Order Code IB98006
CRS Issue Brief for Congress
Received through the CRS Web
Agricultural Export and Food Aid Programs
Updated January 23, 2006
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 Development Programs
Market Access Program (MAP)
Foreign Market Development Program (FMDP)
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)
McGovern-Dole International Food for Education and Child Nutrition Program
The Bill Emerson Humanitarian Trust (BEHT)
Recent Program Activity
Export Subsidies
Market Development
Export Credit Guarantees
Food Aid
FY2005 Budget Developments
FY2006 Appropriations
Foreign Agricultural Service (FAS)
Foreign Food Assistance
Export Credit Guarantees
Export Promotion and Export Subsidies
Export Credit Guarantees and the WTO Cotton Case
Trade Negotiations and USDA International Programs
Note: a searchable glossary is available for many of the programs/terms discussed in this
issue brief.

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Agricultural Export and Food Aid Programs
SUMMARY
The U.S. Department of Agriculture
The FSRIA authorizes export credit
(USDA) forecasts that FY2006 agricultural
guarantees by USDA’s Commodity Credit
exports will be $64.5 billion, up from
Corporation (CCC) of $5.5 billion worth of
FY2004’s record $62.3 billion. FY2005
farm exports annually plus an additional $1
imports will be $61.5 billion, also a record
billion for emerging markets through 2007.
high, leaving the United States with an agri-
Actual levels guaranteed depend on economic
cultural trade surplus of $3 billion.
conditions and the demand for financing by
eligible countries.
USDA operates four kinds of interna-
tional programs to promote agricultural ex-
The FSRIA also authorizes through
ports or provide food aid, all authorized in the
FY2007 food aid programs including P.L. 480
2002 farm bill, the Farm Security and Rural
Food for Peace, Food for Progress, the
Investment Act (FSRIA, P.L. 107-171), or in
Emerson Trust (a reserve of commodities and
permanent legislation. These programs in-
cash), and a new international school feeding
clude direct export subsidies, export market
program. Section 416(b), permanently autho-
development, export credit guarantees, and
rized in the Agricultural Act of 1949, also
foreign food aid. Legislative authority for
provides surplus commodities for donation
most of these programs now extends to the
overseas. Food emergencies in Africa, South-
end of 2007. Export subsidies, but not other
east Asia, and North Korea are putting pres-
U.S. export and food aid programs, are subject
sure on the ability of food aid providers,
to reduction commitments agreed to in multi-
including the United States, to meet estimated
lateral trade negotiations.
needs.
Direct subsidies include the Export
The FY2006 Agriculture and Rural
Enhancement Program (EEP) and the Dairy
Development Appropriations Act (P.L. 109-
Export Incentive Program (DEIP). EEP
97, H.R. 2744) supports $6.5 billion in export
spending has been negligible since 1996, but
and food aid programs, $1.488 billion of
DEIP spending has been at the maximum
which are appropriated funds and the rest
allowed under international trade rules.
funded through the borrowing authority of the
Commodity Credit Corporation (CCC).

Market development programs include
the Market Access Program (MAP) and the
Agricultural export subsidies, export
Foreign Market Development or “Cooperator”
credits, and food aid programs could be af-
Program (FMDP). Considered to be non-trade
fected by the outcomes of on-going multilat-
distorting, these programs are exempt from
eral trade negotiations in the Doha Round.
multilateral reduction commitments. The
These programs will also be debated as Con-
FSRIA authorizes MAP spending of $200
gress considers legislation to replace the 2002
million annually by FY2006 and sets FMDP
farm bill which expires in 2007.
spending at $34.5 million annually.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
The World Trade Organization (WTO) meeting in Hong Kong, China, on December 13-
18, 2005, reached agreement on eliminating agricultural export subsidies by the end of 2013,
contingent upon eliminating other forms of subsidized export competition.
The President signed the FY2006 Agriculture, Rural Development, Food and Drug
Administration and Related Agencies Appropriations Act (P.L. 109-97, H.R. 2744) into law
on November 10, 2005. The act includes $1.488 billion in budget authority for USDA’s
discretionary international activities which include primarily foreign food aid and the salaries
and expenses of the Foreign Agricultural Service. Additional funds are available for food
aid and export-related activities through the borrowing authority of 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 43.5% of
wheat, 53.3% of rice, 43.1% of soybeans and products, 20.1% of corn, and 45.3% of cotton.
About 25% of gross farm income comes from exports. Exports also generate economic
activity in the non-farm economy. According to USDA, each $1.00 received from
agricultural exports stimulates another $1.54 in supporting activities to produce those
exports. Agricultural exports generated an estimated 912,000 full-time civilian jobs,
including 461,000 jobs in the non-farm sector in 2001.1

Nearly every state exports agricultural commodities. In 2003, the states with the
greatest shares in U.S. agricultural exports by value were California, Iowa, Illinois, Texas,
Nebraska, Kansas, Minnesota, Washington, North Dakota, and Indiana. These 10 states
accounted for 58% of total U.S. agricultural exports. In addition, Wisconsin, Arkansas,
North Carolina, Florida, Missouri, Ohio, and Pennsylvania each shipped over $1 billion
worth of commodities.
U.S. agricultural exports for FY2006 are forecast by USDA to be a record high $64.5
billion, while imports will reach $61.5 billion, also a record. Thus, if this forecast holds, the
U.S. agricultural trade balance would be $3 billion.
Since FY1991, high value exports (intermediate products such as wheat flour,
feedstuffs, and vegetable oils or consumer-ready products such as fruits, nuts, meats, and
processed foods) have outpaced such bulk commodity exports as grains, oilseeds, and cotton.
1 USDA derives these estimates from National Input-Output tables published every five years. The
next set of tables is expected to be released in 2007.
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In FY2005, high value agricultural exports accounted for 62% of the value of total
agricultural exports.
Many variables interact to determine the level of U.S. agricultural exports: income,
population growth, and tastes and preferences in foreign markets; U.S. and foreign supply
and prices; and exchange rates. U.S. agricultural export and food aid programs, domestic
farm policies that affect price and supply, and trade agreements with other countries also
influence the level of U.S. agricultural exports.
Agricultural Export and Food Aid Programs
The trade title of the 2002 FSRIA (Title III of P.L. 107-171) authorizes and amends four
kinds of export and food aid programs:
! Direct export subsidies;
! Export market development programs;
! Export credit guarantees; and
! Foreign food aid.
USDA’s Foreign Agricultural Service (FAS) administers the export and food aid
programs, with the exception of P.L. 480 Titles II (humanitarian food aid) and III (food for
development), which are administered by the U.S. Agency for International Development
(USAID).
USDA International Program Activity, FY1997-FY2004
($ millions)
Program
1997
1998
1999
2000
2001
2002
2003
2004
2005* 2006**
EEP a
0
2
1
2
7
0
0
0
28
28
DEIP b
121
110
145
78
8
55
32
3
6
52
MAP c
90
90
90
90
90
100
110
125
140
125
FMDPd
—
—
28
28
28
34
34
34
34
34
GSM
Programse
2,876 4,037
3,045
3,082
3,227
3,388
3,223
3,716
4,528
4,396
P.L. 480 f
1,054 1,138
1,808
1,293
1,086
1,270
1,960
1,809
1,491
1,230
FFEg
—
—
—
—
—
—
100
50
91
100
Section
416(b)h
0
0
1,297
1,130
1,103
773
213
173
147
151
FFPi
91
111
101
108
104
126
137
138
141
137
FASj
191
209
178
183
201
198
195
197
203
214
Total
4,423 5,697
6,693
6,000
5,854
5,940
6,606
6,121
7,006
6,467
Sources: USDA, Annual Budget Summaries, various issues; the FY2003 appropriations act; and P.L. 108-199,
the FY2004 appropriations bill.
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* Estimated
** Enacted
a. Export Enhancement Program.
b. Dairy Export Incentive Program.
c. Market Access Program.
d. Foreign Market Development Program. FY1995-FY1998 FMDP spending included in FAS appropriation.
e. GSM (General Sales Manager) Export Credit Guarantee Programs.
f. The FY2003 estimate for P.L. 480 includes $1.326 billion for regular FY2003 appropriations; $248 million
for Title II emergency assistance (after applying the across-the-board recision of 0.65%); and $369
million in the Emergency Wartime Supplemental Appropriations Act of 2003.
g. The McGovern-Dole International Food for Education and Child Nutrition Program (FFE)was authorized
in the 2002 farm bill; funds were first appropriated in P.L.108-199, the FY2004 appropriations bill.
h. Commodity value and ocean freight and transportation.
i. Includes only CCC purchases of commodities for FFP. P.L. 480 Title I funds allocated to FFP are included
in P.L. 480.
j. Foreign Agricultural Service.
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, at its inception, 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 of all EEP bonuses which now exceed $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
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subsidies fall by 36% and the quantities subsidized by 21% over six 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 was reauthorized most recently in the FSRIA of 2002.

EEP has been controversial since its initiation 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 unsubsidized commodities such
as corn.
Dairy Export Incentive Program (DEIP). DEIP, most recently reauthorized in the
commodity program title, not the trade title, of the 2002 farm bill, 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.

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.
Market Development Programs
USDA operates two market development 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
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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).
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 (FMDP). The FSRIA also reauthorizes
this program through FY2007 with annual funding of $34.5 million. This program, which
began in 1955, is like MAP in most major respects. Its purpose 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 FMDP
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,
FMDP is exempt from Uruguay Round Agreement reduction commitments. Unlike MAP,
which is more oriented toward consumer goods and brand-name products, FMDP is oriented
more toward bulk commodities.
Some of the same issues raised with respect to MAP are also raised about FMDP 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.
Export Credit Guarantees
The FSRIA reauthorizes through FY2007 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.
Export Credit Guarantee Programs (GSM-102 and GSM-103). GSM-102
guarantees repayment of short-term financing (six months to three 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
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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 of $5.5 billion worth of
agricultural exports annually through FY2007, 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.
The biggest recipients of export credit guarantees have been Mexico, South Korea, Iraq,
Algeria, and the former Soviet Union (FSU). Iraq currently is in default of more than $3
billion of previously extended guarantees. Republics of the FSU, because they are less
important as commercial markets for U.S. agricultural exports, are no longer major
beneficiaries. In FY2004, the major recipients were Mexico ($675 million), South Korea
($457 million), Turkey ($396 million), Russia ($200 million), China/Hong Kong ($69
million), and Algeria ($35 million). 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 guarantee credits under GSM-102 for two other programs: Supplier Credit
Guarantee Program (SCGP) and the Facilities Guarantee Program (FGP). Under SCGP, 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, although the FSRIA
permits guarantees of up to 360 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. In FY2005, SCGP guarantees were an estimated $1.1 billion.
The FGP is also carried out under the GSM-102 program. In this activity, the CCC will
provide guarantees to facilitate the financing of goods and services exported from the United
States to improve or establish agriculture-related facilities in emerging markets. Eligible
projects must improve the handling, marketing, storage, or distribution of imported U.S.
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agricultural commodities and products. In FY2004, FGP guarantees were an estimated $10
million.

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 through FY2007 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 2002 farm bill also establishes a new food aid program, the McGovern-Dole
International School Feeding and Child Nutrition Program, which replaces a pilot activity,
the Global Food for Education Initiative, established in 2000 by the Clinton Administration.

P.L. 480 Food for Peace. P.L. 480, the Agricultural Trade Development and
Assistance Act of 1954, has three food aid titles. Title I, Trade and Development Assistance,
provides for long-term, low interest loans to developing and transition countries and private
entities for their purchase of U.S. agricultural commodities. 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).
A five-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 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 P.L. 480 legislation identifies private voluntary organizations (PVOs),
cooperatives, and intergovernmental organizations (such as the UN World Food Program)
as organizations eligible to carry out Title II non-emergency programs, including in countries
where USAID does not maintain a mission. FSRIA authorized funding to pay project or
administrative and other costs of eligible organizations at 5% to 10% of annual Title II
funding. A minimum of 15% of non-emergency Title II commodities can be monetized (i.e.,
sold for local currencies or for dollars). Monetization enables PVOs and coops to defray the
costs of distributing food or implementing development projects in countries where they
operate. 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 (75%) is
to be channeled through the eligible organizations. This mandate can be waived by the
USAID Administrator in cases of emergency need.
Section 416(b). This program, authorized in permanent law and administered by
USDA, provides for the donation overseas of surplus agricultural commodities owned by
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the CCC. This component of food aid is the most variable because it is entirely dependent
on the availability of surplus 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, first 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). The CCC may also
purchase commodities for use in FFP programs if the commodities are currently not held in
CCC stocks. Organizations eligible to carry out FFP programs include PVOs, cooperatives,
and intergovernmental organizations such as the WFP. The 2002 FSRIA, as amended by
P.L. 108-7, requires that a minimum of 400,000 metric tons of commodities be provided in
the FFP program.
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 mandated CCC funding
of $100 million for the program in FY2003 and authorizes appropriations of “such sums as
necessary” from FY2004 to FY2007. McGovern-Dole replaces the pilot Global Food for
Education Initiative discussed below. By decision of the President, as mandated by the 2002
farm bill, USDA, rather than USAID, administers this program.
The Bill Emerson Humanitarian Trust (BEHT). The 2002 farm bill reauthorizes
the BEHT, enacted in the 1998 Africa Seeds of Hope Act (P.L. 105-385). The BEHT
replaced the Food Security Commodity Reserve established in the 1996 farm bill and its
predecessor, the Food Security Wheat Reserve of 1980. Not technically a food aid program,
the trust is primarily a reserve of up to 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. Since 1980, the only commodity held in
reserve has been wheat. The trust can also hold cash in reserve.
Recent Program Activity
Export Subsidies. Although almost always under some pressure from interested
commodity groups to use EEP more extensively, USDA has limited its scope and funding
since 1995. The rationale for not using EEP is based on the argument that using it might
depress world market prices for eligible commodities. Some analysts say that not using EEP
also strengthens the U.S. hand in on-going WTO agriculture negotiations where a major 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
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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 were awarded in FY2000.
For FY2001, $7 million of EEP bonuses were awarded. No EEP bonuses were awarded in
FY2002 through FY2005.
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 world
market conditions for skim milk powder. The program level for DEIP in FY2003 was $32
million and is estimated to be just $3 million in FY2004, and $6 million in FY2005.
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 has allocated the maximum amounts authorized for MAP
in the 2002 farm bill for FY2002 through FY2005.
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 allocated the farm-bill
authorized amount of $34.5 million for the program in FY2002 through FY2005.
Export Credit Guarantees. For FY2003 export credit guarantees financed an
estimated $3.2 billion of U.S. agricultural exports. FY2004 guarantees financed $3.7 billion
of U.S. farm exports and are estimated to finance $4.5 billion worth of exports in FY2005.
The amounts of credit guaranteed each year depend on the demand for guaranteed financing
of U.S. agricultural commodities by eligible borrowing countries.
Food Aid. Food emergencies in Africa and more recently in the Indian Ocean in
connection with the December 26, 2004 earthquake and tsunami have resulted in a global
shortfall in emergency food needs, according to the U.N. World Food Program. Unmet
emergency food needs have led some in Congress to propose that P.L. 480 Title II emergency
food aid and funds available to the Emerson Trust be augmented. Private voluntary
organizations and others have also suggested that food aid funds diverted from non-
emergency development projects to emergency response be restored in annual appropriations
or emergency supplemental measures. To meet emergency food needs in countries affected
by the Indian Ocean tsunami, P.L. 480 Title I and II commodities have been reallocated to
emergency food assistance.
P.L. 480 food aid averaged around $1.1 billion from 1996 to 1998. In FY1999,
however, more than $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 included approximately
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$700 million of Title I food aid for Russia, which was financed by a transfer of funds from
the CCC. The FY2000 program level for P.L. 480 was $1.3 billion, while FY2001 P.L. 480
spending was $1.086 billion and the FY2002 program level was $1.270 billion, including
Emerson Trust releases valued at $175 million. In FY2003, the food aid program level
spiked again as Congress appropriated more than $1.8 billion for emergency humanitarian
assistance under P.L. 480 Title II to meet emergency needs in Africa, Afghanistan, and Iraq.
P.L. 480 food aid for FY2005 is estimated at $1.346 billion.

Commodity donations under Section 416(b) were $213 million (commodity value and
ocean freight and overseas distribution costs) in FY2003, consisting of surplus nonfat dry
milk. In contrast, Section 416(b) donations averaged about $1 billion a year from FY1999
to FY2002. Such large donations were made possible following CCC purchases of over 8
million metric tons of surplus wheat and wheat flour in FYs 1999 and 2000.
Around $300 million of Section 416(b) commodities and CCC funding were used to
launch a global food for education initiative (GFEI) in July 2000. Under the GFEI, USDA
donated agricultural commodities for use in school feeding and pre-school nutrition projects
in developing countries. USDA-approved projects were implemented by the UN World
Food Program (WFP), private voluntary organizations, and eligible foreign governments.
The GFEI was superseded by the McGovern-Dole International School Feeding and Child
Nutrition Program authorized in the 2002 farm bill.
Emerson Trust. The Secretary of Agriculture announced releases from the trust of
275,000 tons of wheat on June 10, 2002 and 300,000 tons of wheat on August 28, 2002.
The wheat from the reserve was exchanged for an equal value of corn, beans and vegetable
oil for use in humanitarian relief in southern Africa, where an estimated 14.4 million people
needed emergency food aid to compensate for severe food shortages and stave off famine
through much of 2003. In FY2003, the Secretary announced releases of 200,000 metric
tons for emergency food needs in Eritrea and Ethiopia and 600,000 metric tons for
emergency needs in Iraq. Of the announced releases, only about half, 400,000 metric tons,
were used. Partial replenishment of the trust was addressed in the FY2003 Emergency
Wartime Supplemental Appropriations Act. There were no releases from the trust in FY2004.
On December 3, 2005, the Secretary of Agriculture and the Administrator of USAID
announced the release of 200,000 metric tons of wheat from the trust for emergency food
relief to western Sudan. On June 7, 2005, the President announced that $250 million
(500,000 metric tons) of Emerson trust commodities would be used to meet emergency needs
in Africa. Prior to this announcement, 1.4 million metric tons of wheat and $107 million
remained in the trust.
FY2005 Budget Developments
For USDA’s international activities that require an appropriation (discretionary
programs), the FY2005 Consolidated Appropriations Act (P.L. 108-447, H.R. 4818)
provided $1.533 billion, $29.8 million more than enacted in FY2004. Much of the increase
is accounted for by an increased appropriation for the McGovern-Dole International Food
for Education Program (see below). The final total for USDA’s international activities is
$12.3 million more than requested by the President. The Administration has estimated that
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the combined total of discretionary and mandatory programs for FY2005 would be $6.6
billion, up $183 million from the FY2004 Administration estimate.
FY2006 Appropriations
Title V of FY2006 appropriations legislation (P.L. 109-97,H.R. 2744) provides $1.488
billion in budget authority for USDA’s discretionary international activities (primarily
foreign food aid and salary and expenses of the Foreign Agricultural Service). The food aid
budget authority provided in P.L.109-97 reflects a rejection by both chambers of the
President’s proposal to purchase emergency food aid commodities in markets near to
countries in need rather than from U.S. producers by shifting funds from P.L. 480 to a U.S.
Agency for International Development (USAID) disaster and famine assistance fund.2
USDA’s international activities also include those funded through the borrowing
authority of the Commodity Credit Corporation (CCC). Included in this category are some
additional food aid programs, export credit guarantees, market development programs, and
export subsidies. USDA estimates that the total program value of discretionary and CCC-
funded international activities for FY2006 would be more than $6 billion. Export subsidies,
export credit guarantees, and food aid, but not export market promotion, are subjects in
agriculture negotiations in the ongoing Doha Round of multilateral trade negotiations of the
World Trade Organization.
Foreign Agricultural Service (FAS). The appropriations Act provides $147.9
million for FAS. This amount is $11.2 million more than enacted in FY2005, but very close
to the President’s FY2006 budget request.
Foreign Food Assistance. For P.L. 480 foreign food aid programs, the Act
provides $1.230 billion. This amount of budget authority includes $77 million for P.L. 480
Title I (long-term, low-interest loans to food deficit countries for the purchase of U.S. food
commodities) and $1.150 billion for P.L. 480 Title II (humanitarian donations for emergency
relief and non-emergency development projects). The P.L. 480 Title II appropriation is $265
million more than requested in the President’s budget. These amounts and the other
discretionary components of Title V are subject to a 1% recision (as provided in the FY2006
Defense Appropriations measure, P.L. 109-148).
The President’s FY2006 budget request contained a proposal to shift about $300 million
from P.L. 480 Title II to USAID’s International Disaster and Famine Assistance account,
which is administered separately from Title II. The funds would have been used to purchase
food for emergency relief in markets closer to their final destinations rather than in the
United States as required under P.L. 480. The Administration maintained that so doing
would make for more timely and more cost-effective responses to emergency food needs.
The proposal, however, proved controversial with farm groups, agribusinesses and the
maritime industry who supply and ship commodities for Title II and with private voluntary
2 See CRS Report RL32919, Foreign Operations (House)/Foreign Operations and Related
Programs (Senate): FY2006 Appropriations, by Larry Nowels and Susan B. Epstein for a discussion
of the disaster assistance and famine account.
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organizations (PVOs) who rely on food aid to carry out development projects in poor
countries. PVOs sell (or “monetize”) a substantial portion of food aid commodities in order
to finance their development projects. Both chambers rejected the President’s cash-for-
commodities food aid proposal. Despite some expectations to the contrary, there were no
Senate amendments to the conference report that would have provided some or all of the
$300 million requested by the President for purchase of non-U.S. commodities for famine
relief. The conference report accompanying H.R. 2744 addresses the issue of converting a
portion of P.L. 480 commodity food aid into cash by stating: “The conferees ... admonish the
Executive Branch to refrain from proposals which place at risk a carefully balanced coalition
of interests which have served the interests of international food assistance programs well
for more than fifty years.” During House committee deliberations, amendments offered by
Representative Jesse Jackson, Jr., to augment P.L. 480 Title II emergency food aid by $393
million and $78 million, respectively, were defeated.
For the McGovern-Dole International Food for Education and Child Nutrition
Program, the conference report includes an appropriation of $100 million, an amount
recommended in both House- and Senate-passed measures. This level of budget authority
is $13.2 million more than appropriated in FY2005.
Other food aid activities, largely funded by CCC-borrowing, include the Food for
Progress Program (FFP), Section 416(b) commodity donations, and the Bill Emerson
Humanitarian Trust (BEHT). The President’s budget estimates that $137 million of CCC
funds would go to the Food for Progress (FFP) program. Additional FFP monies would be
available from the funds appropriated to P.L. 480 Title I. The budget anticipates that $151
million of CCC-owned nonfat dry milk, about 75,000 metric tons, would be available for
food aid programming under Section 416(b) of the Agricultural Act of 1949. No program
level is indicated in the President’s budget for the BEHT. Section 738 of Title VII (General
Provisions) of the House bill limits to $20 million the amount of FY2005 P.L. 480
appropriations that may be used to reimburse the CCC for the release of commodities from
the BEHT.
Export Credit Guarantees. The President’s budget estimates a program level for
export credit guarantees during FY2006 of $4.4 billion, none of which would receive a
discretionary appropriation. Most guarantees — an estimated $3.4 billion — are for
commercial credits with short-term repayment terms (up to three years). Another $1 billion
would be guarantees for supplier credits where short-term financing is extended directly to
importers for the purchase of U.S. agricultural products. P.L. 109-97 provides $5.3 million
to FAS and to the Farm Service Agency to administer the export credit guarantee programs.
Export Promotion and Export Subsidies. The President’s budget provides CCC
funding of $125 million for MAP, $15 million less than the FY2005 level and $75 million
less than authorized in the 2002 farm bill. A Chabot amendment to prohibit funds from
being used to carry out MAP activities failed by a recorded vote of 66 to 356. For FMDP,
the budget allocates $34.5 million, the same as in FY2005; the Senate bill’s report (S.Rept.
109-92) instructs FAS to fund FMDP at no less than the FY2005 level.
For export subsidy programs, the budget allocates $28 million to the Export
Enhancement Program (EEP) and $52 million to the Dairy Export Incentive Program (DEIP).
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The President’s budget request also included $90 million for Trade Adjustment Assistance
to Farmers, the maximum amount allowed in the authorizing statute, the 2002 Trade Act.
Under this program, USDA makes payments to farmers when the current year’s price of an
agricultural commodity is less than 80 percent of the five-year national average and imports
have contributed importantly to the decline in price.
Export Credit Guarantees and the WTO Cotton Case
On March 3, 2005, a World Trade Organization (WTO) Dispute Appeals Panel ruled
against the United States in a dispute brought by Brazil against certain aspects of the U.S.
cotton program.3 The WTO panel found that the GSM-102, GSM-103, and SCGP export
credit guarantee programs effectively functioned as export subsidies because the financial
benefits returned to the government by these programs failed to cover their long-run
operating cost. Furthermore, the panel found that this applies not just to cotton, but to all
recipient commodities that benefit from U.S. commodity support programs.
The panel also found that certain payments (called Step 2 payments), authorized as part
of special cotton marketing provisions in U.S. farm program legislation to keep U.S. upland
cotton competitive on the world market, were prohibited subsidies.4 Step 2 payments are
made to exporters and domestic mill users to compensate them for their purchase of U.S.
upland cotton, which tends to be priced higher than the world market price. Payments to
exporters were found to be “contingent upon export performance” and therefore qualified as
prohibited export subsidies in violation of WTO commitments. Payments to domestic users
were found to be “contingent on the use of domestic over imported goods” and therefore
qualified as prohibited import substitution subsidies.
On July 5, 2005, U.S. Secretary of Agriculture Johanns announced a number of changes
intended to bring the United States into compliance with the WTO cotton ruling, including
removal of a 1% cap on fees charged under the GSM-102 export credit guarantee program,
termination of the GSM-103 export credit guarantee program, and elimination of the Step
2 program. The announced changes in the export credit guarantee programs can be made
administratively, but changes in the Step 2 program require legislation. Pending budget
reconciliation legislation (S. 1932, the Deficit Reduction Act of 2005) eliminates Step 2 by
August 1, 2006. Brazil has requested the imposition of WTO-sanctioned retaliatory trade
measures against the United States, which it must do within certain time limits or lose its
right to seek retaliation. If retaliation is authorized, the United States could request
arbitration of the amount granted by the WTO.
3 For a detailed discussion of the U.S. response to the WTO cotton panel’s decision, see CRS Report
RS22187, U.S. Agricultural Policy Response to WTO Cotton Decision; and for a detailed discussion
of the U.S.-Brazil WTO dispute settlement case, see CRS Report RL32571, Background on the U.S.-
Brazil WTO Cotton Subsidy Dispute, both by Randy Schnepf.
4 For more information on Step 2 payments, see CRS Report RL32442, Cotton Production and
Support in the United States, by Jasper Womach.
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Trade Negotiations and USDA International Programs

U.S. agricultural export and food aid programs could be affected by ongoing WTO
agricultural trade negotiations. WTO member countries on December 18, 2006, reached
agreement on a date certain — 2013 — for eliminating agricultural export subsidies in the
current multilateral trade round known as the Doha Development Agenda (DDA).5 This
agreement was the most concrete outcome of the WTO’s Hong Kong Ministerial Conference.
The European Union (EU), the largest user of export subsidies, had opposed setting an end
date, maintaining that WTO members needed to determine first how other forms of
subsidized export competition — export credit programs, insurance, export activities of State
Trading Enterprises (STEs), and food aid — would be disciplined. The United States and
Brazil among others had been demanding agreement on an end to such export subsides by
2010 with subsequent negotiations on other forms of export completion. As a compromise,
the Hong Kong declaration calls for the parallel elimination of all forms of export subsidies
and disciplines on measures with equivalent effect by the end of 2013. The end date for
export subsidies will be confirmed, however, only after agreement on how to discipline the
other forms of export subsidies.
With respect to other forms of export competition, the Hong Kong ministerial
declaration included the following:

! Export credit programs should be “self-financing, reflecting market
consistency, and of a sufficiently short duration so as not to effectively
circumvent real commercially-oriented discipline”;
! Disciplines on exporting STEs will be such that their “monopoly powers
cannot be exercised in any way that would circumvent the direct disciplines
on STEs on export subsidies, government financing, and the underwriting
of losses”; and
! On food aid, a “safe box” will be established for “bona fide” food aid “to
ensure there will be no impediment to dealing with emergency situations.”
However, disciplines will be established on in-kind food aid, monetization,
and re-exports to prevent loopholes for continuing export subsidization
leading to elimination or displacement of commercial sales by food aid.
The elimination of EU export subsidies has been a long-standing objective of U.S.
agricultural trade policy, as has requiring greater transparency in STEs such as the Canadian
Wheat Board. The Trade Act of 2002 (P.L. 107-210) calls for eliminating agricultural export
subsidies, but makes preservation of export credit programs and food aid a principal
negotiating objective.
April 30, 2006, is the target date for agreeing on specifics in the Doha Round
negotiations on agriculture, including new disciplines on export credits and food aid. U.S.
5 For details, see CRS Report RL33144, WTO Doha Round: The Agricultural Negotiations, by
Charles E. Hanrahan and Randy Schnepf.
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PVOs who monetize in-kind food aid commodities to finance projects in developing
countries are concerned that new WTO disciplines aimed at preventing commercial
displacement could limit their ability to do development work.
Any changes in farm bill export and food aid programs made necessary by a DDA trade
agreement would be debated if and when Congress took up legislation to implement the
agreement. Conclusion of the DDA negotiations could also occur as Congress begins
deliberation on a farm bill to replace the 2002 FSRIA. DDA implications for export
subsidies, export credit guarantees, and food aid programs could thus also be taken up during
the debate on the next farm bill.
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