Agricultural Export and Food Aid Programs

Order Code IB98006 CRS Issue Brief for Congress Received through the CRS Web Agricultural Export and Food Aid Programs Updated March 9, 2006 Charles E. Hanrahan Resources, Science, and Industry Division Congressional Research Service ˜ The Library of Congress 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 FY2006 Appropriations Foreign Agricultural Service (FAS) Foreign Food Assistance Export Credit Guarantees Export Promotion and Export Subsidies FY2006 Emergency Supplemental Request The FY2007 Budget Request 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. IB98006 03-09-06 Agricultural Export and Food Aid Programs SUMMARY The U.S. Department of Agriculture (USDA) forecasts that FY2006 agricultural exports will be $64.5 billion, up from FY2005’s record $62.4 billion. FY2006 imports are forecast at $63.5 billion, also a record high, leaving the United States with an agricultural trade surplus of $1 billion. billion for emerging markets through 2007. Actual levels guaranteed depend on economic conditions and the demand for financing by eligible countries. The FSRIA also authorizes through FY2007 food aid programs including P.L. 480 Food for Peace, Food for Progress, the Emerson Trust (a reserve of commodities and cash), and a new international school feeding program. Section 416(b), permanently authorized in the Agricultural Act of 1949, can provide surplus commodities for donation overseas. Global food emergencies are putting pressure on the ability of food aid providers, including the United States, to meet estimated needs and reducing food aid available for development projects. USDA operates four kinds of international programs to promote agricultural exports or provide food aid, all authorized in the 2002 farm bill, the Farm Security and Rural Investment Act (FSRIA, P.L. 107-171), or in permanent legislation. These programs include direct export subsidies, export market development, export credit guarantees, and foreign food aid. Legislative authority for most of these programs now extends to the end of 2007. Export subsidies, but not other U.S. export and food aid programs, are subject to reduction commitments agreed to in multilateral trade negotiations. The FY2006 Agriculture and Rural Development Appropriations Act (P.L. 10997, H.R. 2744) supports $5.2 billion in export and food aid programs, funded with appropriated funds or through the borrowing authority of the Commodity Credit Corporation (CCC). The President has proposed an additional $350 million for emergency food aid, mainly for Africa, in an FY2006 supplemental appropriation request. The President’s FY2007 budget proposal estimates spending for USDA’s international activities of $5.3 billion in FY2007. Direct subsidies include the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP). EEP spending has been negligible since 1996, and DEIP spending has been declining since 2002. Market development programs include the Market Access Program (MAP) and the Foreign Market Development or “Cooperator” Program (FMDP). Considered to be non-trade distorting, these programs are exempt from multilateral reduction commitments. The FSRIA authorizes MAP spending of $200 million annually by FY2006 and sets FMDP spending at $34.5 million annually. Agricultural export subsidies, export credits, and food aid programs could be affected by the outcomes of on-going multilateral trade negotiations in the Doha Round. These programs will also be debated as Congress considers legislation to replace the 2002 farm bill which expires in 2007. The FSRIA authorizes export credit guarantees by USDA’s Commodity Credit Corporation (CCC) of up to $5.5 billion worth of farm exports annually plus an additional $1 Congressional Research Service ˜ The Library of Congress IB98006 03-09-06 MOST RECENT DEVELOPMENTS The President, on February 16, 2006, requested emergency supplemental funding for FY2006 of $350 million for humanitarian food aid (P.L. 480 title II grants) in Sudan (Darfur), Chad, and East Africa. The request is part of a $72.4 billion supplemental appropriation for military operations and intelligence in Iraq and Afghanistan. On February 6, 2006, the Secretary of Agriculture announced details of the President’s FY2007 budget for agriculture. Included in the budget is a request for $1.378 billion of budget authority for USDA’s international programs, most of which — $1.218 billion — will go for foreign food donations under P.L. 480 Title II. The World Trade Organization (WTO) meeting in Hong Kong, China, on December 1318, 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, 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. CRS-1 IB98006 03-09-06 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 $63.5 billion, also a record. Thus, if this forecast holds, the U.S. agricultural trade balance would be $1 billion. Since FY1991, high value exports (intermediate products such as wheat flour, feedstuffs, and vegetable oils or consumer-ready products such as fruits, nuts, meats, and processed foods) have outpaced such bulk commodity exports as grains, oilseeds, and cotton. In FY2005, high value agricultural exports accounted for 62% of the value of total agricultural exports. Many variables interact to determine the level of U.S. agricultural exports: income, population growth, and tastes and preferences in foreign markets; U.S. and foreign supply and prices; and exchange rates. U.S. agricultural export and food aid programs, domestic farm policies that affect price and supply, and trade agreements with other countries also influence the level of U.S. agricultural exports. Agricultural Export and Food Aid Programs The trade title of the 2002 FSRIA (Title III of P.L. 107-171) authorizes and amends four kinds of export and food aid programs: ! ! ! ! Direct export subsidies; Export market development programs; Export credit guarantees; and Foreign food aid. USDA’s Foreign Agricultural Service (FAS) administers the export and food aid programs, with the exception of P.L. 480 Titles II (humanitarian food aid) and III (food for development), which are administered by the U.S. Agency for International Development (USAID). USDA International Program Activity, FY1997-FY2004 ($ millions) Program EEP a 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006* 0 2 1 2 7 0 0 0 0 28 DEIP b 121 110 145 78 8 55 32 3 0 2 MAP c 90 90 90 90 90 100 110 125 140 200 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 2,625 3,107 P.L. 480 f 1,054 1,138 1,808 1,293 1,086 1,270 1,960 1,809 2,115 1,408 — — — — 100 50 90 103 FFEg — — CRS-2 IB98006 Program Section 416(b)h 03-09-06 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006* 0 0 1,297 1,130 1,103 773 213 173 76 0 FFPi 91 111 101 108 104 126 137 138 122 158 FASj 191 209 178 183 201 198 195 197 206 217 Total 4,423 5,697 6,693 6,000 5,854 5,944 6,004 6,245 5,408 5,257 Sources: USDA, Annual Budget Summaries, various issues. * Estimated 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; FY2005 P.L. 480 includes $377 million from the Emerson Trust. g. The McGovern-Dole International Food for Education and Child Nutrition Program (FFE)was authorized in the 2002 farm bill FY2003 funds were from the Commodity Credit Corporation; 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. CRS-3 IB98006 03-09-06 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 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 grains. 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. CRS-4 IB98006 03-09-06 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 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 CRS-5 IB98006 03-09-06 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 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. In FY2005, the major recipients were Turkey ($455 million), Mexico ($392 million), South Korea ($325 million), Russia ($294 million), and China/Hong Kong ($146 million). Guarantees facilitate sales of a broad range of commodities, but in FY2005 mainly benefitted exports of wheat, meat and poultry, 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 CRS-6 IB98006 03-09-06 facilitating sales of high-value products, the fastest growing components of U.S. agricultural exports. In FY2005, SCGP guarantees were an estimated $790 million. 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. agricultural commodities and products. In FY2005,no FGP guarantees were provided. 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 CRS-7 IB98006 03-09-06 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 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 CRS-8 IB98006 03-09-06 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 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. The program level for DEIP in FY2003 was $32 million and $3 million in FY2004. No DIEP bonuses were awarded in FY2005 and the FY2006 level is estimated at $2 million. 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 allocated the maximum amounts authorized for MAP in the 2002 farm bill for FY2002 through FY2004, but reduced MAP spending to $140 million in FHY2005. FY2006 MAP spending is estimated to be at the authorized level of $200 million. 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 FY2006. 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 $2.6 billion worth of exports in FY2005. USDA estimates that guarantees of $3.1 billion of farm exports for FY2006. 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. 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 $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, CRS-9 IB98006 03-09-06 Afghanistan, and Iraq. P.L. 480 Title II food aid for FY2005 was $2.1 billion, which includes $377 million of commodities from the Emerson Trust. 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. Following these releases, approximately 900,000 metric tons of wheat and $107 million in cash remain in the trust. 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 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. CRS-10 IB98006 03-09-06 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 CCCfunded 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 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-forcommodities 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. CRS-11 IB98006 03-09-06 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). 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. FY2006 Emergency Supplemental Request On February 16, 2006, the President requested an additional $350 million FY2006 supplemental appropriation for emergency food aid under P.L.480 Title II. The request was included as part of a $72.4 billion supplemental appropriation to finance on-going military operations in Iraq and Afghanistan. Of this food aid total, an estimated $150 million would address emergency food needs for individuals in the Darfur region of Sudan, including refugees from the violence who are in Chad. An estimated $75 million would address emergency food needs in southern Sudan and an additional $125 million would be used to meet other critical food situations, including those in East Africa. CRS-12 IB98006 03-09-06 The FY2007 Budget Request The total budget request for USDA’s international activities in FY2007 is an estimated $5.3 billion, of which $1.378 billion would require an appropriation and the rest would be funded through the borrowing authority of the CCC. The Foreign Agricultural Service (FAS) requests an appropriation of $157.5 million to administer its international programs. For P.L. 480 foreign food assistance, the Administration requests a $1.221 billion appropriation ($1.325 billion program value with carry-over and reimbursements), almost all of which — $1.218 million — would go to Title II commodity donations. The President’s budget requests no funds for P.L.480 Title I loans. Included in the request is appropriation language that would allow the Administrator of USAID to use up to 25% of Title II funds for local or regional purchases of commodities when there are food crises. Congress rejected a similar request in the FY2006 budget proposal. No request is indicated for the Bill Emerson Humanitarian Trust, which currently holds 900,000 metric tons of wheat and $107 million in cash. The budget assumes $161 million of CCC funds for the Food for Progress (FFP) program which provides food aid to emerging democracies. No funds would be available to FFP from Title I if the Administration’s request for zero funding is accepted. For the McGovern-Dole International Food for Education and Child Nutrition Program, the budget requests a $99 million appropriation, $1 million less than appropriated in FY2006. The President’s budget estimates a program level for CCC export credit guarantees of $3.2 billion. The request for CCC guarantees reflects the Administration’s decision to eliminate long-term guarantees as part of the U.S. response to an adverse WTO ruling in the U.S.-Brazil cotton dispute. USDA’s export promotion programs include the Market Access Program (MAP) for which the budget estimates spending of $100 million ($100 million less than the authorized amount). MAP primarily promotes sales of high value products. The export promotion program that mainly promotes bulk commodities, the Foreign Market Development Program, would receive $34.5 million, the farm bill authorized amount and the same as in FY2005. For export subsidy programs, the budget allocates $28 million to the Export Enhancement Program (which was $0 in FY2005, and an estimated $28 million in FY2006) and $35 million to the Dairy Export Incentive Program ($0 in FY2005, and an estimated $2 million in FY2006). The Administration requests $90 million for he Trade Adjustment Assistance to Farmers program, the maximum allowed in the 2002 Trade Act. 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 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. CRS-13 IB98006 03-09-06 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. 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. 4 For more information on Step 2 payments, see CRS Report RL32442, Cotton Production and Support in the United States, by Jasper Womach. 5 For details, see CRS Report RL33144, WTO Doha Round: The Agricultural Negotiations, by Charles E. Hanrahan and Randy Schnepf. CRS-14 IB98006 03-09-06 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. 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. CRS-15