Order Code IB98006
Issue Brief for Congress
Received through the CRS Web
Agricultural Export and Food Aid Programs
Updated October 30, 2002
Charles E. Hanrahan
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
U.S. Agricultural Exports
Agricultural Export and Food Aid Programs
Export Subsidies
Export Enhancement Program (EEP)
Dairy Export Incentive Program (DEIP)
Market Promotion
Market Access Program (MAP)
Foreign Market Development Program (Cooperator Program)
Export Credit Guarantees
Export Credit Guarantee Programs (GSM-102 and GSM-103)
Foreign Food Aid
P.L. 480 Food for Peace
Section 416(b)
Food for Progress (FFP)
The Bill Emerson Humanitarian Trust
McGovern-Dole International Food for Education and Child Nutrition Program
Recent Program Activity
Export Subsidies
Market Development
Export Credit Guarantees
Food Aid
FY2003 Budget Proposals and Appropriations
FAS Salaries and Expenses
Foreign Food Aid: Funding and Issues
Export Programs
Trade Negotiations

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Agricultural Export and Food Aid Programs
SUMMARY
The U.S. Department of Agriculture

Market promotion programs include the
(USDA) forecasts that FY2003 agricultural
Market Access Program (MAP) and the For-
exports will be $57.5 billion. Projected im-
eign Market Development or “Cooperator”
ports of $42 billion will result in an export
Program (FMDP). Considered to be non-trade
surplus of $15.5 billion, which represents an
distorting, these programs are exempt from
annual increase in the trade balance of $2.5
Uruguay Round reduction commitments. The
billion.
FSRIA increases MAP to $200 million annu-
ally by FY2006; and sets FMDP spending at
Farm exports that have declined from the
$34.5 million annually.
$60 billion reached in 1996, together with
lower U.S. prices, are among reasons for
The FSRIA authorizes export credit
recent large food aid and export program
guarantees of $5.5 billion annually plus an
measures taken by USDA in recent years to
additional $1 billion for emerging markets
boost U.S. agricultural exports. These
through 2007. Actual levels guaranteed de-
measures include the purchase and donation as
pend on economic conditions and the demand
food aid of large wheat, a $300 million
for financing by eligible countries. Export
(640,000 mt) pilot global school feeding
credit guarantees also are not subject to
program beginning in FY2000, and large
multilateral disciplines or reduction commit-
export credit guarantees in both FY2000 and
ments.
2001.
The FSRIA also authorizes P.L. 480
The 2002 farm bill (P.L. 107-171), the
Food for Peace programs and Food for Prog-
Farm Security and Rural Investment Act
ress through FY2007. Section 416(b),
(FSRIA), and permanent legislation authorize
permanently authorized in the Agricultural
four kinds of federal programs to support
Act of 1949, provides for overseas commodity
agricultural exports: direct subsidies, market
donations. Extensive use has been made of
promotion, export credit guarantees, and
Section 416(b) commodity donations in the
foreign food aid. Legislative authority for
various recent food aid initiatives and in
most of these programs now expires at the end
responding to humanitarian food needs in
of 2007. Export subsidies, but not other types
Afghanistan.
of export and food aid programs, are subject
to reduction commitments in the Uruguay
The President’s FY2003 budget proposed
Round Agreement on Agriculture (URAA).
phasing out Section 416(b) commodity dona-
tions in 2003 and increasing P.L. 480 food
Direct subsidies include the Export
aid. However, House and Senate Appropria-
Enhancement Program (EEP) and the Dairy
tions Committees expressed disagreement
Export Incentive Program (DEIP). EEP
with phasing out Section 416(b). Export
spending has been negligible since 1996.
subsidies, export credit programs, and food
DEIP spending, however, has been at the
aid also are on the agenda of agricultural
maximum allowed under the Uruguay Round
negotiations in the World Trade Organization.
Agreement.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On October 17, 2002, the House and Senate approved a continuing resolution for
FY2003 (P.L. 107-244, H.J.Res. 123) which funds FY2003 federal spending at the FY2002
level, through November 22, 2002.
The House Appropriations Committee, which marked up FY2003 agriculture
appropriations on (H.R. 5263, H. Rept. 107-623) June 11, 2002, recommended budget
authority of $1.491 billion for USDA international programs. The Senate Appropriations
Committee marked up its version of agriculture appropriations (S. 2801, S. Rept., 107-223)
and recommended $1.464 billion in budget authority.
On June 10, 2002, at the United Nations World Food Summit, the Secretary of
Agriculture announced that 275,000 tons of wheat would be released from the Bill Emerson
humanitarian Trust, exchanged for corn, beans, and vegetable oil and provided to meet
unanticipated humanitarian food needs in Southern African countries.
President Bush signed into law the Farm Security and Rural Investment Act (P.L. 107-
171) on May 13, 2002. The FSRIA reauthorizes most agricultural export and food aid
programs through FY2007. The Senate passed its version of the farm bill (S. 1731) on
February 13, 2002, the House passed its version (H.R. 2646) on October 5, 2001.
On February 4, the President transmitted his FY2003 budget proposals to Congress.
The budget proposed budget authority of $1.453 (to support a program level of $6.45
billion) for USDA’s export and food aid programs. The budget also proposed phasing out
food aid donations that rely on the use of surplus commodities from the Commodity Credit
Corporation.
BACKGROUND AND ANALYSIS
U.S. Agricultural Exports
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
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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 reports that FY2001 exports were $53 billion and estimates that exports
increased only slightly to $53.5 billion in FY2002. USDA forecasts FY2003 exports at $57.5
billion, a $4 billion increase.
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 FY2001,
high value agricultural exports accounted for 65% 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 2002 FSRIA (Title III of P.L. 107-171) authorizes and amends four
kinds of export and food aid programs:
! Direct export subsidies;
! Export Promotion Programs;
! Export credit guarantees; and
! Foreign food aid.
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 the current fiscal year, FY2002, USDA appropriations legislation (P.L. 107-76,
H.R. 2330) provides budget authority of $1.124 billion to support a program level for
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international activities at an estimated $6.6 billion. The large difference between program
level (the gross value of commodities and services provided by USDA) and budget authority
(the funds authorized by Congress to carry out the programs) is mainly attributable to the
large part played by credit programs (especially export credit guarantees) in USDA’s
international activities. For credit programs, only costs represented by administrative
expenses and loan subsidies (not the value of the exports which are financed by the private
sector) require authorization of budget authority. Moreover, export subsidies, export market
development and some food aid donations are funded not by direct annual appropriations,
but by borrowing from USDA‘s Commodity Credit Corporation (CCC) and also do not
require budget authority.
USDA International Program Activity, FYs1995-2002
($ millions)
2002
Program
1995
1996
1997
1998
1999
2000
2001
est.
Export
339
5
0
2
1
2
7
478
Enhancement
Program
Dairy Export
140
20
121
110
145
77
8
61
Incentive Program
Market Access
110
90
90
90
90
90
90
90
Program
Foreign Market
–
–
–
–
28
28
28
28
Development
Programa
CCC Export Credit
2,921
3,230
3,876
4,037
3,045
3,082
3,227
3,926
Guarantees
P.L. 480 Food Aid
1,286
1,207
1,054
1,154
1,796
1,076
1,086
1,214
Section 416(b)b
4
0 0
0
917
439
1,103
650
Food for Progressc
146
144
121
139
307
150
104
109
Foreign Agricultural
159
167
191
181
178
200
201
198
Service
Total
5,105
4,863
5,453
5,713
6,507
5,144
5,854
6,561
a FY1995-FY199 8 FMDP spending included in FAS appropriation.
b Commodity value plus ocean freight and internal distribution costs.
c Includes only CCC purchases of commodities for FFP. P.L. 480 Title I funds allocated to FFP are included
in P.L. 480.
Source: USDA, Annual Budget Summaries and Outlook for U.S. Agricultural Exports, various issues.
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Export Subsidies
The FSRIA authorizes direct export subsidies of agricultural products through the
Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP).
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 also could be used to develop export markets.
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
also has been an 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
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unsubsidized commodities such as corn. Some critics suggest EEP subsidies should target
different products and country markets such as high value or value-added products in Asia
or Latin America.
For more information, see CRS Report RS20399, 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, and FSRIA reauthorizes DEIP
through 2007.

While many oppose subsidizing dairy products for reasons similar to those held by EEP
opponents, the program has strong support in Congress. Dairy producers consider DEIP an
integral part of U.S. dairy policy, an important adjunct to domestic support programs. That
is perhaps why DEIP is reauthorized as part of Title I commodity programs of the FSRIA,
not the trade title.
For more information see CRS Report RS20402, Agricultural Export Programs: The
Dairy Export Incentive Program (DEIP).
Market Promotion
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, was 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
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or products), and about 40% support brand-name promotion (i.e., a specific company
product).
The FSRIA authorizes MAP through 2007. The funding level for the program
(previously capped at $90 million annually) gradually increases to $200 million by FY2006.
The 2007 farm bill continues restrictions on 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. Starting in FY1998, USDA’s policy
has been to allocate all MAP funds for promotion of branded products to cooperatives and
small U.S. companies.
Foreign Market Development Program (Cooperator Program). The FSRIA
reauthorizes this program with annual funding of $34.5 million. 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.
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, Agricultural Export Programs: The
Market Access Program and Foreign Market Development Cooperator Program.
Export Credit Guarantees
The FSRIA 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 and are guaranteed that the loans will be repaid. 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.
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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 2002 farm bill authorizes export credit guarantees at $5.5 billion annually through
FY2002, while giving 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 provision in the
statute 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 new farm bill continues the
provision that minimum amounts of credit guarantees would be made available for processed
and high-value products through 2007. The farm bill permits credit guarantees for
high-value products with at least 90% U.S. content by weight, allowing for some components
of foreign origin. The legislation provides for an additional $1 billion through 2007 in export
credit guarantees targeted to “emerging markets,” countries that are in the process of
becoming commercial markets for U.S. agricultural products.
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: “supplier
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.
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The major issue concerning export credit programs is to what extent and how they
might be treated in WTO agriculture negotiations. This issue is discussed below.

Foreign Food Aid
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 2002 FSRIA, except Section
416(b) which is permanently authorized in the Agricultural Act of 1949. The FSRIA also
authorizes the Bill Emerson Humanitarian Trust, which is primarily a commodity reserve,
that can be used, under certain circumstances, to provide P.L. 480 food aid. The 2007 farm
bill also establishes a new food aid program, the McGovern-Dole International School
Feeding and Child Nutrition Program.
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.
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 2002 FSRIA extends authority for all P.L. 480 programs and Food for Progress
through FY2007. (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 are eligible to enter into Title I sales agreements. A 5-year grace period
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
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shorter time. Priority for Title I agreements is accorded to developing countries with
demonstrated potential to become commercial markets for U.S. agricultural commodities.
The legislation allows private voluntary organizations (PVOs) and cooperatives to carry
out Title II nonemergency programs in countries where AID does not maintain a mission.
Also authorized is funding to pay project or administrative and other costs of PVOs and
coops at 5% to 10% of annual Title II funding. Intergovernmental organizations, such as the
World Food Program, also are eligible to apply for such funds. A minimum of 15% of
nonemergency Title II commodities can be monetized (i.e., sold for local currencies).
Monetization enables PVOs and coops to defray the costs of distributing food or
implementing development projects in countries where they operate. 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. FSRIA
stipulates that the annual minimum tonnage level provided as Title II commodity donations
shall be 2.5 million metric tons, of which 1.875 mmt is to be channeled through such eligible
organizations as private voluntary organizations, cooperatives, and the World Food Program.
The Bill Emerson Humanitarian Trust. The FSRIA reauthorizes the Emerson
Trust enacted in the 1998 Africa Seeds of Hope Act (P.L. 105-385). The trust is primarily
a reserve of 4 million metric tons of wheat, corn, sorghum and rice that can be used to help
fulfill P.L. 480 food aid commitments to developing countries under two conditions: (1) to
meet unanticipated emergency needs in developing countries, or (2) when U.S. domestic
supplies are short. The trust, as presently constituted, replaced the Food Security Commodity
Reserve established in the 1996 farm bill and its predecessor, the Food Security Wheat
Reserve of 1980. The trust, which the Administration recently tapped to meet urgent food
aid needs in southern African countries, was used six times between 1980 and 1996–three
times for urgent humanitarian relief and three times when domestic supplies were limited.
Two and one-half million metric tons of wheat remained in the trust as of June 2002.
McGovern-Dole International Food for Education and Child Nutrition
Program. The FSRIA authorizes this new food aid program, which can use commodities
and financial and technical assistance to carry out preschool and school food for education
programs and maternal, infant and child nutrition programs in foreign countries. Private
voluntary organizations, cooperatives, and the World Food Program and foreign governments
are all eligible organizations for carrying out these activities . FSRIA mandates CCC funding
of $100 million for the program in FY2003 and authorizes such sums as necessary from
FY2004-2007. McGovern-Dole replaces the pilot Global Food for Education Initiative
discussed below.
(For more information, see CRS Report RS20520, Foreign Food Aid Programs:
Background and Selected Issues; CRS Report RS20997, Farm Bill Trade and Food Aid
Provisions; and The Bill Emerson Humanitarian Trust: Background and Current issues,
CRS Report RS21234.)
Recent Program Activity
Export Subsidies. Although under some pressure from interested commodity groups
to use EEP more extensively, USDA has limited the scope and funding of EEP since 1995.
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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. Some analysts say that not using EEP strengthens the U.S. hand in on-going
WTO agriculture negotiations where a U.S. aim is the elimination of agricultural export
subsidies.
In FY1995, the last year of significant program activity, EEP bonuses were valued at
$339 million. In FY1996, $5 million in EEP bonuses were awarded 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, $7 million of EEP bonuses were awarded. The President’s
FY2002 budget proposed EEP spending of $478 million, but so far in this fiscal year, no EEP
bonuses have been awarded.
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.
The program level for DEIP in FY2000 was $78 million and in FY2001 is estimated to
have been $8 million. In FY2002, $43.3 million in DEIP bonuses have been awarded. The
committee report for S.1191, the Senate version of FY2002 agriculture appropriations,
indicated that the Administration should use fully its DEIP authority. Further, the report
expressed concern that the program had lost a “substantial percentage” of its WTO-permitted
tonnage every year because not all foreign sales of DEIP-awarded export sales are completed
due to buyer cancellations and other factors. The report directed USDA to prepare a plan to
ensure that all lost tonnage be reallocated during the applicable export year so that it is not
lost due to the WTO provision ending roll-over authority.
Market Development. 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. For example, the 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’s allocation of $90 million for MAP funding in FY2002
is the full amount authorized in the 1996 farm bill. A proposed amendment to eliminate
completely MAP funding in FY2002 was defeated during floor consideration of H.R. 2330,
the House-passed version of FY2002 agriculture appropriations.
Prior to FY2000, FMDP was funded as part of the appropriation of the Foreign
Agricultural Service. The 1996 farm bill provided new, 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 USDA has allocated the same level of
spending in FY2002.
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Export Credit Guarantees. For FY2001 export credit guarantees financed an
estimated $3.2 billion of U.S. agricultural exports. FY2002 guarantees are estimated to rise
to $3.9 billion.
Food Aid. 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 $976
million. The FY2002 spending level for P.L. 480 is estimated at $1.214 billion.
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). Allocations of Section 416(b) commodity donations in FY2001 were an estimated
2.6 million metric tons and in FY2002 are forecast to be 1.4 million metric tons.
Global Food for Education Initiative. Section 416(b) commodities also were used
to launch a global food for education initiative (GFEI) in July 2000. Under the GFEI, USDA
donates 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 are being
implemented by the UN World Food Program (WFP), private voluntary organizations, and
eligible foreign governments.
Emerson Trust. Administration proposals to reduce food aid’s reliance on surplus
commodities and anticipated demand for emergency food aid, especially in southern Africa,
have focused renewed attention on the Emerson Trust, which had not been used since 1996.
The Secretary of Agriculture announced at the UN World Food Summit on June 10, 2002
that 275,000 of wheat from the reserve would be exchanged for an equal value of corn, beans
and vegetable oil for use in humanitarian relief in southern Africa. There, an estimated 14.4
million people will need emergency food aid to compensate for severe food shortages and
stave off famine. Private voluntary organizations and cooperatives that implement food aid
programs in developing countries, while welcoming use of the trust to alleviate hunger in
Africa, have expressed concerns that the trust be reimbursed in a way that does not use P.L.
480 funds as required in current law. (For detail on the Emerson Trust, see The Bill Emerson
Humanitarian Trust: Background and Current Issues, CRS Report RS21234, June 7, 2002.)
FY2003 Budget Proposals and Appropriations
The House Appropriations Committee reported bill recommends budget authority of
$1.491 billion in FY2003 for USDA’s international activities that are subject to annual
appropriations (P.L. 480 food aid, salaries and expenses of the Foreign Agricultural Service,
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and administrative expenses for managing export credit guarantee programs). The House
Committee level is $367 million greater than enacted in FY2002 and $41.5 million greater
than requested by the President for FY2003. The Senate Appropriations Committee bill (S.
2801) recommends budget authority of $1.464 billion, $27 million less than the House
Committee bill. S. 2801 is around $15 million greater than the President’s request. Almost
all of the additional funding in both bills goes to food aid programs. Increased budget
authority requested for FY2003 reflects a decision by the Administration to phase out food
aid that is dependent on surpluses and to pay for much of U.S. foreign food aid with
discretionary rather than mandatory spending. Although both bills recommend increases in
budget authority for discretionary food aid programs, the Committee reports also stress the
continuing importance of commodity assistance and the use of surplus commodities in U.S.
food aid programs. The Senate Committee report (S. Rept. 107-223), for example, expresses
strong disagreement with Administration decisions to phase out food aid based on
commodity surpluses.
For one CCC-funded direct export subsidy program, the Export Enhancement Program
(EEP), H.R. 5263 limits spending to $28 million.. In contrast, the Administration had
proposed $478 million for EEP, the maximum permitted by the 1996 farm law and world
trade obligations. For its proposed reductions from the authorized level, the House bill scored
savings of $450 million. Savings from EEP reductions were reallocated to a variety of other
USDA programs (although only about $1 million annually has been used in recent years). In
the past, the Congressional Budget Office has scored no savings for proposed cuts to EEP
funding, since actual spending in the program has been negligible. However, this year, the
House Budget Committee used the Office of Management and Budget (OMB) score which
allows dollar- for-dollar savings for cuts from the authorized EEP level.
House Committee actions imply a program level of around $6.0 billion for all of
USDA’s international activities–food aid, export credit guarantees, export market
development, and export subsidies.1 The Administration’s budget estimate of a program
level of $6.45 billion for FY2003 was based on estimated spending for EEP of $478 million.
The program levels for USDA’s international activities were an estimated $6.5 billion in
FY2002, and were $5.8 billion in FY2001.
FAS Salaries and Expenses. For salaries and expenses of FAS, the House
Committee bill recommends budget authority of almost $130 million and the Senate
Committee bill $131.9 million, compared with the President’s request of $131.6 million and
the FY2002 enacted amount of $121.8 million. In addition, both Committees recommend
around $4.1 million for administrative expenses of FAS and FSA in connection with the
export credit programs.
1 Program level is an estimate of the value of all goods and services provided through USDA’s
international activities. Program level exceeds budget authority because certain significant federal
credit programs, such as export credit guarantees funded through the borrowing authority of the
Commodity Credit Corporation (CCC), do not require annual appropriations. Only administrative
expenses and loan subsidies, not the value of the loan or guarantee, require an appropriation. In
addition, CCC funded activities, such as EEP, MAP, and FMDP, which are included in program
level, do not require annual appropriations.
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Foreign Food Aid: Funding and Issues. Within the $1.491 billion of
recommended budget authority requested for discretionary programs, the House Committee
bill provides $1.357 billion for P.L. 480 (Food for Peace) programs, which have been the
main channel for U.S. foreign food aid and are the largest appropriated international USDA
program. The recommended amount is $358 million greater than the FY2002 enacted
amount and $43 million greater than the President’s FY2003 request. Compared to the
budget request, the Committee bill increases Title II commodity donations by $15 million
and Title I loans by $28 million. Within the $1.464 billion of budget authority recommended
by the Senate Committee for discretionary programs, $1.328 billion would go to P.L. 480
food aid, $29 million less than recommended by the House. One difference is that the House
Committee provided more BA for Title II food aid than requested by the President, while the
Senate Committee recommended the amount requested by the President. The budget request,
as submitted, is estimated by USDA to support 3.7 million metric tons of P.L. 480
commodity assistance to developing countries in FY2003, about the same volume as
provided in FY2002 under P.L. 480.
Despite the recommended increases in budget authority, the program level for all U.S.
food aid would decline to $1.2 billion, compared with an estimated $1.61 billion in FY2002
and $1.66 billion in FY2001. The reduction in program level is due to the Administration’s
decision to curtail sharply reliance on another food aid vehicle, Section 416(b) surplus
commodity donations. Section 416 is funded through the borrowing authority of the
Commodity Credit Corporation, and is therefore not subject to annual appropriations. The
Administration expects to use only about $50 million in Section 416 commodities (mostly
surplus nonfat dry milk) in FY2003, compared with an estimated $360 million in Section 416
commodities in FY2002 and $634 million in FY2001.
Proposed reductions in Section 416 (which in past years have not necessarily been
achieved) are rationalized by a recent Administration review of food aid that also
recommended (and is in the budget) that all programs now run through private voluntary
organizations (PVOs), cooperatives, and the World Food Program be placed in USAID, with
USDA food aid activities confined to government-to-government programs. Consistent with
this approach, the Administration shows no CCC funding in FY2003 for Food for Progress
(FFP), which provides U.S. commodities to developing countries and emerging
democracies. CCC funding of this program has averaged around $100 million annually in
recent years. Any FFP activity would be limited to government-to-government programs
under P.L. 480 Title I. Reauthorization of the FFP program in the 2002 farm bill (P.L. 107-
701), with continued reliance on CCC funding, complicates the efforts of the Administration
to phase out CCC-funded food aid programs.
The use of commodity surpluses to augment U.S. food aid has been criticized by the
European Union, Australia, and other agricultural exporting countries as an effort to
circumvent U.S. World Trade Organization (WTO) export subsidy reduction commitments.
These trading partners argue that much of U.S. food aid is being used to manage supplies
rather than to meet emergency needs and that large food aid shipments impede sales of
agricultural products by and between developing countries. The issue of food aid and
international agricultural trading rules is being pursued by U.S. trading partners in the new
round of multilateral trade negotiations launched at the end of 2001.
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No additional funding is in the FY2003 budget request for the Global Food for
Education Initiative (GFEI), a pilot school and child nutrition program begun by the Clinton
Administration and expected to cost an estimated $230 million. USDA said a decision on
continuation will hinge on the results of an evaluation. However, the new farm bill (P.L.
107-171) mandates $100 million of CCC funding to continue this program in FY2003 and
“such sums as necessary” in fiscal years 2004-2007. Finally, the Administration proposes
that all costs of the “cargo preference” law, which requires that 75% of all food aid be
shipped on U.S. flag vessels when feasible, would be borne by USDA; currently, the U.S.
Maritime Administration reimburses USDA for one-third of those costs.
Export Programs. In addition to Section 416(b) and Food for Progress, many other
USDA international programs are not subject to direct annual appropriations, and instead are
funded through CCC borrowing authority. About two-thirds of the proposed FY2003
program level, $4.058 billion, would be for CCC export credit programs, which guarantee
payment for commercial financing of U.S. agricultural exports. The export value of credit
guarantees historically has not reached the levels anticipated in budget requests due to actual
market conditions and credit needs.
U.S. export credit programs have also been raised as an issue in WTO agricultural trade
negotiations. The EU and other trading partners charge that the program has a subsidy
element (although it is much less than the subsidy represented by the EU’s export restitution
program) and gives the U.S. an unfair competitive advantage in exporting certain agricultural
commodities. The U.S. has been engaged in negotiations on export credit programs in the
Organization for Economic Cooperation and Development (OECD), but these negotiations
did not succeed and have been suspended. Any changes in the U.S. program that might
result from trade negotiations would have to withstand scrutiny by House and Senate
Agriculture Committees which strongly support the programs as they are presently
constituted.
For other CCC-funded programs, the Administration proposes $90 million for the
market access program (MAP) and $28 million for the foreign market development
cooperator program (FMDP), the same as current year funding. Both programs – which
have been expanded significantly by the 2002 farm bill (P.L. 107-701) – assist trade
associations and others to develop overseas markets for U.S. farm products. Savings from
EEP reductions were reallocated to a variety of other USDA programs. For the other export
subsidy program, the Dairy Export Incentive Program (DEIP), the President’s budget
anticipates that $63 million would be provided, reflecting maximum permitted levels under
trade obligations.
Trade Negotiations
Export subsidies are on the agenda of WTO agricultural trade negotiations now
underway. The United States has proposed that such subsidies be eliminated, while the
European Union, which opposes complete elimination of such subsidies, has conditioned its
willingness to negotiate reductions in export subsidies on the inclusion of export credits and
food aid on the WTO agriculture negotiating agenda.
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Not only the EU, but other U.S. trading partners such as Australia, Brazil, and a number
of agricultural exporting developing countries also have raised the issue of large U.S. food
aid shipments and export credit guarantee programs 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 1994 Uruguay Round Agriculture
Agreement and that export credit programs should also be curbed along with direct export
subsidies. 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 food-importing 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. On export credits, the United States, while
professing willingness to make changes in programs that would reduce the subsidy
component of such programs, has maintained that export credit programs also meet food
security needs of some importing countries.
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.
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. The
Senate Finance Committee version of fast track or trade promotion authority, however,
makes preservation of U.S. export credit guarantees a U.S. objective in agricultural trade
negotiations.
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 trade
negotiations. Both versions of trade promotion authority (TPA) legislation (H.R. 3005 passed
by the House and H.R. 3009 as passed by the Senate) make preservation of export credit
programs (and food aid) a principal negotiating objective of the United States in the current
round of WTO trade negotiations. This objective calls for eliminating agricultural export
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subsidies, but maintaining bona fide food assistance programs, and preserving U.S. market
development and export credit programs. Nevertheless, in WTO agriculture negotiations,
U.S. officials have indicated a willingness to discuss disciplines on export credit programs.
(For more information, see Agricultural Export Subsidies, Export Credits, and the
World Trade Organization, CRS Report RS20858.)
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