairman, I just have one last question for
the record.
Ms. Hobbie, how long have you been in your position?
Ms. HOBBIE. I have been the Assistant General Counsel in the
Trade Practices Division since 1994.
Senator HARKIN. Well, since GIPSA was not performing anticompetitive investigations, few or no referrals were being made to
the Office of General Counsel for administrative action for several
years, as I pointed out earlier. Ms. Hobbie, didnt you find it odd
that GIPSA only referred two minor competition investigations to
OGC over the course of many years?
Ms. HOBBIE. Senator, since the Grain Inspection, Packers and
Stockyards investigators and legal specialists were not talking to
the Office of the General Counsel very freely about the kind of investigations that they were doing, we took what investigations
came our way for referral for enforcement. As you have indicated,
between November 2004 and the present there wereexcuse me,
November 2002 and the presentthere were only two. Both those
cases we have acted on. I really have no answer beyond that, that
we acted on what came to us.
Senator HARKIN. I am just saying you never found it odd that
only two minor cases were referred to you on this? I mean, you
have been there a long time. Wouldnt that kind of raise some
questions in your mind?
Ms. HOBBIE. It was my understanding in conversations with the
agency that they were investigating competitive matters, and so I
expected to receive referrals. I suppose it would be correct to say
that I was surprised.
Senator HARKIN. Well, if you were surprised, did you ever contact
anyone such as the Under Secretary or the Secretary or the General Counsel, that GIPSA was failing to refer competition investigations.
Ms. HOBBIE. Senator, I didnt know that they were not referring
investigations that would rise to the level of showing a potential
violation of the act. I knew that they were doing investigations.
Often it is the case that when the agency conducts investigations,
they will determine that in fact the investigation does not rise to

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24
the level of a violation of the act, or in talking to the subject of the
investigation as the investigation proceeds, they are able to achieve
compliance without referring the case for enforcement.
Senator HARKIN. But, Ms. Hobbie, you are in a key position in
the Office of General Counsel. You have been there a long time.
You know what is happening out there. You read the press, and
you read the agricultural press. You know how many requests
come in.
In 2000 the GAO said the Office of General Counsel and GIPSA
must coordinate better. This exchange further shows a breakdown
and failure to do what should have been done a long time ago. So
you had that information, and it would seem to me thatas you
said, you were surprised.
Do you feel it is your obligation in your position to question this,
perhaps to the Under Secretary or even to the General Counsel? I
mean, if you were surprised, I mean, did you make any inquiries
about this at all during this period of time?
Ms. HOBBIE. During this entire period of time my office and the
Office of the General Counsel was working with the agency to some
extent on investigations that they were pursuing. The investigations that we were working on sometimes did not proceed to come
to us in a formal referral for enforcement. In those cases there
were generally reasons that the case did not come to us for enforcement. There was no reason that I could see to believe that the
agency was not pursuing those cases where there were potential
violations of the Packers and Stockyards Act.
Senator HARKIN. But to have only two referrals to your office
over this period of years, as you said, came as a surprise to you.
Ms. HOBBIE. Only two competition referrals, Senator. Over the
past, since 2003, there have been referrals of almost 100 enforcement cases under the Packers and Stockyards Act, and we have
filed 74 enforcement actions under the act in that time period.
There was plenty of enforcement activity going on under the Packers and Stockyards Act.
Senator HARKIN. But in terms of the referral of anticompetitive
activities, as I understand, there was only two referrals. Now, you
may have been doing some other things on your own that I may
not have known about. I dont know. But with regard to the referrals from this office, you only had two.
Ms. HOBBIE. The Packers and Stockyards Program has three different categories for cases. One category are the financial cases; the
trade practices cases; and the competition cases. Over the period
that I mentioned we got referrals from all of Packers and Stockyards, that is, all three of those areas, of almost 100 cases.
Senator HARKIN. Going back to what year?
Ms. HOBBIE. Going back to fiscal 2003, and we filed complaints
in 74 of those cases.
Senator HARKIN. But those were in what areas?
Ms. HOBBIE. Two of themone of those would have been a competition case. The others would have been probably in trade practices enforcement, things like failures to pay, insolvency, false
weighing, various kinds of fraud.
Senator HARKIN. OK. I understand. I just wanted to get that
clear. What we are here about, I think, well, at least what I am

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here about today, I cannot speak for others, is the anticompetitive
aspects. That is what we are about, and that is I think sort of what
all these letters and these hearings were about.
We are not into this other stuff. I mean, those are other things.
We are into the anticompetitive aspects of this, and that is what
we are trying to focus on. So please dont try to say that you are
doing all these things under Packers and Stockyards. You may be,
in these other areas that have to do with those other issues that
you are talking about. We are talking about the issue of competition.
Ms. HOBBIE. Yes, sir, and in competition cases, there were two
cases referred to us for enforcement and we acted on both.
Senator HARKIN. I have said that repeatedly, Ms. Hobbie, and all
I have gotten from you is that you were surprised about this. And
I am just asking, dont you feel it is your obligation, as a public
servant, dont you feel that it is your obligation that if you are surprised, if you see something you dont think is working right, that
you should talk to your superiors about it, or the Under Secretary?
I mean, you are in the General Counsels office. Or do you just
wash your hands of it and walk away?
Ms. HOBBIE. Well, Senator, with all respect, to say that I was
surprised does not mean that I thought that anything was being
handled incorrectly or that there was any wrongdoing. What happened was, the agency did not refer to us competition cases for enforcement. I did not believe that there were cases of alleged violation of the Packers and Stockyards Act that were going unreported
or unacted upon. I did not believe that to be the case.
Senator HARKIN. So why were you surprised? Were you surprised
that there were two and there shouldnt have been any, or were
you surprised that there should have been more? What could have
surprised you?
Ms. HOBBIE. I was surprised. I was surprised only in that I did
not get more requests from the Packers and Stockyards Program
investigators and legal specialists for assistance in a competition
investigation. I had little or no knowledge of the type of investigations they were doing, because free communication with the Office
of the General Counsel was not encouraged by Packers and Stockyards management.
Senator HARKIN. Thank you, Mr. Chairman.
The CHAIRMAN. Senator Salazar?
Senator SALAZAR. May I just ask one question of you, Mr. Link?
Your are now the Administrator and the Honorable James Link, in
charge of this program, and no doubt you have inherited here some
very important, significant, difficult challenges, and I think, as
Senator Chambliss said earlier on, you are the new guy on the
block, the new sheriff in town.
Can you just tell me what maybe your top two priorities are, as
you assume this position as Administrator? I ask you that question
in my context and background as Attorney General, where on my
non-criminal side of life I had a number of consumer protection
laws that I oversaw, antitrust laws, and I had to make decisions
about where my priorities would be in consumer protection because
I couldnt do everything. So in my own case in Colorado, among
other things, one of the targets for me was going after senior fraud.

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In your case now as the man at the top, being in charge of this program that has been in existence now for over 8 years, what would
you say would be your one or two top priorities?
Mr. LINK. Well, I will give you both one and two because they
changed in December. My first priority now is to correct the inadequacies that is going on and to get smoother investigative reporting going on and tracking this, so that we get it back into what we
want it to be as far as the agency goes, get the right people doing
the right thing at the right time so that we will move forward.
My second priority is to update some of our regulations, to address what Senator Lugar was discussing about bringing some of
the activities up to the time. And I have started that a little but
I have been distracted some, working with Office of General Counsel, because we do have regulatory authority to address some of the
changing times.
And that is one of the things that I would like to do, is to update
our regulations to bring them into the times that we have now, to
address the marketing changes that have occurred recently, the differences in the value of the livestock that we are dealing with now
as opposed to the last time that was dealt with, and basically find
better ways to protect sellers on the open market.
Senator SALAZAR. I would hope that as you move forward with
both of those priorities, that you keep me updated as one Senator,
and I would expect that the committee would probably also be very
interested as you take on both of those major initiatives. Thank
you very much.
The CHAIRMAN. Mr. Link, again, just to repeat myself, you can
see that there is a lot of keen interest in this issue. And while we
know you are still getting your staff together and getting your
ducks in a row, so to speak, down there, it is critically important
that we continue to move forward.
I am going to ask that staff send you a copy of this letter. I am
sure you could probably find it, but just to make sure you have got
it. I would like for a copy of your letter, Tom, to the department,
plus the departments response to you, be sent to you, Mr. Link,
and that you make a review of your files within your office and respond to us within 30 days as to whether or not there was any review. If there wasnt, let us know that, and what may be your intentions in that regard with reference to a review of GIPSA.
Second, I would request that within 90 days that you give us a
written report regarding the implementation of the suggestions and
recommendations coming from both OIG as well as GAO, and that
will be in lieu of us reconvening a hearing, unless Senator Harkin,
you think it might be necessary, upon receipt of that written information, that we reconvene another hearing.
We dont want to take any more of your time than we have to,
but this thing has been going on too long, and we are not getting
the responses that we need. In fact, we are not getting responses,
period. And again, I am not throwing this in your lap because you
are the new sheriff down there, but as the new sheriff we expect
you to provide the leadership that brings this issue to the forefront,
and that the information that the committee requests be given to
the committee.

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So, Mr. Link, if you will do that, both at the end of 30 days and
the end of 90 days, give us those respective pieces of information,
we will certainly look forward to hearing from you.
We are going to leave the record open until Monday in case anybody has any additional questions. I think Senator Grassley may
have some written questions that he will propound to any one of
the three of you, and I would ask that you certainly get those responses back, if there are any questions, within 30 days.
Thank you very much, and this hearing is concluded.
[Whereupon, at 12:05 p.m., the committee was adjourned.]

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APPENDIX
MARCH 9, 2006

(29)

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