Letter to The Honorable Mike Johanns, Secretary, United States Department of Agriculture

May 9, 2007

The Honorable Mike Johanns
Secretary
United States Department of Agriculture
1400 Independence Ave., SW
Washington, DC 20250

The Honorable Phyllis K. Fong
Inspector General
United States Department of Agriculture
1400 Independence Ave., SW
Washington, DC 20250

Dear Secretary Johanns and Inspector General Fong:

In June 2000 a bill was introduced that established mandatory price reporting requirements for the dairy products used in establishing milk prices under the Federal Milk Market Order system. In October 2000 Congress passed this common-sense legislation unanimously and it was signed into law in November 2000. The purpose of this legislation was to provide a transparent method for the government to set milk prices, which all parties could have confidence in. Unfortunately, recent events have undermined confidence in USDA's ability to oversee this data collection.

In late April USDA staff provided a briefing to Senate staff and had a press conference detailing a serious error in the prices reported to the National Agricultural Statistics Service (NASS) for nonfat dry milk (NDM). USDA admitted that this error was caused by misreporting of prices by at least one plant that included long-term forwarded contracted prices in their reports, which is expressly prohibited. USDA has indicated that this has affected milk prices for farmers for at least two months and caused a "market loss" of at least $6.4 million. But this market loss was not borne by the market as a whole -- it came only from dairy farmers' milk checks. While we understand that the USDA and USDA Inspector General are conducting an investigation to determine the extent of the effects, reports suggest that this problem may have been present for eight or nine months and cost dairy farmers tens or even hundreds of millions of dollars. We expect USDA to do everything in its power to conduct this investigation quickly and are keenly interested in what you will propose to rectify the situation. Moreover, to provide added confidence in the results we recommend that the Inspector General be involved in this review and calculation of the impacts.

While the full facts of the extent and effect of the misreporting are not yet known, one fact we do know is that the USDA never promulgated regulations to provide for auditing, data verification or enforcement of the law passed more than 6 years ago. The law clearly directed the Secretary to "take such actions as the Secretary considers necessary to verify the accuracy of the information submitted or reported under this subtitle." Why were no regulations developed to enforce this provision? Did the USDA assume that these prices could not be reported erroneously or manipulated? Considering that the prices reported by the firms that produce dairy products have a direct relationship to the prices they pay for milk, we urge you to lose no more time in promulgating what should be relatively straight-forward regulations to discover errors or manipulation.

Despite the lack of a formal USDA system to verify the accuracy of this data, we understand that the misreported prices so far have only been connected to one plant out of 39 required to report prices. We also understand that this plant was visited by NASS employees in both April and October 2006, where USDA and the firm went over the prohibition against including forward contracted fixed-price NDM in the data they reported. We would like more details on these visits and the information that was presented. If written materials were provided on these visits, we also would like to examine them as well. Was it normal to visit the facilities more than once a year or was the second visit due to a suspected problem or complaint?

We would also like more details on when USDA first began hearing of and your reaction to reports that there may be a problem with the NDM price data. We understand that there had been concern expressed for some time about the difference between the market price for NDM and NASS' reported price. Did USDA receive any inquiries concerning the accuracy of NDM prices before the April 11th determination that there had been misreporting? What actions if any were taken to follow up on these inquiries? We understand that the Inspector General received a letter dated February 20, 2007, from a family farmer organization regarding their concerns. When did the Inspector General become aware of this issue and begin its investigation that we understand is currently underway?

Finally, we are concerned with USDA's seemingly delayed public announcement of this problem. At the staff briefing, USDA reported that the error was confirmed on April 11th and several weeks of NASS data were corrected on April 13th. But the explanation for this correction and release of information on the potential impact to dairy farmers did not occur until Friday April 20th at 3 PM. With millions of dollars at stake, hard-working dairy farmers throughout the country deserve to know the facts as soon as they were available. Why did it take so long?

We look forward to your response to these immediate issues and urge completion of auditing regulations and a report on the full extent of the damage this misreporting has had on America's dairy farmers as expeditiously as possible.

Sincerely,

Russ Feingold (D-WI)
Bob Casey Jr. (D-PA)
Herb Kohl (D-WI)
Hillary Rodham Clinton (D-NY)
Bernie Sanders (I-VT)
Joe Biden (D-DE)
Pat Leahy (D-VT)
Patty Murray (D-WA)
Arlen Specter (R-PA)
Chuck Schumer (D-NY)
Larry Craig (R-ID)