oversight

U.S. Agriculture: Grain Fungus Creates Financial Distress for North Dakota Barley Producers

Published by the Government Accountability Office on 1999-03-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Honorable
                 Byron L. Dorgan, U.S. Senate



March 1999
                 U.S. AGRICULTURE
                 Grain Fungus Creates
                 Financial Distress for
                 North Dakota Barley
                 Producers




GAO/RCED-99-59
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-281798

      March 22, 1999

      The Honorable Byron L. Dorgan
      United States Senate

      Dear Senator Dorgan:

      Barley has traditionally been a major source of farm income in North
      Dakota, second only to wheat in total acreage planted and crop income.
      However, since 1993, substantial portions of North Dakota’s barley crop
      have been damaged by a fungal disease—known as scab—that frequently
      produces a toxin called vomitoxin. The scab and vomitoxin epidemic has
      reduced the amount of barley produced and sold in North Dakota and the
      prices paid for barley. Specifically, scab causes barley kernels to become
      discolored and shriveled, reduces crop yield, depresses grain weight, and
      ultimately forces farmers to sell fewer bushels of barley at reduced prices.
      Furthermore, barley (in the form of barley malt) is a key ingredient in
      beer, and vomitoxin in barley can cause beer to produce too much foam,
      either during the fermentation process, thereby reducing the amount of
      beer produced, or when beer cans or bottles are opened, thus creating a
      less desirable product. In response, the malting and brewing industries
      will pay only a discounted price for barley that tests positive for
      vomitoxin; conversely, the industries offer top, or premium, prices for
      barley that is vomitoxin-free. Barley that is not of malting quality is sold
      primarily for animal feed and commands a much lower price. Discounted
      prices for vomitoxin-contaminated barley cover a narrow range of
      concentrations, beginning at 0.6 parts per million (ppm)—the approximate
      level at which field tests can begin quantifying the amount of
      vomitoxin—to about 3 ppm.1 Beyond 3 ppm, barley is usually sold as
      animal feed.

      Concerned about the effect of these losses on North Dakota barley
      farmers, you asked us to (1) determine the financial impact from scab and
      vomitoxin on these farmers,2 (2) assess the performance of vomitoxin test
      methods, and (3) identify short- and long-term actions that could help
      reduce the impact of scab and vomitoxin on North Dakota barley farmers.


      1
       To put these concentrations in context, 1 ppm is approximately equivalent to 1 kernel of
      contaminated barley in almost two bushels of barley.
      2
       To estimate losses because of scab and vomitoxin, we first estimated what barley revenues would
      have been for 1993 through 1997 had there been no scab and vomitoxin outbreak. We then compared
      our estimate of barley revenues with actual barley revenues for these years to determine losses. In
      estimating losses, we controlled for other variables, such as weather, that can affect barley production.



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                   North Dakota barley farmers have experienced extensive revenue losses
Results in Brief   from scab and vomitoxin damage. From 1993 through 1997, these farmers
                   suffered estimated cumulative losses of about $200 million from scab and
                   vomitoxin—equal to about 17 percent of the $1.2 billion in total barley
                   revenues they received during this period.3 While most of the revenue
                   losses resulted from decreases in barley production, losses also resulted
                   from severe price discounts. Maltsters and brewers, the traditional buyers
                   of North Dakota’s malting barley, have reacted to the scab and vomitoxin
                   damage by purchasing less barley from North Dakota farmers and more
                   from Canadian and other western U.S. sources.

                   Three tests are generally used to measure vomitoxin concentrations in
                   barley produced in North Dakota. One is a field kit, called Veratox, which
                   is commonly used by grain elevators and commercial testing facilities and
                   is the test that most directly affects the prices farmers receive for their
                   barley. The Veratox test can produce results that vary at concentrations
                   critical to pricing decisions. Testing experts attribute variations in test
                   results to several sources, including the skill of the technician conducting
                   the test. They stress the importance of quality assurance measures and
                   training to help reduce this variation. The other two tests—high pressure
                   liquid chromatography and gas chromatography—are reference methods
                   that are used primarily in research laboratories for such purposes as
                   checking the performance of the Veratox kit. According to analytical
                   chemists and other testing experts, these tests provide accurate and
                   consistent test results. However, because of the complexity and the cost of
                   the equipment for these two tests, they are not practical for use at
                   commercial testing facilities and other locations that serve barley farmers.

                   Short-term actions, such as rotating crops and spraying with fungicides,
                   may help reduce scab and vomitoxin’s impact under conditions of light
                   infestation. However, according to North Dakota agriculture experts, the
                   benefits of these actions are negligible during periods of moderate to
                   severe infestation. From 1993 through 1997, several counties in the Red
                   River Valley of North Dakota experienced moderate or severe scab and
                   vomitoxin infestation. Furthermore, many of these actions have tradeoffs,
                   such as causing environmental problems (like soil erosion), that barley
                   farmers must take into account. The longer-term action of developing
                   more scab-resistant barley may also help reduce the disease’s impact
                   under conditions of light infestation. But many scientists say that more
                   resistant barley may not be commercially available for at least 6 years.

                   3
                    All measures of farm revenues and losses are stated in 1997 constant dollars. Crop insurance
                   payments for scab and vomitoxin-damaged barley covered only a very small portion (less than
                   2 percent) of cumulative revenue losses from the epidemic.



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             They also emphasize that developing a variety that is 100-percent resistant
             to scab is unlikely anytime soon.


             Vomitoxin, a toxin associated with a fungal disease called scab, only
Background   occurs when scab is present. Since 1993, scab and vomitoxin have affected
             wheat and barley crops in the Northern Great Plains, which includes North
             Dakota; Minnesota; South Dakota; and Manitoba, Canada. Crops in the
             Red River Valley region (the eastern part of North Dakota, the western
             part of Minnesota, and a corner of northeast South Dakota) have been the
             most severely affected. The mold that produces vomitoxin grows primarily
             on grains, particularly on wheat and barley, and can cause vomiting in
             farm animals that ingest vomitoxin-contaminated feed grains. The Food
             and Drug Administration (FDA), which is responsible for ensuring food
             safety in certain foods—including grains—has not issued any guidance on
             vomitoxin in barley or barley products. However, it has issued advisory
             levels4 for vomitoxin in wheat and wheat products and feed grains for
             animals.

             The scab and vomitoxin epidemic has added to the financial stress of
             farmers in North Dakota and the rest of the Northern Great Plains. North
             Dakota suffered a drought in 1988 and floods in 1993 and 1997. The U.S.
             Department of Agriculture’s (USDA) Farm Service Agency (FSA) estimates
             that in the barley-producing regions of North Dakota most affected by
             scab and vomitoxin, 768 (or about 14 percent) of the farmers stopped
             farming between 1996 and 1998. Although this figure includes farms that
             failed because of flood, drought, and other reasons, FSA officials stated that
             scab and vomitoxin were the primary reasons for leaving farming.

             Barley is economically important to North Dakota agriculture.
             Traditionally, it is second only to wheat in acreage planted and total crop
             income. For example, in 1992, the last year before the scab and vomitoxin
             epidemic, North Dakota’s farm income from all crops totaled $2.2 billion,
             of which $1.2 billion (about 54 percent) was from wheat and $237 million
             (about 11 percent) was from barley. Furthermore, for the last 50 years,
             North Dakota has been the leading barley producer in the United States; in
             1997, it accounted for 27 percent of the nation’s total barley production.5



             4
              Advisory levels are FDA’s initial guidance on the amount of toxin allowed in food before public health
             is threatened.
             5
              In 1997, other leading U.S. barley producers were Montana, Idaho, Washington State, and Minnesota.



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Most farmers sell their barley to grain dealers, who then resell it to
maltsters and brewers. To determine the price they will offer farmers for
their barley, including the need for discounts, grain dealers have the barley
tested for vomitoxin. Most testers of vomitoxin in North Dakota use a test
kit called Veratox because it is relatively quick, inexpensive, and practical
for commercial use. The high pressure liquid chromatography (HPLC) and
gas chromatography (GC) tests, which are used by researchers for
purposes such as advancing research on vomitoxin, are also used by
maltsters and USDA’s Grain Inspection, Packers and Stockyards
Administration (GIPSA) to check Veratox test results. These two reference
methods are generally not used by commercial testing facilities and grain
dealers because they are more costly, time-consuming, and complex to
operate.

GIPSA  is the USDA agency that oversees federal grain inspections and has
several key associated responsibilities. It authorizes certain commercial
testing facilities to perform tests following its official procedures and
standards. It also approves various testing methods, such as the Veratox
kit, for use by these authorized facilities. Approved test methods, for
which GIPSA provides training, must meet the agency’s performance
criteria. GIPSA also monitors the consistency of test results across its
authorized facilities. For example, GIPSA conducts quarterly reviews of the
test results from its authorized testing facilities. For these reviews, GIPSA
uses the HPLC test method as a reference for, or check on, test results from
these facilities. GIPSA considers the scab and vomitoxin epidemic to be a
serious problem and has taken actions to address vomitoxin testing issues,
such as conducting a study in 1998 to assess the extent to which sampling
methods can affect vomitoxin test results.

However, GIPSA oversees only a portion of commercial grain testing
nationwide.6 Commercial testing facilities unaffiliated with GIPSA and large
grain elevators where in-house testing with the Veratox kit is cost-effective
also perform vomitoxin testing. The North Dakota Barley Council
estimates that 40 percent of commercial vomitoxin testing in North Dakota
occurs at GIPSA’s authorized facilities; the remaining 60 percent occurs at
either the unaffiliated testing facilities or large grain elevators. GIPSA has no
oversight responsibility for vomitoxin tests performed by these other
entities. Currently, GIPSA has four authorized agents in North Dakota that
operate six commercial testing facilities. In addition, North Dakota has


6
 Only exports of U.S. grains are required to have a GIPSA grain inspection. However, unless requested,
these inspections do not include vomitoxin testing. In addition, domestic grain elevators can request
GIPSA to inspect grain, including testing for vomitoxin.



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                          about nine commercial testing facilities that are not affiliated with GIPSA
                          and between 12 and 20 grain elevators that test for vomitoxin.


                          From 1993 through 1997, we estimate that North Dakota barley farmers
North Dakota Barley       suffered cumulative revenue losses from scab and vomitoxin of about
Farmers Have              $200 million (in 1997 dollars)7 —equal to almost 17 percent of the
Experienced Large         $1.2 billion in total barley revenues farmers received during this period.8
                          The losses from these diseases varied significantly, both over the years
Revenue, Yield, and       and across the regions of the state, with the Red River Valley suffering the
Acreage Losses            greatest losses. However, crop insurance payments for scab- and
                          vomitoxin-damaged barley covered only a very small portion, less than
Because of Scab and       2 percent, of these cumulative losses. U.S. maltsters and brewers, the
Vomitoxin                 traditional buyers of North Dakota’s malting barley, have reacted to scab
                          and vomitoxin by expanding their imports of malting barley from Canada
                          by about 380 percent.


Large Revenue Losses      From 1993 through 1997, we estimate that North Dakota farmers lost
Resulting From Scab and   about $200 million (in 1997 dollars) in revenues as a result of declines in
Vomitoxin Are Caused by   both production and price discounts. These losses were equal to almost 17
                          percent of the $1.2 billion in total revenues barley farmers received during
Production Declines and   these years. About 70 percent of these losses, or $139 million, were from
Price Discounts           reduced barley yields (in bushels per acre) and from farmers’ leaving more
                          barley unharvested. For example, between 1992 and 1997, average North
                          Dakota barley yields dropped from a pre-disease level of 65 bushels an
                          acre to 45 bushels an acre. Also, as shown in figure 1, from 1993 through
                          1997 (the years of the epidemic), the number of acres planted with barley
                          fell from 2.9 million to 2.4 million and the number of harvested acres of
                          barley fell from 2.4 million to 2.25 million.9 Differences between the
                          amount of acres planted and actually harvested were the largest in 1993
                          and 1996. For instance, in 1993, North Dakota farmers harvested about
                          500,000 fewer barley acres than they had planted.




                          7
                           Technically, using a range of assumptions, we estimated losses of $177 million to $224 million. For the
                          purpose of this report, we are stating this as approximately $200 million in revenue losses.
                          8
                           See app. I for a detailed description of our data sources, methodology, and the results of our analysis.
                          9
                           In 1996, the amount of barley planted and harvested temporarily increased. Planted acres increased
                          because of farmers’ response to record high barley prices in 1995; harvested acres increased because
                          of favorable weather conditions that were less conducive to the development of scab and vomitoxin.



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Figure 1: North Dakota Barley
Acreage—Gap Between Planted Acres
                                     Acres (000)
and Harvested Acres, 1992-97
                                     3,000




                                     2,800




                                     2,600




                                     2,400




                                     2,200
                                               92            93              94          95        96           97
                                                                                  Year
                                                    Planted acres
                                                    Harvested acres



                                    Source: GAO’s analysis of USDA’s data.




                                    Price discounts for barley contaminated with vomitoxin also played a key
                                    role in reducing farmers’ revenues. From 1993 through 1997, price
                                    discounts because of vomitoxin accounted for about 30 percent, or
                                    $61 million, of total revenue losses. The relationship between vomitoxin
                                    and price discounts is complex. Discounting in the marketplace stems
                                    from the U.S. brewing industry’s desire to use little or no
                                    vomitoxin-contaminated barley. In general, U.S. brewers send price signals
                                    that reflect their specific quality and quantity requirements to
                                    merchandisers and maltsters. These price signals are subsequently



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incorporated into price discount schedules that reflect buyers’ reluctance
to purchase barley with vomitoxin unless they receive a highly discounted
price. Grain elevators use these schedules, in conjunction with other
quality premium or discount factors,10 to determine an overall price quote
to farmers. Price discount schedules for barley vomitoxin can change over
time, sometimes on a daily basis, depending on market conditions. Price
signals for malting barley come largely from the four large firms that
dominate the U.S. brewing industry. One of these firms represents nearly
half of the market.11 A limited number of buyers in a given industry, such
as the brewing industry, can influence the market price for a given
commodity.

According to industry experts, although vomitoxin can cause excessive
foaming during the malting process and in finished beer products, brewers
require discounts for malting barley primarily because they are concerned
about the potential for a negative public perception of beer containing
vomitoxin. The industry is concerned that consumers will switch brands
or purchase other alcoholic beverages if it is reported that beer contains
vomitoxin. As a result, brewers are willing to pay top prices for
vomitoxin-free barley, but only highly discounted prices for barley
contaminated with vomitoxin.

Table 1 shows an example of a price schedule for barley, incorporating
discounts for different levels of vomitoxin. Although discounting strategies
vary, grain dealers generally begin discounting the price of vomitoxin-
contaminated barley at 0.6 ppm. This first discount, usually the largest of
several, ranges from about 40 cents to 60 cents a bushel. As shown in table
1, this first discount would result in a price of about $2 per bushel. Grain
dealers apply subsequent discounts of about 5 cents to 15 cents for
concentrations of vomitoxin that range from 1.1 ppm to 3.0 ppm. At
vomitoxin concentrations above 3.0 ppm, dealers generally purchase
barley as feed grain, which receives the lowest price, about $1.75 per
bushel. The American Malting Barley Council reported that for 1997 only
9 percent of all midwestern malting barley had a vomitoxin level that fell
into the premium price category of 0.5 ppm or less.




10
  Other quality factors that can affect malting barley premiums and discounts include moisture, color,
test weight, protein, foreign material, and damage.
11
 These top four firms are Anheuser-Busch, Inc., the Miller Brewing Company, the Coors Brewing
Company, and the Stroh Brewery Company. In 1998, these firms constituted 45 percent, 22 percent,
10 percent, and 9 percent, respectively, of the U.S. beer market.


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Table 1: Example of a Price Schedule
for Barley, Discounted for Different   Concentration of vomitoxin                         Price per bushel
Concentrations of Vomitoxin            0-0.5 ppm                                          $2.55 (premium malting barley price— no
                                                                                          discount )
                                       0.6-1.0 ppm                                        $2.00
                                       1.1-2.0 ppm                                        $1.85
                                       2.1-3.0 ppm                                        $1.80
                                       3.1-3.5 ppm                                        $1.75 (feed grain price)
                                       Source: GAO’s analysis of May 1998 barley price schedules from two grain dealers in Bottineau
                                       County, North Dakota.



                                       Along with steep price discounts, vomitoxin has had the effect of shifting
                                       the amount of malting versus feed grain barley produced in North Dakota.
                                       In the years before the scab and vomitoxin epidemic, the largest part of
                                       the state’s barley production, and hence barley revenues, came from
                                       premium-priced malting barley—60 to 70 percent of all North Dakota
                                       barley sales. However, since the scab and vomitoxin epidemic, this trend
                                       has changed. Specifically, in several years during 1993 through 1997, many
                                       regions of North Dakota sold over 50 percent of the barley produced to the
                                       lower-valued feed grain market.12


Revenue Losses Because                 While scab and vomitoxin have reduced North Dakota barley farmers’
of Scab and Vomitoxin                  revenues, the amount of loss has varied by region and year. As seen in
Varied by Location and                 table 2, the most severely affected area in North Dakota in terms of total
                                       revenue losses has been in the upper Red River Valley—the East Central
Year                                   and Northeast regions of the state—while the Southeast region has been
                                       least affected. Barley farmers suffered their greatest losses overall from
                                       vomitoxin in 1993 and in 1997, with losses of $62 million and $68 million,
                                       respectively. However, as the table shows, some regions—because they
                                       were less affected by vomitoxin and thus had more premium quality
                                       malting barley to sell—had a small increase in revenues in certain years.




                                       12
                                        Other than its use in beer production, barley produced for human consumption represents a very
                                       small part, less than 5 percent, of North Dakota barley production.



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Table 2: Changes in North Dakota
Barley Farmers’ Revenues as a Result   Dollar in millions
of Scab and Vomitoxin, by Region,                               Changes in barley revenues by crop reporting districts
1993-97
                                                          North                                        East
                                       Year              Central       Northeast        Central      Central Southeast Total by year
                                       1993                  ($11)            ($21)          ($8)        ($16)          ($6)               ($62)
                                       1994                    $4             ($14)          ($1)        ($13)          ($1)               ($26)
                                       1995                    $3             ($10)          ($2)        ($10)          ($1)               ($20)
                                       1996                   ($3)            ($21)           $1           ($3)          $1                ($25)
                                       1997                  ($12)            ($36)          ($7)        ($11)          ($2)               ($68)
                                       Total by
                                       region                ($19)          ($102)         ($17)         ($53)         ($10)          ($201)
                                       Note: Dollars are stated in 1997 constant dollars. Losses are in parenthesis and represent
                                       revenue declines from barley contaminated by scab and vomitoxin. For example, farmers in the
                                       North Central District received $11 million less for their barley in 1993 because of this
                                       contamination. Losses were determined by comparing actual barley revenues with predicted
                                       revenues in the absence of vomitoxin for each year. Predicted revenues were developed using
                                       historical data from the pre-vomitoxin years of 1959 through 1992. (See app. I for details on our
                                       methodology.)

                                       Source: GAO’s analysis of data from various organizations.




Imports of Malting Barley              Because the scab and vomitoxin outbreak has reduced the supply of high-
From Canada Increased as               quality malting barley in the Northern Great Plains, the traditional
a Result of Scab and                   purchasers of North Dakota malting barley—U.S. brewers and
                                       maltsters—have increasingly turned to Canadian and other U.S. sources.
Vomitoxin                              Figure 2 illustrates the increase in Canadian barley production and the
                                       increase in exports of malting barley to the United States. During the years
                                       of the scab and vomitoxin epidemic, average annual Canadian exports of
                                       malting barley to the United States increased by about 380 percent.13 From
                                       1993 through 1997, average annual barley exports from Canada reached
                                       705,000 metric tons, compared to 147,125 metric tons from the
                                       pre-epidemic years of 1985 through 1992. In addition, to meet the
                                       increased U.S. demand for premium quality malting barley, Canadian
                                       production of malting barley grew from 1 million metric tons in 1993 to
                                       2.2 million metric tons in 1997. Agriculture Canada14 reported in 1997 that
                                       the United States has been Canada’s largest market for malting barley over
                                       the past 4 years because of the shortage of quality U.S. malting barley.
                                       And, in 1997, malting barley imports from Canada represented over

                                       13
                                        While we did not consider them central to discussing Canadian barley imports, we recognize that
                                       other factors influence these imports, such as exchange rates and the North American Free Trade
                                       Agreement.
                                       14
                                         Agriculture Canada is the Canadian government’s department of agriculture.



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                                          25 percent of all malting barley consumed by the U.S. brewing industry. In
                                          comparison, from 1988 through 1992, malting barley imports from Canada
                                          represented about 5 percent of all malting barley consumed by the
                                          industry.



Figure 2: Canadian Malting Barley Production and Exports to the United States, 1985-97


 Canadian malting barley production                             Canadian malting barley exports to the United States
 tons (000)                                                     tons (000)
 3,000                                                          1,000



 2,500
                                                                  800


 2,000
                                                                  600

 1,500

                                                                  400
 1,000


                                                                  200
   500



     0                                                               0
         85 86 87 88 89 90 91 92 93 94 95 96 97                          85 86 87 88 89 90 91 92 93 94 95 96 97
                        Crop year                                                       Crop year

                                          Note: Canadian production of malting barley is estimated by Agriculture Canada as including that
                                          country’s domestic barley consumption and its exports of barley and barley malt.

                                          Source: GAO’s analysis of Agriculture Canada’s data.




                                          Although scab and vomitoxin have decreased North Dakota barley
                                          farmers’ revenues, Canadian imports have somewhat moderated the
                                          blight’s impact on U.S. brewers and maltsters. Shortages of malting barley
                                          in the United States as a result of these diseases would normally tend to




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                            increase U.S. malting premiums and prices, but these increases have been
                            tempered by the large imports of Canadian malting barley. That is, even
                            with a smaller domestic supply of malting quality barley, larger Canadian
                            imports produce competitive pressures to keep prices below the levels
                            they would be if imports were not part of the U.S. malting barley market.


                            According to testing experts,15 while the Veratox test kit serves the
Veratox Test Results        market’s need for a relatively fast and cost-effective method for measuring
Have Increased              vomitoxin in barley, it can produce test results that vary, particularly at
Variabilty at Levels        concentrations critical to pricing decisions. Testing experts state that this
                            variability can be reduced to some extent through quality assurance
Critical to Pricing         measures and training. Testing experts believe the HPLC and GC tests
Decisions                   produce more accurate and consistent results, in part because they are
                            conducted under controlled laboratory conditions. However, because of
                            their complexity and cost, these tests are not practical for commercial use.


Barley Prices Are Set at    Testing experts state that all tests for vomitoxin, including Veratox,
Levels Where Veratox Test   experience variability in test results, particularly at the upper and lower
Results Vary the Most       limits of the test’s ability to measure vomitoxin. This variability at the
                            Veratox kit’s lower limits of measuring vomitoxin can affect whether
                            barley farmers receive a price discount. According to the manufacturer of
                            the Veratox kit, the kit’s lower limit of measurement is 0.5 ppm. At this
                            concentration, Veratox test results can range from 0 ppm (where barley
                            receives no discount) to 1.1 ppm (where barley would incur a substantial
                            price discount). The market, therefore, is making crucial pricing decisions
                            at concentration levels where the Veratox kit has substantial variability.

                            Our analysis of selected test data results supports expert opinion
                            regarding Veratox’s variability. To conduct this analysis, we compared
                            1,068 Veratox test results between (1) Neogen (the manufacturer of
                            Veratox) and a North Dakota commercial grain testing facility and
                            (2) these two facilities and GIPSA’s in-house HPLC reference method.16 We
                            found that Veratox test results on the same samples of barley varied

                            15
                              Testing experts we interviewed included officials from the Association of Official Analytical
                            Chemists. See the scope and methodology section of this report for a listing of the organizations of the
                            testing experts that we contacted.
                            16
                              The test data were drawn from GIPSA’s 1998 Sampling Variability Study. The purpose of the study
                            was to determine how sample size affects variability in vomitoxin test results, but was not intended to
                            represent all vomitoxin sampling efforts across North Dakota. Similarly, our analysis is not intended to
                            represent all vomitoxin testing that occurs in North Dakota, but rather to address testing results from
                            the two study participants that use the Veratox kit—the manufacturer and a North Dakota commercial
                            grain testing facility. See app. II for a technical discussion of our analysis.



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between Neogen and the commercial grain testing facility. Specifically,
assuming that the HPLC test results represent the true concentration of
vomitoxin, we found that at concentrations between 0.7 and 4 ppm,
Neogen’s estimate of vomitoxin levels was, on average, higher than the
testing facility’s. Consequently, farmers could have received different
prices from each testing location, had the test results been the basis for a
commercial sale. For example, we found instances in which, at a HPLC
vomitoxin concentration of 1 ppm, the manufacturer’s test results
measured 1.1 ppm vomitoxin or greater, while the testing facility’s
measured 0.4 ppm. Had these results been the basis for a sale, a producer
would have received $1.85 per bushel or less from the manufacturer but
$2.55 per bushel from the testing facility. (See table 1 for an example of a
price schedule for barley.)

Testing experts said that test methods have two types of
variability—inherent and systemic. Inherent variability exists in all
vomitoxin test methods and increases at the higher and lower limits of a
given test method’s ability to measure vomitoxin levels. Experts state that
this variability cannot be controlled, which is why it is called inherent. The
inherent variability of the Veratox test may affect barley buyers and
farmers differently. According to GIPSA officials, grain elevators, which
purchase barley from farmers and sell it to maltsters and brewers, may be
less affected because they handle larger volumes of barley, with a
correspondingly greater number of test results. Thus, the prices based on
test results that were too high or too low—because of the inherent
variability associated with the test kit—could counterbalance each other.
As a result, grain elevators may be less affected by variable test results
than barley farmers, who receive prices based on fewer test results.
Because farmers may be more affected, some testing experts believe that
if price discounts were started at 1 ppm, rather than at 0.5 ppm (the lower
testing limit of the kit), farmers could receive more equitable test results.
Some cereal scientists told us that no appreciable increases in beer
production problems occur when brewing with barley having vomitoxin
concentrations of 1 ppm versus 0.5 ppm. However, U.S. brewers and
maltsters we talked to had varying opinions on whether beer production
problems would increase at concentrations of 1 ppm.

Systemic variability, which refers to differences in how testers obtain and
process grain samples and conduct tests, can also affect test results—for
Veratox as well as for other testing methods. For example, a Veratox test
involves many actions—selecting and processing the grain sample,
extracting the vomitoxin from the grain, and measuring the vomitoxin.



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Furthermore, the test equipment must be maintained and cleaned in order
to achieve optimal results. Experts said that, because the potential exists
for mistakes at each stage of the process, the accuracy of the kit’s results
is affected by the skill of the technician using it.

For all testing methods, a number of actions—including training and
quality assurance17 efforts—can be used to reduce systemic variability.
First, test results from grain samples known to have vomitoxin can be
compared across various testing facilities. This method, often referred to
as a “check-sample program,” helps ensure that testing facilities will
achieve consistent test results. GIPSA’s offices and its authorized testing
facilities use this approach. Specifically, GIPSA sends samples of barley or
wheat with known concentrations of vomitoxin to its authorized facilities
for testing. GIPSA then compares the test results to determine if all the
facilities are measuring about the same amount of vomitoxin. GIPSA
officials believe that their check-sample program helps keep vomitoxin
test results consistent among its testing facilities.

Second, testing experts stress the importance of using “quality assurance
(QA) pools” to reduce systemic variability. QA pools consist of samples of
naturally contaminated barley that a testing facility has tested many times
in order to identify the true amount of vomitoxin in the sample. Testing
facilities that practice quality assurance using QA pools will run tests on a
pool in conjunction with daily vomitoxin tests. If a test on the QA pool
detects an amount of vomitoxin that differs significantly from the known
amount of vomitoxin in the pool, technicians are alerted that the tests on
other samples also may be incorrect.

Finally, testing experts said that the training of the technicians who
conduct the tests is critical for obtaining optimal test results. GIPSA, for
instance, provides Veratox training to all personnel who work at
GIPSA-authorized testing facilities in North Dakota.18 However, GIPSA does
not oversee the training given to other commercial grain testing facilities.
Neogen, the Veratox kit’s manufacturer, also provides training to new
customers.19

17
  Quality assurance efforts are defined as any policy, procedure, or program whose purpose is to
identify and address errors and inconsistencies in test results.
18
 GIPSA facilitates 1 day of training with the Veratox kit in coordination with the manufacturer—4
hours of lecture on the nature of mycotoxins and how the kit works and 4 hours of demonstration and
practice led by a Neogen representative.
19
 Neogen’s training consists of hands-on practice with the test kit. A Neogen official said that training
normally lasts from 4 to 8 hours, but Neogen trainers will work with customers as long as necessary to
ensure that they can use the kit.



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                            B-281798




Reference Methods           According to testing experts, the HPLC and GC testing methods are widely
Produce Accurate Results,   accepted among analytical chemists for providing accurate and consistent
but Are Not Practical for   results. For example, the Association of Official Analytical Chemists20 has
                            approved a GC method and reviewed an HPLC method; and the American
Commercial Use              Society of Brewing Chemists21 has approved a GC method for industry use.
                            In addition, the HPLC and GC methods are sometimes used to assess the
                            performance of commercial test kits, including Veratox, because these
                            chromatographic methods, according to testing experts, have less
                            variability in their test results. For instance, GIPSA evaluates the
                            performance of any new commercial test kit against its HPLC reference
                            method before permitting its use by GIPSA employees and GIPSA-authorized
                            testing facilities. Furthermore, GIPSA uses the HPLC method in its
                            check-sample program.

                            While these reference methods have less variability than Veratox, they are
                            not practical for use at commercial testing facilities and grain elevators for
                            several reasons, according to experts we spoke with. First, the procedures
                            for preparing and testing the vomitoxin samples for these methods take
                            several hours to complete. However, during the barley harvest, farmers
                            typically deliver their barley to grain elevators by trucks that must unload
                            and return to the fields for other loads. Because of the need for quick
                            turnaround, the farmers, elevators, and truck drivers cannot wait several
                            hours for a vomitoxin test to be conducted. In comparison, the Veratox
                            test takes about 30 minutes to conduct. Second, the HPLC and GC methods
                            require thousands of dollars in equipment investments. For example, HPLC
                            and GC test equipment cost between $40,000 to $60,000 to purchase, while
                            the Veratox test equipment costs about $3,200.




                            20
                              The Association of Official Analytical Chemists (International) is an independent association devoted
                            to promoting methods validation and quality of measurements in the analytical sciences through,
                            among other things, studying, validating, and approving methods of analysis.
                            21
                             The American Society of Brewing Chemists was founded to improve and bring uniformity to the
                            brewing industry on a technical level by resolving technical problems on an industrywide basis,
                            keeping current on the technical needs of the brewing industry, and anticipating the industry’s future
                            concerns.



                            Page 14                                                              GAO/RCED-99-59 Grain Fungus
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                         In barley, scab, and the vomitoxin resulting from scab, can be reduced
Under Conditions of      somewhat through the use of fungicides and certain farming practices,
Light Infestation,       such as crop rotation and deeper tillage of the soil.22 However, costs and
Short- and               other factors limit the usefulness of these actions, and their impact is
                         minimal when the infestation is severe.23 In addition, varieties of barley
Longer-Term Actions      that are more resistant to scab and vomitoxin will not be commercially
May Reduce the           available for at least 6 years. According to cereal scientists, improved
                         barley varieties combined with short-term actions may eventually help
Impact of Scab and       some farmers to better manage scab and vomitoxin infestations, thereby
Vomitoxin                reducing farmers’ financial losses. However, it is unlikely that vomitoxin
                         will be completely eliminated in the foreseeable future.


Short-Term Actions May   According to North Dakota extension agents24 and cereal scientists, a
Be Helpful, but Have     number of short-term actions can help farmers reduce scab, and thus
Limitations              vomitoxin concentrations, in barley. First, crop rotation—changing the
                         type of crop planted each growing season—enriches the nutrients in the
                         soil and decreases the incidence of crop disease. Although most farmers
                         rotate crops routinely, the inclusion of more broadleaf crops in a rotation
                         is likely to help decrease the levels of scab in the soil. Broadleaf crops,
                         such as sunflowers, canola, and sugarbeets, are not as susceptible to scab
                         as cereal grains, such as barley and wheat. However, even if rotation
                         initially helps reduce scab levels, infestation could occur from airborne
                         spores from other locations. Furthermore, other problems could
                         discourage the use of crop rotations: (1) some broadleaf crops (such as
                         sugarbeets) require costly equipment and costly contractual agreements
                         and (2) many broadleaf crops cannot be grown in certain parts of North
                         Dakota, thereby limiting the number of crops that can be included in
                         rotations. For example, some farmers in north central North Dakota
                         cannot easily grow beans because the climate is generally too cold and the
                         growing season is too short. As a result, these farmers have shorter
                         rotation cycles and are forced to more quickly return to crops (such as
                         barley and wheat) that are highly susceptible to scab.


                         22
                          As mentioned previously, vomitoxin is caused by the scab disease. Thus, all efforts to reduce
                         vomitoxin must begin with reducing the occurrence of scab.
                         23
                           Although a formal definition does not exist, one North Dakota extension agent described a year of
                         light infestation as one in which 5 to 10 percent of the barley crop acres in one county are
                         contaminated with scab and vomitoxin; a year of moderate infestation as one in which about
                         50 percent of the barley acres in one county are contaminated; and a year of severe infestation as one
                         in which 75 percent or more of the barley acres in one county are contaminated.
                         24
                          University-based extension specialists interact with scientists and relay scientific and other
                         knowledge to farmers and other research customers.



                         Page 15                                                               GAO/RCED-99-59 Grain Fungus
B-281798




Second, deep tilling to completely overturn the soil—which does not occur
with conventional tilling—could reduce scab levels. Since scab stays
through the winter in infected crop stubble, tilling deeper into the soil
buries any infected residue and can help prevent scab from spreading to
the next year’s crop. However, deep-till practices result in less moisture in
the soil, causing farmland to become more prone to wind and water
erosion, and are therefore not practical for farmers in the drier portions of
North Dakota (such as the western portion of the state). Deep tilling also
requires farmers to purchase more expensive tilling equipment.
Furthermore, as with crop rotation, infestation can occur from airborne
spores if even one scab-infected farm in an area does not use deep tilling.
Thus, for optimal effectiveness, deep tilling has to be conducted across
many farms.

Third, applying fungicides can help reduce vomitoxin. However, fungicides
are not always reliable because of weather conditions and the difficulties
associated with applying them. North Dakota farmers primarily use two
types of fungicides, protectant and systemic. Protectant fungicides (which
cover the plant externally) have been used for a number of years and are
easily washed off by rain and degraded by sunlight. Systemic fungicides,
which are newer, get absorbed into the barley plant within 4 to 8 hours of
application and are not affected by sunlight or water. However, the timing
of the application of both systemic and protectant fungicides is critical.
They must be applied immediately after the barley flower blossoms
because a new flower can become infected with airborne scab spores
within 3 to 4 days. Once the barley flower is infected with the scab fungus,
the fungus has the potential to produce vomitoxin. In addition, a farmer
can expect to spend between about $90,000 and $138,000 to spray a
3,000-acre barley crop with a fungicide.25 Thus, in deciding whether to use
fungicides, farmers must compare the costs they will incur in applying
them with the higher price they could receive if their barley is less
contaminated with vomitoxin.

North Dakota extension agents told us that using the deep-till and rotation
farming practices with fungicides increases the overall effectiveness of
these short-term actions in reducing scab and lowering vomitoxin levels.
However, they also noted that if airborne scab spores are widespread and
weather conditions are favorable to fungal growth, barley crops would still
become contaminated. Thus, they believe that these short-term actions
will be effective only in years of light infestation.

25
  The range of costs for fungicides is due primarily to whether a crop is sprayed from the ground or
from the air. If a farmer chooses to spray a field from the ground, a large capital investment in
equipment is required.



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                            B-281798




More Resistant Barley       North Dakota State University, the University of Minnesota, South Dakota
Varieties Are Expected to   State University, and Busch Agricultural Resource, Inc.,26 began a
Be Commercially Available   cooperative breeding effort to develop more scab-resistant barley in 1994.
                            The four institutions exchange and test potential new varieties of barley.
in Several Years            They also share information about new barley varieties that show
                            resistance to scab and vomitoxin.

                            In March 1997, a U.S. Wheat and Barley Scab Initiative was formed by
                            scientists, members of the wheat and barley industries, commodity groups,
                            and others to call national attention to the scab problem and to set
                            national priorities for scab research. In fiscal year 1998, the Congress
                            appropriated $500,000 to USDA to fund the scab research plan established
                            by the leaders of the initiative; in fiscal year 1999, an additional $3 million
                            was appropriated for the effort. Several of the research areas focus on
                            developing more resistant varieties and assessing the effectiveness of
                            fungicides in combating scab. Although USDA’s Agricultural Research
                            Service (ARS) is funding the initiative, scientists at state land grant
                            universities, including North Dakota State University, will perform most of
                            the research.

                            According to barley breeders and farming experts, because of many
                            scientific and commercial requirements, it takes about 8 to 10 years to
                            breed, test, and release a new variety of barley. The breeding process
                            includes several steps. First, a breeder must identify the genetic
                            characteristics that could make the barley more resistant to vomitoxin.
                            Second, these characteristics need to be combined and strengthened
                            through successive new generations of barley varieties. Third, new
                            varieties must be tested under multiple environmental conditions to
                            ensure that they are truly resistant. During the breeding process, new
                            varieties may sometimes appear to be resistant to scab when, in fact, they
                            are not. For example, if a greenhouse containing a new variety being
                            tested for resistance is kept cool and limited moisture is allowed to
                            accumulate on the barley, little scab will grow. This may lead the breeder
                            to believe that the variety is scab-resistant, while, in fact, the greenhouse
                            environment suppressed scab growth.

                            Fourth, after a breeder is confident that new varieties are truly resistant,
                            they must be tested and screened for necessary malting and brewing
                            qualities. For example, a new variety of barley must be uniform in size and
                            have plump kernels (necessary for successful beer brewing) or maltsters

                            26
                             Busch Agricultural Resource, Inc., is an agricultural research and operations subsidiary providing
                            brewing raw materials to Anheuser-Busch, Inc.



                            Page 17                                                             GAO/RCED-99-59 Grain Fungus
                  B-281798




                  and brewers will not be interested in buying it.27According to scientists,
                  while some more resistant barley varieties are currently undergoing
                  commercial trials by maltsters and brewers, none contain all of the
                  characteristics that the industry requires.

                  Lastly, new barley varieties must be tested for commercial viability. Any
                  new variety of barley that meets the malting and brewing industry’s
                  requirements would also have to be high-yielding in order for it to be
                  commercially attractive to farmers. Scientists estimate that a
                  commercially acceptable, more scab-resistant barley variety is at least 6
                  years away.

                  Breeders expect that, over time, new, more resistant barley, combined
                  with short-term actions may help farmers to better manage scab and
                  vomitoxin infestations and reduce their financial losses. However, these
                  experts state that a more resistant barley variety will not completely
                  eliminate the incidence of scab and vomitoxin, particularly during periods
                  of moderate or severe infestation.


                  We provided a draft of this report to USDA for its review and comment. We
Agency Comments   met with the Deputy Administrator, Grain Inspection, Packers and
                  Stockyards Administration, and with other officials from that organization
                  and USDA’s Agricultural Research Service. The officials generally agreed
                  with the information presented in the report and provided several
                  technical changes and clarifications. We have incorporated these changes
                  as appropriate.


                  You asked us to (1) determine the financial impact of scab and vomitoxin
Scope and         on North Dakota barley farmers, (2) assess the performance of vomitoxin
Methodology       test methods, and (3) identify short- and long-term actions that could help
                  reduce the impact of scab and vomitoxin on North Dakota barley farmers.

                  To address the first question, we collected and developed historical data
                  on North Dakota barley prices and production for 1959 through 1992—the
                  period before the scab and vomitoxin epidemic—and on key weather
                  factors affecting production for both that period and the blighted years.
                  We used these data to estimate (1) what barley prices and production
                  would have been in 1993 through 1997 in the absence of scab and


                  27
                   A University of Minnesota plant pathologist estimates that breeders must consider at least 30
                  different barley traits in order to develop barley that meets the brewing industry’s needs.



                  Page 18                                                             GAO/RCED-99-59 Grain Fungus
B-281798




vomitoxin and (2) what revenues would have been in the absence of scab
and vomitoxin. We then compared this estimate of revenues with actual
barley revenues to determine farmers’ losses by year and by crop reporting
district. We also developed information on how prices are transmitted
from the maltsters and brewers down to the farmers, and collected data on
Canadian production and exports of malting barley to the United States
during this time period.28 To conduct these tasks, we used data from the
North Dakota State University, GIPSA, the North Dakota Department of
Agriculture, USDA’s National Agricultural Statistics Service and its
Economic Research Service, the North Dakota Barley Council, and
Agriculture Canada. We also conducted interviews with officials from
these organizations and with North Dakota grain dealers. (See app. I for a
detailed description of our data sources, methodology and the results of
our analysis.)

To address the second question, we reviewed GIPSA, industry, and
academic studies on the test methods; interviewed testing experts; and
analyzed Veratox test data on vomitoxin from GIPSA’s 1998 Sampling
Variability Study. Using data from the study, we assessed the performance
of vomitoxin test results on the basis of the variability of test results
between testing facilities. Testing experts we spoke with included officials
at GIPSA, FDA, and major U.S. malting and brewing companies; academic
researchers; and representatives of the Association of Official Analytical
Chemists, the American Society of Brewing Chemists, the American
Malting Barley Association, the North Dakota Barley Council, and the
North Dakota Grain Dealers Association. (See app. II for a detailed
description of our methodology and the results of our analysis.)

To address the third question, we (1) obtained information on academic,
public, and private research on actions to reduce the impact of scab and
vomitoxin and on progress in developing more scab-resistant barley and
(2) interviewed scientists at North Dakota State University and the
University of Minnesota and officials at USDA’s Economic Research Service
and Agricultural Research Service.

Finally, we had a draft of this report reviewed for accuracy and objectivity
by several economists and agricultural experts from academia.




28
 To convert the revenue losses to 1997 constant dollars, we used the Department of Commerce’s
chain-type price index for gross domestic product.



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B-281798




We did not independently verify the data obtained from our sources. Our
work was conducted from April 1998 through February 1999 in
accordance with generally accepted government auditing standards.


As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will provide copies of this report to
Chairman Richard Lugar and Ranking Minority Member Tom Harkin of the
Senate Committee on Agriculture, Nutrition, and Forestry; Chairman Larry
Combest and Ranking Minority Member Charles Stenholm of the House
Committee on Agriculture; other interested congressional committees; and
the Honorable Dan Glickman, the Secretary of Agriculture. We will also
make copies available to others upon request.

If you or your staff have any questions about this report, please contact me
at (202) 512-5138. Major contributors to this report are listed in appendix
III.

Sincerely yours,




Robert E. Robertson
Associate Director, Food and
  Agriculture Issues




Page 20                                            GAO/RCED-99-59 Grain Fungus
Page 21   GAO/RCED-99-59 Grain Fungus
Contents



Letter                                                                                             1


Appendix I                                                                                        24
                         Estimating Revenue Losses in the Absence of Scab and                     24
Estimation of              Vomitoxin
Revenue Losses to        Data Used to Estimate Losses in Farm Revenues From Scab and              34
                           Vomitoxin
North Dakota Barley
Farmers as a Result of
Scab and Vomitoxin
Appendix II                                                                                       36
                         GIPSA’s 1998 Data From Its Sampling Variability Study                    36
Analysis of the          GAO’s Analysis                                                           37
Veratox Test Kit’s
Performace
Appendix III                                                                                      40
Major Contributors to
This Report
Related GAO Products                                                                              41


Tables                   Table 1: Example of a Price Schedule for Barley, Discounted for           8
                          Different Concentrations of Vomitoxin
                         Table 2: Changes in North Dakota Barley Farmers’ Revenues as a            9
                          Result of Scab and Vomitoxin, by Region, 1993-97
                         Table I.1: Barley Yield Equation Parameter Estimates by Crop             26
                          Reporting District
                         Table I.2: Fraction of Yield Shortfall Resulting from the Presence       27
                          of Scab and Vomitoxin by CRD, 1993-97
                         Table I.3: Malting Barley Premium Parameter Estimates by Crop            30
                          Reporting District
                         Table I.4: Feed Grain Barley Parameter Estimates by Crop                 31
                          Reporting District
                         Table I.5: Estimated Average Malting and Feed Grain Weights by           32
                          Crop Reporting District, 1959-92
                         Table I.6: Estimated Malting Barley and Feed Grain Barley                34
                          Weights, by Crop Reporting District, 1993-97




                         Page 22                                          GAO/RCED-99-59 Grain Fungus
          Contents




          Table II.1: Difference in Veratox Results at Two Testing Facilities       38
          Table II.2: Comparison of Average Veratox and HPLC Test                   39
           Results


Figures   Figure 1: North Dakota Barley Acreage—Gap Between Planted                  6
            Acres and Harvested Acres, 1992-97
          Figure 2: Canadian Malting Barley Production and Exports to the           10
            United States, 1985-97




          Abbreviations

          ARS        Agricultural Research Service
          CRD        Crop Reporting District
          ERS        Economic Research Service
          FDA        Food and Drug Administration
          FSA        Farm Service Agency
          GC         gas chromatography
          GIPSA      Grain Inspection, Packers and Stockyards Administration
          HPLC       high pressure liquid chromatography
          NASS       National Agricultural Statistics Service
          QA         Quality Assurance
          USDA       United States Department of Agriculture


          Page 23                                           GAO/RCED-99-59 Grain Fungus
Appendix I

Estimation of Revenue Losses to North
Dakota Barley Farmers as a Result of Scab
and Vomitoxin
                           This appendix explains the methods and data we used to estimate the
                           revenue losses for North Dakota barley as a result of the scab and
                           vomitoxin epidemic for 1993 through 1997.29 To develop this estimate, we
                           first estimated what barley revenues would have been in the absence of
                           the vomitoxin epidemic in North Dakota.30 This required estimating what
                           production levels and prices would have been in each district in each year.
                           In turn, estimating production levels required estimating both yields and
                           the ratios of harvested-to-planted acres in the absence of the disease. We
                           then compared estimated barley revenues without the disease to actual
                           barley revenues received, which we calculated from price and production
                           data, to obtain estimated losses. We then totaled all the crop reporting
                           districts and all the years to obtain an estimate of total losses during this
                           period.


                           To estimate losses resulting from scab and vomitoxin, we first estimated
Estimating Revenue         what barley revenues would have been during this time period if the
Losses in the Absence      epidemic had not occurred, but all other relevant factors (such as
of Scab and Vomitoxin      weather) had been unchanged. We estimated both production levels and
                           prices and multiplied them to obtain estimated revenues.


Estimating Production in   As a first step in estimating production, we used a regression analysis to
the Absence of Scab and    estimate barley yields from 1959 through 1992 (before the scab and
Vomitoxin                  vomitoxin epidemic) for region i in time period t as a function of weather
                           events and a time trend:

                           (1)



                           where

                           yit = harvested yield in region i in year t




                           29
                            The method used in this analysis is adapted from a report by D. Demcey Johnson, George K.
                           Flaskerud, Richard D. Taylor, and Vidyashankara Satyanarayana, “Economic Impacts of Fusarium
                           Head Blight in Wheat,” Agricultural Economics Report No. 396, June 1988, Department of Agricultural
                           Economics, North Dakota State University, Fargo, North Dakota.
                           30
                             North Dakota has nine major crop reporting districts (CRD). For this analysis, we focused on the five
                           regions where substantial scab and vomitoxin outbreaks have occurred—the North Central, Northeast,
                           Central, East Central, and Southeast CRDs of the state.



                           Page 24                                                             GAO/RCED-99-59 Grain Fungus
Appendix I
Estimation of Revenue Losses to North
Dakota Barley Farmers as a Result of Scab
and Vomitoxin




Pit = the difference between average total precipitation and total
precipitation during the growing season divided by the standard deviation
of total rainfall for region i and year t

Pit2 = the squared value of Pit , the precipitation deviation variable

Tit = the difference between historical average temperature during the
growing season and average temperature during the growing season
divided by the standard deviation of average temperature for region i, year
t

t = a time trend variable, t=1,...,34

In this regression, we transformed both average growing season
temperature and total rainfall to measures of deviations by subtracting
their historical average levels from their actual levels and dividing by their
standard deviations.31 As a result, these variables measure how close a
particular year’s average temperature or total rainfall is to its historical
average. For example, values greater than +1 are associated with hot
weather or wet months; values less than –1 are associated with dry or cool
months; and values between +1 and –1 are near the average. We used
these transformed weather variables in the regression rather than the
actual values because they were more significantly related to yield and
contained less multicollinearity. In addition, because there is an optimum
level of precipitation, beyond which yields may decrease, we included a
squared precipitation term in our equation. Other agricultural economists
analyzing yield have also used squared precipitation terms. Finally, we
inserted an annual time trend to represent yield changes because of
changes in such things as technology, input use, or farm size.

Table I.1 displays our estimates of the parameters of these regression
equations for each CRD analyzed. Except for Pit 2 in CRDs 3 and 5, all
independent variables were significant at the 0.05 level and above and
displayed the expected signs.




31
 Lloyd D. Teigen and Milton Thomas, Jr., Weather and Yield, 1950-1994: Relationships, Distributions,
and Data, Economic Research Service Staff Paper, Commercial Agriculture Division, Number 9527.



Page 25                                                            GAO/RCED-99-59 Grain Fungus
                                           Appendix I
                                           Estimation of Revenue Losses to North
                                           Dakota Barley Farmers as a Result of Scab
                                           and Vomitoxin




Table I.1: Barley Yield Equation Parameter Estimates by Crop Reporting District
                                                             Crop reporting district
                              CRD 2                       CRD 3                         CRD 5                      CRD 6                 CRD 9
                       North Centrala                  Northeast                       Central               East Central             Southeast
Intercept                       25.87b                      24.43b                       21.28b                       27.20b              26.43b
                                (9.06)                      (8.48)                       (7.73)                      (10.01)              (9.66)
Precipitation                    4.10b                      3.26b                          5.37b                        2.96b               5.49b
deviation (Pit )                (3.72)                       (2.72)                       (4.25)                       (2.33)              (3.56)
Precipitation
deviation                       –2.65b                       –2.31                       –1.27                        –2.27b               –3.60b
squared (Pit2)                 (–2.47)                      (–1.65)                     (–1.34)                      (–2.14)              (–3.83)
Temperature                     –3.89b                       –3.41b                      –4.56b                       –3.57b               –2.87b
deviation (Tit)                (–3.31)                      (–2.47)                     (–3.44)                      (–2.67)              (–2.07)
                                 0.72b                        1.15b                        0.93b                        1.17b               0.92b
Time trend (t)                  (5.64)                       (9.00)                       (7.02)                       (9.09)              (7.01)
R2                               0.71                         0.75                         0.69                         0.76                0.70
            2
Adjusted R                       0.68                         0.72                         0.64                         0.72                0.66
DW                               1.74                         1.79                         1.62                         1.91                1.79
Number of
Observations                       34                           34                           34                           34                 34
                                           Note: Numbers in the parentheses are t-values.
                                           a
                                           Indicates error structure corrected for first order autocorrelation.
                                           b
                                               Indicates parameter is statistically significant at the 0.05 level or higher



                                           We also performed a Chow test to determine whether barley yields were
                                           homogeneous across CRDs and, thus, if we could pool all of our data into
                                           one regression equation. This hypothesis, however, was rejected at the
                                           0.05 level, and we therefore used our yield estimates from the regressions
                                           of the separate CRDs in our analysis.

                                           In equation 2, we calculated yield in the absence of scab and vomitoxin as
                                           a weighted average of predicted yield from equation 1 and actual yield.

                                           (2)



                                           In equation 2, ynit denotes yield in the absence of scab and vomitoxin,
                                           yfit the predicted yield from equation 1, and ysit the actual yield in a
                                           scab-infected year. The fraction of yield shortfall attributable to scab and
                                           vomitoxin is denoted αit. If vomitoxin were the only factor accounting for




                                           Page 26                                                                   GAO/RCED-99-59 Grain Fungus
                                          Appendix I
                                          Estimation of Revenue Losses to North
                                          Dakota Barley Farmers as a Result of Scab
                                          and Vomitoxin




                                          a shortfall during the scab-infected years, then α = 1 and ynit = yfit ; that
                                          is, the yield that would have occurred in the absence of the disease equals
                                          the predicted yield from equation 1.

                                          Since scab and vomitoxin occur simultaneously with other crop diseases
                                          or weather problems, such as flooding, in these regions, we needed to
                                          estimate the fraction of yield shortfall resulting only from the disease. In
                                          order to obtain these estimates, we first asked experts at the North Dakota
                                          State Extension Service as well as the North Dakota State Plant Pathology
                                          Department what yield losses (in percentages) were due only to scab and
                                          vomitoxin for each year and each district. We then multiplied these
                                          percentages for each CRD and each year by our predicted yields, or the
                                          yields in the absence of vomitoxin, to determine yield loss in bushels per
                                          acre. In order to estimate the percent of yield loss resulting only from the
                                          disease, we then divided these yield losses by the difference between
                                          predicted and actual yields (or total yield shortfall) in order to estimate
                                          the fraction of yield shortfall resulting only from the disease. These
                                          calculated percentages are shown in table I.2:


Vomitoxin


Table I.2: Fraction of Yield Shortfall Resulting From the Presence of Scab and Vomitoxin by CRD, 1993-97
                                                                Crop reporting district
                               CRD 2                   CRD 3                CRD 5                CRD 6                CRD 9
Year                    North Central               Northeast              Central         East Central            Southeast
1993                             1.00                    0.24           0.26 - 0.43          0.17 - 0.28           0.19 - 0.31
1994                             1.00            0.32 - 0.65                   1.00          0.18 - 0.30           0.19 - 0.32
1995                       0.26 - 0.52                   0.34           0.16 - 0.32          0.15 - 0.31           0.15 - 0.30
1996                       0.84 - 1.00           0.69 - 0.93                   1.00                0.66            0.75 - 1.00
1997                       0.43 - 0.87           0.40 - 0.53            0.45 - 0.68          0.11 - 0.26           0.19 - 0.38

                                          In addition to estimating yield in the absence of scab and vomitoxin, we
                                          needed to calculate the ratio of harvested-to-planted acres to estimate
                                          barley production. During the years of the epidemic, many acres that were
                                          planted to barley actually went unharvested. Because the ratio of actual
                                          harvested-to-planted acreage during the scab-infected years might have
                                          differed from the predicted ratio for reasons other than scab and
                                          vomitoxin, we again used a weighted average of the predicted and actual
                                          ratios to estimate the ratio in the absence of the disease. We used past



                                          Page 27                                                 GAO/RCED-99-59 Grain Fungus
Appendix I
Estimation of Revenue Losses to North
Dakota Barley Farmers as a Result of Scab
and Vomitoxin




values of the ratio of harvested-to-planted acreage as the predicted values,
but we used the same α values to measure the fraction of yield shortfall
resulting from scab and vomitoxin. Specifically, in equation 3, we
calculated the ratio of harvested-to-planted acres to account for acreage
that was left abandoned because of scab and vomitoxin for each region for
each time period as:32

(3)




where

ahit = actual harvested acres in time period t in CRD i

apit = actual planted acres in time period t in CRD i

Ri = the average33 of the ratio of harvested-to-planted acres, 1983-92

Rnit = the ratio of planted-to-harvested acres, in the absence of vomitoxin

αit = the same adjustment factor used to calculate yield without vomitoxin

Finally, we combined our estimates of yield and the ratio of
harvested-to-planted acreage in the absence of vomitoxin to estimate
production in the absence of vomitoxin, qnit:

(4)




In order to estimate production in the absence of scab and vomitoxin,
without overestimating losses, we used the maximum of estimated yield in

32
  While this calculation is an adjustment for reductions in harvested-to-planted barley acres, we did not
make an adjustment for the decrease in planted acres. Overall, however, we assumed that farmers who
reduced planting barley acreage increased their acreage of other crops. Therefore, while revenue went
down because of reduced barley acres, revenue for the whole farm may not have decreased because of
the increased plantings of other crops.
33
 Here, we took an olympic average of the ratio of harvested-to-planted acres for the 10 years from
1983 through 1992. An olympic average omits the maximum and minimum values contained in a given
sample. It is used when the sample is small and may have observations that are unrepresentative (such
as a drought year).



Page 28                                                              GAO/RCED-99-59 Grain Fungus
                            Appendix I
                            Estimation of Revenue Losses to North
                            Dakota Barley Farmers as a Result of Scab
                            and Vomitoxin




                            the absence of vomitoxin and actual yield and the maximum of the
                            calculated ratio of harvested-to-planted acres without vomitoxin and the
                            actual ratio. For example, if the estimated yield falls below actual yield in
                            a scab year, actual yield would be used instead of the estimated yield
                            (without scab/vomitoxin) to estimate production. The product of the
                            second term and acres planted, apit, equals harvested acres in a year
                            without the presence of scab and vomitoxin.


Estimating Barley Malting   As the next step in determining barley revenue in the absence of
Premiums and Feed Grain     vomitoxin, we estimated both malting barley premiums and feed grain
Prices in the Absence of    prices for 1993 through 1997 had there been no disease. To do this, we
                            used regression analysis and historical data on price and production from
Vomitoxin                   1959 through 1992 to estimate price equations for both malting barley
                            premiums and feed grain prices. First, we explain malting premium price
                            movements by total barley production or its relationship to the larger
                            national barley market. Since the proportion of malting barley in the entire
                            crop was fairly stable in the years prior to the vomitoxin epidemic,
                            increases in total barley production translate into increases in the
                            quantities of malting barley. Moreover, while there are differences in
                            premiums from region to region, prices are generally transmitted from the
                            malting and brewing industries at a more aggregate market level.
                            Therefore, in equation 5 we specify the historical association between
                            malting premiums, Pi m and total U.S. barley production, QT, for each CRD
                            analyzed, i:

                            (5)



                            Table I.3 shows the results of this analysis.




                            Page 29                                             GAO/RCED-99-59 Grain Fungus
                                             Appendix I
                                             Estimation of Revenue Losses to North
                                             Dakota Barley Farmers as a Result of Scab
                                             and Vomitoxin




Table I.3: Malting Barley Premium Parameter Estimates by Crop Reporting District
                                                               Crop reporting district
                                    CRD 2                    CRD 3                      CRD 5                      CRD 6                  CRD 9
Independent variable         North Central                Northeast                    Central               East Central              Southeast
Intercept                              0.88a                     1.42a                     1.07a                        2.05a                 1.07a
                                      (3.68)                    (6.16)                    (4.48)                       (6.85)                (4.23)
Total production                   –0.0015a                  –0.0026a                 –0.0018a                     –0.0039a              –0.0018a
(QT)                                 (–2.78)                   (–5.29)                  (–3.54)                      (–6.07)               (–3.18)
Reg R2                                0.20                       0.47                      0.29                         0.54                 0.25
DW                                    1.66                       1.77                      1.81                         1.84                 2.00
Observations                            34                          34                       34                           34                   34
                                             Note: Numbers in the parentheses are t-values.
                                             a
                                               Indicates the parameter is statistically significant at the 0.05 level or higher.



                                             As table I.3 shows, we found a negative and highly significant association
                                             between malting premiums and total barley production at the national
                                             level for all CRDs. We also tried other variations of this regression model,
                                             including ones using combinations of stocks as well as barley yields for
                                             independent variables. However, these variables did not perform as well
                                             as the total barley production variable. Because of the presence of positive
                                             serial correlation in all CRDs, we used the Yule-Walker regression
                                             technique34 to derive our estimates. In general, serial correlation causes
                                             standard errors to be biased downward, thus indicating that parameter
                                             estimates are more precise than they actually are. Therefore, correcting
                                             for this problem leads to more efficient parameter estimates.

                                             In the feed grain market, corn is the primary feed grain product,
                                             accounting for more than 80 percent of total feed grain consumption.
                                             Because barley feed grain prices, Pif , are driven primarily by corn prices,
                                             in equation 6, we specify the historical association between feed grain
                                             barley prices, the price of corn, PC , and total U.S. barley production, QT ,
                                             as:

                                             (6)




                                             34
                                               The Yule-Walker regression technique starts by forming the ordinary least-squares estimate of the
                                             parameters. Next, given the vector of autoregressive parameters (using the Yule-Walker equations) and
                                             the variance matrix of the error vector, efficient estimates of the regression parameters are computed
                                             using generalized least squares.



                                             Page 30                                                                  GAO/RCED-99-59 Grain Fungus
                                            Appendix I
                                            Estimation of Revenue Losses to North
                                            Dakota Barley Farmers as a Result of Scab
                                            and Vomitoxin




                                            To correct for first-order serial correlation, as in the malting premium
                                            regression models, we used the Yule-Walker regression technique for the
                                            feed grain regressions. As table I.4 indicates, the total barley production
                                            variable displayed a negative sign and was significant at the 0.10 percent
                                            level and above in all CRDs except 6. In all CRDs, the price of corn was
                                            positively related to barley feed grain prices and highly statistically
                                            significant.


Table I.4: Feed Grain Barley Parameter Estimates by Crop Reporting District
                                                              Crop Reporting District
                                   CRD 2                      CRD 3                      CRD 5                      CRD 6                   CRD 9
Independent variable        North Central                  Northeast                    Central               East Central               Southeast
Intercept                             0.24                        0.28                      0.21                          0.22                 0.21
                                     (1.19)                      (1.48)                    (1.19)                        (1.13)               (1.04)
Corn                                  0.78a                       0.75a                    0.77a                         0.75a                 0.78a
price (PC)                          (17.75)                     (18.18)                  (19.81)                       (17.42)               (17.49)
Total production                  –0.0009a                    –0.0008a                 –0.0007b                       –0.0006              –0.0007b
(QT)                                (–2.07)                     (–2.10)                  (–2.00)                        (–1.39)              (–1.76)
Reg R2                               0.91                         0.92                      0.93                         0.91                 0.91
DW                                   1.94                         1.93                      1.91                         1.87                 1.91
Observations                           34                            34                       34                           34                   34
                                            Note: Numbers in parentheses are t-values.
                                            a
                                              Indicates parameter is statistically significant at the 0.05 level or higher.
                                            b
                                                Indicates parameter is statistically significant at the 0.10 level.



                                            Substituting in actual values of barley production and corn prices for years
                                            1993 through 1997, we used these regression parameters to predict what
                                            malting barley and feed grain barley prices would have been in the
                                            absence of the vomitoxin epidemic for these years. We assume that
                                            malting barley prices are the sum of estimated feed grain prices plus
                                            estimated malting premiums.


Estimation of Barley                        As the final step in estimating barley revenue in the absence of vomitoxin,
Revenue in the Absence of                   we combined our previously obtained estimates of production and prices
Scab and Vomitoxin                          without the disease to obtain revenue as the product of production and
                                            price. However, since barley production data are only for total production,
                                            and are not separated out for the malting and the feed grain markets, we
                                            first needed to allocate total production to these markets. We derived the
                                            proportion of the crop sold as malting barley and feed grain barley by



                                            Page 31                                                                     GAO/RCED-99-59 Grain Fungus
                                             Appendix I
                                             Estimation of Revenue Losses to North
                                             Dakota Barley Farmers as a Result of Scab
                                             and Vomitoxin




                                             using actual data on the prices of malting barley, PM , feed grain barley, PF,
                                             and the total average barley price, PB . Because the overall price of barley,
                                             PB , is a weighted average of the malting and feed grain price, using35
                                             equations 7 and 8, we can obtain the proportion of barley that is sold to
                                             the malting market, nbarim, and the proportion sold to the feed grain
                                             market (1 - nbarim) as equation 7 shows:

                                             (7)




                                             Rearranging terms, we can express the proportion of barley sold to the
                                             malting market as a function of observed prices as equation 8 shows:

                                             (8)



                                             Using historical malting and feed grain prices from 1959 through 1992, we
                                             obtained proportions for each year and took their average to derive
                                             malting barley and feed grain weights. These weights represent the
                                             proportions of malting and feed grain barley in the market in a year
                                             without the disease. Table I.5 shows, for each CRD, these estimated average
                                             weights:


Table I.5: Estimated Average Malting and Feed Grain Weights by Crop Reporting District, 1959-92
                                     CRD 2             CRD 3             CRD 5                   CRD 6                                   CRD 9
Barley market                North Central          Northeast           Central            East Central                               Southeast
Malting (nbarmi)                      0.71                     0.68                    0.62                       0.79                       0.60
Feed grain (1-nbarmi)                 0.29                     0.32                    0.38                       0.21                       0.40

                                             To estimate the amount of production that would have gone to the malting
                                             barley and feed grain markets for each district in each year from 1993
                                             through 1997 in the absence of vomitoxin, we multiplied these weights by
                                             our estimate of total barley production (without vomitoxin). For instance,
                                             in order to account for the amount of barley that typically went into the


                                             35
                                              In order to calculate average barley prices, the National Agricultural Statistics Service (NASS)
                                             surveys farm elevators for malt and feed grain prices as well as quantities sold in North Dakota
                                             counties. Typically, this covers about one-third of the barley farmers in a county. According to the
                                             Associate Administrator of NASS, three caveats are associated with this method. First, there may be
                                             some error because of sampling expansion factors; second, the measurement is taken at the elevator,
                                             not where the grain actually comes from; and third, there may be some discrepancy because of
                                             carryover stocks from one year to another.



                                             Page 32                                                            GAO/RCED-99-59 Grain Fungus
                        Appendix I
                        Estimation of Revenue Losses to North
                        Dakota Barley Farmers as a Result of Scab
                        and Vomitoxin




                        malting side of the market for CRD i in year t, we multiplied nbarim, the
                        average proportion of malting barley for that CRD, by the estimated
                        production in that district in year t in the absence of the disease, qnit (from
                        equation 4). Finally, to estimate malting barley revenue for years 1993
                        through 1997 in the absence of vomitoxin, we multiplied the estimated
                        malting barley production for each district and year by the predicted
                        malting barley price (in the absence of vomitoxin), nPim, for that district
                        and year. We used the same procedure to estimate the revenue for all CRDs
                        for the feed barley market. Equation 9 summarizes how we estimated total
                        barley revenue in a particular district and year in the absence of vomitoxin
                        (NREVit):

                        (9)



                        where

                        nbarim = proportion of malting barley production without vomitoxin for
                        CRD i


                        nbarif = proportion of feed barley production without vomitoxin for CRD i

                        qnit = total quantity of barley production for CRD i in year t, (from eq. 4)

                        nPitm = predicted malting barley price, without vomitoxin, for CRD i, time t

                        nPitf = predicted feed grain barley price, without vomitoxin, CRD i, time t

                        We used the chain-type price index for gross domestic product to express
                        all revenues in 1997 dollars and then totaled over the years 1993 through
                        1997 to obtain an estimate for each district of what barley revenues would
                        have been during this period in the absence of vomitoxin.


Calculating Actual      Using equation 10, we calculate the actual amount of revenue from barley
Revenue From Malting    production, AREVit , for CRD i, in time period t as:
Barley and Feed Grain
                        (10)
Barley




                        Page 33                                              GAO/RCED-99-59 Grain Fungus
                                             Appendix I
                                             Estimation of Revenue Losses to North
                                             Dakota Barley Farmers as a Result of Scab
                                             and Vomitoxin




                                           The actual amount of production in each CRD in each year is denoted qait ,
                                           while the actual market prices of malting barley and feed barley are
                                           represented by aPitm and aPitf , respectively. For each year between 1993
                                           and 1997 and for each CRD, we calculated the proportion of barley sold to
                                           the malting market, abaritm and the proportion sold as feed, abaritf, using
                                           the same method as we did in equation 8. Table I.6 displays these weights
                                           for each CRD.


Table I.6: Estimated Malting Barley and Feed Grain Barley Weights, by Crop Reporting District, 1993-97
                                                     CRD 2            CRD 3           CRD 5             CRD 6         CRD 9
Market                                 Year   North Central        Northeast         Central      East Central     Southeast
Malting barley                        1993                0.22              0.28         0.61            0.42            0.18
                                      1994                0.78              0.53         0.67            0.32            0.53
                                      1995                0.85              0.72         0.70            0.55            0.67
                                      1996                0.58              0.43         0.91            0.77            0.43
                                      1997                0.58              0.20         0.68            0.28            0.84
Barley feed grain                     1993                0.78              0.72         0.39            0.58            0.82
                                      1994                0.22              0.47         0.33            0.68            0.48
                                      1995                0.15              0.28          0.3            0.45            0.33
                                      1996                0.42              0.57         0.09            0.23            0.57
                                      1997                0.42               0.8         0.32            0.72            0.16



Calculating Changes in                       Using equation 11, we calculated total changes in revenue from barley
Farm Revenue Resulting                       production for North Dakota due to scab and vomitoxin, ∆it, as:
From Scab and Vomitoxin
                                           (11)




                                             This total represents the sum of the differences between the actual
                                             revenue, AREVit, and the predicted revenue in each year, in the absence of
                                             vomitoxin, NREVit , for each CRD i in each year, 1993 through 1997.


                                             We gathered data from several sources for our calculation of the revenue
Data Used to Estimate                        losses for North Dakota barley as a result of scab and vomitoxin. Our main
Losses in Farm                               source of data, the North Dakota Agricultural Statistics Service, provided
Revenues From Scab                           information by CRD on planted and harvested barley acres, total barley
                                             production, malting barley prices, feed grain barley prices, and average
and Vomitoxin

                                           Page 34                                                GAO/RCED-99-59 Grain Fungus
Appendix I
Estimation of Revenue Losses to North
Dakota Barley Farmers as a Result of Scab
and Vomitoxin




barley yields for 1959 through 1997. We used weather data, average
temperature and total precipitation by CRD from 1950 to 1997, supplied by
USDA’s Economic Research Service as well as by North Dakota State
University. North Dakota State University area crop extensionists and
plant pathologists familiar with vomitoxin provided estimates of the
fraction of yield shortfall attributed to vomitoxin for 1993 through 1997.
Finally, we used data on U.S. barley production and corn prices from 1959
to 1997 from NASS in our estimation of malting barley premiums and barley
feed prices.




Page 35                                          GAO/RCED-99-59 Grain Fungus
Appendix II

Analysis of the Veratox Test Kit’s
Performace

                    According to our analysis of the data from the Grain Inspection, Packers
                    and Stockyards Administration’s (GIPSA) 1998 Sampling Variability Study,
                    the Veratox test results from Neogen (the kit’s manufacturer) and Grand
                    Forks Grain Inspection, Inc. (a GIPSA-authorized testing facility) differed
                    significantly from each other and from GIPSA’s high pressure liquid
                    chromatography (HPLC) results. Our analysis is not projectable to all
                    Veratox test results in North Dakota because the data from GIPSA’s
                    sampling study are not representative of all Veratox testing and barley
                    sampling throughout the state.


                    GIPSA’s sampling study was designed to determine how sampling size and
GIPSA’s 1998 Data   method affect variability in vomitoxin test results. In this study, GIPSA
From Its Sampling   (1) obtained six bulk barley samples from various elevators to study the
Variability Study   effect of sampling size on variability and (2) sampled 10 trucks using
                    different sampling methods to determine the effect of sampling method on
                    variability. All samples were cleaned, ground, and subdivided into portions
                    for testing by the Grand Forks Grain Inspection’s laboratory. Additional
                    portions were provided to Neogen and Romer (another test kit
                    manufacturer) for testing in their respective laboratories, and portions of
                    the truck samples were tested by GIPSA in its Kansas City, Missouri,
                    laboratory using the HPLC method. Neogen and Grand Forks Grain
                    Inspection tested each subsample using Neogen’s Veratox test kit.36
                    Neogen performed two tests on each subsample it received, and Grand
                    Forks Grain Inspection performed one test on each subsample it received.

                    GIPSA did not intend to have the results from its barley sampling study
                    represent the variability that exists with all barley sampling in North
                    Dakota. It selected its test lots to ensure that vomitoxin concentration
                    levels in the samples would fall within the Veratox test kit’s range of
                    measurement ability—that is, from 0.5 parts per million (ppm) to 5 ppm. In
                    addition, test data were from samples that differed in size and method of
                    collection because GIPSA’s purpose was to assess the effect of these
                    variables (size and sampling method) on vomitoxin test results. However,
                    because GIPSA found that sample size and sampling method did not
                    significantly alter the variability of test results, we concluded that the lack
                    of uniformity in sample size and sampling method is not a significant
                    limitation to our analysis.




                    36
                     The samples were also tested by North Dakota State University using gas chromatography and
                    Romer Labs, Incorporated, using its FluoroQuant test kit and the HPLC method.



                    Page 36                                                         GAO/RCED-99-59 Grain Fungus
                 Appendix II
                 Analysis of the Veratox Test Kit’s
                 Performace




                 We analyzed 376 Veratox tests performed by Grand Forks Grain Inspection
                 and 692 tests performed by Neogen.37 According to GIPSA officials, greater
                 variability occurs when results from multiple test facilities are analyzed.
                 Thus, since our analysis is based on data from only two testing facilities,
                 our results may not be representative of the true amount of variability in
                 vomitoxin test results conducted in North Dakota.


                 According to GIPSA officials, the variability of test results differs depending
GAO’s Analysis   on the concentration of vomitoxin in the barley sample. At their
                 recommendation, we used GIPSA’s HPLC test result to represent the true
                 concentration of vomitoxin in a sample and grouped the Veratox test
                 results into four ranges. The first range contains results from barley
                 samples with relatively low concentrations of vomitoxin—those with HPLC
                 results of 0.7 ppm to 1 ppm. The last category contains results from
                 samples with the highest concentrations of vomitoxin—those with HPLC
                 results of 3.1 ppm to 4 ppm.

                 Our analysis of Veratox test results from Neogen and the Grand Forks
                 testing facility showed differences in the amount of vomitoxin measured at
                 each location (see table II.1). That is, testing identical samples of barley at
                 the testing facility and at the manufacturer resulted in different
                 measurements of vomitoxin. Specifically, using the HPLC test results to
                 represent the true concentration of vomitoxin, we found that at
                 concentrations between 0.7 and 4 ppm, Neogen’s estimation of vomitoxin
                 was, on average, higher than the testing facility’s. Given these differences,
                 and the fact that small differences in the amount of vomitoxin measured
                 can affect barley prices, we concluded that producers could have received
                 different prices from each testing location if the test results had been the
                 basis for a commercial sale.




                 37
                   We originally obtained 1,287 Veratox tests (which had corresponding HPLC test results of less than
                 5.1 ppm) from GIPSA’s sampling study, but excluded 132 Veratox tests from our analysis because they
                 either lacked comparative data or exceeded the calibration range of the Veratox method. We then
                 excluded the remaining 87 records in the concentration category 4.1-5 parts per million (ppm) because
                 the removal of records from the tests that exceeded the calibration range of the Veratox method
                 greatly reduced the number of records within this category.



                 Page 37                                                            GAO/RCED-99-59 Grain Fungus
                                    Appendix II
                                    Analysis of the Veratox Test Kit’s
                                    Performace




Table II.1: Difference in Veratox
Results at Two Testing Facilities   In parts per million
                                                                                        We estimate that average test results at
                                                                                            Neogen will exceed those at Grand
                                    At an HPLC result of                                                              Forks bya
                                    0.7 — 1.0                                                                               0.2 — 0.6
                                    1.1 — 2.0                                                                               0.2 — 0.6
                                    2.1 — 3.0                                                                               0.6 — 1.0
                                    3.1 — 4.0                                                                               0.7 — 1.2
                                    a
                                    Our estimates represent the 95-percent confidence intervals for the differences between the
                                    mean test results for Neogen and Grand Forks Grain Inspection.

                                    Source: GAO’s analysis of data from GIPSA’s 1998 Sampling Variability Study.



                                    We also found in some cases that the results from Neogen and Grand
                                    Forks Grain Inspection differed, on average, from GIPSA’s HPLC reference
                                    method (see table II.2). Specifically, test results from the manufacturer
                                    were higher than test results from the HPLC reference method at three of
                                    the four concentration ranges we reviewed. For example, when HPLC
                                    results ranged from 0.7 to 1.0 ppm, we estimated that the average Neogen’s
                                    results would be between 1.3 to 1.5 ppm, which is higher than the average
                                    HPLC results. In addition, average Veratox results from the Grand Forks
                                    facility were lower than the reference method at two of four concentration
                                    ranges. For instance, when HPLC results ranged from 2.1 to 3.0 ppm, we
                                    estimated that the average test result from the testing facility would be
                                    between 1.7 to 2.0 ppm, which is lower than the average for the reference
                                    method. The fact that in one case the manufacturer’s test results were
                                    higher, on average, than the reference method’s results, while the testing
                                    facility’s results were lower, further demonstrates that variability can
                                    occur among testing facilities using the Veratox test kit.




                                    Page 38                                                          GAO/RCED-99-59 Grain Fungus
                                    Appendix II
                                    Analysis of the Veratox Test Kit’s
                                    Performace




Table II.2: Comparison of Average
Veratox and HPLC Test Results       In parts per million
                                                                           We estimate the average Veratox result from repeated
                                                                                         tests will fall between:a
                                    At an HPLC result of:                 Neogen                            Grand Forks
                                                                                     b
                                    0.7 — 1.0                             1.3 — 1.5                         0.9 — 1.2
                                    1.1 — 2.0                             1.8 — 2.0b                        1.4 — 1.7
                                    2.1 — 3.0                             2.5 — 2.8                         1.7 — 2.0b
                                                                                     b
                                    3.1 — 4.0                             3.5 — 3.8                         2.5 — 3.0b
                                    a
                                    Our estimates represent the 95-percent confidence intervals for the average Veratox result.
                                    b
                                        Indicates a statistically significant difference between the average HPLC and Veratox result.

                                    Source: GAO’s analysis of data from GIPSA’s 1998 Sampling Variability Study.




                                    Page 39                                                               GAO/RCED-99-59 Grain Fungus
Appendix III

Major Contributors to This Report


               Jerilynn B. Hoy, Assistant Director
               Kurt W. Kershow, Project Manager
               Patricia M. Crown
               Barbara J. El-Osta
               Leanne M. Flama
               Jay R. Cherlow
               Karen E. Bracey
               Carol Herrnstadt Shulman




               Page 40                               GAO/RCED-99-59 Grain Fungus
Related GAO Products


              Wheat Pricing: Information on Transition to New Tests for Protein
              (GAO/RCED-95-28, Dec. 8, 1994).

              Midwest Grain Quality (GAO/RCED-94-66R, Nov. 1, 1993).




(150651)      Page 41                                           GAO/RCED-99-59 Grain Fungus
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