Report on irregularities in the marketing of grain : an evaluation of the inspection and weighing of grain

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Report on irregularities in the marketing of grain : an evaluation of the inspection and weighing of grain
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United States -- General Accounting Office
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Grain -- Grading -- United States   ( lcsh )
Grain -- Weights and measures -- United States   ( lcsh )
Grain -- Grading -- United States   ( lcsh )
Grain -- Inspection -- United States   ( lcsh )
Grain -- Weight -- United States   ( lcsh )
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prepared by the United States General Accounting Office for the Committee on Agriculture and Forestry, United States Senate, and the Committee on Agriculture, United States House of Representatives.

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Full Text
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FEBRUARY 17, 1976


NOTICE
THERE SHOULD BE NO RELEASE OF THIS DOCUMENT
UNTIL TUESDAY A.M., FEBRUARY 17, 1976

Printed for the use of the Senate Committee on Agriculture and Forestry and the
House Committee on Agriculture

U.S. GOVERNMENT PRINTING OFFICE


WASHINGTON : 1976


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66-380o


94th Congress 1 JOINT COMMITTEE PRINT
2d Session




REPORT ON IRREGULARITIES IN THE
MARKETING OF GRAIN
An Evaluation of the Inspection and Weighing of Grain


PREPARED BY THE
UNITED STATES GENERAL ACCOUNTING OFFICE
FOR THE
COMMITTEE ON AGRICULTURE AND FORESTRY
UNITED STATES SENATE
AND THE
COMMITTEE ON AGRICULTURE
UNITED STATES HOUSE OF REPRESENTATIVES
I














LETTER OF TRANSMITTAL


COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, D.C.
lIon. THOMAS S. FOLEY,
Chairman, Committee on Agriculture,
House of Representatives.
Hon. HUBERT H. HUMPHREY,
Chairman, Subcommittee on Foreign Agricultural Policy, Committee
on Agriculture and Forestry, U.S. Senate.
DEAR MR. CHAIRMAN: This report discusses fundamental weaknesses
in the national grain inspection system which require action by the
Congress and the Secretary of Agriculture to restore the system's
credibility and attain its intended objectives. The report also discusses
the need for the Secretary of Agriculture to improve the procedures
for handling complaints from foreign buyers of U.S. grain and in-
tensify research and development on the official U.S. grain standards.
We made our review pursuant to your joint request. Department of
Agriculture officials and staff gave us their full cooperation during
the review.
The Department's comments have been incorporated in the report
and its letter is included as appendix VII.
As agreed, we are sending one copy to the Secretary of Agriculture
with the understanding that the contents are not to be released until
the report or its contents are released by either of you.
After the report is released, we plan to send copies to the Secretary
of State; the Director, Office of Management and Budget; the Chair-
men of the Senate and House Committees on Appropriations, the
Budget, and Government Operations; and other interested congres-
sional committees, Members of Congress, and individuals.
Sincerely yours,
ELMER B. STAATS,
Comptroller General
of the United States.
(HI)




















Digitized by the Internet Archive
in 2013














http://archive.org/details/reregula00unit












FOREWORD


Irregularities in the inspection of grain under the United States
Grain Standards Act became widely known last May when newspapers
reported the indictments of several licensed private inspectors in New
Orleans and Houston.
Since that time, investigations have gone forward in several areas
into allegations that grain has been misgraded and short-weighted,
that bribes have been paid to inspectors, that grain has been stolen
systematically, and that other Federal laws have been violated.
To date, grand juries in New Orleans, Houston, Dallas-Fort Worth,
and Portland. Oreg., have returned 38 indictments charging 61 people
and four companies with more than 280 criminal acts. Many of those
indicted have pleaded guilty.
Since June of last year, the Senate Committee on Agriculture and
Forestry and the House Committee on Agriculture have been looking
closely at the entire grain inspection and handling system, especially
that segment which exports grain.
At the onset of the Committees' investigations, it became apparent
that the staff and resources of the Committees were not sufficient for
the exhaustive investigation needed of the complex and far-ranging
grain marketing system of the United States.
Therefore, we requested on June 24,1975, that the Comptroller Gen-
eral of the United States undertake a high priority investigation of
grain marketing and inspection, from farm field to foreign port, utiliz-
ing the expertise and staff of the U.S. General Accounting Office.
The Comptroller General responded admirably, and this report is
the result of the painstaking work of over 40 investigators assigned by
GAO to the most thorough investigation of our grain marketing and
inspection system ever undertaken.
How important is our grain inspection system ?
Last year, the United States exported $21.9 billion worth of agricul-
tural products, most of it grain which is subject to inspection under
the U.S. Grain Standards Act.
Earnings from commercial grain exports made an important contri-
bution, not only to farm income, but also to jobs in the transportation
and storage industries and to the overall economic recovery in this
country in the latter part of 1975.
In addition, concessional sales under our Public Law 480 (Food
for Peace) program made important contributions to farm income in
this country and to the development of poorer countries and the war
against hunger throughout the world.
The quality of American grain in world markets has been an im-
portant factor in the success of our commercial and humanitarian
export programs.







We believe it essential to continued economic recovery, and for the
economic position of the United States in the world for years to come,
that the quality of American grain exports and the integrity of our
grain inspection system be maintained at as high a level as possible.
Simply stated, grain customers in other countries will buy the best
quality grain they can obtain, assuming that price, shipment terms,
supply, and other factors are equal.
It is essential that our customers have faith in the integrity of our
inspection and weighing system, and that they get the grade, quality,
and quantity of grain for which they contract and pay.
Much attention to date has been directed at criminal violations,
especially of the U.S. Grain Standards Act. But the concerns of the
Committees are not limited to criminal violations.
It is essential that we understand the quality grades which are
assigned to grain, the methods by which grain is graded and weighed,
the adequacy of the transportation and handling system, and a wide
range of elements which make up a total picture.
We must then look carefully at each element and make sound deci-
sions which will facilitate improvements in inspection and weighing.
The findings of the General Accounting Office will be invaluable to
the Committees as we move forward with legislation to improve our
grain handling and inspection system.
While the Committees have not had an opportunity to study the
GAO's conclusions and recommendations, and therefore are not in a
position to endorse or comment in detail on them, we can give every
assurance that they will be considered carefully as the legislative
process moves forward.
We are indebted to the Comptroller General, who responded to our
request with the urgency which we expressed, and to those staff mem-
bers of the GAO who labored long and diligently to produce this
comprehensive report.
We believe it is a report which will be studied carefully by farmers,
elevator operators, those in the grain transportation and warehousing
industries, exporters, shippers, and all who are concerned with the
future of the basic industry of food and agriculture.
THOMAS S. FOLEY, HUBERT H. HUMPHREY,
Chairman, Committee on Agri- Chairman, Subcommittee on
culture, U.S. House of Repre- Foreign Agricultural1Policy.
sentatives.











LETTER FROM HON. HUBERT H. HUMPHREY A.ND HON. THOMAS S. FOLEY
REQUESTING AN INVESTIGATION BY THE GENERAL ACCOUNTINoG
OFFICE

U.S. SENATE,
COMMITTEE ON AGRICULTURE AND FORESTRY,
Washington, D.C., June 24, 1975.
Hon. ELMER B. STxvTS,
Comptroller General of the United States, General Accounting Office,
Washington, D.C.
DEAR MR. STAATS: The current grain inspection scandal is a matter
that deserves the immediate attention of Congress. It threatens the
credibility of the United States as the largest exporter of agricul-
tural commodities in the world.
In 1974, the United States exported $22 billion of agricultural
products. Of this amount $12.5 billion of products were subject to
inspection under the U.S. Grain Standards Act.
The United States had a trade deficit of $5.8 billion in 1974. Had it
not been for the fact that our net favorable balance of trade in agri-
culture was almost $12 billion, we would have had a devastating trade
deficit of almost $18 billion.
Thus, it is imperative that we thoroughly examine and reform our
grain export system, not only for the sake of American farmers, but
for the strength of our entire economy.
We must have the resources and expertise of the General Account-
ing Office to accomplish this goal.
Specifically, we wish the General Accounting Office to assume the
responsibility for a full and complete evaluation of the entire market-
ing chain for grain-from farm to foreign port. This evaluation must
be directed at the impact of each aspect of the marketing process on
the quality of U.S. grain.
This evaluation would include,, but would not be limited to the fol-
lowing particulars:
(1) Determine the quality of grain at point of first sale and at each
subsequent step in the marketing process.
(2) Determine the method of sale, handling, drying, and trans-
portation and effect on quality at each such step.
(3) Determine the effectiveness of the organizational and man-
agement structure of the Federal inspection system and the reliabil-
ity of its supervisory function on the entire inspection system. Include
an evaluation of the contractual arrangements for inspector super-
vision by official inspection agencies. Determine the corporate rela-
tionship, if any, that exists between official inspection agencies and
the firms for which inspection is performed.
(4) Determine the effectiveness and reliability of the present in-
spection system and weighing procedures from the farm to port.
Evaluate the existing U.S. standards and grades for grain.
(VII)





VIII


(5) Describe the legal and contractual responsibilities of buyers
and sellers at each step in the marketing chain as they relate to quality
and weights.
(6) Determine the operating procedures at port elevators both with
respect to incoming and outgoing grain, particularly as they might
affect quality of grain. In addition to general and specific treatment
of management practices this should include data on surveillance,
sampling, and loadings.
(7) Determine what happens on ships prior to, during, and after
grain is loaded. Follow shipments from domestic port elevators to
foreign ports and unloading. Also, determine the responsibilities of
the ship owners and captains.
(8) Address the problems, if any, in P.L. 480 shipments and deter-
mine if they differ from commercial transactions.
(9) Evaluate the complaints received, method of handling, pro-
cedures, and responsiveness of the Federal government to such com-
plaints, both formal and informal, regarding grain quality and weights
for the last 10 years.
We suggest that you have investigators visit Canada or other major
grain exporting nations for purposes of better evaluating the U.S.
system.
The Senate Committee on Agriculture and Forestry and the House
Committee on Agriculture desire to use the report of the General
Accounting Office in their consideration of permanent changes in the
existing U.S. Grain Standards Act, the U.S. Warehouse Act, and
other statutes. Because of the importance of this subject to the na-
tional economy, it is imperative that this request receive priority rating
and a final report be made to the Committees no later than February 15,
1976. We also anticipate that the General Accounting Office would
keep the Committees posted at intervals by letter on the progress of
the on-going investigation.
We appreciate your fine cooperation on prior investigations and
look forward to an excellent effort on this investigation.
With best wishes.
Sincerely,
THOMAS S. FOLEY, HUBERT H. HUMPHREY,
Chairman, Cowmmittee on Agri- Chairman, Subcommittee on
culture, U.S. House of Repre- Foreign Agriculture Policy.
sentatives.












DIGEST


Serious problems exist in the national grain inspection system au-
thorized by the U.S. Grain Standards Act. The Department of Agri-
culture's role as overall supervisor has serious inherent limitations.
It has not been able to insure the integrity of a system operated by a
widely dispersed group of over 100 State and private agencies and
trade associations.
Although some inspection services have been satisfactory, the sys-
tem generally has
-operated without effective controls, procedures, or lines of au-
thority;
-tolerated conflicts of interest between the grain inspection and
merchandising operations; and
-not been responsive to the limited supervision provided by the
Department's Agricultural Marketing Service.
Grain exports are an extremely important factor in the U.S. balance-
of-trade position. The 1974 crop of U.S. grains covered by the act
was valued at about $33 billion. During fiscal year 1975, U.S. exports
of grain subject to inspection under the act totaled about $12.5 billion.
(See p. 6.)
Weaknesses in the national inspection system have led to extensive
criminal abuses, such as intentional misgrading of grain, shortweigh-
ing, and using improperly inspected carriers. (See ch. II.) Disclosure
of these matters in the world press and in congressional hearings has
resulted in an erosion of confidence in the system in the United States
and internationally.
Action is needed to restore credibility in the system, promote orderly
grain marketing, protect buyers' and sellers' interests, and build con-
fidence in the quality and consistency of U.S. grain at home and in
world markets. Accordingly, fundamental changes are required in the
system. An essentially all-Federal inspection system is needed to:
-Restore integrity and confidence in the inspection system.
-Provide greater uniformity and consistency in inspection proce-
dures and operations.
-Establish an independent system, eliminating actual and potential
conflicts of interest.
-Increase foreign trade or at least reduce chances of customers
choosing to buy from other sources.
-Develop an inspection force conforming to uniform hiring and
training requirements.
-Permit rotation of the inspection force among specific localities.
-Provide for maximum use of standardized equipment and better
maintenance of equipment.
-Reduce the number of multiple or duplicate inspections presently
required.
(IX)







-Reduce the number of inspection agencies to increase administra-
tive efficiency.
-Place inspectors under direct control of Agriculture, to provide
more effective authority to deal with inspector deficiencies.
-Eliminate present inequities whereby some inspectors earn annual
salaries or incomes from $30,000 to, in some cases, $78,000.
-Give Agriculture direct responsibility and authority to deal with
elevators whose complex grain-handling systems allow for easy
circumvention of controls over drawing of representative samples.
(See p. 44.)
Recognizing that creating an essentially all-Federal system will
take time and that, while some changes can be effected immediately,
other changes, although urgently needed, will for practical reasons
take more time to fully accomplish, GAO recommends that the sys-
tem be established in phases as follows:
The Congress should
PHASE I
-provide Agriculture with authority to take over inspection serv-
ices immediately from those States or firms where serious prob-
lems are disclosed,
-direct Agriculture to intensify surveillance over on-going in-
spection services being provided by the States, trade associations,
and private agencies until phases II and III are implemented,

PHASE II
-authorize and direct Agriculture to assume responsibility at the
earliest possible date for providing inspection services- sam-
pling, grading, and weighing-and for issuing official inspection
certificates at all port elevators,

PHASE III
-authorize and direct Agriculture to extend the Federal inspec-
tion system (including sampling, grading, and weighing) to the
main inland terminals, after sufficient experience has been ob-
tained at the ports, and
-direct Agriculture to provide inspection services, on a request
basis and under contracting or licensing arrangements, at minor
inland terminals and country elevators. Such services should be
provided under Agriculture-prescribed standards and procedures
and should be subject to departmental review and supervision.
(See p. 45.)
The Congress should also establish the system on a reimbursable
basis whereby the fair costs of operating the system would be re-
covered through fees.
Legislation and regulations developing standards and procedures
for the system should give appropriate consideration to the follow-
ing matters:
-Conflicts of interest. The system should prohibit all of these,
actual and potential, and should impose appropriate penalties







for violations on the part o.f grain handlers and inspection per-
sonnel. (See pp. 12 and 45.)
-Sampling grain. Adequate controls and procedures should be
established for this process, including equipment operation and
maintenance. Automated equipment should be mandatory to the
extent feasible. (See pp. 14 and 45.)
-Weighing grain. Grain weighing should be made an integral
part of the inspection system. Adequate controls, standards, and
procedures should be established, including safeguards over
equipment caliberation and maintenance. (See pp. 20 and 45.)
-Grading grain. The need for improved accuracy and uniformity
should be met through continuing research and training. (See
pp. 23 and 45.)
-Personnel administration. Uniform standards for recniiting,
training, and supervising inspection personnel should be estab-
lished and maintained, and a rotation program and work produc-
tion standards for inspectors should be established. (See pp.
30 and 45.)
-General administration. Quick and thorough reviews and investi-
gations of reported discrepancies and abuses should be required.
(See pp. 36 and 45).
Inspection certificates should clearly show whether Agriculture
or other agencies prepared them. (See p. 45.)
The provision that superseded certificates be surrendered when re-
peat inspections are requested should be stringently enforced. (See
pp. 25 and 45.)
Instructions on examinations of stowage space in carriers should be
revised to set forth training and performance requirements and to
describe all situations where examinations should be required. (See
pp. 27 and 45.)
Appropriate annotations should be made on inspection certificates
for grain loaded at Great Lakes ports stating that such certificates
are not valid for transshipped grain. (See pp. 29 and 45.)
To the extent practicable, grain inspection operations should be
onen to public scrutiny by foreign buyers or other interested parties.
(See p. 45.)
Agriculture top officials reemphasized to GAO the Administration's
desire to maintain the existing basic organizational structure for the
national grain inspection system. Present problems and deficiencies,
they maintained, can be corrected through improved administration,
granting Agriculture additional authorities, and imposing more strin-
gent penalties. Agriculture expressed agreement with most other as-
pects of GAO's recommendations. (See p. 46 and app. VII.)
GAO's view is that the Administration's proposal would retain many
of the present system's fundamental disadvantages and limitations
and that the deeply entrenched and pervasive problems of the past and
present could not be dealt with effectively under such a system.





xn


FOREIGN BuYERs' COMPLAINTS ABOUTr U.S. GRAIN
Inquiries in nine foreign countries revealed much dissatisfaction
with U.,S. grain sold abroad. Many customers believed they regularly
received lower quality and weight than they paid for. The resulting
cost in terms of diminished foreign sales and other effects is not calcu-
lable. Many buyers said the United States would continue to be their
principal grain supplier but that they had reduced their purchases of
U.S. grain and were buying more from other countries. A few said
they had stopped buying U.S. grain altogether. (See pp. 51 to 56.)
Agriculture has not been sufficiently sensitive to foreign buyers'
problems and has offered little assistance to them. Most Foreign Agri-
cultural Service attaches GAO visited were not fully aware of the ex-
tent of foreign buyers' problems and said they lacked the authority,
expertise, and resources for investigating complaints.
Procedures for handling foreign complaints were poorly defined and
generally ineffectual. No central coordinating agency was designated to
insure that all complaints were recorded, investigated, and responded
to and that the combined results were analyzed for possible use in re-
examining inspection procedures. (See pp. 56 to 61.)
Recommendations to the Secretary of Agriculture for improving
the handling of foreign complaints are on page 62. Agriculture agreed
with the recommendations and outlined actions it was taking or would
take. (See p. 63.)
THE U.S. GRAIN STANDARDS
Many persons pointed out that the U.S. grain standards do not in-
clude certain important grain quality indicators but include other rela-
tively unimportant or unreliable indicators. According to one
authority, the standards were developed and amended over the years
primarily to meet the minimal needs of grain merchandisers, and the
needs of growers and food processors were not considered adequately.
Certain respondents said greater emphasis was needed on develop-
ing standards which (1) stressed qualities relating to grain's end use,
such as protein in wheat and oil and protein in soybeans, and (2) pro-
vide incentives to farmers to produce higher quality grain. Before
certain refinements or changes can be made to the grain standards,
however, new equipment or inspection techniques must be developed to
readily ascertain grade in accordance with the proposed standards.
(See pp. 65 to 69.)
Agriculture has not been sufficiently concerned about the need for
adequately directed and coordinated research on the grain standards
by its several agencies. The Secretary should intensify research and
development on the U.S. grain standards and provide for greater co-
ordination among the departmental agencies with research and mar-
keting responsibilities. (See p. 71.)
Agriculture concurred in the need for intensified research and devel-
opment and said its agencies would jointly design and cost out priority
research proposals. (See p. 71.)














CONTENTS

Page
Letter of transmittal---------------------------------------- II
Foreword ----------------------- ------------------------------- v
Letter from Hon. Hubert H. Humphrey and Hon. Thomas S. Foley
requesting an investigation by the General Accounting Office------ vii
Digest ------------------------------------------------------ Ix
Chapter 1-Introduction:
Grain-marketing chain---------------------------------------- 3
Grain supply and dispositions---------------------------------- 6
Grain exports------------------------------------------ ------ 7
Grain inspection and weighing system---------------------- ------ 8
Chapter 2-Problems with the national grain inspection system:
Need to tighten restrictions on conflict-of-interest situations-------- 12
Improvements needed in obtaining and preserving representative
samples ------------------------------------------------- 14
Need to strengthen controls and supervision over grain weighing.-- 20
Need for improved uniformity and accuracy in grain grading------- 23
Duplicative inspections under present system---------------------- 25
Problems with stowage examinations---------------------------- 27
Questionable use of official inspection certificates from Great Lakes
ports --------------------------------------------------- 29
Problems in improving personnel administration------------------- 30
Limited effectiveness of AMS administration and supervision-------- 32
Administration's proposal to strengthen the national grain inspection
system and our evaluation and conclusions---------- ----------- 38
Recommendations to the Congress and the Secretary of Agriculture_ 44
USDA comments and our evaluation---------------- ---------- 46
Views of State officials and our evaluation------- ---------------- 49
Chapter 3-Foreign buyers' complaints about U.S. grain:
Comments received during our visits to nine foreign countries------- 51
Our evaluation of comments received during foreign visits---------- 55
Improvements needed in USDA's handling of foreign complaints----- 56
Recent Office of Audit report on USDA's handling of foreign com-
plaints -------------------------------------------------- 61
Conclusions -------------------------------------------------61
Recommendations to the Secretary of Agriculture------------------ 62
USDA comments and our evaluation---------------------------- 63
Chapter 4-Observations on the grain standards:
Important quality factors not considered in the present grain stand-
ards -------------------------------------- ---------------66
Quality factors in the present standards which many users question-- 69
Conclusions -------------------------------------------------71
Recommendation to the Secretary of Agriculture------------------- 71
USDA comments---------------- ---------------------------- 71
Chapter 5-Scope of review-------------- ------------------------ 73

APPENDIX
I. U.S. grain production, 1974 crop------------------------------- 75
II. Illustration of elevator receiving and storing grain--------------- 76
III. Illustration of elevator loading out grain------------------------_ 77
IV. Grain exports by country of original destination, fiscal year 1975-__ 78
V. Legislative history of the U.S. Grain Standards and Warehouse Acts- 79
VI. Description of Canadian grain inspection system------------------ 83
VII. Letter dated January 28, 1976, from the Under Secretary of
Agriculture ----------------------------------------------85


(xIfl)






XIV

ABBREVIATIONS


AMS-
ARS-
BCFM-
FAS-
FBI-
GAO-
USDA-


Agricultural Marketing Service
Agricultural Research Service
broken corn and foreign material
Foreign Agricultural Service
Federal Bureau of Investigation
General Accounting Office
U.S. Department of Agriculture























REPORT ON IRREGULARITIES IN THE
MARKETING OF GRAIN














CHAPTER 1


INTRODUCTION

Properly inspecting and weighing grain is important for the smooth
functioning of the U.S. grain-marketing system. Sellers and buyers
from farms to foreign ports depend on the quality and quantity of
grain as being represented fairly, accurately, and in accordance with
applicable laws and regulations. In recent months, confidence in the
integrity of the U.S. grain-marketing system has been shaken as many
cases of improper inspections and shortweighing of grain have been
disclosed and as federally licensed grain inspectors, grain handlers,
and others involved in the system have pleaded guilty or been con-
victed of illegal activities.
Because of concern about the impact of these irregularities, par-
ticularly on foreign purchases of U.S. grain which must compete with
the grain exports of other countries, the House Committee on Agricul-
ture and the Subcommittee on Foreign Agricultural Policy, Senate
Committee on Agriculture and Forestry, asked us to review the grain
marketing system. Congressional committee staffs and other Federal
agencies, namely, the U.S. Department of Agriculture (USDA), the
Justice Department and its Federal Bureau of Investigation (FBI),
the Federal Trade Commission, and the Internal Revenue Service,
have also been reviewing and investigating certain aspects of the sys-
tem and the activities of grain inspectors and others.

GRAIN-MARKETING CHAIN
U.S. grain, grown predominantly in the Midwest (see app. I),
moves from farms to domestic users or to export vessels generally
through a system of grain elevators (warehouses). These elevators are
owned by individuals or farmers' cooperatives or are part of an ele-
vator chain owned by a grain company. They are located in rural
farming communities (country elevators), at principal grain-market-
ing centers (inland terminals), and at export locations (port eleva-
tors). According to a USDA official, there are about 8,000 country
elevators, 450 inland terminals, and 80 port elevators in the United
States.
An elevator generally consists of two basic parts: storage tanks, or
bins, and a workhouse. The workhouse contains machinery for re-
ceiving, loading out, weighing, and conditioning grain. When re-
ceived, grain is dumped into an unloading pit. From there it is picked
up by buckets attached to a vertical belt and is elevated. The grain
then drops by gravity into a spout and moves either to a scale bin
where it is weighed before storage or directly to a storage tank where
it is generally stored commingled with other grain of the same type
(3)


66-328 0- 76 2







and with similar characteristics. Grain may be conditioned-cleaned,
dried, or blended-in the elevator at any time before loadout.
For loadout, grain moves from the bottom of the storage tank by
gravity onto a belt and is elevated. The grain then drops by spout into
a conveyance, such as a railcar, or onto a conveyor belt for loading into
a ship or barge. Before being loaded, grain may be routed to a scale bin
for weighing. Illustrations of an elevator receiving and loading out
grain are shown in appendixes II and III.

COUNTRY ELEVATORS
The country elevator, such as the one shown below, is the first link
in the chain of moving grain from a farm to the ultimate user. About
84 percent of the grain marketed by U.S. farmers is delivered to coun-
try elevators, generally by truck. The grain may be sold to the country
elevators or stored there for subsequent sale or use.


COUNTRY ELEVATOR


At the country elevators, the weight of the farmer-delivered grain is
determined by comparing the weights of the truck before and after the
grain is dumped into the elevator pit. Country elevators generally pur-








chase grain by weight at a local market price as adjusted for discounts
and premiums on the basis of quality factors. To ascertain the grain's
quality, a sample is taken either by a probe (see p. 16) before the grain
is dumped or by a hand-held container while it is being dumped.
Grain is shipped from country elevators to inland terminals or port
elevators in railcars, barges, or large trucks. The railcars carry about
2,000 to 3,500 bushels each, knd the trucks carry about 750 bushels each.

INLAND TERMINALS AND PORT ELEVATORS
Inland terminals, such as the ones shown below, are usually located
at major transportation centers. They receive grain mainly from coun-
try elevators. The grain is stored or conditioned for the domestic mar-
ket or for shipment to port elevators. Domestic users include manufac-
turers of flour, cereals, animal feeds, starch, and vegetable oils. Out-
going grain generally is shipped by rail or barge.


INLAND TERMINALS







Port elevators, such as the one shown below, are located at ocean,
Gulf of Mexico, or Great Lakes ports.


PORT ELEVATOB


These elevators generally receive grain by rail and barge from
country elevators and inland terminals. Grain may receive additional
conditioning at a port elevator before being bulk-loaded into vessels
for export. The port elevators' load-out capacities generally range from
40,000 to 80,000 bushels an hour.
Bulk carriers, tankers, tramp steamers, and other vessels are used
for exporting grain. According to a steamship company official, the
vessels' capacities vary widely but a vessel ordinarily can be loaded
within a few days. He said that bulk carriers, with capacities ranging
from about 700,000 to 1.3 million bushels, are generally used. Grain
shipments to inland terminals and to port elevators are generally
settled on the basis of incoming, or destination, weights and grades.
Usually grain loaded out of these elevators is also weighed and graded.
For export sales, settlement is normally made on the basis of weights
and grades determined at the port elevator as the vessel is being loaded.

GRAIN SUPPLY AND DISPOSITIONS
The following table, based on USDA publications, summarizes the
supply and dispositions of grain in the United States during the 1973-
75 (1974 crop) marketing year.1
I Mostly during fiscal year 1975. The beginnings of the marketing years vary: Corn,
October 1; wheat, July 1; soybeans, September 1; other grains, July 1 or October 1.







Iln millions of bushels]


Wheat Corn Soybeans1I Other Total

Supply, beginning of year......-...-.--- 247 483 171 449 1,350
1974 productionm....- --------- 1,793 4,651 1,233 1,589 '9,266
Imports ..-------------------------------------- 2 2 ----------- 20 24
Total supply ------------------------ 2,042 5,136 1,404 2,058 10, 640
Dspsitions:
Domestic--.--------------------------- 683 3,628 797 1,487 6,595
Export--------------------- ------- 1,039 1,149 421 267 '2,876
Total dispositions--.......------------------- 1,722 4,777 1,218 1,754 9,471
Supply, end of year.. -------... ------------------ 320 359 186 304 1,169

' Soybeans, although technically oilseeds, are covered by the Grain Standards Act (see p. 8) and are included in the
general term "grain'' used in this report.
* As shown in app. I, the value of this 1974 production was about $33,000,000,000.
SIncludes equivalent of 40,100,000 bushels of wheat in the form of flour and other wheat products.

During the 1974-75 marketing year, exports accounted for about
51 percent of the total wheat supply, 30 percent of the soybean sup-
ply, and 22 percent of the corn supply.

GRAIN EXPORTS
In fiscal year 1975, the value of all agricultural exports was $21.6
billion on the basis of Bureau of the Census data. Of this, $12.5 bil-
lion, or 58 percent, was for wheat, soybeans, corn, and other grains
that by law must be inspected before being exported if sold by grade.
Agricultural imports totaled $9.6 billion, netting an agricultural trade
balance of $12 billion which more than offset a nonagricultural trade
deficit of $9.9 billion.
Of the $12.5 billion of inspected grain actually exported in fiscal
year 1975, wheat and corn accounted for about 70 percent, as shown
min the following table.
[In millions]
Value Bushels

Wheat---------.. -- --------------------------------------- $4, 797 999
Corn ----------------------------.------......----------------------- 3988 1,122
Soybeans ---------.-. ------------------------------------------ 2,951 404
Sorghum--...----- --------------------------------------- 616 191
Barley, oats, and rye-- ------------------------------------------ 170 53
Total-----------------.----------......----.. -------------------- 12,522 2,769

The grain was exported by vessel, except for a small portion sent
by rail and truck to Mexico and Canada.
Japan ($2.2 billion), the Netherlands ($1.2 billion), and West
Germany ($859 million) were the major destinations, though not nec-
essarily the final users. A large quantity of grain shipped to the Nether-
lands, for example, was unloaded and shipped to other countries.
Appendix IV shows the values and quantities of grain shipments
according to original destinations.
The largest volume of U.S. grain exports-about 60 percent of the
national total-moves through Gulf port elevators. The following
table summarizes, by area, the quantity of grain inspected for export
from port elevators in fiscal year 1975, according to USDA data.






[Bushels i1 millions]


Grain inspected for export in
fiscal year 1975
Area Bushels Percent

Gulf of Mexico................................ -------------------------------------------------- 1,707 64.0
Atlantic coast......----------------------------------------------------........................................................ 364 13.7
Pacific coast.....................---------------------------------.........--------------------..... 361 13.5
Great Lakes t ....--..----------------------------------------------------- 234 8.LB
Total----------------------------------------------------.................................................................... 2,666 100.0

I Great Lake ports are closed during the winter.

GRAIN INSPECTION AND WEIGmwNG SYSTEM

Two Federal laws governing the management, marketing, and in-
spection of U.S. grain are the United States Grain Standards Act, as
amended (7 U.S.C. 71), and the United States Warehouse Act, as
amended (7 U.S.C. 241). These acts provide a uniform, nationwide
system for inspecting, grading, weighing, and storing grain under the
supervision of the Secretary of Agriculture.

GRAIN STANDARDS ArCT OPERATIONS

Under authority of the Grain Standards Act, USDA's Agricultural
Marketing Service (AMS) has established Federal (official) stand-
ards-numerical grades based on various quality factors-for wheat,
corn, soybeans, sorghum, rye, oats, barley, flaxseed, and mixed grain.
These standards facilitate mass trading in grain domestically and with
other countries by enabling buyers and sellers to transact sales on the
basis of the grain's grade rather than on personal observations.
Some of the quality, factors are test weight per bushel, percent of
damaged kernels, moisture content, and percent of foreign material.
The standards for corn, for example, follow.

Maximum limits of (percent)-
Minimum Damaged kernels
test weight Broken corn
per bushel and foreign Heat-damaged
Grade (pounds) Moisture maternal Total kernels

U.S. No. I .................--------------------------.56 14.0 2 3 0.1
U.S.No.2--------------------------- 54 15.5 3 5 .2
U.S. No. 3 -.------........-------------------. 52 17.5 4 7 .5
U.S.No. 4............................ -------------------------- 49 20.0 5 10 1.0
U.S. No. 5 -------------------------- 46 23.0 7 15 3.0

Note: U.S. sample grade shall be corn which does not meet the requirements for any of the grades from U.S. No. I to
U.S. No. 5, inclusive; or which contains stones; or which is musty, or sour, or heating; or which has any commercially
objectionable foreign odor; or which is otherwise of distinctly low quality.

The Grain Standards Act also authorizes USDA to (1) license,
and triennially relicense, qualified non-Federal individuals to carry
out one or more of the official inspection functions, (2) review the
licensees' work, and (3) resolve disputes about assigned grades. The
inspection functions include:







-Examining the interior of the conveyance to be used for trans-
porting the grain. This stowage examination is required for all
export grain and for other lots of grain which are officially in-
spected at the time of loading.
-Obtaining one or more representative samples of the grain, de-
pending on the size of the lot to be graded.
-Analyzing the sample through both objective and subjective tests
and using the results as the basis for certifying the grade in ac-
cordance with official grain standards.
-Issuing the official inspection certificate showing the results of the
inspection and the grain's type and grade.
There are about 815 licensed inspectors (individuals licensed to
perform and certify the results of all inspection functions) and about
1,840 licensed samplers and technicians (individuals who, depending
on the terms of their licenses, can take samples and/or perform labor-
atory tests needed to determine a grain's grade). Only a licensed in-
spector, however, can assign a grade or issue a certificate of grade and
then only for the grains specified in his license.
The licensees are not USDA employees. They work for State de-
partments of agriculture, trade groups, or privately owned gramin in-
spection agencies designated by USDA to inspect grain at specific
inspection points. In July 1975, there were 111 inspection agencies-
23 State, 41 trade, and 47 private-designated to make inspections at
183 inspection points in the United States under the Grain Standards
Act.2 Of the 111 agencies, 26 inspected export shipments. Each agency
is responsible for hiring, training, supervising, and directing the
day-to-day work of its inspection personnel.
The agencies charge a fee for their services based on the quantities
inspected. The fees must be nondiscriminatory and reasonable and
cannot be used to pay for costs of any operation which is not related
to official inspection.
AMS's Grain Division administers the Grain Standards Act through
32 field offices in the United States and 1 in Canada. When our review
started, the Division had about 225 grain graders operating from its
field offices. Under the Grain Standards Act, AMS graders review or
supervise the licensees' work on an "as time permits" basis, conduct ap-
peal inspections, and make initial inspections of some U.S. grain at
Canadian ports. Fees for Federal inspection services are set by regula-
tion.
Generally, grain is officially inspected at inland terminals and port
elevators. The act provides that all grain shipped from the United
States which is sold, offered for sale, or consigned for sale by grade
must be inspected by a licensed inspector as it is loaded or while it is in
the final carrier. Inspections are also required if grain is in a con-
tainer-railcar, barge, truck, ship's hold, or other storage space or
receptacle-which shows an official grade designation or an official in-
spection mark, or if the grain is represented to have been officially in-
s Effective November 17., 1975. USDA canceled the designation of a private agency at
the request of the agency's owner after AMS had sought action to revoke the designation
for violations of the Grain Standards Act On January 22. 1976, USDA filed a formal
complaint seeking to revoke the designation of a State-commissioned agency.






spected. Inspections of other grain may be made at the request of any
interested party. AMS estimated that about 3.4 million inspections
were made in fiscal year 1975. Of these, about 6,000 involved export
shipments.
According to USDA, grade standards and inspection and grading
procedures were developed primarily to meet the needs of the grain in-
dustry, particularly the middleman, or grain merchandiser. Producers,
in general, do not avail themselves of the inspection and grading serv-
ice, and processors tend to supplement the service with their own tests.

WAREHOUSE ACT OPERATIONS
The Warehouse Act authorizes the Secretary of Agriculture to li-
cense, inspect, investigate, and otherwise regulate public storage ware-
houses, including grain elevators, that voluntarily apply for licenses
and meet departmental standards. In June 1975, about 1,480 grain ele-
vators were licensed under the act.
The act also provides for licensing persons to inspect, sample, clas-
sify, grade, or weigh grain stored or to be stored in a licensed elevator.
The act, designed to protect grain depositors, authorizes issuance of
warehouse receipts intended to be generally acceptable to bankers as
loan collateral. The receipts are supported by inspection and weight
certificates issued by warehouse graders and weighers licensed under
the act. The licensed graders and weighers, of which there were about
7,600 at the time of our review, are usually employees of the licensed
elevators but can be employees of a private agency. Their licenses en-
able them to perform duties only at specified licensed elevators. Their
inspection certificates are valid for purposes of the Grain Standards
Act only if they also hold grain inspectors' licenses under that act.
The Warehouse Act is administered by AMS's Transportation and
Warehouse Division, but the daily operations of the warehouse grad-
ers and weighers are not supervised directly by AMS employees. Each
licensed elevator, however, is examined about twice each year on an
unannounced basis. The examiners, among other things, reconcile the
elevator's inventory records to the quantity and quality of grain on
hand.











CHATER2


PROBLEMS WITH THE NATIONAL GRAIN
INSPECTION SYSTEM

'Many serious problems exist in the national grain inspection system.
Although some inspection services have been satisfactory, the system
'has been operated through widely dispersed State and private agen-
cies and trade associations without effective procedures, controls, or
lines of authority. The system also has tolerated conflicts of interest
between the grain-inspection and grain merchandising operations and
has not been responsive to USDA's limited supervision.
Weaknesses in control have led in recent years to extensive criminal
abuses involving intentional misgrading of grain, shortweighing, and
use of improperly inspected carriers. Disclosure of these matters in the
world press and in congressional hearings has resulted in an erosion
of confidence in the system, both domestically and internationally.
Substantive remedial action will be needed to restore credibility and
achieve the system's intended objectives, namely, the promotion of
orderly grain marketing, the protection of buyers' and sellers' inter-
ests, and the building of confidence in the quality and consistency of
U.S. grain in domestic and world markets.
In establishing the national grain inspection system, the Federal
role was conceived as that of overall supervisor and appeal referee.
Actual responsibility for day-to-day operation of the system in the
form of grain sampling, grading, and inspecting and the issuance of
inspection certificates attesting to the grade of grain was to be carried
out by USDA-designated official inspection agencies. A skeletal force
of Federal supervisors was to insure that the system functioned in
accordance with requirements of the Grain Standards Act and imple-
menting regulations, including the official U.S. grain standards.
Recent experience has shown that the inspection system can function
only as well as the designated inspection agencies and the grain trade
choose to make it function. Although increased Federal supervision,
more severe penalties, and more intensive and extensive USDA in-
vestigations could contribute to more integrity in system operations, it
is not feasible, in our opinion, to increase Federal supervision to a
point where circumvention of the system by persons so inclined could
be prevented.
The national inspection system requires a high level of consistency
and uniformity in recruiting, training, and supervising inspection per-
sonnel; objectivity and the avoidance of conflicts of interest; a suitable
rotation program and uniform standards of work production for in-
(11)







spectors; uniformity of controls and procedures, particularly in the
case of grain sampling; uniformity, consistency, and accuracy in the
grading process; and quick and thorough reviews and investigations
of reported discrepancies and abuses.
Appropriate attention to these matters is made extremely difficult
when, as in the existing system, there are over 100 separate agencies to
be coordinated. Also, clear and effective lines of authority and re-
sponsibility are difficult to maintain, and work quality inevitably
suffers in such circumstances.
A further shortcoming in the existing system is that USDA does
not exercise control over the weighing of grain. Inspection and weigh-
ing of grain should be a coordinated operation, in our view, and both
grading and weighing determinations should be shown on the inspec-
tion certificates.
The following sections discuss the problems involved in maintaining
integrity in day-to-day inspection operations and the shortcomings of
USDA supervision over those operations. The discussion focuses on-
-conflict-of-interest situations,
-grain sampling,
-grain weighing,
-grain grading,
-duplicative inspections,
-stowage examinations,
-inspection certificates issued at Great Lakes ports,
-personnel administration, and
-AMS administration and supervision.
We also discuss the Administration's recent proposal to strengthen
the national grain inspection system.
NEED To TIGHTEN RESTRICTIONS ON CONFLICT-OF-INTEREST SITUATIONS
The Grain Standards Act and AMS regulations prohibit conflicts
of interest on the part of grain inspection personnel, but conflicts on
the part of grain merchandisers are either permitted or not specifically
prohibited. Also tolerated are situations having the appearance of
conflicts of interest. As a result, financial and other relationships be-
tween inspection agencies and those they deal with compromise or
give the appearance of compromising the independence of the existing
inspection system. Also USDA investigations and information pro-
vided by a grain company have disclosed numerous situations involv-
ing actual or apparent conflicts of interest.
The act prohibits official inspection personnel, including licensees
and USDA employees, from having a direct or indirect financial in-
terest in, being employed by, or accepting gratuities from any business
entity which owns or operates a grain elevator or warehouse or which
merchandise grain. AMS requires that inspection personnel certify
that they have no conflicts of interest when they apply and reapply
for a license. Further, AMS regulations prohibit an official inspec-
tion agency from owning or operating a grain elevator or warehouse
and from engaging in the merchandising of grain or any other activ-







ity, either directly or indirectly, which would create a conflict-of-
interest situation for its employees.
Neither the act nor the regulations, however, prohibit grain com-
panies or their officers or employees from having a direct or indirect
financial or other interest in an official inspection agency. Also, boards
of trade and other groups in which grain companies hold member-
ships or influential positions can be designated as official inspection
agencies. In such cases, conflicts of interest or the appearance of such
conflicts are inherent and inevitable.
According to AMS officials, AMS had never tried to prohibit such
arrangements because the legislative history of the Grain Standards
Act deary showed that the Congress-wanted to maintain private
agencies in the inspection system. Our review of the legislative his-
tory tended to confirm this view. (See app. V.) Because such situa-
tions are permitted to exist, individuals holding responsible positions
in grain companies have acted as directors or committee members in
the agencies which make inspections for the same grain companies.
Some examples follow:
-Four of the seven members of a private inspection agency's board
of directors were officials of grain companies, three of which were
served by the inspection agency. The grain companies also owned
shares of stock in the agency. The board appointed the agency's
general manager and chief inspector and set the fees to be
charged.
-Six of the seven members of a board of trade's inspection com-
mittee, which set inspection fees, approved hiring, and handled
labor negotiations for the board's inspection agency, were offi-
cials or employees of grain firms served by the agency.
-Seven grain firms were members of a grain exchange which was
designated as an inspection agency. The agency served all seven
firms. Officials of five of these firms served as directors of the
agency and appointed the agency's chief inspector.
USDA's Office of Investigation, which looked into possible con-
flict-of-interest situations, advised us in December 1975 that its in-
vestigations, although still in various stages of reporting or legal
review, had disclosed situations similar to those noted above as well
as the following kinds of conditions.
-Three inspection agencies were organized with the assistance of
loans of $10,000 to $30,000 from grain companies for whom inspec-
tions were to be conducted.
-Officers or employees of four inspection agencies received annual
bonuses of $500 to $6,000, supplementing regular salaries and, in
some instances, overtime compensation.
-Expenditures by inspection agencies included entertainment and
gratuities for grain company personnel and USDA employees,
and some payments were related to actual inspection functions.
Also, a grain company disclosed to USDA and the Department of
Justice that inspection agency personnel or USDA employees provid-
ing inspection services had been given gratuities, including cash, liquor,
meals, tickets to sporting events, and office parties. It also said its





14


personnel had purchased from an inspection agency grain which had
been drawn for sampling purposes and the proceeds had been divided
among inspection agency personnel. Over a 10-year period, 17,743 bush-
els of grain were purchased for $47,523.
In effect, the grain company was buying back grain which, accord-
ing to AMS regulations, belonged to the company.
To be effective, an inspection system must avoid any appearance of
situations that compromise its independence. Under a system which
tolerates actual or potential conflict-of-interest situations, there can be
little confidence in the independence and credibility of those charged
with inspection responsibilities. According to a United States Attor-
ney, who testified during recent hearings on grain inspection irregu-
larities and problems.
The fault * throughout the system * is in the in-
timate relationship, the mutuality of interests, that has devel-
oped between the elevator companies and the inspection
agencies, where the personnel of the inspection agencies, in
effect, feel that they are servicing the elevator. We have yet
to see any real recognition in the private inspection agency
personnel that their loyalty is to the United States of Amer-
ica. They don't realize that they are performing a very sensi-
tive and important governmental function, that is, to make
official inspections. This is a sad thing, a tragic thing.
It has never been brought home to them. In fact, they seem,
many of them, this is not true of all, but many of them seem
to feel that their loyalty is to the elevator. Many of them show
a downright open hostility toward the U.S. Department of
Agriculture.
IMPROVEMENTS NEEDED IN OBTAINING AND PRESERVING REPRESENTATIVE
SAMPLES
Drawing a representative sample from a lot for grading and making
sure that it is not switched or tampered with are essential to insuring
that the grade assigned accurately describes the sampled lot. Also,
because the number of samples to be drawn depends on the lot size,
it is important that the sampler be aware of all quantities loaded.
Under the present inspection system, maintaining effective control
over the taking and handling of samples is difficult. AMS must rely
largely on the integrity of licensed personnel and elevator manage-
ment to execute sampling procedures properly. As discussed begin-
ning on page 18, conditions at nearly every location we visited com-
promised the integrity of the sampling operations. In some cases,
deceptive practices had occurred without the knowledge of licensed
inspectors or AMS supervisors.







SAMPLING PROCEDURES AND DEVICES
Sampling, which may be done either manually or by automatic
mechanical devices, may occur before, during, or after loading from or
into shipping conveyances. Samples are drawn at various intervals or
at prescribed locations in a lot or sublot. The size of a lot or sublot
may vary but a sublot cannot exceed 60,000 bushels. The drawn samples
are combined and then divided into homogeneous portions of 1,000
grams (about 21L pounds), one of which is examined to determine
the entire lot's or sublot's grade.
AMS regulations require that, for each official grain inspection, the
inspection personnel or agency retain the sample for a specified period,
generally 4 to 90 days, depending on the type of carrier used for ship-
ping the grain. Each sample must consist of two portions, one for
designating the grain's grade and the other-an unworked portion-
for reinspection by a licensed inspector or for review by AMS during
a supervisory visit or if the original grade designation is appealed.
The samples must be kept in a container and in such manner as to
retain their representativeness. They must be protected from mani-
pulation, substitution, and improper or careless handling.
Minor deviations from prescribed sampling or sample-handling pro-
cedures or deceptive loading practices affecting the quantities sampled
can substantially alter a sample's representativeness. Also, after sam-
pling is completed, like-graded grain of several lots or sublots is often
commingled, making it impossible to subsequently draw samples to test
the reliability of initially drawn samples.
AMS considers the mechanical diversion type of automatic sampler
to be the most accurate sampling device. This device--a mechanical
arm that sweeps through a free-falling stream of grain-draws samples
automatically at timed intervals. The most common approved manual
sampling device, and the one usually used to obtain samples from rail-
cars, trucks, and barges, is a 6- or 12-foot long metal probe, called a
trier, which has several compartments. (See diagram, p. 16.) After the




16


SIX-FOOT, U12-COMPARTMENT
GRAIN TRIER


OUTER
TUBE %
INNER
TUBE





T
A
















COMPARTMENT


dil.


AlA


,LOCKING PIN






PARTITION

0


HARD WO1D HANDLE





17


trier is inserted into the grain being sampled, the compartments are
opened and then closed to obtain grain from varying levels.
The use of automatic mechanical sampling devices has increased over
recent years because they are both less expensive to operate and more
accurate and reliable, if operated properly, than manual sampling
methods. Manual samplers are often used, however, to sample incom-
ing rail, truck, or barge shipments because the results can be obtained
before unloading and can be used in deciding where the grain will be
stored.

SAMPLING OR LOADING PRACTICES AFFECTING INTEGRITY OF SAMPLES
The following examples illustrate weaknesses or deceptive practices
that we and others have observed in sampling or loading operations.
-Controls of automatic sampling devices were sometimes accessible
to elevator personnel who could easily adjust them without attract-
ing the sampler's attention. If the elevator management desired
to produce grades higher than the actual quality of grain sampled,
the automatic sampling devices could be adjusted to operate either
slower when poor-quality grain was being sampled or faster when
good-quality grain was being sampled. The samples drawn, there-
fore, would not be representative of the lot sampled. At a few
locations, the inspectors placed sampling device controls under
seals to prevent access to them by elevator personnel.
-Elevator personnel could adjust the speed of the conveyor belt
from which samples were drawn to obtain results similar to those
obtained by adjusting the frequency of the sampling device.
-At several locations, devices existed so that grain, which was to be
loaded aboard vessels after sampling, instead could be diverted and
returned to storage bins. Such diversions would not have been
within the inspector's view and would have resulted in the quanti-
ties of grain loaded being misrepresented. According to AMS
officials, AMS is considering requiring that automatic sampling
devices be placed as close as possible to the end of the conveyor
belts used to load vessels.
-Remote control devices were installed which allowed the drawing
of biased samples or the circumventing of acceptable sampling
practices. For example, at one location an electrical device per-
mitted the infusion of foreign material or low-quality grain on a
conveyor belt timed at intervals so as to avoid sampling by the
automatic sampler which functioned at 27-second intervals. Sev-
eral elevator employees at this location were indicted and pleaded
guilty to charges that low-quality grain and other matter had been
loaded in the bin closest to the diverter sampler and that the dis-
charge of material from that bin had been timed to pass through
the sampler between the taking of samples. At the instruction of
the AMS field office, the inspection agency has assigned a man to
inspect the conveyor belts periodically, to help insure that grain
is not loaded in a manner which prevents representative sampling.
-In another case, an electrical remote control switch permitted the
operation of a conveyor belt to load grain aboard vessels without
being sampled.





18


-Elevators commonly used two or more conveyor belts to load ex-
port vessels. Separate samples were drawn from each belt and
were combined into one composite sample used to determine the
official grade. The belts, however, could be emptied either in the
same vessel hold or in separate holds. If emptied into separate
holds, one or more holds could be filled with grain of a lower
quality that that of the composite sample. This situation would be
particularly harmful to a buyer who received grain exclusively
from the hold or holds containing the lower quality grain.
-Some river barges, with hold depths of about 15 feet, could be
fully loaded by the shipper before being offered for inspection.
Because a 12-foot probe was used to draw the official samples, it
was not possible to sample the bottom 3-foot layer and, because
inspectors generally were not present during loading, there was
no assurance that the bottom layer was of the same quality as the
rest of the lot. Although AMS regulations provide that certificates
be annotated to show that the bottom was not sampled, this situa-
tion presents the opportunity for deceptive loading.
-AMS has prescribed the 12-foot probe as the manual sampling
method for all hopper-type railcars. In transit, grain-especially
soybeans-could become compacted at the bottom of the hopper.
Inserting a 12-foot probe into the compacted grain requires exten-
sive strength and effort and samplers often cannot reach the bot-
tom layer. Also, on two occasions we observed inspection agency
samplers using 6-foot, rather than the required 12-foot, probes.
-The physical structure of the hopper-type railcar and the pre-
scribed probing pattern prohibits the drawing of a representative
sample, as illustrated by the following diagram.



I I I
I I I
o n n



.\ 1\ /\
Ii i I




As the diagram illustrates, the samples are drawn evenly from
top to bottom although the upper part of each compartment, or
bay, holds more grain than the lower part. Thus, there is no as-
surance that a representative sample will be drawn. Also, the op-
portunity exists to bias samples by deceptively loading higher
quality grain in the bottom parts and lower quality grain in the
upper parts of the compartments.
-AMS prescribes that probe samples be drawn from boxcars ac-
cording to predetermined, rather than random, patterns. Because
a shipper may be aware of the patterns, it is possible to deceptively
load a car, resulting in a biased sample. Also, by loading the box-
car unevenly or otherwise not leveling the load, a shipper can






19


impede and discourage proper sampling. A shipper will usually
be requested to level the load but, if he refuses, the sampler usually
tries to draw the best sample possible under the circumstances.
-Some working conditions can also impede proper sampling of
boxcars. On hot or humid days, extremely high temperatures in-
side incoming boxcars, which arrive sealed, are common. In
addition, railcars may be moved while the samplers are on or in
them. This is extremely dangerous and could result in serious in-
jury to the samplers. Given these difficult working conditions,
samplers may be inclined to compromise prescribed sampling
procedures.
Other ways in which manually drawn samples can be biased follow:
-Simultaneous use of two or more loading spouts up to several
hundred feet apart is common. The sampler is required to sample
all spouts, usually in 5-minute intervals. Elevator personnel are
able to observe the sampler at all times, providing an opportun-
ity to load lower quality grain from the unattended spouts.
-The sampler relies on sense of timing to secure representative
samples from each spout. The samples are combined in equal
portions into a composite sample for all spouts. By varying the
flow of grain through the spouts, the elevator can influence the
representativeness of the composite sample.

WEAKNESSES IN HANDLING SAMPLES
Controls and practices used in handling and preserving samples
while awaiting inspection also were sometimes inadequate.
-M-anually drawn samples were sometimes left unattended or were
otherwise subject to inadequate security. For example, at one loca-
tion, the sampler left samples unattended in the waiting area of
the truckers delivering the grain.
-In some cases, sample inspection or storage rooms were left open
and unattended during lunch periods and after close of business.
In other cases, elevator personnel who retained keys for emerg-
encies had access to samples and inspection equipment after close
of business.
-Although some elevators had equipment, such as pneumatic tubes,
to automatically transfer drawn samples to the inspection rooms,
at others hand-carried containers were used to transport samples.
In one case, badly worn equipment resulted in a potential loss
of sample representativeness. Also, some containers had holes large
enough to allow leakage of foreign particles.

AMS SUPERVISION OF SAMPLING
AMS's most common method of supervising sampling operations is
called "over-the-shoulder" supervision. Its main objective is to evalu-
ate through observation the competency of the licensed inspectors or
samplers. The observations should be random, frequent, and un-
announced. Past supervisions, however, covered only a small percent-
age of sampling operations, and licensed personnel and elevator man-
agement generally were aware when they were being observed. For
example, some elevator managers ordered AMS supervisors to provide


66-328 0 76 3






20


notice of their visits, and at some locations, AMS supervisors wore
bright orange coveralls and helmets and were easily recognized.
Maintaining the supervisors' anonymity during sampling operations
therefore was not highly effective, and AMS supervisors generally
did not otherwise provide for effective supervision of prescribed
sampling and sample-handling practices. AMS officials told us that
efforts to prevent deceptive practices through increased or tighter
supervision were usually countered by new deceptive practices or
variations of them. The officials said that they cannot achieve a high
degree of reliability in sampling operations through the existing level
of supervision and that supervisory control would not be effective
unless it were on a 100-percent basis.
To prevent elevator personnel from being able to interfere with
sampling, better controls are needed over the movement of grain into,
within, and from elevators; the operations of sampling equipment;
and the weighing operations. Increased use of automatic, rather than
manual, sampling methods and of devices to automatically transfer
drawn samples would provide more accurate sampling and better
control against tampering with samples.
AMS officials told us that AMS had advised export elevators that
by May 1, 1976, all grain being loaded for export is to be sampled
only with automatic diverter sampling devices. They also said long-
range plans are to expand the use of diverter samplers to all official
sampling operations.

NEED TO STRENGTHEN CONTROLS AND SUPERVISION OVER GRAIN
WEIGHING
The Grain Standards Act does not 'authorize AMS to supervise, or
inspection agency personnel to control, grain weighing nor does it
provide that grain weighing be coordinated with sampling. In prepar-
ing official grading certificates, the inspectors generally must accept
weights furnished by elevator operators to describe the quantities of
grain inspected. The inspectors have no means of independently verify-
ing these amounts. Lacking control over weighing, the inspectors can-
not be sure that all quantities are sampled.
Also, because weighing is not effectively controlled or supervised,
those in the domestic grain industry who must market commodities on
the basis of destination weights and foreign buyers who must purchase
grain on the basis of weights loaded aboard vessels have not been
reasonably assured that the weights assigned are correct. Our inter-
views with foreign grain buyers and responses from country elevator
operators indicated widespread dissatisfaction with the weights as-
signed to grain shipments. Recent Federal investigations have dis-
closed many cases of improper weighing.
Under the U.S. Warehouse Act, AMS's Transportation and Ware-
house Division licenses persons to weigh inbound and outbound grain
at grain elevators which are voluntarily licensed and regulated under
the act. About 17 percent of U.S. grain elevators, representing about
40 percent of the commercial grain elevator space in this country, are
licensed. The weighers, who are licensed after being tested for basic
competency in weighing, are usually elevator employees but can be








employees of independent agencies, including those designated as
inspection agencies under the Grain Standards Act. The Transporta-
tion and Warehouse Division examines each elevator's inventory rec-
ords about twice a year on the average, but it does not control or
supervise the weighers' operations.
Although there is no Federal control or supervision of weighing,
some non-Federal supervision is provided at some terminal centers
under an independent system established by the Association of Ameri-
can Railroads, to insure accurate weights. A terminal center may
include one or more elevators. The supervision is generally provided
by a State or private agency which, in many cases, is the inspection
agency designated for the area under the Grain Standards Act. The
independent supervisors observe the operation of scales, test shipping
or transfer conveyances for leaks, and checktest conveyances and
scales to see that they are completely empty after each transaction.
The extent of such supervision is based generally on which classifi-
cation is selected by the elevators in a terminal center. Such selection
is subject to approval by the Association. Terminal centers may be
designated as class 1, which specifies 100-percent supervision; class 2,
which specifies supervision of a representative number, usually at
least 25 percent, of the weighing; or class 3, which specifies little or
no supervision. The number of terminal centers in each classification
as of January 1975 follows.

Class 1 Class 2
Class 3
State Private State Private Private
Terminal center agency agency agency agency agency Total
Export----------------- 9 3 2 26 1 41
Inland ----------------- 44 5 5 183 1 238
Total----_ -- 53 8 7 209 2 279

The supervision provided under this system, however, was not al-
ways sufficient to make sure that all grain was properly weighed and
that representative samples were obtained for inspection. For example:
-Only one individual was usually available at each class 2 ele-
vator. His responsibilities included weight supervision of both
incoming and outgoing shipments and inspection of arriving rail-
cars and various grain movement operations through elevator
facilities.
-The supervisors could not control the physical movement of grain
in the elevators well enough to insure that all incoming grain
was weighed or that all outgoing grain, once weighed, was loaded
aboard the appointed conveyance. Some elevators had bypass duct-
work or movable ductwork, sometimes remotely controlled, which
allowed elevator personnel to shortweigh without detection by
the independent supervisors.
-Most scales at terminal elevators provided either a printed scale
ticket or, in the case of newer electronic scales, a printout for each
weighing. During the supervisors' absence, various means were
possible for manipulating scale calibrations. Scale components
were sometimes left unsealed, and facsimiles of scale printouts
showing erroneous weights could be easily prepared.






22


Recent USDA and FBI investigations have disclosed that grain
was shortweighed at some ports where weighing was independently
supervised. This was done by such means as
-manipulating scales immediately before loading to cause them
to register incorrect weights;
-representing that grain had been removed from storage bins,
weighed, and loaded aboard ship when, in fact, the grain had been
diverted back to the storage bins; and
-manually altering the official weight tape to indicate weights of
grain which was not loaded.
In one case, the investigations disclosed that it was company policy
to shortweigh outbound ships as they were loaded. Also, at one ele-
vator, 100 pounds was frequently deducted in weighing the contents of
arriving railcars. From August 1974 through December 1975, 21 indi-
viduals pleaded or were found guilty of improper weighing operations.
Other information we obtained indicated that weighing irregulari-
ties may be even more widespread. Many foreign buyers we interviewed
alleged that weights of U.S. grain shipments were regularly lower
than the weights they paid for. Some indicated an inclination to buy
grain elsewhere because of distrust in the accuracy of the weight of
U.S. grain. Several furnished data on alleged shortages. (See ch. 3.)
When we asked country elevator operators from four States-Illi-
nois, Iowa, Kansas, and North Dakota-about selling grain on the
basis of weight and grade determined at destination, 339, or 41 percent,
of the 829 who responded indicated they were dissatisfied with weights
and grades assigned at shipping destinations. Of these, 156 operators
specifically identified dissatisfaction with assigned weights. Further,
many country elevators have indicated an unwillingness to market
grain at certain locations where they suspect their grain is erroneously
weighed.
Some analyses have indicated that weights at destinations frequently
are less than the shippers' weights. For example, the following anal-
yses, based on data provided by terminal elevators, show differences
between origin and destination weights for 514 barge shipments of
grain to a Gulf port in April and May 1975 and for 242 rail shipments
of wheat to several inland and Gulf port locations during July and
August 1975.

Number of shipments for which
Origin exceeded Destination
destination exceeded
Differences weight origin weight
Barge:
1 percentorless--------------- ----------------------------------- 217 102
More than 1 percent-------------------------------------------------- 148 47
Total-- ---------------------------------------------------------- 365 149
Rail:
1 percent or less-----.---------------------------------- -------------- 155 64
More than 1 percent.---.----.. --...---------......-----------..-- ----------------- 19 4
Total--- --------------------------------------------------------- 174 68

Differences between origin and destination weights generally can be
explained by such factors as minor scale imperfections; loss in transit,






23


such as .thefts or leaking railcar doors; failure to fully unload and
weigh grain from railcars; inadvertent errors in balancing or reading
scales; or deliberate shortweighing. Minor differences are usually disre-
garded by the parties involved. However, differences often involve
quantities that cannot be explained or easily disregarded. In the cases
analyzed above, many of the individual weight differences were nom-
inal; collectively, however, the net of shortages over overages during
these 2-month periods totaled nearly 200,000 bushels.
To effectively control grain inspections and to enhance the market-
ability of grain both domestically and abroad, control and supervision
of grain weighing should, in our opinion, be coordinated with the
responsibility for inspecting grain. USDA officials agreed with the
need for such coordination at port elevators.

NEED FOR IMPROVED UNIFORMITY AND ACCURACY IN GRAIN GRADING
Improvements are needed in the accuracy and uniformity of grades
assigned to sampled grain. In regarding samples previously graded by
licensed inspectors during fiscal year 1975, AMS supervisors found in-
correct grades on the average of between 10 and 20 percent of the time
and, at some locations, ranging to over 30 percent of the time. For
those people, including country elevator operators and foreign buyers,
who must rely on grades as a basis for settling large-dollar-value trans-
actions, this rate of inaccuracy does not offer a reasonable degree of
reliability.
Grading grain requires close scrutiny of individual grain kernels and
delicate judgments by inspectors of the kernels' characteristics and the
extent of any defects. A difference of a small fraction of a percent in
any factor can affect the accuracy of the numerical grade and there-
fore the value of a specific lot. Attaining a high degree of accuracy and
uniformity in grading depends somewhat on refining grain standards
and improving grading technology. Progress on these matters, which
are discussed in chapter 4, has been slow. Until refinements enable qual-
ity to be measured through mechanical or more scientific methods,
improving the inspectors' capability to uniformly recognize and de-
scribe quality characteristics is essential.
AMS supervisors evaluate the licensed inspectors' grading work
when making appeal inspections or during supervisory visits. The eval-
uations may involve regrading samples drawn by licensed personnel or
grading new samples independently drawn by the AMS supervisors.
During fiscal year 1975, AMS supervisors' appeal inspections showed
that about 20 percent of the grades determined by the licensed inspec-
tors were incorrect. During supervisory evaluations, the AMS super-
visors found an error rate of about 10 percent. Error rates on appeal
inspections generally tend to be higher because, in many cases, the ini-
tial results are borderline and the requestor may suspect an error. The
error rates found during supervisory evaluations, however, may be
lower because licensed inspectors sometimes select the samples to be re-
graded and thus have an opportunity to select those they believe to be
free of errors.
As shown in the following table, error rates in some AMS field office
circuits were extremely high.







24


Error rates found during Error rates found during
appeal inspections (note ') supervision (note2)
Evaluated Found Error rate Evaluated Found Error rate
by AMS incorrect (percent) by AMS incorrect (percent)

Beaumont, Tex--------------------.................... 234 34 15 916 67 7
Des Moines, Iowa...........------------------- 304 70 23 1,731 295 17
Duluth, Minn ..........--------------------- 5,255 1,784 34 757 79 10
Grand Forks, N. Dak.........---------------- 23 7 30 373 90 24
Houston, Tex------------------- ................. -1,439 143 10 2,009 167 8
Minneapolis, Minn------------------.2, 304 791 34 331 49 15
New Orleans, La---....---------------- 2,174 556 26 3,085 329 11
Peoria, Ill .............. ------------------------- 801 149 19 194 29 15
Philadelphia, Pa--------------------................. 53 2 4 1,076 67 6
Portland, Oreg...................... ---------------------- 352 80 23 (1) (8) (a8
Seattle, Wash-----------------------....................... 50 14 28 3,813 112 3
St. Louis, Mo-----------------------............. 686 119 17 (3) (3) (3)

I Data obtained for all appeal inspections during fiscal year 1975.
2 Data obtained for all or a representative portion of supervisory evaluations in fiscal year 1975.
3 Data not obtained.
During fiscal year 1975, AMS regraded grain covered by about
90,000 official certificates issued by licensed inspectors, including about
29,500 appeal inspections. These reviews represented about 2.6 percent
of the estimated 3.4 million total inspections. Much more supervisory
regrading by AMS would seem to have been warranted, particularly
in view of the high error rates. In contrast, Canadian officials told us
that, under their grain inspection system (see app. VI for a brief de-
scription), about one of every six samples, or about 17 percent, is super-
vised. Moreover, this supervision occurs immediately after the original
grading. Two advantages of this system are that (1) differences can be
immediately called to the original grader's attention so that he can re-
examine his own work and thus minimize similar errors in the future
and (2) the error can be corrected before the inspection certificate is
prepared and released.
The latter advantage is particularly important. AMS supervisors
generally regrade samples or lots several days after the initial inspec-
tions, when the inspection certificates have already been released. For
each appeal inspection, AMS issues a new certificate which super-
sedes the original certificate. In other cases, however, certificates which
inspection agencies have released are not corrected if AMS discovers
errors. The 'Grain Standards Act, which limits to licensed inspectors
the authority to make original inspections within the United States,
precludes AMS from correcting original certificates prepared by
licensed inspectors except in the case of appeals.
Because not all AMS-discovered errors have been corrected, thou-
sands of settlements may have been made on the basis of erroneous
official grades. Following are a few examples of uncorrected original
certificates for wheat.

Grade No.
Quantity Determined
Location (bushels) Certificate by AMS Shipment type

Channelview, Tex.-------------------------- 488,266 2 3 Export vessel.
Do..--------------------------------- 60,000 2 (1) Do.
Corpus Christi, Tex-----.......--.------- ..----------- 120,000 2 3 Do.
Superior, Wis...--------------... ----....----------- 200,000 2 3 Do.
Minneapolis, Minn--------------------------............................ 50,770 2 3 Outbound barge.
Duluth, Minn...-------------........-----..------------- 1,467 3 1 Inbound rail.
Portland, Oreg------- ------------- --------- 3,000 4 2 Do.

I Sample grade.






25


Grain merchandisers are often critical of the lack of grading uni-
formity among inspection agencies. Considering that large volumes of
grain may be purchased and sold at different locations where different
agencies are responsible for grading, the merchandisers' concern for
uniform grading practices is apparent.
AMS generally did not use available data for comparing grading
results of various inspection agencies, although such comparisons
would have been useful in identifying dissimilar grading practices.
Some grain merchandisers' analyses, such as the following analyses of
rail and barge shipments of grain from various Midwest locations to
various Gulf port elevators, have shown a high variation rate.

Rail Barge
shipments shipments
Number analyzed------------------------------------------------------............................................................... 101 519
Comparison of numerical grades assigned by origin and destination agencies:
Number agreed- ----------------------------------------------------- 40 252
Number disagreed-......................................................... 61 267
Origin grades higher--------------------------------------------------......................................................... 29 253
Destination grades higher---------......--.-------.......--...---------------------------.................. 32 14
Grading factors) differing:
Test weight or moisture--------------.---------------- -- --....------------. 1 10
Damaged kernel --------------------------------------------------................. 11 34
Broken corn and/or foreign material------------------------------------- 49 228

The cause or causes of the above variations were not identified; they
could, however, be attributable to any of several possibilities.
-Variations in sampling methods.
-Deterioration of grain during loading or unloading or while in
transit. (Such deterioration is common, particularly for overdry
corn, as discussed in ch. IV.)
-Bias by licensed inspector at either origin or destination.
-Variations in grading methods or interpretations of standards.
Because of the various possibilities and the difficulty in ascribing
variations to any particular cause, analyses such as those above are
relatively inconclusive. To grain merchandisers, however, frequent
grading variations and the uncertainty about their causes present a
considerable concern. Country elevator operators have also expressed
such concern. As discussed in the preceding section. 41 percent of the
respondent to a mail survey of operators in four States indicated
dissatisfaction with the destination weights and grades their grain
received.
Until accuracy is substantially improved, additional supervision
should be provided, particularly where high error rates have been
found. AMS supervision would have been more effective if done on an
unannounced and random basis and if inspectors had not been allowed
to select the samples or lots to be regraded. Regrading should be done
as soon after the original grading as possible so that inspectors can
correct any errors before certificates are released.
In October 1975, the Congress appropriated $5 million for AMS
to hire additional supervisory personnel. (See p. 33.) When hired
and trained, these additional personnel should enable AMS to sub-
stantially increase its supervisory activities.

DUPLICATIVE INSPECTIONS UNDER PRESENT SYSTEM

Under the present two-level inspection system, individual lots of
grain are often inspected several times. In some cases, the inspections






26


are raade concurrently, so all sampling and grading procedures are
duplicated. Also, superseded inspection certificates from preceding in-
spections are not always recovered.
Under the act and AMS regulations, an interested person may
request
-an original inspection at either or both origin and destination;
-one or more succeeding original inspections when a later or more
current inspection of the same scope as the preceding original in-
spection is desired in the same designated inspection area on the
same lot of grain;
-a reinspection on any original or succeeding original inspection;
-an appeal inspection on any original inspection, succeeding orig-
inal inspection, or reinspection; or
-a review of an appeal inspection by the AMS Grain Division's
Board of Appeals and Review.
Original inspections, succeeding original inspections, and reinspec-
tions are made by licensed inspectors or, in the case of U.S. grain in
Canadian ports, by AMS inspectors. Appeal inspections are made by
AMS supervisors or, in the case of U.S. grain in Canadian ports, by
the Board of Appeals and Review.
The opportunity to request that inspections be repeated is intended
to protect the parties to a transaction. Under the present inspection
system, where there is much concern about the accuracy of licensed
inspectors' determinations, such an opportunity is warranted. Fre-
quently, however, exercise of these options causes duplication and
inefficiency.
AMS records showed that licensed inspectors made about 18,000
reinspections and that AMS made about 29,500 appeal inspections in
fiscal year 1975. The records did not show, however, the number of
succeeding original inspections or the number of inspections that may
have been repeated on individual grain lots.
Our analysis of individual inspection certificates disclosed some ex-
amples of repetitive inspections on individual lots. For example, a
barge containing about 56,000 bushels of wheat was inspected at. one
location 10 times over a 7-day period-5 times by a licensed inspector
and 5 times by an AMS supervisor. Each original and appeal inspec-
tion series was requested by the seller and, except for the last, showed
that the grain contained an excessive quantity of garlic bulbs, an
undesirable quality for which price discounts apply. In this case and
in others we noted, it seemed obvious that multiple inspections were
requested in the hope that one would eventually yield the desired
results.
In some cases, grain buyers routinely requested reinspections or
appeal inspections on each shipment. Such requests generally must
show the reason for the request stated in terms of the factor or factors
in question. If filed in advance, however, the reason need not be
shown.
When a request for an appeal inspection is filed in advance, AMS
generally makes its inspection concurrent. with the original inspection.
In this case the AMS inspector must duplicate all sampling and grad-
ing procedures of the licensed inspector. Although the licensed inspec-
tor's results are always superseded by those of the AMS inspector, the
licensed inspector must inspect the grain because the Grain Standards






27


Act does not -authorize AMS to make original inspections, except at
Canadian ports.
'The official certificate for each succeeding original inspection, rein-
spection, and appeal inspection supersedes the certificate from the
preceding inspection. AMS regulations provide that certain precau-
tions be taken to prevent fraudulent or unauthorized use of a super-
seded certificate. Generally, the original certificate is to be surrendered
and marked "Void" before a new one is issued.
At one AMS field office, however, records available on 102 cases in
which new certifications had been issued after appeal inspections on
barge shipments from March 27 through July 25, 1975, showed that
none of the original certificates had been surrendered. At another field
office, a selection of 98 appeal certificates issued in fiscal year 1975 on
truck and rail shipments showed that, in nearly half the cases, the
original certificates had not been surrendered
Although we did not observe any misuse of superseded certificates,
the requirement that precautions be taken to prevent their fraudulent
or unauthorized use does not seem to have been effectively followed at
these field offices. Field office personnel said that they had no proce-
dures to follow up on superseded certificates that were not surrendered
and that they often encountered problems in trying to locate holders
of superseded certificates.
Some provision for repeat inspections is necessary, particularly
when, as under the present two-level inspection system, there is much
concern about the accuracy and reliability of initial grading determi-
nations. However, allowing an unlimited number of repeat inspections,
making concurrent inspections, and not requiring that a specific reason
be given for each request for a repeat inspection seem unreasonable.
Each request increases the workload of either or both licensed inspec-
tors and AMS supervisors. Improving the accuracy and reliability of
initial inspections could provide increased confidence in their results
and reduce the number of requests for repeat inspections. Also, the
provision that superseded certificates be surrendered when repeat in-
spections are requested needs more stringent enforcement.

PROBLEMS WITH STOWAGE EXAMINATIONS
No matter how clean grain may be when loaded abroad a vessel, it
can become contaminated or deteriorate in quality if the storage space
is wet, dirty, or insect or vermin infested or contains residues from
previous cargoes, such as petroleum or toxic materials. Examinations
by licensed personnel of the suitability of stowage space on vessels to
receive grain for export have sometimes been deficient. In some cases,
licensed personnel have been bribed to falsely certify to the condition
of stowage spaces. In other cases, licensed personnel have been negli-
gent in carrying out their responsibilities.
AMS did not issue written instructions to provide for uniformity
in making stowage examinations until July 1975. Its supervision of
stowage examinations in some locations has not been as extensive as
error rates seem to warrant.
To lessen the potential for contaminated grain, AMS regulations
require stowage examinations for export grain and other lots of grain
which are inspected at the time of loading into a conveyance. Licensed






28


personnel are to visually examine the identified stowage space or
other container that will be used for the grain. The examination is
made to detect the presence of insects, vermin, moisture, foreign mate-
rial, loose rust, residue from a previous cargo, commercially objec-
tionable .odor, or other conditions that could contaminate the grain or
lower its quality. A certificate stating that the stowage space has been
examined and found to be ready for loading is to be issued only after
all deficiencies have been corrected.
The inspections usually can be made quickly and do not interfere
with loading operations unless deficiencies are found. Corrections of
deficiencies can sometimes delay loading for several days, and the
cost of the delay plus the cost of fumigating or cleaning to correct
the deficiencies is usually high. In some cases, bribes have been offered
to try to avoid such delays. As a result of investigations at Gulf ports
during 1974 and 1975, six licensed personnel were found guilty of or
pleaded guilty to charges of falsely certifying to stowage conditions.
The charges included accepting bribes ranging up to $3,500 each from
ships' officers or agents. Two individuals and one firm were found
guilty of bribery.
AMS supervision of stowage examinations in some field office cir-
cuits has not been as extensive as conditions seem to warrant. In the
Houston field office circuit, only 71 of 1,173 stowage examinations were
supervised during fiscal year 1975 although in 7, or 10 percent, of the
71 cases the supervisors found that the ships' stowage spaces were not
ready to receive grain as had been certified. No official corrective ac-
tions were taken in these cases. According to a field office official, the
inspection agency's chief inspector normally is notified that his in-
spector has passed an unfit ship and the inspector is advised to be
more careful in the future.
At some locations, we accompanied AMS supervisors during super-
visions of stowage examinations. One supervisor on August 4, 1975,
found rust and live insects in five of the six holds of a ship waiting
to be loaded with grain. A licensed inspector's prior examinations of
the ship's holds on July 24 and of one hold earlier on August 4, had
failed to disclose these conditions. Several days elapsed while the holds
were repeatedly fumigated-six times in the case of one hold-to de-
stroy the insects. The AMS supervisor concluded that the inspector
had been negligent and issued him a corrective action report, an
administrative action prescribed for less serious irregularities.
(See p. 36.)
Although AMS regulations implementing the 1968 amendments to
the Grain Standards Act require that stowage examinations be made
by official inspection personnel, it was not until November 1974 that
AMS required inspectors to satisfactorily pass examinations for com-
petency and to be specifically licensed to make stowage examinations.
Also, AMS did not issue written instructions on stowage examination
procedures and standards of cleanliness until July 1975. This pointed
out that, without formalized instructions, then-existing procedures
were causing confusion and nonuniformity in stowage examinations.
The new instructions, however, are somewhat general about such
matters as inspection agency and AMS field office responsibilities, per-
formance requirements, and supervision of inspectors, and have not
eliminated all confusion and nonuniformity. For example:






29


-Although the instructions provide that stowage examinations
apply to water-borne vessels, the examinations of lake vessels at
Great Lakes inspection points consisted of deck-level observations
of the holds rather than the more comprehensive in-hold inspec-
tions given oceangoing vessels.
-The instructions do not cover ships loaded at Canadian transfer
elevators (see next section) or oceangoing vessels which are par-
tially loaded at a Great Lakes port and then fully loaded at a
Canadian transfer elevator.
-Although the instructions indicate that AMS supervisory and
appeal stowage examinations are generally to be made on a follow-
up basis, AMS supervisors at one field office always accompanied
the licensed inspectors when supervising or making appeal exam-
inations. At another office, some appeal examinations were made
before the licensed inspectors made their examinations. In one
case, the licensed inspector used the results of the appeal inspec-
tion as his own.
-The instructions do not adequately set forth the physical qualifi-
cations or minimum training needed for making stowage exam-
inations or describe what administrative or other action should
be taken when a licensed inspector has improperly certified to
stowage conditions.
The instructions need to be revised to eliminate confusion and pro-
vide increased uniformity in making stowage examinations.

QuESTIONABLE USE OF OFFICIAL INSPECTION CERTIFICATES FROM
GREAT LAKES PORTS
Although the Grain Standards Act requires that all grain sold for
export by grade be officially inspected, this requirement is not effec-
tively observed for U.S. grain which is inspected and loaded into lake
vessels at Great Lakes ports and then is unloaded and stored in
Canadian transfer elevators before being reloaded aboard oceangoing
vessels for export. Under the act, AMS is authorized to provide any
or all inspection services at the transfer elevators but such services
must be requested. Unless requested by the exporter or foreign buyer,
the transshipped grain is not regraded when it is reloaded for export
and is delivered under the original inspection certificate, known as a
western grade certificate.
The certificate shows the date and place of inspection and the name
of the lake vessel into which the grain was originally loaded and states
that it "may not represent the grade, quality, or condition at a subse-
quent date or place." It does not, however, otherwise indicate that the
grain was transshipped. According to one exporter, grain sold on the
basis of western grade certificates is usually sold at a discount.
According to an AMS official, western grades may be used for trans-
shipments if the identity of the grain has been preserved in the trans-
fer elevator. In many cases, however, such grain is commingled at
the transfer elevator or in the export vessel with grain from other
lots and loses its identity. Some samples of transshipped grain, in-
spected at our request, showed that the grain was of a much lower
quality than the original certificates showed. Although transshipped
grain may sell at a discount, we question the appropriateness of






30


using a certificate showing official inspection results which may no
longer apply.
We asked an AMS inspector to grade four samples from two eleva-
tors. The samples represented about 3 million bushels of transshipped
corn, which the western grade certificates showed as number 3 grade
corn. The samples had been drawn at the request of the foreign
buyer and were found to be in compliance with U.S. standards related
to insect infestation-the only factor for which the foreign buyer
had requested inspection.
To qualify as number 3 grade, corn should contain not more than
4 percent of broken corn and foreign material (BCFM). The grading
results, however, showed BCFM content in the samples of 7.3, 13.1,
15.8, and 16.2 percent, each of which represented sample grade rather
than number 3 grade corn. According to the AMS inspector, some
increase in BCFM could have resulted from unloading, handling, and
reloading the corn at the transfer elevator, but such large increases
were unlikely. One exporter told us it was normal practice to clean
(screen) some corn at transfer elevators to reduce BCFM content.
The AMS inspector said he had been told the cleaned corn would be
sold in Canada while the screenings would be blended with western
grade shipments.
In a July 1975 internal AMS memorandum, the inspector said his
office's checks of many western grade cargoes showed that BCFM
usually ranged from 10 to 25 percent. He said that, if USDA wanted
to stop the misuse of western grade certificates in Canada, all certifi-
cates on lake vessel-carried grain would have to be marked "not valid
for transshipment" and inspection and grading would have to be
mandatory.
In January 1976, AMS officials told us that they knew of abuses
in the use of western grade certificates and that they were amending
AMS regulations to make western grade certificates invalid for trans-
shipped grain.
PROBLEMS IN IMPROVING PERSONNEL ADMINISTRATION
The involvement in the inspection system of over 100 inspection
agencies, some providing inspection services to only 1 or 2 elevators,
leads to a lack of uniformity in recruiting and training, uneven dis-.
tribution of workloads, and limited opportunities for rotating per-
sonnel between assignments. Because grain may move over long
distances and between markets, uniform application of grain stand-
ards, although difficult, is extremely important. Frequently, however,
lack of uniformity between origin and destination grading has led to
disputes between buyers and sellers and to distrust in the integrity of
the inspection system.
AMS officials said that they recognized the need for improvement
in personnel administration but that it was not possible under the
present inspection system.
PERSONNEL RECRUITMENT
According to AMS regulations, license applicants must meet certain
criteria relating to education, experience, and competency. However,
there are no programwide requirements related specifically to hiring






31


new employees who may carry out inspection-related duties for long
periods before being deemed ready to apply for inspectors' licenses.
Some State-operated inspection agencies follow State civil service
requirements for recruiting new personnel. AMS, however, has little
knowledge of personnel practices or employment requirements used
by private and board of trade inspection agencies. The capability and
integrity of the inspection system would be enhanced by the develop-
ment of a personnel management system and modern personnel con-
cepts to insure the hiring of an adequate number of well-qualified and
reliable personnel.
TRAINING
The potential for more uniform grain sampling and grading would
be increased if all inspection personnel received the same training and
if more extensive training were provided. According to AMS regu-
lations, designated inspection agencies have primary responsibility
for training their personnel. For this reason and because they might
be criticized if AMS-trained personnel were later found deficient, some
AMS field offices were reluctant to provide or assist in the initial train-
ing of inspection agency personnel. Further, AMS had not developed
any standardized training program or curriculum for the inspection
agencies to follow. The agencies relied mainly on on-the-job training
which generally extended over a minimum of 1 to 2 years before the
employees applied for inspectors' licenses. Also, there was little evi-
dence of more extensive, classroom-type training.
A standardized training program would increase assurance that
proper and uniform inspection procedures would be taught to all in-
spection personnel. Also, more extensive training, particularly class-
room-type training, seems necessary in view of the importance of
precise representative sampling and the delicate judgments required
for grading.
WORKLOAD DISTRIBUTION
Obtaining uniform inspection results was complicated when, due to
seasonal or other periodic workload fluctuations, individual inspectors
were burdened with heavy workloads. Prompt completion of inspec-
tions on a timely basis is extremely critical because any backlogs can
delay elevator operations.
In some situations involving heavy workloads, inspectors did not
allow enough time to properly conduct inspections. For example, at
one agency visited, an inspector at one location made 116 inspections
during 1 day and, according to the AMS supervisor, did not complete
all required grading steps. In another case, records showed that one
agency's inspectors averaged 100 inspections a day over a 1-month
period. Although AMS has not developed guidelines on maximum
inspection workloads, AMS officials said it was questionable whether
proper inspections could have been made in the above circumstances.
PERSONNEL ROTATION
Distributing inspection responsibilities among many separate agen-
cies, some of which provide inspection services to only one or two
elevators, greatly limits the opportunities for rotating personnel be-
tween assignments. Personnel rotation, to help prevent a buildup of






32


conflicting interests and preserve an independent attitude, is a basic
control measure in any inspection activity.
Personnel assigned to a single elevator for long periods can become
susceptible to loss or compromise of independence in a variety of
ways. For example,
-working alongside elevator employees and management for long
periods may tend to develop relationships and attitudes favorable
to elevator interests, or
-personnel on extended assignments can become easy prey for
special gratuities or even bribes.
Many smaller agencies' opportunities for rotating inspectors are
limited. Of the 26 designated agencies inspecting export shipments, 17
made inspections at only 1 or 2 elevators and therefore had little or no
opportunity for rotating inspectors. Some licensed inspectors have
remained at a single elevator as long as 15 years.
LIMITED EFFECTIVENESS OF AMS ADMINISTRATION AND SUPERVISION
The effectiveness of AMS's administration and supervision of the
grain inspection system has been limited not only because the system
has been designed and operated essentially to facilitate grain market-
ing but also because AMS has not.
-had an adequate number of personnel to carry out its heavy work-
load responsibilities,
-taken aggressive action to correct all identified weaknesses or to
determine the extent of indicated weaknesses, or
-established specific criteria on whether and what actions should
be taken when grading, sampling, or other inspection irregulari-
ties occur.
FIELD OFFICE SUPERVISION
In addition to the conditions which complicated effective supervi-
sion of sampling and grading operations (see pp. 20 and 24), the field
offices' ability to properly supervise the designated agencies' activities
was hampered due to shortages of supervisory personnel and the large
volume of other assigned activities.
As of July 1975, 223 Grain Division personnel assigned to AMS
field offices were responsible for supervising the work of about 2,655
licensed inspectors, samplers, and technicians. On the average in fiscal
year 1975, only about 40 percent of their time-an equivalent of about
88 staff-years-was devoted to such supervision. The rest was spent
making original inspections of processed grain commodities under the
Agricultural Marketing Act of 1946, as amended (7 U.S.C. 1621) ;
responding to appeals for grain inspections; and carrying out indirect
and miscellaneous activities.
AMS field offices generally gave a higher priority to services other
than supervision of licensed personnel. To a large extent, these other
services were provided in conjunction with loading or unloading
transport conveyances, the delay of which could create costly produc-
tion shutdowns or delays. In contrast, supervision did not directly in-
volve production activities and could more easily be deferred without
causing such interference. In addition, AMS assessed fees or hourly
labor charges to cover the costs of processed commodity and appeal
inspections while it earned no income for supervision activities.





33


In some AMS field office circuits, nonsupervision activities con-
sumed a large portion of the supervisors' available time. In the Hous-
ton circuit, where about 13 percent of all export inspections were
handled, 84 percent of the fiscal year 1975 staff time was devoted to
inspecting rice and other commodities under the Agricultural Market-
ing Act or to making appeal inspections; only 16 percent was spent
supervising licensed personnel. Other field offices which used less than
30 percent of their available staff time in fiscal year 1975 for supervi-
sion activities included Fort Worth, Texas; Kansas City, Missouri;
Mobile, Alabama; New Orleans, Louisiana; Peoria, Illinois; and
Wichita, Kansas.
AMS personnel believed that, on occasion, grain firms had requested
appeal inspections on railcars or barges to purposely overload AMS
supervisors and reduce their availability to supervise inspections of
grain being exported. A licensed inspector said that this was the case
at an elevator where he had previously inspected grain.
Although the grain inspection workload greatly increased begin-
ning in fiscal year 1973, the number of AMS field supervisors re-
mained relatively unchanged from 1968 until January 1976. During
fiscal years 1973-75, the number of grain inspections averaged 3.7 mil-
lion a year-an increase of about 35 percent over the annual average
for the prior 5 years. Other workload activities also increased sub-
stantially. For example, during fiscal years 1973-75, the average
annual number of appeal inspections increased by 44 percent over the
annual average for the prior 5 years.
Since 1968, AMS has twice initiated budget requests for funds to
increase its supervisory staff: by 12 for fiscal year 1969 and by 14
for fiscal year 1976. Both requests were deleted during the budget
review process. Even if retained, these requests would have provided
for only a minor increase.
In October 1975, after weaknesses in the inspection system had been
publicized, the Congress included $5 million in USDA's fiscal year
1976 appropriations for AMS to employ about 200 additional super-
visory personnel to improve and strengthen existing inspection pro-
cedures. In January 1976, AMS officials told us that 65 persons had
been hired and they hoped to have all the additional persons hired by
March 15, 1976.

ACTION ON INTERNAL USDA REPORTS
During recent years, several internal USDA reports, including
AMS employees' memorandums, identified potential or existing weak-
nesses in the grain inspection system. Although these reports contained
no outright evidence of unlawful or fraudulent practices, they pointed
out both foreign buyers' problems with the quality of U.S. grain and
certain deficiencies and weaknesses in grain inspection procedures,
practices, and regulations. AMNIS corrected some deficiencies but others
continued. Also, aggressive action was not taken to determine the
extent of some of the system weaknesses which were being disclosed
so that appropriate action could be devised.
Two of the more important reports were a 1969 trip report by J. A.
Browning, Chairman of the Grain Division's Board of Appeals and
Review, on his trip to the United Kingdom and Western Europe






34


(Browing report) and a 1973 Office of Audit report on the grain
inspection program.
1969 Browning report
Mr. Browning's February 1969 trip report to the then Chief of the
Grain Division's Inspection Branch discussed problems, such as exces-
sive moisture and BCFM in corn shipments, which are similar to
problems being voiced by foreign buyers today. (See ch. III.) He re-
ported foreign buyers' allegations that the U.S. inspection system was
subject to bribery and fraud and their suggestions that penalties for
misconduct be increased. He cited the growing competition to U.S.
grain in European countries and said he could not stress too strongly
the part that good inspection practices, constant supervision, and qual-
ity control must play in helping the United States retain the overseas
grain market.
The report concluded that
-research should be done on (1) loading methods to prevent strati-
fication of whole and broken corn in carriers, (2) unloading meth-
ods to eliminate further breakage, and (3) development of more
resistance to cracking in U.S. corn varieties;
-educational work should be done to eliminate the misconception
promoted by importers of U.S. grain that the inspection certifi-
cates issued at U.S. export points evidence the quality of corn the
importers are delivering to their customers;
-exporters, knowing the fragile condition of corn, should load well
within the BCFM limit allowed for the grade being shipped rather
than loading the maximum limit;
-the Grain Division should make "doubly sure" that there is no
(1) bribery of inspectors, (2) falsification of inspection cer-
tificates, (3) misgrading of grain, or (4) improper sampling; and
-the Grain Division should have the personnel and funds needed to
supervise and keep under surveillance weekend and night loading
of grain at export points (which the report did not identify)
where foreign complaints indicated loading of lower grade grain
than that indicated on the inspection certificates.
Although the report contained serious allegations and indicated a
number of potential problems, we were unable to determine the specific
actions, if any, that AMS had taken to follow up on the allegations or
to determine the extent of the problems. The former Chief of the
Inspection Branch told us that travelers before, during, and after the
Browning visit had made similar recommendations, all of which were
considered in writing the regulations implementing the 1968 amend-
minents to the Grain Standards Act. He said, however, that it would
be difficult to pinpoint the specific action taken in response to any
particular recommendation.
1973 Office of Audit report
In a May 1973 report to the AMS Administrator, USDA's Office
of Audit identified deficiencies in grain inspection procedures, prac-
tices, and regulations. The report was based on a nationwide audit of
the grain inspection program. Following are some of the deficiencies
reported.
-The amount of training, testing, and supervision provided to new
samplers was left to the AMS supervisors' discretion. Most new






35 1

samplers were not tested for competency before licensing and were
not required to pass a formal test until they applied for license re-
newal after working 3 years. Instructions and guidelines were
needed for licensing and supervising samplers.
-At some inspection points, sampling equipment and samples were
accessible to elevator personnel and others. At one location, blank
official inspection certificates were left in an open, unattended
cabinet.
-At various inspection points, different procedures were used in the
sampling and grading of grain being loaded from more than one
conveyor belt or other source. In some cases, grain from each con-
veyor belt or other source was being sampled and graded separ-
ately; in other cases, such samples were combined and graded as
one sample.
-AMS supervisors and licensed inspectors sometimes used unap-
proved shortcuts by (1) grading smaller samples than required
by existing instructions or (2) not grading a second portion of a
sample when the grade was determined on a narrow margin or
when the results were just under the grade limit.
-The Grain Division did not have a system for prompt decisions
on such matters as proposed instructions, amendments to
regulations, replies to foreign complaints, and requests for
investigations.
-Standards and instructions needed improvement to prevent the
shipping of undetected infested grain and to insure uniformity in
testing for weevils or other insects and in grading grain as
"weevily."
-Instructions were needed to avoid confusion and lack of uni-
formity in making stowage examinations.
-Licensed inspectors and AMS supervisors did not always (1)
verify the stowage location of grain being loaded aboard ship or
(2) test mechanical samplers in accordance with instructions.
-Some field offices did not follow reporting instructions, and im-
portant management control information was not used to insure
that the field offices provided adequate supervision to inspection
agency personnel. The auditors estimated that, at one field office,
AMS supervisors spent 90 percent of their time in the office rather
than onsite.
AMS generally agreed with the auditors' recommendations and took,
or said it planned to take, action on a number of the deficiencies. How-
ever, many of the deficiencies, including the following, still existed
during our review.
-AMS has not revised the standards and instructions to prevent the
shipping of undetected infested grain or to insure uniformity of
infestation tests made by the various field offices and inspection
agencies. AMS's target date for these revisions is July 1976.
-AMS instructions for stowage examinations, issued in July 1975,
need further revision to eliminate confusion and provide for in-
creased uniformity. (See page 27.)
-AMS has not adequately insured that licensed inspectors safe-
guard official samples of grain to maintain their integrity. (See
page 19.)


66-328 0 76 4






36


AMS officials said that the Office of Audit report was very compre-
hensive and that they were doing their best to correct the identified
deficiencies.
ADMINISTRATIVE ACTIONS
Although AMS supervisors found many grading, sampling, and
other irregularities while supervising the work of licensed personnel,
corrective action to prevent recurrences was seldom taken, mainly
because there were no specific criteria for determining what actions
should be taken. When action was taken, it was inconsistent. Also, be-
cause licensed personnel were employees of designated inspection
agencies, AMS supervisors were in a difficult position to effectively
prevent recurrences of irregularities.
Under the act and AMS regulations, official inspection personnel
are subject to certain administrative action whenever it is found that
they have improperly performed any official function or have other-
wise violated the act or AMS regulations or instructions. The regula-
tions require that such action be promptly initiated. In the case of
serious violations, which may also be subject to criminal prosecution,
AMS may refuse to renew or may suspend or revoke a license after the
licensee has been afforded an opportunity for a hearing. If deemed in
the best interest of the inspection system, AMS may, before a hearing,
suspend a license temporarily pending final determination. The actions
taken since 1964, as shown in AMS records, follow.

Number of cases
1964 to August 1974 to
Action Total August 1974 January 1976
License temporarily suspended pending final determination------ 17 2 15
License suspended for a definite period-.--------. --- ------ - 5 5 -------------
Renewal of license refused.-----.----------...------------------ 1 1----------
License revoked----..-------------------------.. ----------- 8 1 7
Total.---..-------------------.--------------------. ....... 31 9 22

AMS may dispose of less serious cases by issuing corrective action
reports or written notices of warning. AMS considers as less serious
such irregularities as unintentional misgrading or poor sampling tech-
niques. However, no specific criteria exist on the type or duration of
the action to be taken wheh irregularities occur. According to an AMS
official, administrative actions are determined on a case-by-case basis
and depend on the nature and frequency of the irregularities.
AMS supervisors often find irregularities in grading. According to
operating instructions, the supervisor is to prepare a record of sam-
pling and grading information on each appeal and supervision inspec-
tion. The supervisor in charge of each field office is to periodically
review these records and, when he determines that deficiencies have
been flagrant or excessively repetitious, is to initiate a corrective action
report which is routed to the AMS supervisor. The AMS supervisor
is to determine the cause of the deficiency, discuss the deficiency with
the licensed inspector, take the necessary corrective action to prevent
recurrences, and complete the report to show the corrective action and
the inspector's comments, if any.
The determination of which irregularities should be considered
flagrant or excessively repetitious was generally left to the discretion






37


of field office personnel. This resulted in inconsistencies between and
within field offices in determining whether and what actions would
be taken.
In the case of incorrect grade certificates, for example, some field
offices followed a 1968 guideline established by one AMS office that
all incorrect grades of one grade or more on certificates of export grain
or two grades or more on other certificates would be considered fla-
grant deficiencies for which corrective action reports were to be issued.
Officials at other AMS field offices did not follow this guideline. They
said use of the report in such cases was unwarranted because they
generally were unable to establish that the deficiency was caused by the
inspector's willfulness or his incompetence. In many instances, de-
ficiencies could be attributable to other circumstances, such as faulty
grading equipment or sampling methods or defects in grading tech-
nology, for which the inspector could not be held responsible.
At one field office, corrective action reports were used for only about
one-fourth of the total number of irregularities which according to
the 1968 guideline, would have been considered flagrant. At four other
field offices, the use of the reports appeared to be even less frequent.
Many apparent flagrant or repetitious deficiencies therefore went un-
reported and, consequently, were not dealt with by AMS supervisors.
Even when irregularities wre reported, they were not always dealt
with effectively and decisively. AMS supervisors told us that, when
corrective action reports were prepared, they generally discussed the
deficiencies with the licensed personnel but. that they believed the
inspection agency's chief inspector was responsible for necessary
followup supervision. Also, since the licensed personnel were not AMS
employees, AMS supervisors were limited in dealing effectively with
deficiencies. For example, AMS supervisors could not provide addi-
tional training, maintain close and frequent surveillance of the li-
censee's work, or control the licensee's assignments.
AMS's lack of decisiveness was especially evident in the case of an
inspector who was found to have made exceptionally serious grading
errors on 10 occasions over a 3-year period. The inspector was finally
ordered to be reexamined and, upon failing the examination for three
grains-barley, rye, and soybeans-he was declared incompetent.
AMS took no action to immediately suspend his license. Instead,
it allowed for a formal appeal proceeding to which the inspector
was entitled. Although the license was suspended about 12 months
later, during the interim AMS supervisors found additional flagrant
deficiencies. The inspector's assignments during this period included
the grading of about 9 million bushels of barley, rye, and soybeans.
AMS supervisors encountered other types of deficiencies with in-
spection personnel, including alcoholism, carelessness, and other im-
proper behavior, which they were unable to deal with effectively. AMS
officials told us that inspection personnel often ignored or refused
AMS supervisors' direct advice and that frequently the inspection
agencies' management refused to cooperate with AMS.
AMS's ability to effectively administer and supervise the grain
inspection system is affected, in large part, by the facts that (1) the
system was designed to operate primarily through designated non-
Federal agencies and (2) its primary objective is to facilitate grain
marketing. Despite these limits, however, AMS's administration and
supervision could have been more effective.






38


AMS reduced its supervision of licensed personnel in some locations
to levels far below those needed. Also, its requests for staffing increases
were not realistic in relation to workload increases, particularly at
those locations were important services other than supervision of sam-
pling and grading consumed extremely large portions of available
time. Additional supervisory personnel authorized by the Congress in
October 1975 should help bring AMS's staffing level more in line with
its workload requirements.
Also, AMS could have more aggressively followed up on identified
and indicated weaknesses. Timely and thorough reviews and investiga-
tions of alleged or reported discrepancies and abuses-a basic manage-
ment responsibility-might have helped alleviate problems in the
existing inspection system.
Clear and specific criteria on actions to be taken when irregularities
occurred should also have been established. The lack of such criteria
led to inconsistencies in dealing with deficient inspection procedures
and practices. Also, AMS supervisors were not able to effectively deal
with inspection deficiencies since the licensed personnel were employees
of the designated inspection agencies.
ADMINISTRATION'S PROPOSAL To STRENGTHEN THE NATIONAL GRAIN
INSPECTION SYSTEM AND OUR EVALUATION AND CONCLUSIONS
The foregoing sections detailed some of the numerous problems, de-
ficiencies, and criminal abuses related to the present national grain
inspection system. These disclosures, together with the matters already
covered in congressional hearings and internal USDA reports, have
led to a strong demand for remedial action to restore integrity to the
system. A key question in this regard is whether such remedial action
should be directed to administrative inadequacies on the part of USDA
and its designated inspection agencies, to more fundamental problems
involving the alinement and definitions of responsibilities between
USDA and its designees, or to some combination of both.

ADMINISTRATION PROPOSAL
In responding to the need for remedial action, a task force of USDA
officials and a representative of the Office of Management and Budget
was formed to deal with present problems in the grain inspection sys-
tem. The task force studied five options in the form of alternative sys-
tems, as follows:
1. Continue the basic elements of the present system but tighten
conflict-of-interest and penalty provisions, and increase Federal em-
ployment to permit 100-percent supervision of grain exports.
2. Continue the basic elements of the present system, with tighter
conflict-of-interest and penalty provisions, in geographic areas where
official inspection agencies can meet proposed new standards of per-
formance, but permit USDA to make original inspections where in-
spection agencies cannot meet such standards.
3. Eliminate the private sector as official inspection agencies, con-
tinue the designation of State agencies as official inspection agencies,
and permit USDA to make original inspections in those geographical
areas where States are unwilling or incapable of providing grain in-
spection service.






39


4. Permit State inspection agencies to make original inspections on
nonexport grain, with USDA assuming responsibility for export in-
spections and for domestic inspections where States are unwilling or
incapable of making inspections.
5. Establish an all-Federal system.
After discussions between USDA and the Office of Management
and Budget, the Administration chose alternative 2. In bills currently
before the Congress (H.R. 9467 and S. 2297), the Administration pro-
poses retaining the existing two-level grain inspection system and
tightening up various administrative procedures, including authoriz-
ing USDA to
-make original inspections on an interim basis in certain situations;
-monitor activities in foreign ports for grain officially inspected;
-further limit conflict-of-interest situations;
-require official inspection agencies to meet their designated re-
sponsibilities regarding training, staffing, supervision, and report-
ing requirements; and
-make triennial designations of all official inspection agencies.
Also, the Congress recently appropriated $5 million for AMS to
hire about 200 additional employees to increase its supervision of the
grain inspection system.

OUR EVALUATION ANDI) CONCLUSIONS
We believe the Administration's proposal and the increased staffing
could strengthen the present system. However, they do not go far
enough; more fundamental changes are required.
In our opinion, the prime consideration in dealing with the system's
serious breakdown should be to design a system which will offer rea-
sonable assurance of working well; which in time will rebuild a solid
reputation for integrity, competency, and efficiency within the United
States and throughout the world; and which clearly fixes responsi-
bilities for any deficiencies or abuses. Such a system should be directly
controlled and, wherever practicable, operated by the Federal
Government.
We believe that USDA's role in the national grain inspection sys-
tem has not been conceived or carried out in a manner which enables
it to exercise effective control over the system and to insure the ac-
curacy of grain quality as set forth on inspection certificates. The pres-
ent inspection certificates are neither prepared nor issued by USDA,
except for appeals and some shipments of U.S. grain from Canadian
ports. The individual certificate is basically a representation by one
of the designated inspection agencies subject only to USDA's loosely
drawn supervisory or monitoring role.
Grain sampling, grading, stowage examinations, and other essential
elements of the total grain inspection system are not now. and under
the Administration's proposal could not realistically be, subjected to
sufficient Federal supervision to warrant any claim that the designated
agencies' inspection certificates are a product of USDA or of the U.S.
Government.
Although USDA's overall direction and supervision of the existing
system have been deficient, the system's structure, the general atmos-
phere in which the system operates, and the almost total absence of





40


any direct Federal role sharply limit the responsibility which can be
placed with USDA for serious shortcomings. Although increased Fed-
eral supervision, more severe penalties, and more intensive and exten-
sive investigations by USDA could contribute to more integrity in
system operations, it is not feasible to increase Federal supervision
to prevent circumvention of the system by persons so inclined.
A further shortcoming with the present inspection system is that
USDA does not have authority to control the weighing of grain in
conjunction with the preparation of inspection certificates. Inspectors
generally must accept weights furnished by elevator operators to de-
scribe the quantities of grain they inspect. The inspectors cannot be
assured that all quantities in a lot are sampled. This shortcoming seri-
ously compromises the value of the inspection certificates. Grain qual-
ity determinations should, in our view, be clearly related to specific
quantities of grain and both determinations should be shown on the
inspection certificates. The Administration's proposal makes no refer-
ence to grain weighing.
In our view, the organization charged with administering the na-
tional grain inspection system must have the capability to:
1. Establish and administer adequate and uniform standards for
recruiting, training, and supervising inspection personnel.
2. Establish and administer a rotation program for inspectors.
3. Prescribe and enforce appropriate work production standards for
inspectors.
4. Establish and administer an adequate system of controls and pro-
cedures for the sampling process, including equipment operation and
maintenance.
5. Eliminate all conflicts of interest as well as the appearance of
such conflicts and impose appropriate penalties for violations quickly
and decisively.
6. Promote continuing research to achieve uniform and accurate
grading.
7. Establish and administer adequate controls, standards, and pro-
cedures for weighing grain, including safeguards over equipment cali-
bration and maintenance.
8. Respond quickly and decisively with appropriate reviews and in-
vestigations of reported discrepancies and abuses.
We question whether the above procedural and performance stand-
ards would be achieved under the existing two-level system which the
Administration would retain. The problem of maintaining uniformity,
consistency, and high standards of performance in the national inspec-
tion system is a formidable one and is greatly complicated by the fact
that the system is operated through widely dispersed State, trade-re-
lated, and private agencies.
Recent experience has shown that the inspection system can func-
tion only as well as the designated inspection agencies and the grain
trade choose to make it function. AMS officials told us, for example,
that some of the problems they have encountered in dealing with
State inspection agencies and with the private agencies and trade asso-
ciations have been (1) the agencies' general unwillingness to cooper-
ate fully in the proper administration of the inspection system and
resentment of Federal supervision by the States in particular, (2)
some agencies' tendency to circumvent or compromise prescribed pro-






41


cedures and regulations as quickly as they are written, (3) AMS's in-
ability to obtain timely corrective action when deficiencies are found
because problems and complaints must often be routed through vari-
ous channels, (4) the impracticality of AMS's providing centralized
training to inspection personnel, (5) AMS's inability to readily dis-
cipline or discharge incompetent or uncooperative inspection person-
nel, and (6) the lack of a merit system for employment and promotion
which sometimes results in employees of questionable ability.
The task force indicated that an all-Federal system would have the
advantages of uniformity, consistency, and control, as well as the intan-
gible benefit of increased confidence, as follows:
1. Better control of inspection activities by:
a. More uniform application of standards;
b. More uniform training and qualification standards;
c. Quicker reaction to crop quality inspection problems;
(Direct communication with all offices.)
d. Providing more accurate and complete data on crop
quality, movement, and sales;
e. Greater flexibility in utilization of inspection personnel;
(Cross utilization between programs of AMS possible, par-
ticularly those having seasonal work.)
f. Maximum use of standardized equipment and improved
maintenance of inspection equipment; (All equipment utip to
date and checked for accuracy by specially trained teams.)

2. Reduction of improper influence over licensees by mini-
mizing conflicts of interest. (Close control and rotation of
employees.)
3. Increased confidence in the inspection service. (Nation-wide
consistency of grading and inspection by uniformly [sic] trained
Federal employees.)
4. Reduces the number of multiple inspections (appeals after
originals would be reduced as both levels of inspection would be
performed by Federal supervisors).
5. Eliminates jurisdictional conflicts over inspection areas.
USDA also cited the following disadvantages of a total Federal
system.
1. Increase in cost to the public and users of the service.
2. Increase in the number of Federal employees.
3. Possible cost of reimbursement, or restitution to agencies for
loss of business. (Official inspection agencies designated by USDA
have assumed liabilities based on their designations.) 1
4. Loss of employment for some licensees. (Most qualified li-
censees employed by the current official inspection agency would
be hired by USDA under this alternative.)
5. Prevents States from providing a grain inspection service.
Cost of a Federal inspection system
We are not able at this time to estimate the cost for a federally oper-
ated system, since numerous details need to be worked out on such
matters as the system's organization, inspection and weighing stand-
While the matter is not free from doubt, in our opinion payment for loss of business
would not be legally required. Any equipment in the hands of designated agencies could
be purchased for use by the Government.






42


ards and procedures, fees, qualifications of employees, and implications
of employee rotation. However, we question the validity of the task
force's contention that a Federal system would increase costs to the
public and users of the service.
The users now are assessed fees or charges for inspection services,
including most Federal appeal inspections. We believe that fees and
charges for Federal inspection services can be fixed in reasonable
amounts that will either entirely or substantially recover the fair
costs of providing such services. Further, we believe that an efficient
and effective Federal system can be developed which would afford
ample opportunity for efficiencies and economies not currently realiz-
able under the present system in which Federal supervision overlaps
designated agencies, a number of which are operated for profit.
A more effective and reliable inspection system should reduce the
inspection workload. Under the present system, grain is often inspected
at both origin and destination. The duplicate inspections are often
made because buyers and sellers lack confidence in the accuracy and
uniformity of inspections at other locations. If a highly reliable in-
spection service were established at major destination points, the need
for origin inspections should diminish. This workload reduction, in
turn, would reduce the number of personnel needed.
Also, it is not uncommon for grain to be inspected and reinspected
on multiple occasions. Export grain is often inspected four or five
times. A highly reliable inspection system at major destination points
should reduce the need for inspections of samples from country
elevators. During fiscal year 1975, about 900,000 inspections, or about
26 percent of the total inspection workload, involved such samples.
The adoption of a federally operated system should result in a
reduced number of appeal inspections. About 60 AMS staff-years
were expended in fiscal year 1975 to respond to appeals. Appeals are
usually made either because grades arrived at by the licensed inspec-
tors are questionable or because grain buyers lack confidence in the
licensed inspectors' abilities. Also, some foreign buyers routinely
request appeal inspections before original inspections are made. Since
appeal inspections are in addition to those of the licensed inspectors,
a federally operated system should bring about a reduced appeal
workload, particularly if the system can become highly reliable.
A reduction in the number of inspection agencies should result
also in some increased efficiency in administrative and supportive
services. A Federal system under single-agency administration would
appear to offer more potential for administrative efficiency than the
present system involving over 100 State and private agencies and a
Federal supervisory structure.
It is presumed that personnel salaries under a Federal system
would be set at levels suitable for the skills and responsibilities in-
volved. These salaries may be higher or lower than those now paid by
State or private agencies. Although some States may pay less than
the Federal Government. some private inspectors' annual salaries
and incomes have exceeded $30,000 with some earning up to $78,000.
Other considerations
Recent widely publicized abuses in the grain inspection system
involving such matters as intentional misgrading of grain, shortweigh-
ing, and using improperly inspected carriers have led to an erosion of






43


confidence in the system both within the United States and abroad.
Many persons-from American farmers to foreign buyers-are look-
ing to the Federal Government to restore integrity to the system and
to thereby facilitate the orderly marketing of grain domestically and
promote the continued expansion of foreign agricultural markets.
The situation, in our view, calls for substantive changes to eliminate
weaknesses in controls and lessen the likelihood of any repetition of
recent abuses.
Although none of the various proposed alternatives to the present
system is without some disadvantage to those now involved in the
system, the gravity of the problem calls for placing the overall na-
tional interest first. A soundly established, federally operated grain
inspection system should, in our view, serve as positive evidence of
American farmers, foreign buyers, traders, and end users of the U.S.
commitment to a sound and reliable system.
Of the volume of grain inspected during fiscal year 1975, about
85 percent was inspected at the 36 domestic ports and 25 largest inland
inspection points; the remaining 15 percent was inspected at the 122
smaller inland inspection points. We recognize that it may be im-
practical to provide direct Federal inspection at all smaller inland
inspection points and at country elevators where the volumes of grain
requiring official inspection are low or sporadic. At these locations,
the cost of employing enough inspection personnel to insure reliable
sampling would be excessive. To accommodate the needs of minor
inland terminal and country elevators, USDA should be authorized
to provide inspection services, on a request basis, through contracting
or licensing arrangements. Such services could be provided by either
State inspection agencies (first preference) or carefully selected and
screened private agencies subject to USDA review and supervision.
The need to distinguish between major and minor terminals and to
thereafter designate supplementary non-Federal inspection agencies
will, of necessity, call for considerable discretion and judgment on
USDA's part. Also, moving to an essentially all-Federal system will
undoubtedly take time.
In phasing in a federally operated inspection system, a high priority
should be given to establishing Federal inspection services at all port
elevators, since recent disclosures of extensive criminal abuses and
other shortcomings in the inspection system have involved port ele-
vators primarily. Also, prolonging or postponing the development of
a reliable inspection system at such elevators could have a lasting effect
on foreign sales.
In summary, we believe that an essentially all-Federal inspection
system would:
-Restore integrity and confidence in the inspection system.
-Provide greater uniformity and consistency in inspection pro-
cedures and operations.
-Establish an independent system, eliminating actual and potential
conflicts of interest.
-Develop an inspection force conforming to uniform hiring and
training requirements.
-Permit rotation of the inspection force among specific localities.
-Provide greater flexibility in use of inspection personnel,
especially where seasonal work may be involved.






44


-Provide for maximum use of standardized equipment and better
maintenance of equipment.
-Reduce the number of multiple or duplicate inspections presently
required.
-Reduce the number of inspection agencies to increase administra-
tive efficiency.
-Increase foreign trade or at least reduce chances of customers
choosing to buy from other sources.
-Place inspectors under direct control of USDA to provide more
effective authority to deal with inspector deficiencies.
-Eliminate present inequities whereby some inspectors earn an-
nual salaries or incomes from $30,000 to, in some cases, $78,000.
-Give USDA direct responsibility and authority to deal with
elevators whose complex grain-handling systems allow for easy
circumvention of controls over drawing of representative grain
samples.

RECOMMENDATIONS TO THE CONGRESS AND THE SECRETARY OF
AGRICULTURE
To insure, insofar as possible, that grain trading within the United
States and with foreign countries is conducted in an orderly manner
and that the interests of all parties concerned are adequately pro-
tected and to restore worldwide confidence in the quality, reliability,
and uniformity of U.S. grain, we believe that fundamental changes
are required in the grain inspection system. Accordingly, we recom-
mend that the Congress establish essentially a Federal grain inspec-
tion system.
Recognizing that creating an essentially all-Federal system will take
time and that, while some changes can be effected immediately, other
changes, although urgently needed, will for practical reasons take
more time for fully accomplish, we recommend that the system be
established in phases, as follows:
The Congress should-
PHASE I
-provide USDA with authority to take over inspection services
immediately from those States or firms where serious problems are
disclosed,
-direct USDA to intensify surveillance over ongoing inspection
services being provided by the States, trade associations, and
private agencies until phases II and III are implemented,

PHASE II
-authorize and direct USDA to assume responsibility, at the earli-
est possible date, for providing inspection services-sampling,
grading, and weighing-and for issuing official inspection certifi-
cates at all port elevators,

PHASE III
-authorize and direct USDA to extend the Federal inspection
system (including sampling, grading, and weighing) to the main






45


inland terminals, after sufficient experience has been obtained at
the ports, and
-direct USDA to provide inspection services, on a request basis
and under contracting or licensing arrangements, at minor inland
terminal and country elevators. Such services should be pro-
vided under USDA-prescribed standards and procedures and
should be subject to USDA review and supervision.
We recommend also that inspection services be provided on a reim-
bursable basis under a system of fees designed to recover the fair costs
of operating the system.
We recommend that USDA use distinctively colored and worded
inspection certificates which are not authorized for use by any State
or other agency. Non-Federal agencies providing inspection services
at minor inland or country elevators should be provided with dis-
tinctively colored and worded inspection certificates. This should help
to avoid confusion about immediate responsibility for the certificates'
accuracy.
We recommend further that, in developing standards and proce-
dures for a Federal grain inspection system, either by legislation or
by regulation, the Congress and USDA consider the following
matters.
Conflicts of interest.-The system should prohibit all of these, ac-
tual and potential, and should impose appropriate penalties for viola-
tions on the part of grain handlers and inspection personnel.
Sampling grain.-Adequate controls and procedures should be es-
tablished for this process, including equipment operation and mainte-
nance. Automated equipment should be mandatory to the extent
feasible.
Weighing grain.-Grain weighing should be made part of the in-
spection system. Adequate controls, standards, and procedures should
be established, including safeguards over equipment calibration and
maintenance.
Grading grain.-The need for improved accuracy and uniformity
should be met through continuing research (see p. 70) and training.
Personnel administration.-Uniform standards for recruiting,
training, and supervising inspection personnel should be established
and maintained, and a rotation program and work production stand-
ards for inspectors should be established.
General administration..-Quick and thorough reviews and investi-
gations of reported discrepancies and abuses should be required.
The provision that superseded certificates be surrendered when re-
peat inspections are requested should be stringently enforced.
AMS instructions on stowage examinations should be revised to set
forth training and performance requirements and to describe all
situations where examinations should be required.
Appropriate annotations should be made on inspection certificates
for grain loaded at Great Lakes ports stating that such certificates are
not valid for transshipped grain.
To the extent practicable grain inspection operations should be open
to public scrutiny by foreign buyers or other interested parties.






46


USDA COMMENTS AND OUR EVALUATION
GENERAL COMMENTS
The substance of USDA's comments (see app. VII) on the matters
discussed in this chapter is that:
1. Although our recommendations are technically and organiza-
tionally feasible to implement, USDA's position is that legislation
introduced as H.R. 9467 (see p. 39) will provide for an efficient and
the most cost-effective grain inspection system of the alternatives
examined by USDA.
2. USDA is moving ahead aggressively in the port areas with all
actions necessary to secure and maintain the integrity of the grain
inspection system. These actions involve a combination of stricter
application of existing regulations and promulgation of additional
regulations under existing statutes.
3. One of USDA's most vital needs is for authority to perform orig-
inal inspections of grain on an interim basis. This need, according to
USDA, is based on the fact that actions have been and are being
taken to revoke the designations of official inspection agencies for
violations of the Grain Standards Act and, because it is not always
possible to organize a new official inspection agency or to identify an
existing agency to continue inspection service when such actions are
taken, USDA must have authority to provide original inspection
services on an interim basis, to insure continuity of inspection.
Our evaluation.
USDA top officials reemphasized to us the Administration's desire
to maintain the existing basic organizational structure for the national
grain inspection system, namely, that USDA should continue to carry
out the inspection function through designated agencies, including
States, trade associations, and private inspection agencies. Present
problems and deficiencies, they maintained, can be corrected through
improved administration and the passage of H.R. 9467 which would
strengthen conflict-of-interest restrictions, grant USDA certain addi-
tional authorities, and impose more stringent penalties.
We recognize that improvements can be made in the operation of
the national grain inspection system under the present organizational
structure, and USDA is exerting considerable effort in this regard.
Additional supervisory personnel are being hired and will be trained,
new supervisory procedures are being developed, and USDA officials
are working with individual grain firms on affirmative action plans
to improve grain-marketing practices. These efforts are both worth-
while and long overdue. We recognize also that the additional authori-
ties being requested by USDA would enhance the possibilities for
strengthening the national grain inspection system.
We question, however, whether USDA's present actions or its pro-
posed actions, which must await the enactment of new legislation,
will be sufficient to enable it to effectively administer the national
grain inspection system in a monitoring role through a diverse com-
plex of State and private agencies and trade associations. As indi-
cated in various subsections of this chapter, there are important
inherent limitations and problems involved in USDA's present moni-






47


touring role that cannot be readily overcome by increased Federal
supervision, more extensive regulations, more severe penalties, and
more extensive investigational efforts. These problems relate to
-insuring the avoidance of conflicts of interest;
-insuring integrity, competency, and consistency in the sampling.
weighing, grading, and stowage examination processes; and
-insuring adequacy and uniformity in personnel administration,
including recruiting, training, work standards, supervision, and
rotation of inspection personnel.
Our conclusion that the inspection system should be directly con-
trolled and, wherever practicable, operated by the Federal Govern-
ment is based on the premise that. as a single entity. USDA could
best cope with the formidable problem of establishing and maintain-
ing uniformity, consistency, and high standards of performance
within the system. USDA officials conceded that, if the present system
were not already in place, they would not recreate it in its present
form and that, from a management control standpoint, a federally
controlled and operated system would be best.
We recognize that USDA may be confronted with many pressures
to maintain a comparative status quo in the organizational structure
of the national grain inspection system. Those currently involved
in the system do not want to lose their agencies and their incomes.
There are concerns also about expanding the Federal bureaucracy
and the number of Federal employees at the expense. of the States
and private, enterprise, concerns about problems of finding a sufficient
number of qualified staff or hiring currently licensed inspectors who
subsequently may have to be discharged as a result of expanding
criminal investigations, and other varied concerns and problems about
dislocations which would be involved in any transition to a Federal
system. We believe, however, that too much of the national interest
is at stake for continued primary reliance on more formidably writ-
ten Government regulations and procedures backed up by more Gov-
ernment supervisors and investigators.
The legislative history of the U.S. Grain Standards Act, originally
enacted in 1916, shows that many of the same problems that plagued
the grain trade 60 years ago still exist. (See app. V.) Reports of
various public and private commissions issued before 1916 disclosed
that major terminal markets regularly engaged in a variety of unfair
business practices, including .falsely certifying the grade of grain and
mixing and adulterating grain. The reports state that, due to domina-
tion of the grain inspection and grading system by boards of trade
and purchasers at the terminal markets, farmers and independent
shippers were compelled to accept lower grades and less money for
their grain and the ultimate foreign buyer and domestic purchasers
regularly received a poor quality of grain under a certificate of in-
spection indicating a higher grade.
The present system with some modifications has been in operation
for 60 years and the Administration's proposal would retain many of
the fundamental disadvantages and limitations of this system. The
deeply entrenched and pervasive problems of the past and present
will not, in our opinion, yield easily under this system.






48


FURTHER COMMENTS AND OUR EVALUATION
Grain weighing.-USDA agreed that weight supervision should be
provided for in the grain inspection system, but only at port elevators
where the quantities shipped are divided into sublots. It said it did
not believe that the report adequately supported the recommendation
that the weighing system at interior points needed to undergo drastic
change or that accurate weights were important in establishing grades
at interior points. USDA said that accurate weights were vital, how-
ever, in transactions between buyers and sellers.
As indicated on page 39, the Administration's proposal to the Con-
gress to strengthen the national grain inspection system is silent on
the matter of weighing. USDA's above stated position-that weight
supervision should be provided at port elevators-represents a modifi-
cation of this original proposal. We believe, however, that grading
and weighing of grain should be a coordinated operation and that
accurate determinations of grade and weight are highly important in
transactions between buyers and sellers whether such transactions
occur at port elevators or at inland points.
In asserting that the report did not adequately demonstrate that
accurate grain weights were a problem at interior terminals, USDA
incorrectly analyzed the data presented on page 22. USDA contended
that, because questionnaires were sent to 2,195 country elevator op-
erators, the 339 operators who indicated they were dissatisfied with
weights and grades assigned at shipping destinations represented only
15 percent of the total rather than 41 percent. Correct analysis in
this circumstance requires that no conclusions be drawn about country
elevator operators who did not respond to the questionnaire.
Even if it were correct to conclude that 15 percent rather than 41
percent of country elevators were having problems, we fail to see how
USDA can regard this percentage as inconsequential.
Distinctive inspection certificates.-USDA agreed that it should
issue distinctively colored and worded Federal inspection certificates
which are separate and apart from those certificates issued by non-
Federal agencies.
Reimbursable costs.-USDA agreed in principle with out recom-
mendation that inspection services be provided on a reimbursable
basis. USDA said, however, that its position was that there were cer-
tain indirect costs of a public benefit nature that should be financed
from appropriated funds, including (1) basic research, (2) general
public information, (3) monitoring inspection accuracy in foreign
ports, and (4) certain administrative costs. USDA said it believed
that a percentage of such costs should be funded through appropria-
tions. Costs which USDA considered reimbursable included (1) direct
supervision of Federal employees at the field office level, (2) direct
supervision of official inspection and weighing agency personnel, and
(3) appeal activities.
Conflicts of interest.-USDA said that, pending legislation, it pro-
posed to amend its regulations to prohibit conflicts of interest, subject
to statutory limitations. Additional controls on conflicts of interest,
it said, would be considered in developing affirmative action programs
with individual grain firms.
Samphling grain.-USDA agreed that adequate controls, procedures,
and safeguards should be established over the sampling process, in-






49


eluding equipment operation and maintenance. However, it said it
believed that feasibility studies should be made before USDA man-
dates the use of additional automated equipment.
Grading grain.-USDA said it planned to consider a long-term
program of research and training to provide a balanced technical,
statistical, and economic data base and an equipment development and
testing program. Consideration would also be given, it said, to apply-
ing appropriate resources to this effort.
Personnel administration.-USDA agreed that uniform standards
for training of non-Federal inspection personnel were essential and
that a rotation program and standards of work for such personnel
should be established. USDA said it did not believe that uniform
standards for recruiting non-Federal personnel were feasible because
of local hiring conditions, labor unions, and State civil service regula-
tions; however, competency tests were given before licensing. USDA
said that official inspection agencies should be fully responsible for
setting their own recruiting standards, training their personnel to
pass the required USDA competency tests and qualify as technicians,
and maintaining inspectors' proficiency through an aggressive train-
ing program once the inspectors are licensed.
General administration.-USDA agreed that:
-Quick and thorough reviews and investigations of reported dis-
crepancies and abuses should be required.
-The provision that superseded certificates be surrendered when
repeat inspections are requested should be more stringently en-
forced. It said that recent additional appropriations to add Fed-
eral supervisory personnel would permit enforcement of this
regulation throughout the system.
-Instructions on stowage examinations need to be improved. It said
it was reviewing the need to revise and strengthen the instruc-
tions regarding training and performance requirements for such
examinations.
-Inspection certificates for grain loaded from Great Lakes ports
should be qualified. It said that amendments to the regulations
under the Grain Standards Act to provide for such statements
were being developed.
-The inspection system should be open to public scrutiny by any
interested parties, provided that certain information, such as
documents (certificates of grade, loading logs, etc.) pertaining
to private transactions, were released only to real parties in in-
terest. It noted that, under its existing regulations on conflicts of
interest, entry by the trade into grain inspection laboratories was
prohibited because of the possible pressure that might be exerted
on those inspectors making grade determinations.

VIEWS OF STATE OFFICIALS AND OUR EVALUATION
We asked State department of agriculture officials in the 23 States
having designated inspection agencies for their views on various mat-
ters relating to the grain inspection system, including the possible
transfer of all inspection responsibilities to a Federal agency. All the
20 officials who responded were generally opposed to a total Federal
inspection service. A summary of their pertinent views follows.





50


-Nearly all the officials cited their States' favorable records of serv-
ice. Many of the States had provided inspection services for many
years, some for over 50 years. Services were usually initiated be-
cause specific inspection needs were unmet by either Federal or
private sources.
-Officials of 14 States said their agencies inspected grains or other
products or provided other types of services that were not covered
under the Grain Standards Act. Other items inspected included
sunflower, safflower, and mustard seeds; alfalfa and cottonseed
pellets; rice; pulses; hay; buckwheat; millet; and hops. Several
States provided weighing services or had laboratory facilities
for analyzing protein content. One had facilities for analyzing
pesticide residues, heavy metals, or undesirable additives, and one
provided a service for grading samples mailed to a laboratory.
-Officials of 11 States believed that a total Federal system would be
more expensive. Some said their States operated small agencies
consisting of part-time services that could be efficiently provided
by combining them with inspections of other food items.
-Other factors officials cited for objecting to a total Federal system
were the loss of an independent source for filing appeals, excessive
Federal regulation, and curtailment of services in remote areas.
All the responding officials said or indicated that it was appropriate
for States to provide inspection services under the Grain Standards
Act, and all preferred a Federal-State system to a total Federal system.
We agree that many of the States have favorable records of service.
Under our proposal, State agencies could continue to be designated to
provide inspection services at certain elevators. Also, according to
AMS officials, many of the inspection services State officials cited are
available and are being provided either by or in cooperation with AMS
under authority of the Agricultural Marketing Act..
The fact that the States generally pay lower salaries than the Fed-
eral Government does may account for the States contention that a
Federal system would be more expensive. As stated on pages 41 and 42.
however, we believe certain efficiencies and economies can be realized
under a federally operated system. Also, we would expect little change
in the operations of those States with small agencies providing part-
time inspection services since, under our proposal, Federal inspection
would be provided mainly at high-volume elevators requiring full-time
inspection services. We believe that an appeal procedure adequate for
those using the inspection service can be developed. AMS has been able
to provide appeal services for such other Federal programs as rice
inspection and meat grading.












CHAPTER 3


FOREIGN BUYERS' COMPLAINTS ABOUT U.S. GRAIN


Our inquiries in nine foreign countries revealed much dissatisfac-
tion with U.S. grain sold abroad. Many foreign customers believed
they regularly received lower quality and weight than they paid for.
The resulting cost in terms of diminished foreign sales in past years
and other effects is not calculable. Many buyers, however, said they
had reduced their purchases of U.S. grain because of the problems
they had experienced and were buying more from other countries.
A few said they had stopped buying U.S. grain altogether.
Some of the foreign buyers did not furnish documentation support-
ing what they told us. They often lacked suitable equipment or ex-
pertise with which to draw representative samples and determine
the grade of grain according to U.S. procedures. Nevertheless, many
had performed such sampling and inspection as they deemed appro-
priate or had hired independent inspectors in their own countries to
redetermine grade and had strong convictions that their problems were
serious, real, and of long standing. Despite these problems, many
buyers said the United States would continue to be their principal
supplier of wheat, corn, and soybeans because it is a stable, dependable
supply source for large quantities of grain at competitive prices.
In our opinion, USDA has not been sufficiently sensitive to for-
eign buyers' problems. Many foreign buyers told us that, because
USDA had not assisted them in the past, they had not reported the
majority of their complaints to USDA. Instead they had attempted,
usually with very limited success, to settle disputes directly with the
exporters. USDA statistics showing only a limited number of com-
plaints received in past years therefore are misleading, in our opinion,
because they bear little relationship to the real significance of the for-
eign buyers' problems. Also, most of USDA's Foreign Agricultural
Service (FAS) attaches we visited were not fully aware of the extent
of foreign buyers' problems and said they lacked the authority, ex-
pertise, and resources for investigating complaints.

COMMENTS RECEIVED DURING OuR VISITS TO NINE FOREIGN COUNTRIES
We obtained the comments summarized below during visits to nine
foreign countries-India, Israel, Italy, Japan, Korea, the Nether-
lands, Spain, the United Kingdom, and West Germany-which were
among the top importers of U.S. grain. In these countries we inter-
viewed (1) officials (foreign buyers) associated with 68 entities,
including grain brokerage firms, food processors, and foreign gov-
ernment procurement agencies, which had brought large quantities
of grain or had filed complaints with USDA about the quality or
(51)


66-328 0 76 5






52


weight of U.S. grain shipments, (2) representatives of 10 grain trade
associations and 2 arbitration boards, and (3) the agricultural attaches
and their associates.
Ten of the 68 buyers told us that their firms were subsidiaries or
affiliates of companies exporting U.S. grain. Some, however, said
they also purchased U.S. grain from other companies. In addition,
another buyer bought grain directly from U.S. farmers and farmer
cooperatives and shipped it to his overseas firm through his own
elevator in the United States.
We interviewed the buyers to (1) determine the nature and signifi-
cance of any problems they were having with U.S. grain shipments,
(2) ascertain the possible impact of these problems on export sales of
U.S. grain, and (3) identify improvements needed in USDA's han-
dling of foreign complaints. We obtained documentation, where avail-
able, supporting adverse comments about U.S. grain shipments.
The comments we received varied. Most significant appeared to be
that 53, or 78 percent, of the 68 foreign buyers told us they had experi-
enced problems with many U.S. grain shipments. The other 15 said
they had no problems or did not respond. Of the 53 experiencing prob-
lems, 26 said their problems involved both short weights and lower
quality grain than they had paid for; 26 said they had experienced
quality problems only; and 1 said his problems involved short weights
only. (Many buyers who had no problems with short weights said
they either bought insurance to guarantee weights or paid premiums
to exporters to obtain grain on the basis of destination weights.)
In certain instances, there were differences among buyers within
particular countries concerning the types of problems being experi-
enced, the seriousness of those problems, and the attributed causes)
of the problems. The types and seriousness of problems also differed
among the nine countries. Although the comments were diverse and
not always easily categorized, the summary below represents a fair
overview.
QUALITY OF U.S. GRAIN
-Many grain shipments from the United States were much lower
in quality than was paid for and specified on the inspection certifi-
cates. The problem was particularly acute with corn but was also
significant with wheat, soybeans, and soybean meal. (Soybean
meal is not covered by the Grain Standards Act but is inspected
on a request basis under the Agricultural Marketing Act.) Illus-
trative of the types of problems experienced were: (1) corn ship-
ments contained excessive BCFM and moisture, had excessive heat
damage, were infested, and had low test weights, (2) wheat ship-
ments contained excessive foreign material and shrunken kernels
and had low protein contents and low test weights, (3) soybean
shipments contained excessive broken beans (splits) and foreign
material, and (4) soybean meal was inconsistent in quality, fre-
quently had very low protein content, and was frequently adulter-
ated with excessive foreign material, such as grain hulls.
-Problems with quality of U.S. grain shipments were more fre-
quent and severe proportionately than those experienced with
grain purchased from other countries. Other countries were more
attentive to buyers' complaints and to working out equitable set-
tlements between buyers and sellers.






53

-Problems with U.S. grain are caused by (1) increasing emphasis
in the United States on more rapid and efficient grain-marketing
operations involving mechanical handling devices, (2) excessive
artificial drying, particularly of the 1974 corn crop, which makes
the grain more brittle and susceptible to damage during handling,
and (3) laxities in the operation of the grain inspection system.
-Problems with the quality of grain delivered abroad have existed
for a number of years (some said for 10 to 15 years) but have
become much worse in recent years.
-Because the typical contract with a U.S. exporter stipulates that
grain is sold on the basis of grade determined at export point,
U.S. exporters hide very effectively behind their inspection certifi-
cates when disputes arise about the quality of grain actually
delivered.
-The U.S. Government should stand behind inspection certificates
when they are determined to be inaccurate. (Some buyers re-
garded the certificates as U.S. Government representations.)
The following are examples which foreign buyers furnished to us
concerning problems with the quality of U.S. grain shipments.
-One corn buyer received a shipment of 390,320 bushels which,
based on samples taken and analyzed by a court-appointed grain
inspector, contained 25 percent BCFM. The inspection certificate
showed that the corn was number 3 with BCFM of 3.5 percent.
The maximum BCFM permitted by the standards for number 3
corn is 4 percent. In responding to a complaint from the importer,
the U.S. exporter said:
* the inspection certificate is final and conclusive as
to the quality/condition of the goods. You are certainly free
to investigate about the inspection * but your action
in this respect would be extracontractual and therefore of no
concern to us.
The buyer estimated that he lost $100,000 because of the high
BCFM.
-Another buyer received 714,933 bushels of number 3 hard amber
durum wheat which, on the basis of USDA's analysis of various
samples taken by an independent firm, contained wheat of con-
trasting classes ranging from 7 percent to 22 percent. The inspec-
tion certificate showed that the shipment contained 2.2 percent
wheat of contrasting classes. The maximum wheat of contrasting
classes permitted by the standards for number 3 wheat is 3 per-
cent. The buyer estimated that he lost between $400,000 and $500,-
000 on this shipment, because the lower quality wheat could not
be used for its intended purpose.
In furnishing information to the agricultural attache for re-
sponding to the importer's complaint, FAS, based on AMS's re-
sponse, stated that it was unable to offer a definite reason for why
the higher percentage of contrasting-class wheat was not found
during inspection at loading. FAS said possible reasons for the
difference could be:
* a result of manipulation, substitution, improper or
careless handling of samples or possible collusion between
official inspection personnel and elevator employees.






54


FAS also pointed out that the difference could have resulted
from (1) loading wheat into the vessel at some other location, (2)
loading some wheat aboard the vessel while inspectors were not
present, or (3) loading the wheat in a manner that would bypass
the sampler. Subsequently, the attache informed the complainant
that FAS was unable to offer a definite reason for the difference
between the percentages of wheat of contrasting classes found
during loading and at destination.

WEIGHT PROBLEMS
-Short weights on graini shipments from the United States were a
serious problem. Opinions differed considerably, however, on what
constituted an acceptable tolerance for weight shortages: some
buyers were concerned about a 0.2 percent difference between
origin and destination weights; others were not concerned unless
the loss was more than 1 percent.
-Short-weight problems can be avoided by paying premiums to
purchase U.S. grain on the basis of destination weights or by
purchasing insurance to guarantee full destination weights.
-Shipments received from the Gulf ports had more weight short-
ages than shipments originating from other U.S. ports. Also, in-
surance rates for destination weight guarantees are higher for
shipments from the Gulf ports.
-Short-weight problems were experienced with grain from other
countries, but shortages in U.S. grain shipments (in one case as
high as 5 percent) were proportionately higher and more frequent.

IMPACT ON GRAIN PURCHASES FROM THE UNITED STATES
-Purchases of grain from the United States have been reduced as a
result of problems with inferior quality grain and short weights.
A few buyers said they had stopped buying U.S. grain altogether.
Some said they had shifted their purchases of soybeans and corn to
Brazil; wheat to Canada; and corn to Argentina, France, and
South Africa. Import statistics furnished for one country showed
a trend toward procuring grain from other countries. Some buyers
said they would stop buying U.S. grain if supplies were available
elsewhere.
-The United States will continue to be a principal world supplier
of wheat, corn, and soybeans because it is a stable, dependable
supply source for large quantities of grain at competitive prices
and it is easy to participate in the U.S. market.

GRAIN STANDARDS
-With some exceptions, the official U.S. grain standards are satis-
factory. Some suggestions were: (1) differentiate between broken
corn and foreign material because broken corn is usable and for-
eign material may not be, (2) develop grading factors for express-
ing the incidence'of stress cracks, brittleness, and mold in corn, (3)
lower the moisture content allowed in corn, (4) specify the pro-
tein content in wheat, and (5) specify the oil and protein content
in soybeans. (These matters are discussed further in ch. 4.)






55


SETTLING DISPUTES
-There is no effective recourse when problems are experienced with
the quality or weight of U.S. grain shipments. International arbi-
tration boards and courts, when disputes are brought before them,
rule in favor of the inspection certificates, because the purchase
contracts specify that the inspection certificates are the final deter-
minants of grain quality.
-Formal complaints about problems with U.S. grain shipments
are seldom made to agricultural attaches. It is useless to complain
to them because they can do nothing to help resolve disputes.
-Attempts to obtain recompense from U.S. exporters for inferior
quality grain and short weights are generally unsuccessful. Ex-
porters typically respond that nothing can be done because the
grain was purchased on the basis of the quality and weights deter-
mined during loading at U.S. ports.

GENERAL COMMENTS
-It would be much better if the grade of the grain purchased was
established reliably on the ship, instead of 100 to 200 meters back
from the ship, as is done now. There is too much emphasis on speed
in loading grain, and U.S. port elevators presently have no incen-
tive to load grain with care after the grade is established. (AMS
officials told us there is no feasible way to obtain representative
samples for grading after grain has been loaded aboard ship. They
also said the disregard for damage during unloading at foreign
ports is even greater than during loading at U.S. ports.)
-Some deterioration in grain quality as a result of handling and
transportation is expected. However, significantly lower grade
grain often was received than was shown on the inspection cer-
tificates because of incorrect grading at the origin ports.
-Confidence in the U.S. inspection system has been damaged, and
action is needed to restore confidence. This could be accomplished
through adoption of an inspection system operated by the U.S.
Government.

OUR EVALUATION OF COMMENTS RECEIVED DURING FOREIGN VISrrITS
Although the comments above indicate that foreign buyers were fre-
quently dissatisfied with the grain received from the United States, it
was difficult to evaluate the validity of most of their complaints. Some
buyers did not furnish documentation supporting their problems with
grain quality. Sampling methods were often not as reliable as U.S.
methods and might not have resulted in samples which were repre-
sentative of the entire grain shipment. More extensive documentation
was available concerning short-weighted shipments. However, differ-
ences in weighing methods and accuracy of scales could account for
some of the discrepancies between origin and destination weights.
Despite the lack of documentation in some cases, it appeared that
foreign buyers have experienced legitimate problems with the quality
and weights of U.'S. grain. For example, as far back as 1969, foreign
buyers complained to the Chairman of AMS's Board of Appeals and






56


Review about U.S. corn shipments with excessive moisture and BCFM.
(See p. 34.)
USDA officials said grain price fluctuations were one reason for
many complaints. They said that foreign buyers had contracted for
the purchase of grain when grain prices were high. After the prices
fell, the buyers often complained that the grain they received was not
the quality for which they had contracted.
The condition of the 1974 U.S. corn crop undoubtedly was the cause
of many recent quality problems. According to USDA officials, the
corn was of lower quality than in previous years because there was an
early frost and the corn was immature. Also, the crop's high moisture
content resulted in more artificial drying. This caused the kernels to
become brittle and very susceptible 'to breakage during handling.
Foreign importers, U.S. exporters, and USDA generally agree that
some damage occurs to grain during handling and transit. Breakage
occurs at loading when the grain hits the bottoms and sides of ships'
holds and at unloading as it passes through the equipment and into
the elevators. In addition, grain often is transshipped, that is, loaded
off one vessel and into another at the foreign port at least one addi-
tional time before it reaches its final destination. The inspection certifi-
cate usually accompanies this grain to its final destination even though
it specifies the quality of the grain only at the time of loading at the
U.S. port.
USDA officials told us that grain can lose a grade or more between
the time the certificate is issued and the time the grain reaches its
destination. However, there is a definite lack of knowledge about just
how much damage can be expected. We believe USDA's Agricultural
Research Service (ARS), in coordination with AMS, should study this
problem and attempt to quantify the amount of breakage that can be
expected in handling and transporting grain.
The problems identified in chapter II concerning the grain inspec-
tion system and the lack of controls over the weighing of export grain
also add credibility to the foreign buyers' complaints. There is little
doubt that foreign buyers' confidence in the U.S. export system has
been damaged because of the problems they have experienced and the
extensive publicity concerning problems with the weighing and grad-
ing of U.S. grain.
It is not possible to calculate the effect this will have on U.S. export
sales. The problems foreign buyers have had with the quality and
weights of U.S. grain shipments may not have greatly affected the
total volume of export sales to date. Both the quantity and value of our
grain exports have risen dramatically in the past few years. However,
competition for world grain markets is likely to grow as production po-
tential is developed in other countries. Some foreign buyers are turn-
ing to countries other than the United States for their grain supplies
and may continue to do so until they gain confidence in the quality
and weights of U.S. grain.
IMPROVEMENTS NEEDED IN USDA's HANDLING or FOREIGN
COMPLAINTS
USDA has done very little in the past to assist foreign buyers when
they complained about the quality or weights of U.S. grain shipments.
Improvements are needed to insure that (1) appropriate investiga-






57


tions are made when complaints are reported to USDA and (2) effec-
tive procedures exist for acting on the results of investigative findings,
particularly when they reflect on the integrity or efficiency of the na-
tional grain inspection system.
Currently USDA does not issue corrected certificates if original in-
spection or weight certificates are determined to be inaccurate. Cor-
rected certificates could pave the way for equitable settlement of dis-
putes between buyers and sellers but AMS officials told us issuance of
corrected certificates could place U.S. exporters in an unduly disad-
vantageous position, particularly if foreign buyers refused to accept
grain shipments on which corrected certificates had been issued.

FORMAL COMPLAINTS FILED WITH USDA NOT INDICATIVE OF EXTENT
OF PROBLEMS
The majority of the foreign buyers we interviewed said they gen-
erally did not report their complaints to USDA. They believed it was
useless to file formal complaints with USDA because USDA can do
nothing to help them resolve disputes with U.S. exporters. As indicated
previously, the majority of the 68 foreign buyers we interviewed said
they attempt, usually with limited success, to negotiate problems con-
cerning the quality and weights of U.S. grain shipments with U.S. ex-
porters rather than file formal complaints with the attaches.
A compilation of FAS and AMS records indicates that foreign
buyers filed formal complaints with USDA involving 582 export ship-
ments during the 10 fiscal years ended June 30, 1975, as follows.
Number of
Fiscal year: shipments
1966 ------------------------------------------------21
1967 -----------------------------------------------134
1968 ----------------------------------. ------------- 92
1969 -------------------------------- ---------------- 80
1970 ------------------------------------------------ 41
1971 ------------------------------------------------62
1972 ------------------------------------------------ 19
1973 ------------------------------------------------23
1974 ------------------------------------------------ 49
1975 ------------------------------------------------ 61
Total ---------------------------------------------582
The complaints all concerned the quality of the grain received ex-
cept for 17 shipments which involved short weights. We were unable
to determine the total quantity of grain involved in the complaints,
but it appeared that the amount would have been small in relation to
the total grain exported during the 10-year period.
USDA apparently believed that the relatively small number of for-
mal complaints indicated that problems with U.S. grain shipments
were not widespread. For example, in a June 1974 response to com-
plaints from two importers about habitual and significant short
weights in soybean shipments, FAS stated, in part:
[The] Department of Agriculture believes that [the] U.S.
trade has [an] excellent worldwide reputation for shipping
contractual quantities within accepted tolerances. Since we
are unaware of any significant incidence of complaints in






58


other countries, we [are] inclined to believe [the] * prob-
lems [are] due to misunderstanding or factors peculiar to our
exports to [that country].
Also, seven of the nine attaches we contacted said they did not be-
lieve importers in the countries where they were stationed were having
significant problems with U.S. grain. This probably could be attributed
to the fact that foreign buyers experiencing problems generally were
not filing complaints with the attaches because USDA had not assisted
them in the past.
Some foreign buyers and foreign trade associations had informa-
tion readily available on quality and weight discrepancies. For exam-
ple, they provided detailed weight statistics that identified specific
loading ports, shipping dates, vessels, invoice quantities, and landed
weights. Quality and weight data was also available from some for-
eign government offices. Such information could be obtained by the
,attaches and forwarded to USDA on a regular basis. This data could
serve as an early warning system to identify possible trends in short
weighing or grain adulteration at specific ports and thus alert USDA
to potential problems in the inspection system.
IMPROVED REGULATIONS AND PROCEDURES NEEDED FOR HANDLING
FOREIGN COMPLAINTS
USDA had not assigned overall responsibility for coordinating the
handling of foreign complaints to either FAS, which carries out
USDA's policy of developing and expanding foreign markets for
U.S. agricultural commodities, or AMS, which administers the na-
tional grain inspection system. Foreign buyers filed their complaints
either with the attaches or directly with FAS or AMS. However, the
agency receiving complaints did not always inform the other, or the
attaches, of the complaints. As a result, no one in USDA was fully
'aware of all the complaints foreign buyers filed.
FAS officials told us that regulations on the handling of foreign
complaints about grain quality would be revised and distributed to all
appropriate USDA agencies with instructions that they forward all
complaints received to FAS for processing. They also told us they
were developing a log for controlling and following up on complaints
about grain quality. We believe that, to insure better control over the
handling of foreign complaints, the Secretary of Agriculture should
make FAS responsible for coordinating the handling of all foreign
complaints (including those involving short weights) and for insur-
ing that investigations are made and timely responses are sent
Internal regulations and procedures for handling foreign com-
plaints were quite limited. FAS had general regulations on handling
complaints about the quality of all agricultural commodities marketed
abroad but had none on handling weight complaints. AMS had no
written regulations or procedures for dealing with foreign complaints.
AMS officials told us, however, that they were developing written
procedures for handling complaints about grain quality.
FAS's regulations instructed the attaches that, if complaints were
considered serious, they were to make documented investigations and
report their findings directly to FAS headquarters. The regulations
also required the attaches to forward pertinent information-includ-






59


ing the specific nature of the complaint, the type of commodity in-
volved, the quantity shipped and the quantity involved in the
complaint, the name of the vessel in which the commodity was shipped
and/or transshipped, the origin port and date of shipment, and the
destination port and date of arrival-and samples of the commodity,
with a description of who took the samples, how they were taken, and
how they were reduced in size. The regulations specified that destina-
tion samples be taken by a qualified impartial party but did not specify
how the samples were to be taken. In practice, the attaches typically
forwarded to FAS headquarters only the information provided by
the foreign complainant, and this information was frequently much
less than specified in the FAS regulations.
FAS officials said they were developing a standard form to be used
by foreign buyers in reporting complaints about grain quality. They
said AMS had reviewed the form and had agreed that it would assist
in handling foreign complaints.
FAS headquarters forwarded the information it received from its
attaches on complaints about quality to AMS's Grain Division for
technical review. Although the Grain Division had no written pro-
cedures for handling foreign complaints, the Division's Board of Ap-
peals and Review usually analyzed the official file samples which were
used in the original inspections if complaints were received within
the 90-day sample retention period. It also analyzed any destination
samples provided by the foreign buyers. The Division's Grain Inspec-
tion Branch reviewed the ship loading logs, sample tickets, inspection
certificates, and official file sample analysis results to determine if the
grain was correctly graded and certified at the time of loading with
respect to the factors involved in the complaints. The Grain Inspec-
tion Branch generally prepared a response to FAS, which described
the results of the review and analyses. FAS then prepared a response
to the attache and the attache responded to the foreign buyer.
On complaints about short weights, AMS can do very little to assist
foreign buyers in resolving disputes with U.S. exporters, because it
has no responsibility for supervising or controlling the weighing of
export grain. In responding to a short-weight complaint, an AiMS
official told FAS that, if the export elevator involved had been licensed
under the U.S. Warehouse Act, AMS's only responsibility would have
involved the fact that it had licensed the weigher under the act. He
added that (1) AMS was not able to determine the accuracy of the
weight of any particular shipment, (2) there was no appeal system
under the act, and (3) settlement was between the buyer and seller and
might ultimately have to be settled in a court of law.
Need for correction of inspection certificates found to be in error
Of considerable importance in the present handling of foreign com-
plaints is the fact that AMS does not change original inspection cer-
tificates even if they are determined to be in error. This typically
preempts the likelihood of any redress by the buyers in the courts of law
or before arbitration boards. AMS contends that it has no authority
to change original inspection certificates under the Grain Standards
Act or its present regulations, except in the case of appeal inspections.
Moreover, under present regulations (7 CFR 26.46 (d)), the appeal
inspection process generally is not available to a foreign buyer unless
he appeals before the inspection in question-that is, before the grain






60


is loaded-when he would not know whether he had a problem with
the grain quality. The regulations provide, however, that the AMS
field office may, upon written request by the applicant and the re-
spondents (generally the exporter), waive the requirement that an
appeal inspection be requested before the inspection in question if a
representative file sample is available. At present sublot file samples
for export grain are retained for 30 days, and composite file samples
are retained for 90 days.
In actual practice, USDA does not treat a foreign complaint about
grain quality as a request for an appeal inspection. Also, foreign
buyers very seldom request an appeal inspection after they receive
a grain shipment and decide they have a problem with the quality,
possibly because the regulations tend to discourage such requests.
AMS officials could not recall any such appeal requests but said that
they had, on occasion, advised the foreign buyer and the exporter
that the original inspection certificate was incorrect.
One case which we reviewed illustrates how the present system
works. It involved a foreign buyer who complained to USDA about
a shipment of 10,000 tons of wheat which had been purchased as num-
ber 3 hard amber durum. The buyer claimed that he had lost about
$60,000 because the wheat received was number 3 amber durum-a
lower priced class of wheat. When AMS investigated the complaint, it
found that the shipment was in fact number 3 amber durum instead
of number 3 hard amber durum as shown on the original inspection
certificate. The attache furnished the foreign buyer the results of
the AMS investigation, but AMS did not correct the original inspec-
tion certificate.
The buyer took the case before a foreign arbitration board and
court of law. Both ruled that the U.S. exporter was not liable for
compensating the buyer for the difference in the price of the wheat
purchased and the lower priced wheat received. The inlincy was based
on the facts that (1) the contract provided that the inspection certifi-
cate issued at the time of loading would be the final determinant of
grain quality and (2) the certificate's being in error was not material
unless the certificate was corrected or superseded.
We recognize there are problems with retaining representative file
samples of export grain because the grain's condition may change
over time. Possibly research is needed to determine how long such
samples can be retained without losing their integrity. Nevertheless,
we believe AMS should correct, through the appeal process or other-
wise, an original inspection certificate when it finds that the original
certificate was in error and when there is reasonable assurance that
the file sample represents the quality at the time of the original inspec-
tion with respect to the factors) in question. On the basis of our dis-
cussions with AMS officials, however, we agree that, before such action
is taken, further study is needed to insure that the issuance of cor-
rected certifiIcates would not place U.S. exporters in an unduly dis-
advantageous position.
Need for more timely responses
AMS had not established goals for promptly handling and respond-
ing to foreign complaints. Also, FAS had not established followup
procedures to insure prompt responses to all complaints.






61


We reviewed the timeliness of USDA's handling of 31 complaints
received during fiscal years 1973-75. The complaints were filed by
buyers in the nine countries we visited and involved 63 shipments
of wheat, corn, soybeans, and sorghum. As of October 31, 1975, 24
of the 31 complaints had been processed. An average of 166 calendar
days had elapsed between the dates of the complaints and the dates
of the responses. The elapsed time ranged from 86 to 343 days. For
the seven complaints still being processed, the time from the date
of the complaints to October 31, 1975, ranged from 123 to 238 days.
Most of the processing time was taken by AMS to investigate the
complaints and prepare responses. An average of 108 days elapsed
between the dates FAS forwarded the complaints to AMS and the
dates of AMS's responses. A Grain Inspection Branch official told
us the delay in processing complaints was due to other demands on
the staff's time.
In addition, FAS files indicated that responses to 4 of the 24 proc-
essed complaints had not been sent to the foreign buyers, although
AMS had furnished its responses to FAS. In two cases, there was
no evidence that FAS had forwarded the responses to the agricul-
tural attaches. One of these complaints had been received over 2 years
ago. In the other two cases, FAS responded to the attaches involved
but there was no evidence that they had responded to the buyers.

RECENT OFFICE OF AUDIT REPORT ON USDA's HANDLING OF FOREIGN
COMiPLAI NTS
In January 1976 USDA's Office of Audit furnished us a copy of a
report on its review of USDA's handling of foreign complaints. The
report identified weaknesses in USDA's handling of foreign com-
plaints similar to those identified during our review and discussed in
this chapter. The report contained a number of recommendations to
the USDA agencies involved for improving the handling of foreign
complaints. The agencies generally agreed with the recommendations
and indicated they planned to take positive action to implement them.

CONCLUSIONS
Our interviews in nine countries have shown that many foreign
customers for U.S. grain are dissatisfied. They do not believe they
always get full measure in terms of quality and weight for the grain
they purchase. This has led to increasing pressures to turn whenever
possible to other countries as supply sources or to stop buying U.S.
grain altogether. Various evidence suggests that quality and weight
problems have existed for many years, but have become more critical
in recent years. USDA has not been sufficiently sensitive to the com-
plaints of foreign customers and has offered little assistance to them.
The resulting cost in terms of diminished foreign sales and other
effects is not calculable.
The general realinement of responsibilities and strengthening of
procedures for administering the national grain inspection system,
which we are recommending in chapter II (see pp. 44 to 45), should go
a long way toward alleviating the types of problems foreign customers
have experienced. A soundly conceived and well-administered national






62


grain inspection system, the interworkings of which are open to ob-
servation by foreign buyers, should assist materially in promoting
foreign sales and establishing confidence in the quality, consistency,
and reliability of U.S. grain.
Recognizing that the system may not be perfect and that problems
and complaints may arise from time to time, appropriate means should
be available to investigate complaints, establish the facts, and correct
any erroneous inspection certificates. At present, foreign customers
have no feasible means to obtain redress in the case of valid com-
plaints, unless such redress is offered voluntarily by the sellers.
USDA's role in dealing with foreign complaints has been generally
inadequate. Its agricultural attaches, in most cases, were not fully
aware of the extent of foreign buyers' problems. They said they lacked
authority, expertise, or resources for investigating complaints. FAS
officials told us they had instructed the attaches to not get legally in-
volved in investigating complaints. They were simply to obtain the
particulars of a complaint and forward the information to FAS head-
quarters.
Also procedures at USDA headquarters for handling foreign com-
plaints were poorly defined and generally ineffectual. No central co-
ordinating agency had been designated within USDA, for example to
insure that all complaints were recorded, investigated, and responded
to and that the combined results were analyzed for possible use in re-
examining inspection procedures.
RECOMMENDATIONS TO THE SECRETARY OF AGRICULTURE
We recommend that the Secretary of Agriculture
-direct AMS to (1) determine the possible impact, particularly on
U.S. exporters, of correcting, either through the appeal process or
otherwise, original inspection certificates found to be in error and
(2) seek legislative authority, if necessary, to develop and imple-
ment procedures for making such corrections;
-require ARS, in coordination with AMS, to conduct research to
identify the type and extent of damage which can be expected to
occur when handling and transporting grain, particularly export
grain, and instruct FAS to notify foreign buyers what they gen-
erally can expect in this regard;
-designate FAS as the central coordinating agency in USDA for
handling foreign complaints and direct it to strengthen its regu-
lations to require careful evaluation of each foreign complaint
received and to make, or have made, such review as is warranted
to ascertain the pertinent facts;
-direct FAS, in coordination with AMS, to develop specific regu-
lations or instructions on information the attaches should obtain
from foreign buyers who file complaints about short weights;
-direct FAS to reemphasize to the attaches the importance of ob-
taining information from foreign buyers about problems with
the quality and weights of U.S. grain shipments and forwarding
it to FAS headquarters on a regular basis; and
-direct AMS to develop written guidelines, procedures, and goals
for promptly investigating and responding to foreign complaints
and to develop and implement effective procedures for acting on





63


the results of investigative findings when they reflect on the in-
tegrity of the national grain inspection system.

USDA COMMENTS AND OUR EVALUATION
USDA concurred in our recommendations and outlined actions it
was taking or would take to implement them. (See app. VII.) It
agreed on the need for a study of the impact on U.S. exporters of a
change in the appeal process when original inspection certificates are
found to be in error and said that, if the study indicated the need for
a change, it would develop and implement appropriate procedures for
making such corrections. USDA also said that immediate considera-
tion would be given to intensifying research on damage in handling
and transporting grain, especially in export channels.
USDA agreed that FAS should be given responsibility for co-
ordinating all activities related to handling foreign complaints. It
said the agencies involved would be instructed to forward all quality
and weight complaints to FAS for processing. Also, USDA said
-FAS had developed a standard form for use by foreign buyers in
reporting quality and weight complaints, which would provide
detailed information on the circumstances involved in each
complaint;
-FAS was rewriting its regulations to more clearly define the
attaches' role in handling foreign complaints about grain quality,
including a provision for using the complaint form;
-specific guidelines would be provided to the attaches outlining the
proper handling of quality and weight complaints;
-attaches would be provided background information on sampling,
inspection, weighing, and transportation procedures; and
-arrangements were being made for AMS to brief new attaches
and assistant attaches, before overseas assignments, on the im-
portance of reporting complaints.
USDA said that AMS was developing written guidelines, proce-
dures, and timeframes for investigating and responding to foreign
complaints and would develop and implement effective procedures
for taking action on the findings when they reflect on the integrity of
the national grain inspection system. Also, AMS will formalize, on
an interim basis, actions to be taken on weight complaints pending
the conclusion of ongoing investigations and the expansion of USDATs
role in weighing export grain.
We believe that implementation of the actions outlined by USDA
will improve its handling of foreign complaints and demonstrate to
foreign buyers that USDA will give their complaints serious
consideration.


66-328 0 76 6






























































*











CHAPTER 4


OBSERVATIONS ON THE GRAIN STANDARDS


Many of the persons we interviewed or sent questionnaires to re-
garding the official U.S. grain standards commented that the present
standards could be further refined or amended to make them more
useful. They pointed out that the standards do not include certain im-
portant grain quality indicators but include other indicators which
currently are relatively unimportant or unreliable. According to one
authority, the standards were developed and amended over the years
primarily to meet the minimal needs of grain merchandisers, and the
needs of growers and food processors were not adequately considered.
Questionnaires inviting comments on the grain standards were sent
to 560 farmers in Iowa and 500 farmers in each of five other States-
Illinois, Kansas, Oklahoma, North Dakota, and Nebraska-and to
2,195 country elevators in Illinois, Iowa, Kansas, and North Dakota.
We interviewed 22 grain processors and merchandisers in the United
States, including corn and soybean processors, wheat flour millers,
feed producers, and grain exporting companies, and solicited the views
of a number of producer, trade, and State organizations and univer-
sity and USDA researchers involved in grain standards work. Also,
in our visits to 9 foreign countries, we questioned 68 grain buyers about
their views on the U.S. grain standards.
Certain respondents said greater emphasis was needed on develop-
ing standards which (1) emphasize qualities relating to a grain's end
use, such as protein in wheat and oil and protein in soybeans, and (2)
provide incentives to farmers to produce higher quality grain. Some
recognized, however, that before certain refinements or changes can be
made to the grain standards, new equipment or inspection techniques
must be developed to readily ascertain grade in accordance with the
proposed standards.
Several respondents were critical of quality factors included in the
standards, such as gradations of color for particular classes of wheat
and degree of damage, which must be subjectively judged by grain in-
spectors. Most grain merchandisers and processors agreed that the
reliability and accuracy of such subjective determinations were ques-
tionable. The use of subjectively determined grading factors can result
in disputes between buyers and sellers when separate tests are made
at origin and destination points. It appears to us that there is no easy
solution to this type of problem.
A majority of farmers and country elevator operators responding to
our questionnaire indicated they favored expanding the present stand-
ards to include additional quality indicators for such factors as stress
(65)





66


cracks, brittleness, protein content, starch, and mold. They gave much
less indication that they wanted to see any of the existing quality indi-
cators dispensed with.
AMS officials have asserted that planned research program on the
grain standards and inspection procedures is needed. Needs for such
research were also expressed by many members of the grain industry
and by several agricultural experts. AMS officials said that only
limited research has been done in these areas since the Grain Stand-
ards Act was first passed in 1916. They said that, as a result, the stand-
ards do not fully reflect the quality or condition of grain and encour-
age unacceptable blending of low-quality grain or foreign material
with good-quality grain. They also said inspection procedures are, in
certain instances, subjective, time consuming and subject to error.
Some interviewees said ARS, especially the U.S. Grain Marketing
Research Center at Manhattan, Kansas, had not done as much re-
search on grain standards and inspection procedures as desired. One
of the main functions of the center, which became operational in 1971,
was to conduct research on (1) grain quality in marketing channels
and (2) developing tests for factors in the grain standards as well as
for other important factors which reflect grain quality but are not in
the standards. According to the center's annual report for fiscal year
1975, only limited work was conducted in the grain grades and stand-
ards areas because of budget limitations. An ARS official said about 15
percent of the center's staff time had been directly devoted to such
research.
AMS officials said AMS had, in the past, provided ARS with lists
of research needs in the areas of grain standards and inspection pro-
cedures. ARS officials said ARS had not always assigned the same
priority to them as AMS and had devoted its research efforts to areas
it believed were of high priority. One ARS official said the AMS lists
were long, general, and frequently modified. He suggested that the
lists be narrowed down to a limited number of well-specified requests.
Dr. Lowell D. Hill, Professor of Agricultural Economics, Univer-
sity of Illinois, in a study prepared for us, said it was essential that
those quality factors having economic importance to major domestic
and foreign users be identified in the standards, that improved meth-
ods and equipment be developed for measuring these factors, and
that research be conducted to determine the economic effect of alter-
native grading systems and quality factors. He said the agency as-
signed to administer the grades and standards would need to carry
out or at least coordinate such research.

IMPORTANT QUALITY FACTORS NOT CONSIDERED IN THE PRESENT
GRAIN STANDARDS
The grain standards should provide a basis for describing impor-
tant quality characteristics of specific lots of grain in a manner which
best serves the needs of both buyers and sellers. The following are
some frequently cited quality factors which our respondents consid-
ered to be important but which are not included in the present grain
standards.





67


SUSCEPTIBILITY TO BREAKAGE (CORN)
According to many processors and merchandisers, a measurement of
corn's susceptibility to breakage is an important indicator of corn
quality and should be incorporated into the grain standards.
Before being used, corn may be handled many times. In such han-
dling, deterioration of quality-corn kernel breakage and damage-
can occur. Broken kernels are more susceptible to mold and infesta-
tion and cannot be readily used by some corn processors.
Various harvesting, drying, and handling techniques, if not prop-
erly managed, can increase corn breakage, according to corn proces-
sors. Harvesting at high moisture content, field shelling, and artificial
drying can all increase susceptibility to breakage. There is little in-
centive at present, however, to reduce this susceptibility because the
existing grain standards do not provide for classifying corn for its
susceptibility to breakage. Large differences in corn's susceptibility to
breakage can occur without accompanying adjustments in the corn's
grade or price.
One indicator of corn's susceptibility to breakage is stress cracks.
Stress cracks are fissures or hairline fractures believed to be caused
by fast, high-temperature drying of high-moisture corn. Some corn
processors check for stress cracks before purchasing. Many of the corn
processors and merchandisers we interviewed suggested that a meas-
urement of stress cracks be included in the official grain standards.
The most frequent complaint from foreign respondents involved
excessive corn breakage. Because of extensive handling, corn-quality
deterioration tends to be critical with exported corn. Since quality
deterioration is more likely if the corn is highly susceptible to break-
age, reduction of this susceptibility could improve the quality of U.S.
export corn shipments. Some recognition of this factor in the grain
standards might help provide the incentives needed to improve har-
vesting, drying, and handling techniques.
An AMS official said he believed a measurement of corn's suscepti-
bility to breakage was desirable, provided a test to consistently and
reliably determine it can be developed. At present, such a test is not
available. ARS has done some research in this area. AMS officials said
more such research is needed.

PROTEIN CONTENT (WHEAT)
Some wheat processors, merchandisers, and others affiliated with
wheat marketing said that, in their view, the grain standards should
include protein content as a factor in grading wheat or provide for
uniform protein content testing. Protein content is an important gen-
eral indicator of the milling and baking qualities of hard wheat. It is
also rated as one of the most important quality factors used by millers
to select and purchase certain wheat lots.
Until recently, however, a procedure has not been available to rap-
idly determine wheat's protein content. According to AMS officials,
equipment to rapidly measure protein (and oil and moisture) has
been developed recently and placed in operation at some grain eleva-
tors and commercial grain-grading laboratories. They consider the
equipment, for which ARS developed the basic technology, to be






68


generally workable at the country elevator and inland terminal levels
but said additional testing and refinement of procedures were needed
before the equipment could be approved for widespread use.
Many farmers, particularly those in winter wheat-producing areas,
are not paid for the specific protein content of their wheat. There are
two main reasons for this: (1) the volumes of wheat moving into the
country elevators at harvest time are too large to permit the delay
that would result from existing protein-testing methods and (2) many
elevators do not have sufficient storage space to segregate wheat by
small variations in protein content. Marketing specialists and others
told us that, since there is noprice differential between high- and low-
protein wheat delivered to the same location, there is little incentive
for farmers to select and grow wheat varieties yielding more protein.
Country elevators, on the other hand, which market wheat on the
basis of protein content, could benefit from uniform protein-content
testing and thereby reduce their marketing problems. Some country
elevators obtain independent protein-content tests on shipments to
terminal markets by submitting samples to private or State labora-
tories. Prices paid to country elevators for delivered wheat, however,
are usually based on protein determinations made at destinations.
Because a rapid protein-testing method has not been available and
because sampling practices are not uniform, differences in determina-
tions between country and terminal markets have occurred. A number
of country elevator operators have complained about inequities in sales
contract settlements of protein content. Also, some foreign buyers
have complained of receiving wheat shipments with low protein con-
tent. Most of the foreign wheat buyers we questioned said it was very
important to include provisions for measuring protein content in the
grain standards.
According to AMS officials, recognition of specific protein contest
in payments to farmers is a desirable goal. They said that, when a
rapid, practical, and accurate protein-testing method becomes opera-
tional on a national basis, they will propose incorporation of protein
content in the grain standards but not as a grade-determining factor.

OIL AND PROTEIN CONTENT (SOYBEANS)
Although oil and protein content are considered highly important
quality indicators for soybeans, the present grain standards make no
reference to them. AMS officials told us that, when a rapid, practical,
and accurate method to measure soybean oil and protein content be-
comes operational on a national basis and when such quality factors
meet market acceptance, these factors may replace much of what is
now included in the soybean standards.
Before purchasing soybeans, major processing companies survey
particular geographical areas during the harvest season and take
samples to determine oil and protein content. Purchasing is thereafter
directed toward those areas which produce soybeans having the most
desirable oil and protein content. Farmers from those areas may re-
ceive somewhat higher prices due to this competitive process, but
according to officials of a producer association and AMS, individual
farmers generally lack incentive to improve the quality or increase the
quantity of soybean oil or protein because they are not paid on the
basis of the specific oil or protein content. The producer association






69


officials also said that some foreign buyers had expressed concern
about the decreasing protein content of U.S. soybean exports.

QUALITY FACTORS IN THE PRESENT STANDARDS WHICH MANY USERS
QUESTION
Our respondents made the following general comments on certain
quality factors included in the present standards.

TEST WEIGHT PER BUSHEL (CORN)
The validity and usefulness of the grading factor "minimum test
weight per bushel" for corn were questioned by a number of people
in or affiliated with corn marketing. Test weight per bushel is a meas-
urement of the weight of corn required to fill a bushel measure of 32
quarts. Farmers delivering corn with test weights below 54 pounds
normally receive price penalties-test-weight discounts. The use of
test weight as a discount factor can be economically important. For
example, in 1974, Illinois farm income was reduced an estimated $12
million by discounts for low-test-weight corn.
Researchers have found that no large nutritional differences exist
between corn with test weights of 52 and 59 pounds per bushel and
have raised doubts about the validity of the test-weight factor. Uni-
versity of Minnesota researchers have questioned whether the dis-
counts themselves are reasonable and whether they penalize low-test-
weight corn more or less than is warranted from a nutritional and
energy value standpoint.
A relationship exists between corn test weight and moisture con-
tent which, if ignored, can result in inappropriate discounts for low-
test-weight, high-moisture corn. To compare different lots of corn,
we were advised, test weights should be adjusted to a common moisture
basis or taken at a comparable moisture content. If they are not, the
test-weight discount can become an additional penalty against high
moisture, which is also discounted in the market.
Some corn processors avoid purchasing low-test-weight corn be-
cause lower test weights, particularly under 52 pounds a bushel, may
reduce the yields of various corn products. Some processors, however,
consider test weight an unimportant factor for determining quality.
Corn damage factors and cleanliness were sometimes considered to
be more important. Some processors cited a preference for purchasing
corn on the basis of qualities relating to corn products, such as starch,
protein, or oil content, rather than test weight, provided an accurate
and fast test can be developed.
AMS officials said they recognized the inadequacies of test weight
as a grading factor and agreed that it was immaterial for indicating
nutritional values. They plan to remove test weight and moisture as
grading factors for corn but will continue to require disclosure of
these measures on inspection certificates.

BROKEN CORN AND FOREIGN MATERIAL
The grading factor BCFM does not provide enough relevant infor-
mation to some users since it does not distinguish between (1) broken
corn, which is frequently usable, and (2) foreign material, such as





70


dirt, stones, and other types of grain, which may not be usable. The
BCFM factor measures the amount of corn kernels, pieces of kernels,
and all other matter which fall through a sieve prescribed in the grain
standards. It also includes distinguishable matter other than corn
which does not pass through the sieve. Refining the BCFM factor
has been suggested for some time by processors, foreign buyers, and
researchers. Some favor separating BCFM into (1) broken corn and
(2) foreign material.
According to one AMS official, another problem with the current
test for BCFM is that, since the size of the sieve hole does not allow
larger broken or cracked kernels to pass through, these kernels are
not recognized as BCFM and affect the grade only if they are other-
wise damaged, such as molded, sprouted, infested, or diseased. How-
ever, these larger broken or cracked kernels may be just as susceptible
to disease, insect attacks, or other damage as smaller broken kernels.
Some processors we interviewed had devised or specified their own
BCFM standards for corn purchases. For example, one used a sieve
with larger holes than those prescribed in the present standards. This
processor found that the smaller, standard-size sieve allowed too
many larger broken or cracked kernels more appropriately classified
as BCFM to remain in the corn. An AMS official said AMS was
considering revising the grain standards to recognize the difference
between broken corn and foreign material.

CHARACTERISTICS OF U.S. NUMBER I1 CORN
The need for maintaining the category "U.S. number 1 corn" in the
present form seems unrealistic, according to comments we received.
Respondents pointed out that corn with the characteristics specified in
the grain standards as number 1 is not traded extensively; the mois-
ture content specified for number 1 corn could indicate overdrying,
making product recovery more difficult; and the higher test weight
per bushel for the number 1 grade is not necessarily an indicator of
higher product yields.
AMS officials said they have considered revising the corn categories
but have not yet developed any proposals.
TEST WEIGHT AND SPLITS (SOYBEANS)
Most soybean processors and merchandisers interviewed indicated
that the present soybean-grading factors, "test weight" and "splits,"
had little impact on soybean quality. Soybean test weight is defined
similarly to corn test weight and is a measure of density. Soybean
splits are otherwise undamaged soybeans with a portion missing.
A number of processors and merchandisers told us that test weight
is not a good indicator of product yields. An official of a major pro-
ducer organization said most processors get about the same oil or pro-
tein content from soybeans having test weights of from 52 to 60
pounds. The incidence of splits, we were advised, would become im-
portant only if soybeans were stored for a long period, since oil might
become rancid. AMS officials said that they agreed that test weight
and splits are relatively unimportant as soybean quality indicators.
They intend to remove test weight as a grading factor, although it
will continue to be shown on inspection certificates.





71


CONCLUSIONS
Although we did not make a comprehensive analysis of the present
grain standards, our inquiries showed that there are significant prob-
lems and questions which warrant further analysis and attention by
USDA. USDA has not been sufficiently concerned about the need for
adequately directed and coordinated research on the grain standards
by its several agencies. Research is needed to develop more sophisti-
cated grain-testing equipment and to provide a sound basis for further
refining and amending the standards to improve their usefulness to
the entire grain-marketing chain, from the farm level to the final
consumer.

RECOMMENDATION To TOHE SECRETARY OF AGRICULTURE
'We recommend that the Secretary of Agriculture intensify research
and development on the U.S. grain standards and provide for greater
coordination and cooperation among the USDA agencies with re-
search and marketing responsibilities.

USDA 'COMMENTS
USDA concurred in the need for intensified research and develop-
ment in further updating U.S. grain standards. (See app. VII.) It said
AMS and ARS would first jointly design and cost out priority re-
search proposals for use in requesting adequate personnel and funds
-and, with a higher level of resources, grain standards could be system-
atically evaluated and highest priority research activities could be
conducted in tandem to expedite the needed changes.
















CHAPTER 5


SCOPE OF REVIEW


Our evaluation of the national grain inspection system included a
review of legislation, regulations, and instructions and various reports,
studies, articles, and financial and operating records pertaining to
grain standards and the grain inspection system. At the Federal level,
we held discussions with
-present and former AMS headquarters and field office officials;
-agricultural attaches and other FAS officials;
-ARS officials in Washington, D.C.; Hyattsville, Maryland; and
Manhattan, Kansas;
-other USDA officials, including those of the Offices of Audit and
Investigation; and
-Department of Justice officials.
We visited 13 AMS field offices and a number of designated inspec-
tion agencies and inspection points, as follows, where we observed
grain handling and inspection operations, reviewed records, and con-
ducted interviews.

Designated Number of
inspection inspection
AMS field office agencies points

Beaumont, Tex-.------------------------------------------------ 1 2
Des Moines, Iowa------------------------------------------------------- 3 10
Duluth, Minn------------------------------------------ 2 8
Grand Forks, N. Dak.-...- ------------------------------------------------ 4 0
Houston, Tex-------------------------------------------------------------- 2 5
Minneapolis, Minn-------------------------------------------------------- 1 3
Montreal, Canada------------------------------------------------------ 0 0
NewOrleans, La-------------------------------------------------- 5 8
Peoria, III------------------------------------------- 4 7
Philadelphia, Pa.--.---------------------------------------------- I I
Portland, Oreg..----------.---------.--------------------------------- 2 5
St. Louis, Mo ----------------------------------------------------3 3
Seattle, Wash--....-------------------------------------------------- 1 3
Total---- ---------------------------------- ----------- 29 55

1 Includes duplicate visits to 2 designated inspection agencies. Representatives of the Minnesota inspection agency were
contacted during visits to the Duluth and Minneapolis AMS field offices. Representatives of the Washington inspection
agency were contacted during visits to the Seattle and Portland AMS field offices.

We also visited other agencies responsible for grain-weighing
activities.
We interviewed or mailed questionnaires to various persons knowl-
edgeable of the grain trade and grain inspection in the United States
and in 10 foreign countries: Canada, India, Israel, Italy, Japan,
Korea, the Netherlands, Spain, the United Kingdom, and West Ger-
many. We obtained their views on matters relating to inspection and
(73)






74

grain standards. The number of persons interviewed or contacted was
as follows:


Number Replies
mailed received Number

Mail questionnaires:
Officials of States with grain inspection agencies------------------ 23 20 ------
Country elevator operators.------. ------------------------- 2,195 890 -------------
Farmers--- ----------------------.--------------------- 3,060 1, 486 ------
Personal interviews:
Domestic:
Country elevator operators----------------------------------------------2- 48
Grain processors and merchandisers----...------------.--.---------------------------.... 22
Educators and researchers-------------------------------------------------.---------- 12
Trade association representatives---------------------------------------------------- 3
State agency officials-----...---.-----. ---------------------------------------------- 4
Foreign:
Grain buyers------------.----------------------------------------------------------- 68
Trade association representatives------. ------ ---------------------------------- 10
Arbitration board representatives---------------------------------------- --------- 2
Government grain inspection agency officials-..---..---- -------------------------------- 3
















APPENDIXES



APPENDIX I
U.S. GRAIN PRODUCTION, 1974 CROP 1
[In millions]

Bushels
State Value Wheat Corn Soybeans Other Total

Illinois----------- ------------- $4,117 54 831 208 28 1,121
Iowa --------------------------- 4,053 1 948 199 89 1,237
Minnesota.----------------------- 2,167 81 360 85 132 658
Kansas------------------------- 2,141 319 131 21 142 613
Indiana.------ ------------------- 2,067 50 388 98 13 549
Nebraska------..------------------ 1,841 99 381 29 92 601
Ohio--------------------------- 1,640 65 266 80 30 441
Texas -------------------------- 1,381 53 74 8 321 456
North Dakota------......--------------- 1,322 205 7 3 104 319
Missouri------------------------ 1,310 38 149 96 26 309
South Dakota.----------------------- 725 58 77 8 104 247
Oklahoma------------------------- 656 134 8 5 31 178
Arkansas..----------------- -------- 653 10 1 86 11 108
Wisconsin------------------------- 621 3 154 4 86 247
Montana-------------------------- 604 120 1 ---- 46 167
Michigan------------------------- 578 38 110 13 21 182
Washington------------------------ 571 122 4 ------------ 18 144
Colorado.------------------------- 448 68 46 ------------ 21 135
Idaho--------------------------- 345 62 2 --- 35 99
Louisiana.------------------------- 341 1 4 45 1 51
Total, 20 States-------------- 27,581 1,581 3,942 988 1,351 7,862
Other States---------------------- 5,297 212 709 245 238 1,404
Total, United States-----------........... 32,878 1,793 4,651 1,233 1, 589 9,266


i During the 1974 growing season, a combination
widespread damage to U.S. grain crops.


of adverse weather conditions in major grain-growing areas caused


(75)











APPENDIX II


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(78)














APPENDIX III




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APPENDIX IV


GRAIN EXPORTS BY COUNTRY OF ORIGINAL DESTINATION, FISCAL YEAR 1975
[In millions]

Bushels
Country Value Total Wheat Corn Soybeans Other

Japan.-.------------------------ $2,208 484 113 200 87 84
Netherlands---..------------------- 1,236 270 17 164 75 14
West Germany---------------------- 859 168 7 110 48 3
Spain ---------------------------- 680 152 1 104 46 1
India.-------..--.----- -------------- 657 158 158 ------ ---
Italy..-------..---------------------- 571 127 9 90 27 1
Mexico-..--..------------------------. 524 124 31 56 5 32
Republic of Korea-------. ------------ 428 90 63 14 1 12
Iran ..------------. ---- -- -.-- 357 73 64 5 ---.---- 4
Union of Soviet Socialist Republics.. - 355 83 36 46 ..-----. 1
Republic of China---..---------------- 259 45 13 10 22---.........
Israel-----------------..-----------. 245 59 12 8 13 26
Peoples Republic of China.----.-------- 224 61 55 1 5 ..-...-.
Portugal-------------------------- 224 55 12 38 2 3
Canada----------------- -..--------- 217 52 -----. 37 14 1
United Kingdom.-----.--------------- 187 42 9 25 7 1
Egypt.----------.---- --------------. 186 43 25 18 ------------.
Venezuela---------.--- ------------- 165 35 18 -----.-- 2 15
Peru.---------------------.-- ------ 155 37 23 13 1 ---- -
Poland.------ --------------------- 152 40 2 25 5 8
Algeria---- ----------------------- 135 22 22 -----------------------------..
Pakistan -------------- 134 31 31 -------------------------------
Bangladesh.------------------------ 128 29 29 ---. ---------------------
Romania---..----------------------- 127 36 ----- 33 1 2
Belgium-Luxembourg--- ------------- 125 28 5 11 4 8
Turkey------------- -------------- 116 24 24-----------------------------..
France...--------------------------- 110 17 5 2 10 ---------
Other.-------------------------- 1,758 384 215 112 30 27
Total.--------------------- 12,522 2,769 999 1,122 405 243


(78)












APPENDIX V


LEGISLATIVE HISTORY OF THE UNITED STATES GRAIN
STANDARDS AND WAREHOUSE ACTS


Before the 1916 enactment of the United States Grain Standards
and Warehouse Acts, the grading, weighing, and warehousing of grain
were regulated exclusively by the States. With each State enacting
separate legislation, a patchwork of standards and regulations de-
veloped. There was no uniform, nationwide system for inspecting,
grading, weighing, and storing grain. Thus, in 1916, the Congress en-
acted the two acts to provide greater uniformity and standardization
in inspecting, grading, weighing, and warehousing grain stored for
or traveling in interstate and foreign commerce. The acts addressed
different stages or aspects of the grain-marketing system and were de-
signed to remedy different evils. (.See Act of August 11, 1916, c. 313,
pts. B and C, 39 Stat. 482,486.)

INSPECTING AND GRADING
The Grain Standards Act was intended to eliminate two major
problems that plagued the pre-1916 grain inspection and grading sys-
tem. First, there was a lack of uniformity in grading grains at various
terminal markets. The injustice that resulted from the lack of uniform
grain standards was described in several Senate committee reports
issued prior to passage of the act:
The grain raised on a farm in Iowa may be shipped to three
different points-Minneapolis, Chicago, and Kansas City. The
rules of grading in Minneapolis for a certain grade of grain
would require that it weigh a given number of pounds per
measured bushel, contain a certain percentage of a particular
kind of grain, possess a certain color, etc. The Chicago rule
for determining the same grade will differ considerably from
the Minneapolis standard, and the Kansas City standard will
be different from either of the others. Now, as the price of
grain is dependent solely upon the grade it receives, this
same grain would have three different values placed upon it at
these three different terminals. These diverse systems open up
an immense field for manipulation in grades, which always
works to the detriment of the producer. Because of this lack
of uniformity one shipment of grain may receive as many
different grades as there are different markets through which
it passes. (S. Rapt. 216, 63d Cong., 2d sess. 2 (1914).)
Second, before 1916, the system of inspecting and grading grain,
regardless of whether it was operated under State laws or board of
(79)


66-328 0 76 7





80


trade rules, was firmly controlled by boards of trade. The boards of
trade, in turn, were dominated by puchasers at the major terminal
markets. As a result, these purchasers were able to manipulate the
grain inspection and grading system to their own financial advantage.
More specifically, on the basis of various public and private com-
missions' reports, there was substantial evidence that the rules for
handling grain, including inspection and grading, favored the termi-
nal market purchasers. The appointment of inspectors, the fixing of
grades, and appeals from inspectors' decisions generally benefited
these purchasers. In addition, it appeared that the boards of trade and
purchasers at various terminal markets regularly engaged in a va-
riety of unfair business practices, including (1) operating a system of
"rigid and easy" inspection, with rigid inspection of grain entering
the terminal markets and lax inspection leaving those markets, (2)
falsely certifying the grade of grain, and (3) mixing and adulterating
grain. (See S. Rept. 216, supra, 2-4; 53 Cong. Rec. 7043-46 (1916)
(remarks of Representative Moss).)
In short, due to the lack of uniform grain standards and the domina-
tion of the grain inspection and grading system by boards of trade
and purchasers at the terminal markets, farmers and independent
shippers were compelled to accept lower grades and less money for
their grain. The ultimate foreign and domestic purchasers, on the
other hand, regularly received a poor quality of grain under inspection
certificates indicating higher grades. Consequently, the U.S. grain
trade suffered, and a Federal grain standards law was necessary to
establish and protect the integrity of the grain inspection and grading
system.
The Congress sought to eliminate the corruption and unfair busi-
ness dealings that characterized the pre-1916 grain inspection and
grading system by (1) establishing an official inspection and certifica-
tion system for grain and other agricultural products, (2) requiring
official inspection and certification of certain shipments of grain and
other products, (3) making available the services of the official inspec-
tion and certification system to parties with an interest in other types
of shipments, (4) prohibiting certain conflicts of interest on the part
of official inspection personnel, (5) authorizing the Secretary of Agri-
culture to use specific administrative sanctions to prevent abuses of
the official inspection and certification system, and (6) defining specific
prohibited acts and criminal penalties.
As originally enacted, the Grain Standards Act required official in-
spection and certification of all grain shipped, or delivered for ship-
ment, in interstate or foreign commerce for sale by grade. (Act of
August 11, 1916, c. 313, 4, 39 Stat. 483.) In 1968, however, the act
was amended to require official inspection and certification only for
grain exports, thereby removing the requirement for official inspection
and certification of all interstate shipments. (Pub. L. 90-487, 5, 82
Stat. 763; S. Rept. 1372, 90th Cong., 2d sess. 2, 9 (1968), H. Rept. 1344,
90th Cong., 2d sess. 2, 24 (1968).) Under the law today, an interested
party may request official inspection and certification for any grain
in the United States and for U.S. grain in Canadian ports. (7 U.S.C.
79 (b) (1970).) It is no longer mandatory, however, that interstate
shipments of grain be inspected and graded under the official inspec-
tion and certification system established in the act and the implement-
ing regulations.




81


WEIGHmNG AND STORAGE
Before 1916, the U.S. grain trade also was adversely affected by a
lack of adequate and uniform regulations for weighing and storing
grain. A House committee report accompanying an earlier version of a
Federal warehouse act described the basic weaknesses of the State-
regulated warehousing system then in existence.
An essential weakness of our present system is found in a
lack of adequate storage facilities, and in the further fact that
there is no proper relationship between it and the banking
system of the country. Both these defects must be remedied.
A new system of banking is being organized which, for the
first time, recognizes agricultural products as a proper basis
for credit. It is therefore of the highest importance that in
making these important changes in our warehouse and mar-
keting systems consideration should be had to bring these
agencies into the most favorable contact to the end that the
producer may obtain the greatest benefit from each.
Under provisions of this bill uniform warehouse receipts
will be issued on staple and nonperishable agricultural prod-
ucts stored in governmentally licensed warehouses, protected
by ample bond, graded, weighed, and certified by govern-
mentally licensed inspectors.
A warehouse receipt to be of the fullest strength as col-
lateral and as readily negotiable as possible in the financial
markets of the country must be such a receipt as is of un-
doubted integrity. Such a system would create a form of
security good beyond all doubt and one that would command
the confidence of the commercial and investment banking
world. (H. Rept. 1135,63d Cong., 2d sess. 4 (1914).)
As the House report indicates, the Warehouse Act originally was
enacted for two purposes, one regulatory and one nonregulatory. The
regulatory purpose was to improve the storage facilities in which grain
and other agricultural products were stored. The act
-authorizes the Secretary of Agriculture to investigate, license,
classify, and prescribe duties for warehouses and warehousemen;
-authorizes the licensing of competent persons to inspect, sample,
or classify agricultural products stored in a licensed warehouse;
and
-establishes standards for the conduct of a warehouse.
The Secretary is also authorized to cooperate with State officials
charged with enforcing State warehouse laws. However, warehouses
licensed under the Warehouse Act are subject to the exclusive control
of the act. Until 1931, Federal warehouse legislation was subservient
to State regulation. See Rice v. Santa Fe Elevator Corp., 331 U.S. 218
(1947).)
The act's other purpose, and probably its primary purpose, was to
provide a mechanism through which farmers would be able to obtain
short-term credit. As explained on the House floor, it was believed that
the integrity and uniformity of warehouse receipts resulting from a
Federal warehouse law would increase the availability of farm credit
by making the receipts more readily negotiable.





82


It is a well-known principle in economics that standard-
ized, uniform security always is most negotiable and always
commands the lowest rate of interest. A Federal warehouse
law insures beyond doubt uniformity in character of ware-
houses, uniformity in methods of inspection, uniformity in
methods of weighing and grading, uniformity in the standard
of measurement-grade-and above all, and more important
than all, such a system provides for a uniform warehouse re-
ceipt, or credit instrument, for the same product in every
State in the Union. Each receipt, whether issued from a ware-
house in Texas [sic] or in South Carolina or a like product
will carry on its face the same story and will be issued under
the same rules and regulations and protected by the same law.
Such a receipt must be of the highest collateral value and it
is my belief that it would flow at once into the general system
of securities and become realizable upon at any time in the
general market of securities. (53 Cong. Rec. 5925 (1916)
(remarks of Representative Lever).)

REGULATORY SCHEME-THEN AND Now
To achieve the purposes for which the Grain Standards and Ware-
house Acts originally were enacted, the Congress did not adopt a sys-
tem requiring direct Federal intervention in the grain-marketing
system, although there was some support for that approach in the
Congress. (See 53 Cong. Rec. 10506 (1916) (remarks of Senator Shaf-
roth).) Instead, the Congress adopted a system of Federal super-
vision. The Secretary of Agriculture was authorized to prescribe
standards and regulations governing the inspection, grading, and
warehousing of grain and to issue licenses to employees of State or
private agencies to implement those standards and regulations. Under
the acts, Federal licensees were given the immediate responsibility for
inspecting, grading, weighing, and storing grain, and the Secretary
of Agriculture was authorized to promulgate standards and regula-
tions and to act in a supervisory capacity as the licensing agency. (See
53 Cong. Rec. 7043-46, 10506 (1916) (remarks of Representative Moss
and Senator Shafroth).)
Over the years, both acts have been amended on several occasions.
In 1931, the Congress amended section 29 of the original Warehouse
Act to guarantee the supremacy of Federal regulations over conflict-
ing State regulations. (Act of March 2, 1931, c. 366, 9, 46 Stat. 1465.)
Moreover, in 1968, the Grain Standards Act was substantially revised.
(Pub. L. 90-487, 82 Stat. 761.) Despite these amendments and re-
visions, however, the acts' basic regulatory approach has remained
unchanged. Today, the Grain Standards and Warehouse Acts still
provide for Federal licensing of employees of State or private grain
inspection agencies and of warehouse operators, restricting the Fed-
eral Government to a supervisory role. (See hearings on S.J. Res. 88
before the Subcommittees on Foreign Agricultural Policy and on
Agricultural Production, Marketing, and Stabilization of Prices, Sen-
ate Committee on Agriculture and Forestry, 90th Cong., 1st sess., pt. 1,
at 12 (June 19, 1975) (testimony of J. Phil Campbell, Under Secre-
tary, USDA).)











APPENDIX VI


DESCRIPTION OF CANADIAN GRAIN INSPECTION
SYSTEM

Grain inspection in Canada is provided by the Canadian Grain Com-
mission, an agency of the Canadian Government. The Commission is
responsible for establishing grain grades and standards and for imple-
menting a system for grading and weighing grain. The Conunission's
Grain Inspection Division employs about 450 persons and provides
full-time inspection services at 15 locations and part-time services at 3
locations. Inspection services are also provided on request.
The Commission's Grain Weighing Division employs about 230 per-
sons who supervise the weighing of all grain received at and shipped
from terminal elevators except Government-owned elevators operated
by Commission personnel. The Commission's Grain Research Labora-
tory Division, with 75 employees, is responsible for maintaining a lab-
oratory for conducting applied and basic research in grain and mat-
ters relating to grain and grain products.
Applicants for inspection positions are selected for aptitude and
must serve at least 1 year on probation as assistants. After 2 years of
training as assistants, they become eligible to grade grain under close
supervision. At this stage, they are examined on theory and practical
grading procedures. A total of about 5 years of training is required
before a candidate becomes officially qualified to grade grain. Staff-
training programs are subsequently carried out, and inspectors are
periodically tested on their proficiency to identify varieties of grain
and on other general knowledge. Once an inspector is officially quali-
fied to grade grain, his work is regularly supervised by supervisory
personnel who regrade a minimum number of samples he has graded.
Most grain officially inspected on entry to or discharge from a ter-
minal elevator is sampled by automatic mechanical sampling devices
that are both installed and operated under supervision of the Inspec-
tion Division.
The inspection system provides that, if a party appeals the grade
assigned, the sample will be reviewed by the inspector in charge, the
Division's Chief Grain Inspector, and finally, the Grain Appeal Tribu-
nal. In the case of a complaint received after a cargo has arrived at a
foreign destination, the Commission investigates all circumstances re-
lating to the grading and weighing of the grain and the fitness of the
vessel. In some cases, the Commission sends a representative abroad to
evaluate circumstances relating to the complaint. The investigations
are not concluded until the issue is resolved.
There are about 1,600 country (primary) elevator locations in Can-
ada. Although the inspection service does not extend to country eleva-
tors, the operators can submit samples for grading to the Commission.
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Country elevator operators grade the grain delivered by farmers, but
farmers may appeal to the Commission when they disagree with the
grade given on the grain delivered. A sample satisfactory to both the
farmer and the elevator manager is submitted to a Commission inspec-
tor who notifies both of the results.
The Commission has a licensing authority that is used to maintain
quality control throughout the Canadian handling system. An elevator
cannot handle grain under official grade names established under the
Canada Grain Act unless it is fully licensed by the Commission. The
act requires that construction and alteration plans for elevators be
submitted to the Commission for approval before licenses are issued.
It also specifies that all licensed operations maintain handling equip-
ment and storage facilities in efficient condition to minimize damage of
grain while handling and to prevent deterioration during storage. Li-
censed elevators are regularly inspected by Commission inspectors.
Failure to comply with license requirements may result in suspension
or loss of a license.
The cost of the inspection and weighing services is recovered by
charging inspection fees. The 1974 combined fee was $6.75 for each rail-
car or truck or each 1,000 bushel sublot of grain being loaded for
export.












APPENDIX VII


LETTER DATED JANUARY 26, 1976, FROM THE UNDER
SECRETARY OF AGRICULTURE


DEPARTMENT OF AGRICULTURE,
OFFICE OF THE SECRETARY,
Washington, D.C., January 28,1976.
Mr. HENRY ESCHWEGE,
Director, Resources and Economic Development Division, General
Accounting Office, Wadhington, D.C.
DEAR MR. ESCHWEGE: This is in response to your letter of January 19
requesting the Department to review and comment upon the GAO
draft report to the House Committee on Agriculture and the Sub-
committee on Foreign Agricultural Policy of the Senate Committee
on Agriculture and Forestry by the General Accounting Office entitled
"Assessment of the National Grain Inspection System and Certain
Related Matters." We have reviewed the report and want to assure
you that the USDA will continue to give full attention, within the
limits of our resources, to improve the national grain inspection and
weighing system.
Although no reference is made in the draft report to the issue of
Federal original inspections of grain on an interim basis, we must con-
vey to the General Accounting Office that one of our most vital needs
is for immediate authority authorizing the USDA to perform original
inspections of grain on an interim basis. Actions have been and are
being taken to revoke the designations of official inspection agencies
for violations of the U.S. Grain Standards Act. In a situation where
the designation of an official inspection agency has been revoked, a
replacement agency must be immediately identified and action taken
to continue the inspection service. Our limited experience in this re-
gard clearly indicates that it will not always be possible to imme-
diately organize a new official inspection agency or to identify an
existing official inspection agency willing to assume the needed inspec-
tion responsibilities. Therefore, it is necessary that emergency legis-
lation be passed giving authority to the USDA to provide original
inspection on an interim basis to assure continuity of inspection until
a replacement official inspection agency can be designated. Therefore,
we shall appreciate your considering the insertion in the final report
of a recommendation that the Department be immediately granted
such authority.
In summary, we are currently moving ahead aggressively in the port
area with all actions necessary to secure and maintain the integrity
of the grain inspection system. These actions involve a combination
of stricter application of existing regulations and promulgation of
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additional regulations under existing statutes. We believe strongly,
however, that the best interest of the Department, the grain trade.
U.S. producers and our foreign customers can best be effectuated by
rapid passage of H.R. 9467. This will provide, among other needed
reforms, authority for the USDA to provide original inspection on an
interim basis.
We are enclosing the Department's comments for your consideration
in preparing the final draft.
Sincerely,
JOHN A. KNEBEL,
Under Secretary.
COMMENTS ON RECOMMENDATIONS OF THE DRAFT REPORT TO THE HOUSE
COMMITTEE ON AGRICULTURE AND THE SUBCOMMITTEE ON FOREIGN
AGRICULTURE POLICY, SENATE COMMITTEE ON AGRICULTURE AND
FORESTRY
The Department has reviewed the recommendations set forth in
the GAO draft report on pages 58 through 60 and finds these tech-
nically and organizationally feasible to implement. However, the
Department is not in total agreement with the recommendations. The
following comments represent the Department's position with respect
to the recommendations.

RECOMMENDATION 1
The GAO recommends that USDA be directly responsible for all
grain sampling, inspection, and weighing operations and for issuing
official inspection certificates at all port elevators and at major inland
terminal elevators.
A. Comments on Sampling, Inspection, and Certification Operations
The Department does not concur with Recommendation 1. The De-
partment's position is that legislation introduced as H.R. 9467, known
as Foley Bill, will provide for an efficient and the most cost effective
grain inspection system of the alternatives examined by the Depart-
ment. The Department's proposal would (1) provide clear authority
to eliminate actual and potential conflicts of interest. (2) require
official inspection agencies to assume added responsibilities for train-
ing, staffing, and adequate supervision of their employees, (3) provide
clear authority to suspend or revoke designations of official inspec-
tion agencies, (4) provide for withholding of inspection service for
grain firms for violation of the Act, (5) provide authority for USDA
to perform original inspections on an interim basis during revocation
or suspension proceedings, (6) provide for sufficient personnel to
handle the work effort; i.e., appeals, original inspection on an interim
basis, and supervision activities, and (7) increase penalties for vio-
lations of the U.S. Grain Standards Act by licensees, official inspec-
tion agencies, and grain firms.
B. Comments on Weighing Operations
The Department does not concur with Recommendation No. 1. The
Department's position is that separate legislation providing for a
Federal-State-Private system of weight supervision at port elevators
would provide for an efficient and most cost effective grain weighing