Testimony of Roger Johnson
Agriculture Commissioner
House Concurrent Resolution 3021
House Agriculture Committee
Peace Garden Room
February 7, 2003

Good morning Chairman Nicholas and members of the House Agriculture Committee. I am Roger Johnson and I appear before you today as North Dakota's Agriculture Commissioner and as a member of the National Association of State Departments of Agriculture Warehouse Taskforce. Jon Mielke, with the Public Service Commission, served as my representative on the NASDA Taskforce.

I am here to offer my support for HCR 3021, which relates to grain warehouse regulations and United States Department of Agriculture's attempt to preempt state's rights with respect to the regulation of grain merchandising.

The United States Warehouse Act (USWA) was revised in November of 2000 and USDA published the final rule in August of this past year without the opportunity to comment on language that was added in subsection (c), Part 735.1 which reads, "Compliance with state laws relating to the warehousing, grading, weighing, storing, merchandising or other similar activities is not required with respect to activities engaged in by a warehouse operator in a warehouse subject to a license issued in accordance with this part."

I just returned from the mid-year meeting of the National Association of State Departments of Agriculture (NASDA) mid-year meeting in Washington, D.C. where this issue was given a great deal of attention by my counterparts from around the country. Specifically, NASDA adopted an "Action Item" which calls for three things:

1. USDA should withdraw the USWA rule to provide for additional negotiations with states and allow for a comment period for drafting a new rule.
2. USDA should develop a cooperative federal-state regulatory system and refrain from adopting a federal pre-emptive program.
3. Congress should work through legislation to resolve this grain regulation issue in the event that a mutual resolution with USDA cannot be achieved.

NASDA also adopted the following policy language regarding warehouse regulation (original adoption 10/02, amended 2/03):

"The U.S. Warehouse Act should not preempt state authority to provide protection to producers doing business with federally licensed warehouses. NASDA endorses the immediate formation of a task force to resolve issues while USDA observes a 90-day moratorium on issuance of new federal warehouse licenses, except peanuts. Appropriate legislative action to amend the U.S. Warehouse Act should be pursued, based on Board approval.

Mandatory state warehouse programs have been established in many states to both adequately serve agricultural commodities and to protect farmers from suffering financially if a warehouse experiences inventory shortages or financial insolvency. The optional federal warehouse program also serves agricultural commodities, but lacks many protections for farmers.

All warehouses that store agricultural commodities for the public are licensed either by the USDA via the United States Warehouse Act (USWA) or by the respective state in which the warehouse operates. Further, 23 states also regulate the merchandising of grain through grain dealer laws. These state programs serve the agricultural community well in terms of cost efficiencies and regulatory oversight.

USDA has never regulated the merchandising of grain and they claim they do not want to, however, the USDA has taken the position that the USWA covers the merchandising of agricultural commodities and that the industry is not required to follow state law. States are very concerned about the USDA's interpretation that the federal law supersedes state law in the area of merchandising. This interpretation could not only lead to zero protection for farmers who merchandise agricultural commodities at a warehouse licensed under the USWA, but also put in jeopardy state programs where commodity producers have chosen to pay into indemnity funds for their own protection.

USDA has drafted changes to the USWA which include among other things the allowance of issuing electronic warehouse receipts. The states are supportive of the concept of electronic warehouse receipts and agree that there should be a standard format; however, the states would like to provide input into this process to assure that the state needs and requirements are being addressed. Further, this USWA rewrite needs to address the old concept of cooperative agreements between states and the USDA. A cooperative agreement between the state and the USDA would benefit the producer, the industry, and most importantly the taxpayer.

NASDA believes that the USDA should cooperate with the state departments of agriculture in the regulation of agricultural commodities' warehouse activities to provide producers with the best protection possible while subjecting the industry to the minimum amount of regulatory oversight necessary at the least cost to the taxpayer.

NASDA believes that legislation should be passed which supports a policy or plan of insurance that includes quality loss adjustment coverage. Under this legislation samples shall be taken and analyzed by a grain grader licensed under the authority of the United States Grain Standards Act or the United States Warehouse Act or the Uniform Grain and Rice Storage Agreement, or by a laboratory approved by the USDA Risk Management Agency.

NASDA urges the administration and the U.S. Congress to direct the USDA to collaborate with state agencies and to recognize the states authority to license and regulate grain dealer and merchandising activities of federally licensed grain warehouses and examine all agricultural warehouses within their states irrespective of their license status under the U.S. Warehouse Act."

Earlier this week, USDA announced new actions aimed at rectifying this situation. Unfortunately those actions do not go far enough and I believe that in the absence of appropriate action by USDA, Congress must act to address this issue to ensure that states' rights are protected.

HCR 3021 provides the opportunity for this legislative assembly to send a message - the right message - to USDA and Congress that this preemptive rule must be changed. Chairman Belter and committee members, I urge a do pass on HCR 3021.