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Purpose of the Report

In accordance with Title 24 of the Alaska Statutes and a special request by the Legislative Budget and Audit Committee, we have conducted a special audit of the State’s Virus Free Seed Potato Project (seed project). The audit reports on the seed project’s financial activities and determines if the seed project provides a positive monetary or non-monetary return to the State or private entities. Additionally, the audit determines whether continued state involvement in the seed project will yield positive returns and whether seed potato funding has been used for essential state services.

Report Conclusions

This audit concludes that no significant monetary or non-monetary returns are being received by the State or private entities as a result of certifying seed potatoes for international export. The export market is stagnant, the number of acres used to grow seed potatoes is not large and the acreage has not increased. Furthermore, seed potato exports have not provided a positive return in terms of regulation costs compared to revenue generated by export sales. These factors are not expected to change. Consequently, the continued use of state resources to certify seed potatoes for international export will act as a subsidy for seed potato farmers.

The report conclusions, as they relate to export certifications, should not be interpreted as negating the necessity for state certification. Inspections and certifications of seed potatoes have been conducted by the State since the mid-1960s to reduce the risk of disease. This audit does not conclude that continued state certification of seed potatoes is unwarranted or unnecessary.

Whether or not regulation of seed potato crops is an essential state service is subjective and depends on the definition of essential. Diseased seed potatoes may create significant economic losses for producers; however, they do not result in illness or loss of human life. The agriculture industry views the inspection and certification process as essential to the success of the industry.

Detailed conclusions regarding seed project funding, expenditures, administration, and monetary and non-monetary returns are listed below.

• A total of $5.5 million in state and federal funds have been appropriated for the seed project from FY 95 through December 2011. Of the total, $3.4 million (62 percent) were state funds and $2.1 million (38 percent) were federal funds.

• Seed project expenditures totaling $3.4 million from FY 05 through December 2011 were reasonable and necessary to carry out the purpose of the project. Expenditure activity includes state certification and export certification costs.

• The only significant UA facility used for the seed project has been the Plant Pathology and Biotechnology Laboratory. UA charged indirect cost rates as part of seed project grants and agreements.

• The seed project has resulted in minimal monetary returns to the State and private enterprises.

• Non-monetary returns associated with the seed project include expanding Alaska’s international market relations and expanding the knowledge base of seed potato diseases. Both of these non-monetary returns may yield benefits to the State of Alaska over the long-term.

• Export certification funding has provided a subsidy to growers. Without significant changes, future state funding for export certification will continue to be a subsidy to potato growers.

Findings and Recommendations

There were no findings or recommendations for the virus free seed potato project audit.