February 5/ 8:30AM

Testimony
of
Secretary of Agriculture Dan Glickman
before the
Special Committee on the Year 2000 Technology Problem

Year 2000 and the Food Supply

Mr. Chairman and members of the Committee, thank you for inviting me today to talk about the effect of the Year 2000 problem on our nation's food supply.

Almost every day USDA receives questions from citizens concerned about the potential effect of the Year 2000 problem on the food supply. People want to know whether food will be available on, before, and after January 1, 2000. This is a legitimate question to ask and one that the Department of Agriculture, which chairs the Food Supply Working Group of the President's Council on Year 2000 Conversion, has spent a great deal of energy trying to answer.

The Food Supply Working Group is co-chaired by the Under Secretaries for Food Safety, Farm and Foreign Agricultural Services, and Marketing and Regulatory Programs. It includes representatives from the Departments of State, Health and Human Services, Defense, and the Commodity Futures Trading Commission. The working group also includes representatives from USDA agencies whose activities sustain the food supply. All of our agencies are reaching out to their constituents to raise their awareness of the problem.

I am pleased to report that based on the information we have collected to date, the Food Supply Working Group does not believe the Year 2000 problem will cause widespread, or severe, disruptions in the food supply. It is most likely that the year 2000 problem will result in some minor effects, localized by region or by a particular food product.

As part of the President's Council on Year 2000 Conversion, the Food Supply Working Group's job is three fold: 1) raise awareness of the Y2K computer problem and the threat it may pose to our nation's food supply; 2) working with industry, assess the state of readiness of the food sector; and 3) conduct prudent contingency planning to address any problems that might occur. Most importantly, the Food Supply Working Group is focusing on the results it wants to achieve. That is, assuring that on, before, or after January 1, 2000, American farmers and ranchers continue to have the capability to sustain production and move commodities to market and American consumers continue to have access to a safe and affordable supply of food.

Y2K State of Readiness of the Food Sector is Encouraging

The state of readiness within the food industry is encouraging. The Food Supply Working Group's initial analysis suggests that the American public can be confident that the major domestic companies, which provide most of the key foods, will continue to operate in spite of the Year 2000 problem. An interruption in the food supply so severe as to threaten the well-being and basic comfort of the American public is unlikely.

Assessing the Y2K state of readiness of the nation's food sector is a daunting task. To make the task more manageable and more meaningful to American consumers, the FSWG identified and concentrated on production that is ongoing in midwinter, such as fruit and vegetable growing and meat and dairy processing; basic foods most frequently consumed in midwinter; basic foods most vulnerable to system disruption such as perishable products with short shelf life; and food processing and distribution industries whose processes are automated or date dependent.

Farmers and Ranchers

To determine whether the Y2K computer glitch will affect our nation's food supply, our analysis started on the farm. USDA's National Agricultural Statistics Service (NASS) recently completed a survey, using a representative sample of approximately 1500 farmers and ranchers from across the country, to determine how vulnerable farm operators are to the Year 2000 problem. The survey shows that most farmers do not use automated systems -- those systems which are at risk -- in their farming operations. Most of those that do are taking steps to address the Y2K problem.

The survey results, released by NASS today, show that 81 percent of U.S. farmers are aware of the Year 2000 problem. Sixty eight percent of farmers realize that it could disrupt automated farm systems; however, only 32 percent of farmers use automated systems -- most of these are used for record keeping. Only a fraction of all farmers-about 2.5 percent-use automated systems such as feeding systems; storage systems; milking systems; heating, cooling or ventilation systems for livestock; and global positioning systems in the production process. Most of those who do use such systems have inventoried their systems for Year 2000 problems and are in the process of fixing any problems. Of those farmers who have either fixed or are attempting to fix their Y2K problems, 54 percent estimated that the cost will be less than $1000, while 22 percent were unable to estimate their costs.

Of course, these conclusions assume that other systems on which producers and all of us rely, including power, water, telecommunications, transportation, banking, and others continue to operate without disruptions. However, the Year 2000 news from America's farms and ranches appears to be very good - there is no reason to anticipate any decline in the productivity of American agriculture, at least not due to Year 2000 problems that may occur on the ranch or the farm.

Rural Utilities

With responsibility for rural business and infrastructure development, USDA has given careful attention to the Y2K readiness of rural utility providers. In February 1998 the Rural Utilities Service (RUS) started surveying its telecommunications and electric borrowers to determine their level of Year 2000 preparedness. As of January 6, 1999, RUS had received responses from 416 electric cooperatives and 457 telecommunications cooperatives and companies, representing just over 50 percent of their total borrowers. Eighty percent of electric cooperatives and 88 percent of the telecommunications cooperatives and companies indicated full compliance or specific plans for full compliance by January 1, 2000.

RUS's field representatives are making personal visits and telephone contacts with all electric and telecommunications borrowers who did not indicate when they plan to become compliant to determine their status and offer assistance. As you know, these utilities are also being monitored by the utilities industry and the Energy Working Group headed by the Department of Energy.

Major Food Companies

Our assessment also covers food processors and distributors which play an important role in getting food grown on the farm into the hands of consumers. The FSWG contracted with the Gartner Group, a world-wide business and information technology advisory company noted for its expertise in the year 2000 problem, to assess the sate of readiness of many of the major companies that provide consumer-ready food products. The Gartner Group study focused on the largest producers and distributors of the foods most consumed in the winter months. The study examined companies that control significant market share of 19 key food groups, including milk, meat, bread products, fruits and vegetables, and infant food. In most cases, the companies the Gartner Group surveyed collectively account for over 50 percent of the market share of their respective food groups. The Gartner Group also collected information on agriculture input suppliers-- the major seed, fertilizer, and feed producers who control 40 to 60 percent of the market for these products-- and data on major food service wholesalers, general line grocery wholesalers, and food retailers representing between 30 percent and 50 percent of the food service wholesale/retail market.

The Gartner Group concluded that these companies are "making satisfactory preparations and should be well prepared to sustain operations despite any interruptions caused by the century date change." They point out that "while few of these companies will be immune from any interruptions, it is unlikely that these interruptions will be much more than moderately distributed, minor disruptions that will be resolved within a few days' time." At the same time, the Gartner Group did not see evidence that these companies are focusing sufficient attention, as yet, on contingency planning which will be critical if their remediation efforts are not fully successful.

Transportation Companies

Because transportation is such a critical link throughout the food supply chain, USDA's Agricultural Marketing Service (AMS) studied the Year 2000 state of readiness of the transportation sectors affecting the U.S. food supply. These included railroads, barges, air carriers, motor carriers, U.S. and foreign ports, and container ships. The study found that, overall, most of the transport sectors which distribute food throughout the United States and to our trading partners overseas are actively addressing the Year 2000 problem. As is apparently the case with most industries, the study found that smaller companies, such as independent truck owners, freight forwarders, and short line railroads, are most behind in addressing the Year 2000 problem. However, in the transportation sector these firms are increasingly being forced to fix their Year 2000 problems because of the assessment and remediation work being undertaken by larger carriers who cannot operate without them, and who are questioning whether or not the smaller companies they interact with are compliant.

The Food Supply Working Group also assessed the vulnerability and readiness of foreign suppliers and markets which are important to U.S. consumers and vital to the overall health of the U.S. agricultural economy. Attaches of the Department's Foreign Agricultural Service (FAS) gathered information from foreign government officials, industry associations, and private companies on Year 2000 preparations in 81 countries which account for roughly 97 percent of U.S. food imports and 95 percent of U.S. exports during the first quarter of the calender year.

The working group's initial assessment found that key foreign markets for U.S. food products will likely have a relatively low risk of Year 2000 disruptions to their import, processing, distribution, and retail chains. However, some exporting countries have not shown significant progress. Consequently, there is some risk of short-term Year 2000 disruptions to U.S. imports of food, especially perishable commodities. Certain of these supplier countries appear to be increasing their preparedness efforts. However, should there be a disruption of imports, domestically grown fresh fruits and vegetables will continue to be available, although with less variety and possibly at somewhat higher prices than usual.

The Food Supply Working Group will continue to monitor the Year 2000 readiness of our key foreign markets and suppliers. In addition, the working group plans to work with other U.S. government agencies and international organizations to take a closer look at the readiness of ports and market infrastructure of key recipients of our food aid.

Working With Industry Partners

Mr. Chairman, USDA is also encouraged by the information the Food Supply Working Group has received as a result of meetings with industry partners.

For example, the dairy industry appears to be well underway in their Year 2000 planning. Because dairy products rank second as the foods eaten most frequently by American consumers (nonalcoholic beverages are number one) and because dairy products have a short shelf life and therefore need to be restocked regularly, the working group hosted the first of several planned industry "roundtable" discussions with representatives of the dairy industry in November to raise awareness about potential Year 2000 problems facing the dairy industry. Following the roundtable, the industry the saw a need to conduct its own assessment. The International Dairy Foods Association (IDFA), the National Milk Producers Federation (NMPF), and the International Association of Food Industry Suppliers (IAFIS) surveyed their members to evaluate Year 2000 preparedness. Early results from the surveys suggest that most of the processes involving getting milk from the farm to the processor have manual overrides. The technology involved is such that no interruptions are anticipated in getting milk to processors, as long as electricity remains available. Responses from the major dairy processors in the United States indicate that they will be completing their critical systems by April of this year; and they plan to complete non-critical systems and contingency plans by July. In addition, they have also been working with their suppliers to be certain that they won't have interruptions due to Year 2000. Equipment suppliers who responded to the survey indicate that they are also addressing critical and non critical systems, and developing contingency plans.

A second roundtable discussion was held earlier this week with representatives of the meat and poultry industries. Representatives of five meat and poultry associations expressed confidence that their members are taking steps to address the Year 2000 problem; however, they did express concern about utilities and other factors outside their members' control. Similar meetings and discussions will be held throughout the year with representatives from other food industry groups, including wholesalers and retailers, fresh fruits and vegetables growers, and small food processors and distributors.

Though the Food Supply Working Group is confident and encouraged about the food supply chain, there is still a tremendous amount of work yet to do, for the food industry in general, for agribusinesses, and for USDA. The initial assessment of the domestic food supply focused only on the major companies; the remainder of the market has not been systematically studied. Thousands of small and medium-sized companies - from local grocery stores to independent wholesalers and retail chains, as well as restaurants - also play a critical role in providing food to millions of Americans. To address this issue, the Food Supply Working Group is building cooperative relationships with over seventy trade and commodity associations and asking their assistance in assessing and reporting on the state of Y2K readiness of their members, particularly medium and small businesses.

I believe that industry groups are increasingly aware that they need to provide information to the public about their efforts to correct the Year 2000 problem. They have perhaps the greatest interest in ensuring that the public does not disrupt the normal demand and supply for food by unnecessarily stockpiling, which would disrupt just-in-time inventory systems.

Given our confidence that the major players in the food supply are adequately addressing the issue, we will encourage these producers, grocers, wholesalers, and retailers to issue public statements verifying that they will be able to continue operations in spite of the Year 2000 problem. If the major players, who in many cases are competitors, could be persuaded to issue a joint statement, that would be even better.

With respect to speeding up remediation, we are focusing our efforts on smaller and medium-sized companies. We must encourage companies involved in the food chain to do what they can to ensure that their own systems are prepared so that their businesses and customers do not suffer even temporary difficulties. Companies should be encouraged to seek immediate assistance if they know now that their operations will be adversely affected and they don't have the ability to address the problem. This information is also vital so that, if any region, locality, or even a particular food appears to be vulnerable to potential disruptions, contingency plans can be focused to address the particular problems. Having some idea if, or where, problems are likely to occur due to Y2K would be invaluable information, and help us direct resources to the areas where they will be needed most.

USDA is working with the Small Business Administration (SBA), the Manufacturing Extension Partnership (MEP) of the National Institute of Standards and Technology (NIST), and others, to provide technical assistance to help small and medium-sized agribusinesses and others involved in food and fiber become Y2K compliant. Our plan is to work in partnership with the Cooperative Extension System, the Manufacturing Extension Partnership, and SBA's Small Business Development Centers to train extension agents located in counties across the country to conduct risk assessment and remediation training for small business owners in rural areas.

Food and Nutrition Programs Are a Priority for USDA

I also want to mention briefly the state of affairs with respect to the food and nutrition programs which are also vital to the availability of food for millions of Americans, especially those who are neediest. The Food and Nutrition Service (FNS) has been working to remediate the mission critical systems that support these nutrition programs. With respect to FNS' own mission critical internal systems, all are expected to be fully compliant by the government-wide deadline of March 31, 1999.

FNS is also tracking and reporting Year 2000 progress from our 50 state partners, Guam, Virgin Islands, Puerto Rico and the District of Columbia for the Food Stamp Program (FSP) and the Supplemental Program for Women, Infants, and Children (WIC). (Subsequent references to the states include these three territories and the District of Columbia). States must certify to FNS that they are Year 2000 compliant in three areas - software, hardware, and telecommunications. States reporting that they will not be compliant by March 31, 1999 must certify in writing that they have a working contingency plan in place that will assure the delivery of benefits to FSP and/or WIC recipients. FNS will be closely monitoring those states reporting Year 2000 compliance after March 31, 1999. FNS will offer technical assistance to those states requiring help and FNS will follow up with on-site reviews for those states reporting that they will not be compliant until after March 31, 1999.

As of the December 1998 report for the state Food Stamp Program, thirteen states have reported that their systems are already compliant in all respects. Five of the thirteen states have already sent letters certifying that they are Year 2000 compliant. Fifteen additional states have reported that they will be compliant by March 31, 1999. Thirteen states have reported that they will be compliant between the April 1999 and June 1999 period and thirteen states have reported that they will be compliant during the last six months of 1999.

Twenty two states have reported that their WIC systems are Year 2000 compliant. FNS has received certification letters from twelve of these states. Fourteen additional states have reported that they will be compliant by March 31, 1999. Six additional states have reported that they will be compliant between the April 1999 and June 1999 period. Twelve additional states have reported that they will be compliant during the last six months of 1999. All states are reporting that their WIC systems will be Year 2000 compliant by December 31, 1999.

USDA Will Have Contingency Plans for Food Where Necessary

As I stated earlier, it is most likely that any effects from the Year 2000 problem will be minor, and localized by region or particular food product. However, in the free market system, commercial competition in the vast majority of communities across this country will ensure that food remains available even if some companies experience Y2K-related problems.

Also, in the unlikely event that there are food shortages in any area, USDA has standing plans to address intermittent food disruptions which occur during any emergency. USDA is working with the Federal Emergency Management Agency (FEMA) and the Emergency Services Working Group of the President's Council on Year 2000 Conversion to adapt our plans for any Year 2000 related contingencies.

Mr. Chairman, overall USDA is very encouraged by the analysis of the Year 2000 readiness within the food supply. USDA, working with industry partners, is committed to providing the public with reliable information about the unlikely potential for serious interruptions in the U.S. food supply. The American people need to know that safe, affordable food will be available on, before, and after January 1, 2000.

In winter months, it's just good sense to keep bottled water, some canned food, and candles and batteries on hand because Mother Nature, not the Y2K bug, can cause power outages or make a trip to the grocery store more difficult. However, unless consumers have confidence that food will be available on, before, and after January 1, 2000, there is the potential for consumers to cause local shortages through hoarding. Needless and frivolous stockpiling of supplies can create isolated shortages, and we will embark on a campaign to educate consumers that this will not be necessary.

The Food Supply Working Group will continue to encourage the food industry sector to report on Year 2000 readiness and to reassure the American public of the readiness of the food supply sector to prevent panic or hoarding of food supplies. Each of the studies I have mentioned will be posted on USDA's web site at www.usda.gov. The working group also plans to update these studies periodically, with the next update to be ready at the end of March.

USDA agencies participating in the Food Supply Working Group as well as fourteen other working groups established by the President's Council on Year 2000 Conversion, (including education, finance, health care, small business, building operations, housing, and transportation, energy and emergency services) are taking steps to raise the awareness level of their customers and constituents.

USDA officials are speaking with constituent groups about the Y2K problem at every opportunity. During National Y2K Action Week, the Cooperative State Research Education and Extension Service distributed 3,100 Year 2000 toolkits to county extension offices. The kits included a media plan, public service announcements, brochures, four fact sheets, a poster, talking points, and frequently asked questions on Year 2000 to equip extension offices with information they need to raise the awareness of rural America about this issue. CSREES has printed and is distributing over 160,000 Year 2000 pamphlets to county extension offices.

The Farm Service Agency (FSA) is informing farmers and ranchers through its newsletters, which are distributed to farmers through FSA offices across the country. FSA is also developing public service announcements to be aired on television and radio, referring farmers and ranchers to USDA's web site for additional information.

The Agricultural Marketing Service, in conjunction with the National Finance Center (NFC), is disseminating Year 2000 informational brochures to over 40,000 AMS customers. Other mailings, with Year 2000 updates, will be provided to customers quarterly. Many of these customers include international organizations.

The Food Safety and Inspection Service (FSIS) has sent letters to all plant managers in industries it regulates, and has appointed a Year 2000 coordinator to provide companies information they need to implement Year 2000 plans that are HACCP compliant.

Finally, USDA's National Finance Center continues to be a leader in Year 2000 preparedness, having completed in December 1998 remediation of the systems that process payroll for approximately 435,000 federal employees, roughly 20 percent of the Federal civilian workforce, and that service more than 2.3 million Federal employees with the Thrift Savings Plan System.

Conclusion

Mr. Chairman, that concludes my testimony. Thank you again for inviting me to speak. I will be glad to answer any questions you and other members of the Committee might have.