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IB98006: Agricultural Export and Food Aid Programs Charles E. Hanrahan May 30, 2001 CONTENTS
The U.S. Department of Agriculture (USDA) forecasts that FY2001 agricultural exports will be $53 billion, while projected imports of $40 billion will result in an export surplus of $13 billion, $1 billion over FY2000. USDA's forecast reflects reduced competition for U.S. farm products in global markets and stronger economic growth, especially in Asian markets that experienced financial difficulties in 1997-1999. Farm exports that have declined from the $60 billion reached in 1996, together with lower U.S. prices, are among reasons for recent food aid and export program measures taken by USDA to boost U.S. agricultural exports. These measures include the purchase and donation of more than 5 million metric tons (mmt) of wheat in FY1999, a 3.1 mmt food aid program for Russia in 1999, announcement of CCC purchases in FY2000 of 3 mmt of wheat, a 300,000 metric ton food aid program for Russia, a $300 million (640,000 mt) pilot global school feeding program, and large export credit guarantees. Legislative authority for USDA's international programs are found in the 1996 farm bill (P.L. 104-127), the Federal Agriculture Improvement and Reform (FAIR) Act, and in permanent legislation. The FAIR Act authorizes four kinds of federal programs to support agricultural exports: direct subsidies, market promotion, export credit guarantees, and foreign food aid. Authorizing legislation for most of these programs expires at the end of 2002. Direct subsidies include the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP). Although EEP spending in recent years has been authorized at the maximum levels permitted under the FAIR Act and the 1994 Uruguay Round Agreement on Agriculture, actual spending has been negligible since 1996. DEIP spending is authorized at the maximum allowed under the Uruguay Round Agreement. USDA's market promotion programs include the Market Access Program (MAP) and the Foreign Market Development or "Cooperator" Program (FMDP). Considered to be non-trade distorting, these programs are exempt from Uruguay Round reduction commitments. The FAIR Act caps MAP at $90 million annually through FY2002. The FAIR act authorizes export credit guarantees of $5.5 billion annually plus an additional $1 billion for emerging markets through 2002. Actual levels depend on economic conditions and the demand for financing by eligible countries. Export credit guarantees are not subject to Uruguay Round disciplines or reduction commitments. The FAIR Act authorizes P.L. 480 Food for Peace programs and Food for Progress through FY2002. Section 416(b) of the Agricultural Act of 1949 provides for overseas commodity donations. Most of the commodities in Presidential food aid initiatives of the previous Administration were provided through Section 416(b), except for the Russian food aid program which combines both P.L. 480 food aid concessional finance and donations and Section 416 donations. The President's FY2002 budget proposes an estimated program level (value of goods and services) for USDA's international activities of $5.8 billion. On May 3, 2001, H.R. 1700 was introduced in the House. The bill would provide authorization for an international food for education and child nutrition program to be carried out under Section 416(b) of the Agricultural Act of 1949. On April 25, 2001, the Senate Agriculture Committee held a hearing to review the trade title of the farm bill. On April 10, 2001, the President released his detailed budget request for FY2002. For the international activities and programs of USDA, the budget estimates a program level (value of goods and services provides) of $5.8 billion. The budget proposes to increase funding for export subsidies, export credit guarantees, and the Foreign Agricultural Service and to reduce spending on foreign food aid. The President's FY2002 preliminary budget document, a Blueprint for New Beginnings (issued February 28, 2001), identifies two food aid programs, P.L. 480 Title I and Section 416(b), as candidates for potential reform. Title I would be reviewed in terms of its effectiveness in meeting its market development objective. Section 416(b) would be reviewed to consider appropriate programmatic objectives and the future availabilities of surplus commodities on which it depends. H.R. 98 (introduced on January 3, 2001) and S. 366 (introduced on February 15, 2001) would use unallocated Export Enhancement Program (EEP) funds to finance USDA's export market development programs. On December 28, 2000, President Clinton announced a $300 million (640,000 million metric ton) program to support a pilot "Global Food for Education Initiative." CCC surplus commodities and funds for transportation would be used to finance program grants to the United Nations World Food Program and U.S. private voluntary organizations to launch a program of school feeding or take-home rations in 49 projects in 38 developing countries. The Senate Agriculture Committee held hearings on the GFEI during the 106th Congress on July 27, 2001 and in the 107th Congress on March 6, 2001. Agricultural 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 32% of wheat, 42% of rice, 33% of soybeans, 16% of corn, and 26% of cotton. About 15% of the value of agricultural production is exported and around 25% of gross farm income comes from exports. Exports generate economic activity in the non-farm economy as well. According to USDA, each $1.00 received from agricultural exports stimulates another $1.30 in supporting activities to produce those exports. Agricultural exports generated an estimated 808,000 full-time civilian jobs, including 488,000 jobs in the non-farm sector in 1998. In contrast to the continuing overall trade deficit, U.S. agricultural trade has consistently registered a positive, though recently declining, balance. Nearly every state exports agricultural commodities, thus sharing in export-generated employment, income, and rural development. In 1999, the states with the greatest shares in U.S. agricultural exports by value were California, Iowa, Nebraska, Kansas, Illinois, Texas, Minnesota, Washington, Indiana, and Wisconsin. These 10 states accounted for 56% of total U.S. agricultural exports. In addition, Arkansas, North Carolina, Ohio, Florida, Missouri, Georgia, North Carolina, and South Dakota 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, but then declined by 40% to just $26.3 billion by FY1986. By FY1995, agricultural exports had recovered and reached a new peak of $54.6 billion. Agricultural exports reached nearly $60 billion in FY1996, but declined to $57.3 billion in FY1997. U.S. agricultural exports declined further in FY1998 to $53.6 billion. Main reasons for the decline were financial difficulties and an economic slow-down in East and Southeast Asian countries, and increased competition for global corn, wheat, and soybean markets. For the same reasons, exports fell in FY1999 to $49 billion. They rose to an estimated $50.9 billion for FY2000. USDA's most recent forecast, February 22, 2001, projects FY2001 exports to rise to $53 billion. The commodity composition of U.S. agricultural exports has changed over time with exports of high value agricultural products now exceeding those of bulk commodities. 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 FY2000, high value agricultural exports accounted for 63% of the value of total 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 also influence the level of U.S. agricultural exports. Agricultural Export and Food Aid Programs The trade title of the 1996 FAIR 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 (USAID). For FY2001, P.L. 106-387/H.R. 4461 provides budget authority of almost $1.1 billion to support a program level for international activities estimated at $5.8 billion. The large difference between program level (the gross value of commodities and services provided by USDA) and budget authority (the funds authorized by Congress to carry out the programs) is mainly 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. Export subsidies, export market development and some food aid donations are funded through borrowing from USDA 's Commodity Credit Corporation (CCC). USDA International Program Activity,
FYs1995-2002
a FY1995-FY199 8 FMDP spending included in FAS appropriation. b Ocean freight and internal distribution costs only. Source: USDA, Annual Budget Summaries and Outlook for U.S. Agricultural Exports, various issues. The 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 still can be subsidized by the EEP. Export Enhancement Program (EEP). EEP was established in 1985, first by the Secretary of Agriculture under authority granted in the Commodity Credit Corporation Charter Act, and then under the Food Security Act of 1985 (P.L. 99-198). The program was instituted after several years of declining U.S. agricultural exports and a growing grain stockpile. Several factors contributed to the fall in exports during the early 1980s: an overvalued dollar and high commodity loan rates under the 1981 farm bill made U.S. exports relatively expensive for foreign buyers; global recession reduced demand for U.S. agricultural products; and foreign subsidies, especially those of the European Union (EU), helped competing products make inroads into traditional U.S. markets. EEP's main stated rationale was to combat "unfair" trading practices of competitors in 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, the last year with significant program activity, 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. The former Soviet Union, Egypt, Algeria, and China were major beneficiaries of EEP subsidies. The United States agreed to reduce its agricultural export subsidies under the 1994 Uruguay Round Agreement on Agriculture. The Agreement requires that outlays for export subsidies fall by 36% and the quantities subsidized by 21% over 6 years (1995-2001). 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 as in the 1985 Food Security Act, but could be used also to develop export markets. The 1996 FAIR Act makes available for EEP "not more than" $350 million in FY1996, $250 million in FY1997, $500 million in FY1998, $550 million in FY1999, $579 million in FY2000, and $478 million annually in FY2001 and FY2002. The levels were well below the amounts allowed under the Agreement on Agriculture for FYs1996-1999 but rise to the allowed ceilings thereafter. The 1996 FAIR Act also authorizes the Secretary of Agriculture, beginning in FY1996, to make available up to $100 million of EEP funds annually for subsidizing the sale of intermediate agricultural products. In FY1995, the last year of significant program activity, EEP bonuses were valued at $339 million. Only $5 million in EEP bonuses were awarded in FY1996 and none were awarded in FY1997. In FY1998, EEP bonuses amounted to just $2 million. Expenditures for EEP sales in FY1999 totaled $1 million. EEP bonuses of $2 million (for frozen poultry) were awarded in FY2000. For FY2001, the President's budget provides a program level of $478 million for EEP, which is the maximum authorized in the FAIR Act and is consistent with export subsidy reduction commitments made in the Uruguay Round Agreement on Agriculture. However, only $3.7 million of EEP bonuses have been awarded thus far in 2001. Similarly, the President's FY2002 budget proposes EEP spending of $478 million. Although under some pressure from interested commodity groups to use EEP more extensively, USDA has limited the scope and funding of EEP since 1995. The rationale for not using EEP is based on USDA economists' argument that using it in the current international economic environment might further depress prices for wheat and other commodities. The U.S. proposal in the current WTO agricultural trade negotiations to eliminate all agricultural export subsidies may also be a factor. In the 106th Congress, H.R. 3593 and S. 1983 proposed to use unallocated EEP funds to finance additional export market development program activity. In the 107th Congress, H.R. 98 and S. 366 include a similar proposal A main rationale for this legislation is that while export subsidies like EEP are subject to Uruguay Round reduction commitments, market development programs, because they are thought to be non-trade distorting, are not. However, because EEP has been little used in recent years, the Congressional Budget Office has set EEP baseline spending at minimal levels, not at the higher levels authorized in the FAIR Act. As a result, there is little or no EEP money to transfer to other programs. Thus, increased spending for market development programs would likely have to be offset by a decrease in some other account where money is available or by an increase in revenues, according to congressional budget rules. EEP has been a controversial program since it was initiated in 1985. Many oppose the program outright 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 competitors, such as 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. Some suggest that EEP should target high-growth markets in Asia and Latin America for high-value or value-added products. For more information see CRS Report RS20399 (pdf), Agricultural Export Programs: The Export Enhancement Program (EEP). 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 also to DEIP. Uruguay Round implementing legislation authorized DEIP through the year 2001. The 1996 FAIR Act extended DEIP authority to FY2002, directed the USDA to maximize the volume of dairy exports subject to the Uruguay Round Agreement reduction commitments, and authorized DEIP exports to anywhere in the world. The program level for DEIP in FY2000 was $78 million and in FY2001, is estimated to fall to 34 million. The President's FY2002 budget anticipates DEIP spending at $42 million. Recent levels of DEIP reflect limits imposed by Uruguay Round Agreement commitments, an end to the "roll-over" authority in the Agricultural Agreement, which allowed countries to draw on unused subsidy authority from previous years, and improved world market conditions for skim milk powder. While many raise issues similar to those raised concerning EEP, a particular DEIP issue during the 1996 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 resolved this issue by continuing the separate authorization for dairy export subsidies. For more information see CRS Report RS20402 (pdf), Agricultural Export Programs: The Dairy Export Incentive Program (DEIP). USDA operates two market promotion programs, the Market Access Program (MAP), formerly the Market Promotion Program (MPP) which in its turn had 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). 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 on grounds that they are not trade-distorting or only minimally so. As a consequence, many agricultural groups have called for an increase in funding for MAP and other programs not subject to reduction commitments. This point of view is reflected in legislation introduced in the 107th (H.R. 98 and S. 366) which would shift funds from EEP to both MAP and FMDP. The FAIR Act 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 for branded promotions. USDA announced that, starting in FY1998, all MAP funds for promotion of branded products would be allocated to cooperatives and small U.S. companies. MAP, like EEP, is not funded by annual appropriations, but appropriations bills have on occasion capped the amounts that could be spent on the program. FY1999 agricultural appropriations legislation imposed no limits on MAP funding, but did prohibit MAP spending in support of promotion of exports of mink pelts or garments, a provision that was first adopted in the FY1996 agriculture appropriations bill. Since 1993, no MAP funds may be used to promote tobacco exports. Some Members of Congress targeted MAP for cuts in FY2000 to help offset increased expenditures on other programs, but such amendments were defeated. MAP was unsuccessfully targeted by budget cutters in FY2001 as well. USDA allocated $90 million for MAP funding in FY2001, the full amount authorized in the 1996 farm bill. The President's budget estimates that MAP spending also will be $90 million in FY2002. 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. Prior to FY2000, FMDP was funded as part of the appropriation of the Foreign Agricultural Service. The 1996 farm bill provides statutory authority for the Program and authorized it through 2002. In FY2000, USDA moved funding for FMDP from discretionary to CCC funding, thus shifting its funding into the mandatory category. Funds allocated for FMDP in FY2001 were $28 million and the President's budget anticipates the same level of spending in FY2002. Some of the same issues raised with respect to MAP are also raised about the Cooperator Program and in some cases 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. For more information, see CRS Report RS20415 (pdf), Agricultural Export Programs: The Market Access Program and Foreign Market Development Cooperator Program. The FAIR Act reauthorizes USDA-operated export credit guarantee programs, first established in the Agricultural Trade Act of 1978, 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. In making available a guarantee for such loans, 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 (up 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 the 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 facilitate sales of a broad range of commodities, but have mainly benefitted exports of wheat, wheat flour, oilseeds, feed grains, and cotton. The CCC can also extend credit under GSM-102 for two other programs: "suppliers credit guarantees" and "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 short-term credit guarantee, the foreign buyer alone will bear ultimate responsibility for repayment of the credit. The duration of the credit is 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 "facilities financing guarantee" is also 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. Along with market promotion and food aid programs, export credit guarantees are exempt from Uruguay Round disciplines and reduction commitments. Member countries of the World Trade Organization (WTO) agreed, however, in the 1994 Uruguay Round Agreement on Agriculture, "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 agricultural export credits and guarantees were carried out in the Paris-based Organization for Economic Cooperation and Development (OECD). In the OECD negotiations, some countries suggested that the United States change its program by, for example, reducing the volume of credit guaranteed or shortening the terms for which guarantees are provided. The United States 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 state trading enterprises Many in the U.S. agricultural community expressed concerns that what they regard as an effective tool for expanding agricultural exports not be adversely affected by the OECD negotiations. A sense of Congress resolution included in the FAIR act reflected this perspective. The resolution provided 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 OECD negotiations on new rules and disciplines for agricultural export credits and guarantees ended without agreement. The main differences were over how an agreement would cover state agricultural exporting enterprises like those used by Australia and Canada and the length of repayment terms for U.S. export credit guarantees. Without an agreement, negotiations on agricultural export credits will move into the on-going WTO agriculture trade negotiations, where a number of WTO members have already raised the issue. (See Agricultural Export Subsidies, Export Credits, and the World Trade Organization, CRS Report RS20858 (pdf).) 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 actual level of guarantees depends on market conditions and the demand for financing by eligible (i.e., creditworthy) countries. A new provision in the FAIR Act allows guarantees to be used when the bank issuing the underlying letter of credit is located in a country other than the importing country. The FAIR Act provides also that 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. For FY2001 export credit guarantees financed an estimated $3.8 billion of U.S. agricultural exports. FY2002 guarantees are estimated to rise to $3.9 billion. In addition to issues raised in OECD negotiations, a number of issues that relate to the effectiveness of the export credit guarantee programs have been raised. They 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; 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. USDA 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. All these programs are authorized in the 1996 FAIR Act, except Section 416(b) which is part of the Agricultural Act of 1949. 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 surplus agricultural 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. Section 416(b) was used to donate CCC purchases of around 5.3 million metric tons of wheat and wheat flour in the President's Food Aid Initiative in FY1999. Approximately 30 countries designated as having food problems received Section 416 commodities. The FY2000 CCC purchase of 3 million metric tons of wheat were also donated under Section 416(b). Planned allocations of Section 416(b) commodity donations in FY2001 amount to 2.6 million metric tons. In the 106th and 107th Congresses, the Senate Agriculture Committee held hearings on the Global Food for Education Initiative (GFEI) proposed by former President Clinton at the July 2000 G-8 summit, and based on ideas advanced by Ambassador (and former Senator) George McGovern and former Senator Robert Dole. Under the GFEI, USDA donates surplus agricultural commodities for use in school feeding and pre-school nutrition projects in developing countries. The program's rationale is that school feeding helps assure that children attend and remain in school, improves childhood development and achievement, and contributes more broadly to social and economic development. USDA's Commodity Credit Corporation (CCC) has committed $300 million of U.S. commodities and transportation to the initiative under the authority of Section 416(b). USDA-approved projects will be conducted through the UN World Food Program (WFP), private voluntary organizations, and eligible foreign governments. The 107th Congress may address issues raised in the Senate Agriculture Committee hearings, including, whether and how to secure a more stable source of funding for an international food for education and child nutrition program and whether such a program would reduce food aid resources available for other food aid programs. H.R. 1700, introduced in the House on May 3, 2001, directs the Secretary of Agriculture, using Section 416(b) of the Agriculture Act of 1949, to establish and expand overseas preschool and school feeding programs, and maternal, infant, and child nutrition programs. 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. The 1996 FAIR Act extends authority for all P.L. 480 programs and Food for Progress through FY2002. (Section 416(b) 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 to enter into 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 (i.e., sold for local currencies) 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 minimum Title II volume is set by law at 2.25 million metric tons (mmt), of which 1.550 mmt is to be channeled through such eligible organizations as private voluntary organizations, cooperatives, and the World Food Program. Food Security Commodity Reserve. In the FAIR Act, the Food Security Wheat Reserve was broadened into a Food Security Commodity Reserve (FSCR) by adding corn, rice, and sorghum to the list of commodities to be held in reserve. The FSCR can be used to met unanticipated emergency food aid needs or can be used in P.L. 480 programming when domestic supplies are short. The bill increases the amounts of reserve stocks that can be released in any fiscal year to meet unanticipated emergency needs. P.L. 105-385 enacted in the 105th Congress transforms the FSCR into a Food Security Trust. The trust will be comprised of categories of commodities as in the FSCR. In addition, funds of the Commodity Credit Corporation, made available under P.L. 480, can be used to purchase commodities to replenish the trust. This legislation also provides permanent authority for the trust. (For more information, see The Food Security Commodity Reserve: The Replenishment Issue, CRS Report 98-398.) Food Aid Program Levels. P.L. 480 food aid averaged around $1.2 billion from 1995 to 1998. In FY1999, however, nearly $1.8 billion in P.L. 480 food aid was provided. Although only around $1.1 billion was appropriated for P.L. 480 in FY1999, the final total includes approximately $700 million of food aid programming for Russia, which was carried out through a transfer of funds from the Commodity Credit Corporation. The FY2000 program level for P.L. 480 was $1.076 billion, while FY2001 P.L. 480 spending is estimated at $ 1.107 billion. The President's budget proposes a P.L. 480 program level of $995 million. The program level of donations under Food for Progress in FY2002 is expected to be $94 million, unchanged from FY2001. The FY2002 budget presented no estimate of the program level for Section 416(b), but notes that programming of Section 416(b) will be based on the availability of uncommitted CCC commodity inventory. The President's FY2002 preliminary budget document, a Blueprint for New Beginnings (issued February 28, 2001), identifies two food aid programs, P.L. 480 Title I and Section 416(b), as candidates for potential reform. Title I would be reviewed in terms of its effectiveness in meeting its market development objective. Section 416(b) would be reviewed to consider appropriate programmatic objectives and the future availabilities of surplus commodities on which it depends. Some U.S. trading partners have raised the issue of recent large U.S. food aid shipments in on-going WTO agriculture negotiations. They have suggested that the United States is using food aid to get around its export subsidy reduction commitments made in the Uruguay Round Agriculture Agreement. The United States has countered that its food aid shipments, though large, are made in conformity with WTO rules, and are being made available to countries with food needs or in the context of development programs such as the GFEI. Food aid is also an issue for some developing countries who feel that the United States and other developed countries have not adequately addressed their commitment made in the Uruguay Round negotiations to meet long-term needs for food aid, for financing food imports, and for technical assistance to improve food production. For more information, see CRS Report RS20520 (pdf), Foreign Food Aid Programs: Background and Selected Issues. Return to CONTENTS section of this Issue Brief. |
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