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95088: Agricultural Export and Food Aid ProgramsCharles E. Hanrahan Updated October 24, 1997 CONTENTSSUMMARY LEGISLATION Agricultural exports, which reached nearly $60 billion in FY1996, are important both to the farm sector and the U.S. economy. Exports account for 17% of the value of agricultural production. Economists estimate that every $1.00 of agricultural exports generates another $1.38 of related economic activity. In FY1996, agricultural exports exceeded imports by $28.5 billion, the largest agricultural trade surplus ever recorded. A downturn in agricultural exports is expected in FY1997, as agricultural exports are projected at $56.5 billion, about $3.3 billion less than in FY1996. Most of the decline is accounted for by reductions in exports of bulk commodities (grains, oil- seeds, cotton) because of increased exports by competitors and lower world prices. Increased exports of high-value products (HVPs) help offset the decline in bulk exports. The U.S. agricultural trade surplus is expected to decline to $21 billion in FY1997. Title II of P.L. 104-127, the 1996 Federal Agriculture Improvement and Reform (FAIR) Act, authorizes four kinds of federal programs to support agricultural exports: direct subsidies, market promotion, export credit guarantees, and foreign food aid. The 1994 Uruguay Round Agreement on Agriculture imposes limits on direct export subsidies, but not on the other programs. The FAIR Act caps spending on EEP at $250 million in FY1997. FY1997 agriculture appropriations, however, limited EEP funding to $10 million. The conference agreement on FY1998 agriculture appropriations cap EEP spending at $150 million, $350 million less than authorized by the FAIR Act. USDA's market promotion programs, the Market Access Program (MAP) and the Foreign Market Development or "Cooperator" Program (FMDP), are exempt from Uruguay Round cuts. They have been criticized, though, as "corporate welfare" because they provide tax dollars to private firms. The FAIR Act caps MAP at $90 million annually through FY2002 and, for the first time, specifically authorizes FMDP. No limits are placed on MAP in the conference report. FMDP funding of around $33 million is included in appropriations for USDA's Foreign Agricultural Service. Export credit guarantees also are not subject to Uruguay Round cuts. FAIR reauthorizes credit guarantees through FY2002 at $5.5 billion annually plus an additional $1 billion through 2002. The conference report would provide budget authority of these levels of credit guarantee. FAIR reauthorizes P.L. 480 Food for Peace programs and Food for Progress through FY2002. The act reinforces both the market development aspect of concessional food sales as well as the emergency response capability of humanitarian aid. Private entities become eligible for concessional sales agreements. A food security commodity reserve provides for unanticipated emergency needs. The President's request for P.L. 480 in FY1998, $990 million, would support the FY1997 level of commodities. The conference report provides for about the same funding level as in FY1994 for P.L. 480, around $1.1 billion. House and Senate conferees reached an agreement on September 17, 1997 on H.R. 2160, FY1998 appropriations for agriculture and related programs. The conference report passed the House on October 6. Senate action has been delayed pending resolution of separate legislation on Food and Drug Administration reform. The conference agreement provides funding for the agricultural export and food aid programs authorized in the Federal Agriculture Improvement Act of 1996 and administered by the U.S. Department of Agriculture's Foreign Agricultural Service. The agreement provides a program level of $6.81 billion and budget authority $1.72 billion. (The figure for budget authority excludes the value of export credit guarantees which are not directly appropriated.) U.S. Agricultural ExportsAgricultural exports are important both to farmers and to the U.S. economy. Production from more than a third of harvested acreage is exported, including an estimated 55% of wheat, 43% of rice, 35% of soybeans, 18% of corn, and 32% of cotton. About 17% of the value of agricultural production is exported. Exports generate economic activity in the non-farm economy as well. According to the U.S. Department of Agriculture (USDA), each $1.00 received from agricultural exports in 1995 stimulated another $1.38 in supporting activities to produce those exports. Agricultural exports generated an estimated 895,000 full-time civilian jobs, including 562,000 jobs in the non-farm sector. U.S. agricultural trade consistently registers a large surplus in contrast to the large, continuing overall trade deficit. Nearly every state exports agricultural commodities, thus sharing in export- generated employment, income, and rural development. In 1995, the states with the greatest shares in U.S. agricultural exports by value were California, Iowa, Illinois, Texas, Nebraska, Kansas, Minnesota, Washington, Indiana, and Arkansas. These 10 states accounted for 58% of total U.S. agricultural exports. In addition, Florida, Georgia, Missouri, North Carolina, North Dakota, Ohio, South Dakota, and Wisconsin each shipped over $1 billion worth of commodities. After growing rapidly in the 1970s, U.S. agricultural exports reached a high of $43.8 billion in FY1981, then declined 40% to $26.3 billion in FY1986. By FY1995, agricultural exports had recovered and reached a new peak of $54.2 billion. Agricultural exports reached nearly $60 billion in FY1996. Animal products (meats, fats, and hides), corn, soybeans, and wheat were the commodities with the highest export values. A downturn in agricultural exports is expected in FY1994, as agricultural exports are projected at $56.5 billion, about $3.3 billion less than in FY1996. Most of the decline is accounted for by reductions in exports of bulk commodities (grains, oilseeds, cotton) because of increased exports by competitors and lower world prices. The commodity composition of U.S. agricultural exports has changed over time. Since FY1991, bulk commodities (grains, oilseeds, and cotton) have accounted for less than total non-bulk exports (intermediate products such as wheat flour, feedstuffs, and vegetable oils or consumer-ready products such as fruits, nuts, meats, and processed foods). In FY1996, these higher value exports accounted for $32 billion or 53% by value of all U.S. agricultural exports. Many variables interact to determine the level of U.S. agricultural exports: income, population growth, and tastes and preferences in foreign markets; U.S. and foreign supply and prices; and exchange rates. U.S. agricultural export and food aid programs, domestic farm policies that affect price and supply, and trade agreements with other countries can also influence the level of U.S. agricultural exports. (For details on domestic programs, see CRS Report 96-782 ENR, An Introduction to Farm Commodity Programs, September 20, 1996.) Agricultural Export and Food Aid ProgramsThe trade title of the 1996 Federal Agriculture Improvement and Reform Act (Title II of P.L. 104-127) authorizes and amends four kinds of export and food aid programs:
USDA's Foreign Agricultural Service (FAS) administers the export and food aid programs, with the exception of P.L. 480 Titles II (humanitarian food aid) and III (food for development) which are administered by the U.S. Agency for International Development (AID). The President's FY1998 budget called for a total program level of around $7 billion for international programs which would have entailed budget authority of $1.65 billion. The difference between program level and budget authority is attributable to the large part played by credit programs (especially export credit guarantees) in USDA's international activities. For credit programs, only costs represented by administrative expenses and loan subsidies require authorization of budget authority. The conference report on H.R. 2160 would provide a program level of $6.81 and budget authority of $1.72 billion. Export SubsidiesThe 1996 FAIR Act authorizes direct export subsidies of agricultural products through the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP). Previously operated subsidy programs for cottonseed oil and sunflower seed oil exports were effectively terminated by the FAIR Act, although exports of these products can be subsidized by the EEP. Export Enhancement Program (EEP). EEP was instituted in 1985, first by the Secretary of Agriculture under authority granted in the Commodity Credit Corporation Charter (CCC) Act, and then under the Food Security Act of 1985 (P.L. 99-198). The program was instituted at a time of declining U.S. agricultural exports and a growing grain stockpile. Several factors contributed to the fall in exports: an overvalued dollar and high commodity loan rates made U.S. exports relatively expensive for foreign buyers; a global recession reduced demand for U.S. agricultural products; and foreign subsidies, especially those of the European Union (EU), helped competing goods make inroads into traditional U.S. markets. EEP's main rationale was to combat "unfair" trading practices of competitors for world agricultural markets. The Office of the General Sales Manager in USDA's Foreign Agricultural Service (FAS) operates EEP. The Sales Manager announces target countries and amounts of commodities to be sold to those countries, and then invites U.S. exporters to "bid" for bonuses that effectively lower the sales price. An exporter negotiates a sale with a foreign importer, calculates the bonus necessary to meet the negotiated price, and submits the bonus and price to FAS. FAS awards bonuses based on the bids and amount of funding available. Initially awarded in the form of certificates for commodities owned by the CCC, bonuses, since 1992, have been in the form of cash. Most EEP bonuses have been used to assist sales of wheat. In FY1995, 72% of EEP sales were wheat, 8% flour, 6% poultry, and the remaining sales were eggs, feed grains, pork, barley malt, and rice. Although many exporters have received bonuses, since 1985 three exporting firms have received almost half of the total, which now exceeds $7 billion. Egypt received the largest shares of bonus payments in 1993 and in 1994. Algeria had the second largest share in 1993 and China was second in 1994. The United States agreed to reduce export subsidies under the 1994 Uruguay Round Agreement on Agriculture. The Agreement requires that export subsidy outlays fall by 36% and the quantities subsidized by 21% over 6 years (1995-2001). The Congressional Budget Office (CBO) estimated that for the United States to meet its Uruguay Round commitments, outlays for EEP could not exceed $959 million in FY1996 and had to decline to $478 million by FY2001. Legislation to implement the Uruguay Round Agreement (P.L. 103-465) reauthorized EEP through the year 2001 and specified that EEP need not be limited to responses to unfair trade practices, but could be used also to develop export markets. The 1996 farm bill makes available "not more than" $350 million in FY1996, $250 million in FY1994, $500 million in FY1998, $550 million in FY1999, $579 million in FY2000, and $478 million annually in FY2001 and FY2002. The levels are well below the amounts allowed under the Agreement on Agriculture for the first 4 years (FY1996-FY1999) but return to the allowed ceilings thereafter. The 1996 farm bill also includes a provision on intermediate products that authorizes, beginning in FY1996, the Secretary of Agriculture may make available "not more than" $100 million annually for the sale of intermediate agricultural products so that the volume of exports of such products is consistent with the volume of U.S. sales during 1986-1990. Although farm bill cuts in the level of funding for EEP appear sizeable, their effects are uncertain. In FY1995, for example, appropriations for EEP were capped at $800 million, but the actual program level was $339 million because strong world prices for U.S. exports meant there was less need for export subsidies. In a global market currently characterized by reduced stock levels and high prices for grains, EEP is not likely to be used irrespective of its authorized level. However, if world market conditions change or if competitors alter their trade policies, producers of export crops might urge the Secretary to use EEP up to the authorized level or call on Congress to increase EEP funding levels. In FY1996, 11,125 tons of frozen poultry, the only commodity sold under EEP, received bonuses totaling $5.15 million. The President's FY1994 budget proposed $861 million for EEP, the maximum allowed under the Uruguay Round Agreement for that year, but the farm bill limited EEP to $250 million in FY1994. Reflecting a general consensus that little EEP would be needed to make U.S. agricultural exports competitive under expected market conditions, the FY1994 agriculture appropriations act limited EEP funding to $100 million. Subsequently, because no EEP bonuses had been awarded in FY1994, Congress, in the FY1994 supplemental appropriations and rescission law (P.L. 105-18), further reduced EEP funding to $10 million. Savings in budget authority associated with the cut were used to offset expenditures for Bosnia peacekeeping activities and emergency disaster assistance. The National Association of Wheat Growers has called for USDA to offer EEP bonuses, but the Secretary has not announced any reopening of the EEP program. The Millers' National Federation has called for offering EEP bonuses on flour exports as well. Recently the Secretary of Agriculture indicated that he would consider awarding EEP bonuses for exports of wheat flour and malting barley, but no action has been taken on this. The President's budget requested $500 million for EEP in FY1998, the full amount authorized by the farm bill. Supporters of full funding for EEP in FY1998 argued that exports are an "ultimate safety net" for U.S. farmers and full funding would keep U.S. agricultural exports moving if market conditions warrant or if competitors subsidize into traditional U.S. markets. Opponents of full EEP funding hold that unneeded EEP funding could contribute to deficit reduction or be used to offset increased funding for other federal programs. The conference report on FY1998 agricultural appropriations bill (H.R. 2160) reduces EEP funding to $150 million. EEP has been controversial and the program raises several issues. Many oppose EEP on grounds of economic efficiency. EEP, they argue, like all export subsidies, interferes with the operations of markets, and distorts trade. Others, noting that the Uruguay Round Agreement on Agriculture, restricts but does not prohibit agricultural export subsidies, point out that as long as other competitors, like the European Union, use export subsidies, the United States should also be prepared to use them. The effectiveness of EEP is also at issue. Several studies have found that wheat exports would decline somewhat if EEP were eliminated, suggesting that EEP increases wheat exports. Other analysts, however, find that subsidized wheat exports under EEP displace exports of unsubsidized commodities such as corn. Some critics question whether EEP subsidies should target different products and country markets. EEP goes primarily for bulk commodities (predominantly wheat) and has been targeted largely to the Middle East and North Africa. Some suggest that instead, EEP should target high-growth markets in Asia and Latin America for high-value or value-added products. Dairy Export Incentive Program (DEIP). DEIP was established under the 1985 farm act to assist exports of U.S. dairy products. Its purpose was to counter the adverse effects of foreign subsidies, primarily those of the European Union. Early bonus payments were in the form of sales from CCC-owned dairy stocks; later they were generic commodity certificates from CCC inventories; now they are cash payments. As with EEP, USDA announces target countries and amounts of dairy products that may be sold to those countries under the program. Exporters negotiate tentative sales and "bid" for bonuses to subsidize the prices of the sales. The Uruguay Round subsidy reduction commitments (see EEP above) apply to DEIP as well, so outlays and subsidized quantities should decline from FY1996 through FY2001. Uruguay Round implementing legislation authorized DEIP through the year 2001. The 1996 farm bill extended DEIP authority to FY2002, directed the USDA to maximize the volume of dairy exports consistent with the Uruguay Round Agreement, and authorized DEIP exports to anywhere in the world. In FY1995, the program level was $140 million and in FY1996, $20 million. The program level for DEIP in FY1994 is estimated to be around $57 billion. The program level for FY1998 is $89 million. Neither the FAIR Act nor FY1998 agriculture appropriations legislation impose funding level limits on DEIP. An issue during farm bill debate was whether a separate export subsidy program is needed for dairy products. Some industry supporters want to continue the program for dairy products because they view it as less likely that dairy will lose its funding if the program does not have to compete with other products for support. Others argue, however, that dairy products should be considered alongside all other commodities in one large subsidy program. Under such an arrangement, they argue, commodities and country markets could be strategically targeted. The FAIR Act resolves this issue by continuing the separate authorization for dairy export subsidies. Market PromotionUSDA operates two market promotion programs, the Market Access Program (MAP), formerly the Market Promotion Program (MPP) which in its turn succeeded the Targeted Export Assistance Program (TEA), and the Foreign Market Development Program (FMDP) also know as the "Cooperator" program. Market Access Program (MAP). TEA, authorized in 1985, had been intended to compensate U.S. exporters for markets lost to unfair foreign competition. MPP/MAP is broader: its aim is to help develop foreign markets for U.S. exports. MAP assists primarily value-added products. The types of activities that are undertaken through MAP are advertising and other consumer promotions, market research, technical assistance, and trade servicing. Nonprofit industry organizations, and private firms that are not represented by an industry group, submit proposals for marketing activities to the USDA. The nonprofit organizations may undertake the activities themselves or award funds to member companies that perform the activities. After the project is completed, FAS reimburses the industry organization or private company for part of the project cost. About 60% of MAP funds typically support generic promotion (i.e., non-brand name commodities or products), and about 40% support brand-name promotion (i.e., a specific company product). Several hundred firms receive MAP support each year. Some in the past were large corporations that received sizeable amounts. In a 1992 study, the General Accounting Office (GAO) found that the average amount awarded to the top 50 firms was $1 million (see GAO/GGD-93-125, p. 22). Many small firms also receive MAP support; the average grant to a small firm in recent years is about $50,000. Although the Uruguay Round Agreement on Agriculture requires cuts in direct export subsidies such as EEP, no reductions are required in market promotion programs such as MAP. As a consequence, many agricultural groups have called for an increase in funding for MAP and other allowed, or "green box," programs. During the debate on Uruguay Round implementing legislation, President Clinton gave his support to the maximum allowed amount for the export subsidy programs and to the "green box" programs. FAIR authorizes MAP through FY2002 and caps funding at $90 million annually from FY1996-FY2002. That is a drop from the FY1995 program level of $110 million. The Act also restricts the recipients of MAP assistance. No foreign for-profit company may receive MAP funds for the promotion of a foreign-made product. No firm that is not classified as a small business by the Small Business Administration may receive direct MAP assistance. MAP, like EEP, is not funded by annual appropriations, but in recent years, appropriations bills have placed caps on the amount of money that could be spent on the program. The FY1994 agricultural appropriations bill imposed no limits on MAP funding, but does prohibit MAP spending in support of promotion of exports of mink pelts or garments, a provision that was adopted in the FY1996 agriculture appropriations bill. The President's FY1998 budget calls for $90 million of MAP funding, the full amount authorized by the 1996 Farm Bill. H.R.2160 places no limits on the level of MAP funding. Foreign Market Development Program (Cooperator Program). This program, which began in 1955, is like MAP in most major respects. The purpose of the program is to expand export opportunities over the long-term by undertaking activities such as consumer promotions, technical assistance, trade servicing and market research. Like MAP, projects under the Cooperator Program are jointly funded by the Government and industry groups, and the Government reimburses the industry organization for its part of the cost after the project is finished. Like MAP, the Cooperator Program is exempt from Uruguay Round Agreement reduction commitments. The two programs are different, however, in other respects. Unlike MAP, which is more oriented toward consumer goods and brand-name products, the Cooperator Program is oriented more toward bulk commodities. Unlike the MAP program, which is mandatory and included in the budget reconciliation process, the Cooperator Program is a discretionary program and funded through appropriations. In the past, the Cooperator Program had been part of the marketing function of FAS, but the 1996 farm bill provided statutory authority for the first time to the Program and authorized it through 2002. Some of the same issues pertain to MAP and the Cooperator Program and in some cases to all the export programs. The basic issue is whether the federal government should have an active role in helping agricultural producers market their products overseas. Some argue that the principal beneficiaries are foreign consumers and that funds could be better spent, for example, to educate U.S. firms on how to export. Program supporters emphasize that foreign competitors, especially EU member countries, spend money on market promotion, and that U.S. marketing programs help keep U.S. products competitive in third-country markets. Export Credit GuaranteesFAIR reauthorizes two USDA-operated export credit guarantee programs to facilitate sales of U.S. agricultural exports. Under these programs, private U.S. financial institutions extend financing at interest rates which are at prevailing market levels to countries that want to purchase U.S. agricultural exports but are short of cash. The U.S. Government, or more specifically, the CCC, assumes the risk of default on payments by the foreign purchasers on loans for U.S. farm exports. Export Credit Guarantee Programs (GSM-102 and GSM-103). GSM-102 guarantees repayment of short-term financing (6 months to 3 years) extended to eligible countries that purchase U.S. farm products. GSM-103 guarantees repayment of intermediate-term financing (3 to 10 years) to eligible countries that purchase U.S. farm products. Eligible countries are those that USDA determines can service the debt backed by guarantees (the "creditworthiness" test). Use of guarantees for foreign aid, foreign policy, or debt rescheduling purposes is prohibited. The General Sales Manager in FAS administers GSM-102 and 103. U.S. financial institutions providing loans to countries for the purchase of U.S. agricultural commodities can obtain, for a fee, guarantees from the CCC. If a foreign borrower defaults on the loan, the U.S. financial institution files a claim with CCC for reimbursement, and the CCC assumes the debt. If a country subsequently falls in arrears to the CCC, its debts may ultimately be subject to rescheduling. Historically, the biggest recipients of export credit guarantees have been Mexico, South Korea, Iraq, Algeria, and the former Soviet Union (FSU). Iraq, for foreign policy reasons, no longer participates in the program. Republics of the FSU, because they are less important as commercial markets for U.S. agricultural exports, are no longer major beneficiaries. Guarantees have helped finance a broad range of commodities, but have mainly financed exports of wheat, wheat flour, oilseeds, feed grains, and cotton. Export credit guarantees are exempt from Uruguay Round reduction commitments, which puts them in the so-called "green box" category of agricultural export promotion activities, along with market promotion and food aid. Member countries of the World Trade Organization (WTO) have agreed, however, "to work toward the development of internationally agreed disciplines to govern the provisions of export credits, export credit guarantees or insurance programs and, after agreement on such disciplines, to provide export credits, export credit guarantees, or insurance programs only in conformity therewith." Negotiations on export credit guarantees are now underway in the Organization for Economic Cooperation and Development (OECD). A sense of Congress resolution, included in the FAIR Act, provides that multilateral negotiations on export credits should be compatible with U.S. law, impose disciplines on entities such as the Australian and Canadian wheat boards, and ensure greater openness on entities that receive considerable support from their governments. The 1990 farm act authorized annual funding levels of $5.5 billion for GSM-102 and 103, but program levels in recent years have been below these authorized levels. In FY1995, for example, the program level for GSM-102 was $2.772 billion and for GSM-103, $149.0 million. In FY1996, GSM-102 totaled $3 billion and GSM-103, $150.7 million. FY1996 appropriations increased the authorized GSM-102 program level by $200 million to a level of $5.2 billion. This increased funding for short-term credit guarantees would enable the CCC to extend $100 million dollars worth of "supplier credit guarantees" and $100 million in "facilities financing guarantees." Under the former, the CCC will guarantee payment by foreign buyers of U.S. commodities and products which are sold by U.S. suppliers on a deferred payment basis. Under this variation of a short-term credit guarantee, the foreign buyer alone will bear ultimate responsibility for repayment of the credit. The duration of the credit is expected also to be short, generally up to 180 days. These credits are expected to be particularly useful in facilitating sales of high-value products, the fastest growing components of U.S. agricultural exports. The Suppliers Credit Guarantee Program became operational in FY1996 with an allocation of $20 million for Mexico. The "facilities financing guarantee" will also be carried out under the GSM-102 program. In this activity, the CCC will provide guarantees to improve commodity handling facilities and/or U.S. goods and services to address infrastructure barriers to increasing sales of U.S. agricultural products. Eligible projects must improve the handling, marketing, storage, or distribution of imported agricultural commodities and products. GSM-103 stayed at the same authorized funding level ($500 million) in the FY1996 appropriations. The 1996 Farm Bill authorizes export credit guarantees at $5.5 billion annually through FY2002, but gives CCC flexibility to determine the allocation between short and intermediate term programs. The new law allows guarantees to be used when the bank issuing the underlying letter of credit is located in a country other than the importing country. Minimum amounts of credit guarantees would be made available for processed and high-value products--not less than 25% in FYs1996 and 1997, 30% in FYs1998 and 1999, and 35% in FYs2000-2002. The FAIR Act permits credit guarantees for high-value products with at least 90% U.S. content by weight, allowing for some components of foreign origin. The FAIR Act also authorized an additional $1 billion through 2002 in export credit guarantees targeted to "emerging markets," countries that are in the process of becoming commercial markets for U.S. agricultural products. The FY1994 agriculture appropriations legislation supported the FAIR- authorized program level of $5.5 billion in export credit guarantees. The house and Senate conference agreement on FY1998 appropriations calls for $5.7 billion for these programs. The additional $200 million would be allocated to countries classed as emerging markets. The allocation for the GSM-102 program is $5.3 billion and for GSM-103, $400 million. Within the GSM-102 program level is $350 million for supplier credit guarantees and $100 million for facilities financing guarantees. The FY1994 supplemental appropriations law cuts $2 billion from the program level for CCC export credit guarantees. That translates into a reduction of $16 million in budget authority. The savings, like those from EEP reductions, would be allotted to offset increased funding for Bosnia peacekeeping and emergency disaster assistance. Negotiations are underway in the Organization for Economic Cooperation and Development (OECD) over disciplines for export credits and credit guarantees. Many countries would like to see the United States change its program by, for example, reducing the volume of credit guaranteed or shortening the terms for which intermediate guarantees are provided. The United States has indicated a willingness to make some changes in the program in exchange for greater transparency on the part of other countries' export credit financing agencies and particularly of state trading entities. Many in the U.S. agricultural community have expressed concerns that what they regard as an effective tool for expanding agricultural exports not be adversely affected by the negotiations. The sense of Congress resolution concerning export credit negotiations in the FAIR Act reflects congressional concerns about the future of the program. Other issues that relate to the effectiveness of the export credit guarantee programs include the level of guarantees to provide; redesigning the programs to deal with changed political and economic situations, such as political and economic transformation in Eastern and Central Europe and the FSU; retargeting the program to rapidly growing Asian markets and to other middle-income developing countries; and accommodating the programs to changes in the commodity composition of U.S. agricultural exports, e.g., by providing more guarantees for high-value products; and allowing more foreign content in the exports backed by loan guarantees. Foreign Food AssistanceUSDA provides food aid abroad through three channels: the P.L. 480 program, also known as Food for Peace; Section 416(b) of the Agricultural Act of 1949; and the Food for Progress Program. (For details on foreign food assistance programs, see CRS Report 94-303, P.L. 480 Food Aid: History and Legislation, Programs, and Policy Issues, April 6, 1994.) The FAIR Act made several important changes in food aid programs. P.L. 480 Food for Peace. P.L. 480, the Agricultural Trade Development and Assistance Act of 1954, has three food aid titles. Each title has different objectives and provides agricultural assistance to countries at different levels of economic development. Title I, Trade and Development Assistance, provides for concessional sales of agricultural commodities to developing countries for dollars on credit terms or for local currencies. Title II, Emergency and Private Assistance Programs, provides for the donation of U.S. agricultural commodities to meet emergency and non-emergency food needs. Title III, Food for Development, provides government-to-government grants to support long-term growth in the least developed countries. Title I of P.L. 480 is administered by USDA; Titles II and III are administered by the Agency for International Development (AID). Section 416(b). This program, authorized in permanent law and administered by USDA, provides for the donation overseas of food and feed commodities owned by the CCC. This component of food aid is the most variable because it is entirely dependent on the availability of commodities in CCC inventories. Section 416(b) donations may not reduce the amounts of commodities that traditionally are donated to domestic feeding programs or agencies, prevent the fulfillment of any agreement entered into under a payment-in-kind program, or disrupt normal commercial sales. Food for Progress (FFP). FFP, authorized by the Food for Progress Act of 1985 and also administered by USDA, provides commodities to support countries that have made commitments to expand free enterprise in their agricultural economies. Commodities may be provided under the authority of P.L. 480 or Section 416(b). Under certain conditions, the CCC may also purchase commodities for use in FFP programs if the commodities are currently not held in CCC stocks. Issues raised during farm bill debate on food aid included the size of the programs in relation to global needs; making the programs more responsive to legislative intent (market development in the case of Title I, humanitarian response in the case of Title II); and whether to end cargo preference, the requirement that 75% of U.S. food aid be shipped on U.S.-flag vessels. Cargo preference was debated early in farm bill consideration, but P.L. 104-127 does not deal with the issue. The Uruguay Round Agreement on Agriculture exempts foreign food aid from any reduction commitments, if it is bona fide and not used to circumvent export subsidy reduction commitments. Uruguay Round implementing legislation takes note of the possible negative effect (higher prices for food imports) of the Agreement on net-food importing countries, by expressing the sense of Congress that "the United States should increase its contribution of bona fide food aid to developing countries consistent with the Agreement on Agriculture." The 1996 farm bill extends authority for all P.L. 480 programs and Food for Progress through FY2002. (Section 416 commodity donations are permanently authorized in the Agricultural Marketing Act of 1949.) Both market development and humanitarian aspects of P.L. 480 food aid are dealt with in the legislation. Private entities in addition to developing countries become eligible for Title I sales agreements. A 5-year grace period, instead of the current 7 years, may be granted before a recipient must begin repaying the principal on the credit extended under a Title I agreement. The Secretary could still allow up to 30 years for repayment, but could require repayment in fewer than 10 years if the recipient has the ability to repay in a shorter time. Priority for Title I agreements is reordered listing developing countries with demonstrated potential to become commercial markets for U.S. agricultural commodities first. The FAIR Act allows private voluntary organizations (PVOs) and cooperatives to carry out Title II nonemergency programs in countries where AID does not maintain a mission. The bill increases the funds that can be used to pay new project or administrative and other costs of PVOs and coops from $13.5 to $28 million. Intergovernmental organizations, such as the World Food Program, become eligible to apply for such funds. The minimum amount of nonemergency Title II commodities to be monetized increases from 10 to 15%. Local currencies from Title II commodity sales (monetization) can be used in a country different from the one in which the commodities were sold, if the country is in the same geographic region. Minimum tonnage levels for both total and nonemergency assistance stipulated for FY1995 under the 1990 farm act are maintained through FY2002. The Food Security Wheat Reserve is broadened into a Food Security Commodity Reserve by adding corn, rice, and sorghum to the list of commodities to be held in reserve. The bill increases the amounts of reserve stocks that can be released in any fiscal year to meet unanticipated emergency needs. The farm bill eliminates the requirement that Title III funds be at least 40% of the combined funding for Titles I and III and authorizes transfers of up to 50% of the funds authorized for Title III to Title II in any fiscal year. Although Uruguay Round implementing legislation and the farm bill both call for increasing contributions of bona fide food aid to developing countries, ensuing budget submissions by the Administration and agriculture appropriations acts have called for reduced levels of food aid. The FY1996 appropriations act provided for a program level of $1.187 billion for P.L. 480 food aid. That amount was $71 million less than in FY1995. The President's FY1994 budget called for $77 million and 200,000 metric tons less food aid than in FY1996. The FY1994 agricultural appropriations act provided for a total P.L. 480 program level of $1.097 billion in FY1994, $77 million less than in FY1996. Lower FY1994 funding was due largely to cuts in concessional sales (Title I) and grant food aid (Title III). Funding for Title II humanitarian commodity donations actually increased by $15.9 million. An amendment to eliminate Title III funding for FY1994 altogether was defeated on the House floor. In FY1994 supplemental appropriations legislation for Bosnia peacekeeping operations and emergency disaster assistance, the Administration requested a $50 million rescission in budget authority for P.L. 480 Title I. However, both House and Senate Appropriations Committees rejected the request, basing their decision on the possible need to transfer Title I resources to Title II in order to meet unanticipated food emergencies in Korea and Central Africa. In FY1996, the United States programmed 3.0 million metric tons of agricultural commodities under P.L. 480. Food for Progress programs amounted to 396,300 metric tons (valued at $115.5 million.) No commodities have been programmed under Section 416(b) in FY1996, FY1994, or FY1998. (In FY1995, Section 416(b) commodities totaled 153.0 thousand metric tons with a value of $100.5 million.) The FY1994 estimates are for P.L. 480 is 3.2 million metric tons of commodities. The President's budget for FY1998 called for a total P.L. 480 program level of $990 million which, assuming that prices and the commodity mix remain essentially the same, would purchase the same volume of commodities expected for FY1994. The conference agreement on FY1998 agriculture appropriations rejects the President's proposed cuts in P.L. 480 Title I and provides $1.1 billion for P.L. 480, essentially the same level of funding as in FY1994. H.R.
972 (Chabot) H.R.
1469 (Livingston) H.R.
2160 (Skeen) S.
1033 (Cochran) S.
672 (Stevens) FOR ADDITIONAL READINGU.S. Department of Agriculture. 1995 Farm Bill: Guidance of the Administration. May 9, 1995. ----Economic Research Service. Agricultural Export Programs: Background for 1995 Farm Legislation. Agricultural Economic Report no. 716, June 1995. U.S. General Accounting Office. Changes Needed to Improve Effectiveness of the Market Promotion Program. July 1993. GAO/GGD-93-125 ----Foreign Agricultural Service Could Benefit from Better Strategic Planning. September 1995. GAO/GGD-95-225 ----Food Aid: Competing Goals and Requirements Hinder Title I Program Results. June 1995. GAO/GGD-95-68 ----Food Aid: Management Improvements are Needed to Achieve Program Objectives. July 1993. GAO/NSIAD-93-168 ----Foreign Aid: Actions Taken to Improve Food Aid Management. March 1995. GAO/NSIAD-95-74 ----Foreign-Owned Exporters' Participation in the Export Enhancement Program. Report to Congressional Requesters. May 1995. GAO/GGD-95-127 ----GSM Export Credit Guarantees. September 29, 1994. Letter response to the Chairman of the Senate Committee on Agriculture, Nutrition, and Forestry. GAO/GGD-94-211R CRS Reports CRS Report 94-582 S. Agriculture in the Uruguay Round: An Assessment, by Charles E. Hanrahan. CRS Report 95-388 ENR. Export Enhancement Program: Background and Current Issues, by Lenore Sek. CRS Report 97-179 ENR. Agricultural Programs for Marketing Abroad: Funding and Program Issues, by Lenore Sek. CRS Report 96-304 ENR. The 1996 Farm Bill: Comparison of Selected Provisions with Previous Law, by Food and Agriculture Section. Environment and Natural Resources Policy Division. CRS Report 96-538 ENR. Food Aid and Trade Provisions in the Federal Agriculture Improvement and Reform Act of 1996, by Charles E. Hanrahan. CRS Report 94-303 S. P.L. 480 Food Aid: History and Legislation, Programs, and Policy Issues, by Leisl Leach and Charles E. Hanrahan. CRS Report 97-396 ENR. U.S. Agricultural Trade: Trends, Composition, Direction, and Policy, by Charles E. Hanrahan, Lenore Sek, and Mary L. Dunkley. CRS Report 96-707 ENR. How is U.S. Agriculture Faring Under NAFTA and the WTO? Proceedings of a CRS Seminar, by Charles E. Hanrahan and Lenore Sek. CRS Report 96-779 ENR. Agriculture in the WTO Ministerial Conference, by Charles E. Hanrahan CRS Report 96-903 ENR. The U.S. Department of Agriculture: Appropriations for FY1997, by Ralph Chite et al. CRS Report 97-201 ENR. Appropriations for FY1998: U.S. Department of Agriculture, by Ralph M. Chite et al. CRS Report 96-351 ENR. An Introduction to Farm Commodity Programs, by Geoffrey S. Becker. |
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